(New throughout, adds background, details of Anfavea estimates, sales figures by brand, comment from industry group leader)
By Aluisio Alves
SAO PAULO, June 8 (Reuters) - Brazil's auto industry is expecting this year's downturn to be its worst since 1998, according to estimates on Monday by national automakers association Anfavea, which slashed its 2015 outlook for the second time in two months.
Auto production is likely to drop 17.8 percent from last year, Anfavea said, steeper than the 10 percent drop it forecast in April. The group expects domestic sales to plunge 20.6 percent this year, a much sharper tumble than the previous forecast for a 13 percent drop.
Sliding consumer confidence and rising interest rates have battered the Brazilian auto market, which was recently the world's fourth biggest. President Dilma Rousseff has also withdrawn subsidies in a recent austerity push, deepening the industry's crisis and triggering thousands of layoffs.
Carmakers have trimmed payrolls by 9 percent in the past twelve months and they still have plenty of room to cut, according to Anfavea President Luiz Moan.
"Automakers clearly have an excess of labor," Moan told journalists, adding that about 25,000 workers are on some kind of furlough, equal to about one in six industry jobs.
The last downturn of this scale was in 1998, when automakers in Brazil cut about 19 percent of their workforce in the midst of a sharp recession. Auto output plunged 23 percent that year and sales fell 21 percent.
May data, also released on Monday, confirmed that production and sales of cars, trucks and buses had stagnated around 10,000 vehicles per day, down sharply from recent boom years.
Output in May slipped 3.4 percent from April and sales dropped 3.0 percent.
The downturn has pummeled the profitability of major global automakers in the country, including Fiat Chrysler Automobiles NV, Volkswagen AG, General Motors Co and Ford Motor Co.
According to Anfavea data, Fiat remained Brazil's top seller of cars and light trucks in May, with about 36,100 new registrations. GM held on to second place with around 30,600 sales, just ahead of VW's nearly 30,300 new registrations. Ford sold around 23,300 vehicles. (Writing and additional reporting by Brad Haynes; Editing by David Gregorio)