Asian car industry in turmoil

Carmakers are hoping for a boom in the Far East

Asia's car industry is in deep trouble - so it is ironic that the world's carmakers are pinning their hopes on the growth of the region's market for cars.

Western car firms hope to build their presence in Asian markets such as India and China where there is a rapidly expanding number of people who can afford to buy a car.

Firms such as Renault, General Motors and Ford are eagerly positioning themselves in the marketplace in a bid to cash in on an expected future sales boom.

But in the short-term, these markets are unlikely to offer any support for cash-strapped car companies.

Tough times

Car sales in the Far East have long been projected to experience fast growth, but were unexpectedly set back by the Asian financial crisis.

Now, a belief in booming Asian car sales has returned, highlighted by the recent pro-activity of foreign companies in these markets.

But with so many foreign companies aiming at one goal, the competition threatens to stifle the fledgling markets.

Everybody is pitching in, but plenty of them are going to drop out in the longer term.

Prof. Karel Williams,
University of Manchester

Over-capacity in the car industry - where producers can make more cars than customers want to buy - is the biggest problem facing the car industry.

Many car makers have teamed up in order to cut costs, especially the sky-high costs of developing new technologies.

Slowly does it

Sales progress is likely to be slow.

Japan itself is only just emerging from recession.

Car sales in Japan are only creeping marginally higher, rising by 2.3% in the first nine months of last year.

And the number of cars imported during that same period did not get a corresponding boost, falling by almost 2%.

And the desire of foreign firms to form alliances in Japan is driven by cheaper production facilities in the Far East rather than expectations of domestic growth.

"Nobody has made any money out of the Japanese markets for the last ten years, and that includes Toyota," Professor Karel Williams of the University of Manchester told BBC News Online.

A spokesman from Ford Motors tells BBC News Online that it is likely to take a couple of years until improved performances from the Asian markets begin to have a positive impact on the company's global performance.

Eying new markets

Ford confirmed that it is keeping a close watch on the growth of all developing markets but refused to specify growth targets.

Ford is carefully watching the Far East markets

The US' second biggest car manufacturer already has a strong presence in Japan through its wholly owned subsidiary Mazda, the third biggest car producer in Japan.

And it was recently rumoured to be in talks with Japan's biggest player, Toyota.

But Toyota played down the talks, denying the possibility of forming a strategic alliance.

Toyota - which has announced plans to switch some production from Japan to the UK - has also been struggling to find ways of cutting costs, hence the rumours that it will forge an alliance with Ford.

Ford is also involved in joint venture expansion projects with local partners in India, China and Indonesia and will complete a production plant in China within the next two years.

Targeting hotspots

France's Renault also won itself an important foothold in the Asian markets in November, through a strategic alliance with Japan's second biggest car producer Nissan, while Germany's DaimlerChrysler has forged an alliance with Mitshibushi.

Renault has also realised ambition in Korea, winning a controlling stake in Samsung Motors and becoming the first foreign company to take-over a Korean automaker.

India and China are the most valuable of Asia's future hotspots as they both have fast growing middle classes who can afford a car for the first time.

But it is not clear to what extent these countries will embrace the hungry US firms who are restricted to forming joint ventures with local firms, rather than establishing wholly owned subsidiaries.

Shunning Daewoo

Daewoo's car production plants are up for grabs

But despite the recent run of foreign investment in the Far East markets, there has been a marked reluctance to snap up South Korea's Daewoo which was declared bankrupt in November.

Both Ford and DaimlerChrysler have pulled out of the running, shying away from debt burdens which could have proved overwhelming.

The world's largest car producer General Motors was thought to be talking to Daewoo several months ago, but a deal is yet to emerge.