ACEA, the body responsible for researching market trends in the automotive industry, found year-on-year production has dropped by 17 per cent, and was now 23 per cent lower than pre-recession figures from 2007.
Further struggles have been predicted for manufacturers and the 2.2 million workers directly employed by the industry, according to ACEA.
The main worry is the ending of scrappage schemes in 13 EU countries. Sales of passenger vehicles fell by only 1.3 per cent in 2009 due to the increased demand created by the schemes.
The ACEA reported an increase in demand for low CO2 vehicles and smaller city cars and superminis, probably as a result of the successful scrappage schemes.
Sub-120g/km cars now hold a market share of 25 per cent, the equivalent of 3.2 million cars, while city cars and superminis increased their market share by 6 per cent to 45 per cent in 2009.
However, passenger car production dropped by 13 per cent, the sharpest fall in production since 1996.
ACEA has now warned the hole in demand left by the ending of the scrappage schemes and low production levels could cause problems for manufacturers in 2010.
In total, 15.2 million vehicles were produced in 2009, although truck production dropped to an all-time low during the last 12 months.
The UK, home of Nissan and Vauxhall plants among others, was the fourth biggest producer with more than one million units, although production decreased by 33.9 per cent.
Germany topped the production table despite a 13.8 per cent decrease, while Austria suffered the greatest drop in production of 52.6 per cent.
The Czech Republic and Slovenia were the only countries to see production increase during the last year.