No matter what subsidies Washington provides, the US auto industry as we know it is finished. In the next two or three years, at least one — and maybe more — of the major Detroit automakers will vanish, whether the end comes through bankruptcy or merger. Fiat recently agreed to take a 35% stake in Chrysler in a move designed to strengthen both automakers.

The current recession is so severe that automakers have suffered irreparable damage. As recently as the spring of 2008, Americans were buying cars at an annual rate of 15 million vehicles. Now the annual rate has dropped by more than 30%, to 10 million, and it will be years before we get back to an annual rate of 15 million vehicles. The auto industry will have to continue shrinking.

Some industry executives hoped that the recent decline in oil prices would juice car sales, but rising unemployment has made consumers wary. I expect that as the credit crisis unfolds, employment will drop by 300,000 a month for the next year. Because of the caution of employers, we will have poor job markets for several years.

When the economy revives, US automakers are not likely to see a big rebound. Because of their lower manufacturing costs and better quality, foreign automakers, such as Toyota and Honda, will continue taking market share.

The collapse of the American auto industry is part of the overall decline of US manufacturing. For years, manufacturing of clothing, cars and other goods has been moving overseas. At the same time, surviving US factories have become more efficient, requiring fewer workers.

While millions of employees have been hurt by the demise of US manufacturing, the overall economy has been helped by the rise of the service sector. The number of employees in manufacturing has dropped from 18 million in 1980 to 13 million now. Meanwhile, the number of service jobs has grown from 66 million to 115 million.

Among the fastest-growing areas have been education and health. The number of jobs in those sectors has increased from seven million in 1980 to 18 million now. The health sector will continue expanding as the population ages. Demand for education will grow as the economy requires more specialized skills.

Investors should pay close attention to these long-term shifts. Avoid stocks of automakers and their suppliers, such as tire producers.

Instead, focus on companies that can benefit from the growth in health and education, including those that are developing new drugs and medical imaging technology… textbook publishers… and companies that supply schools with food and Internet services.

In addition, the economic stimulus program planned by the Obama administration should benefit producers of equipment and supplies used for constructing highways and buildings.

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