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THE BIG PICTURE: Chasing Chinese

"Forget Europe and America – the real growth market is South-east Asia. Every global manufacturer is diverting its resources to China and Japan as these two massive markets open up to foreign investment.

The Western European market is going through a period of stagnation. Sales to the end of November were down 1.3%. Just nine of the 18 countries were up, among them the UK, which ended 2003 on a 12-month record of 2.57 new cars.

Nearly every European manufacturer is feeling the pinch. S&P downgraded DaimlerChrysler's long-term rating to BBB just before Christmas, while VW Group is tightening the financial reins after huge capital expenditure on new products. Its cross utilisation on Audi/ VW/Seat/Skoda models has helped sales of the two lessor brands improve – in Europe, Seat is up year-to-November by 0.9%, Skoda by 1.1%; VW and Audi, meanwhile are down 5.1% and 1.8% respectively – but the strategy has not yet achieved the expected cost savings.

Japanese carmakers are adding to the ills of domestic carmakers. Their sales to November are up 9% for a 12.7% share of the market. In fact, the only Japanese manufacturer not to increase year-on-year sales is Mitsubishi, which is down 3.6%. In contrast, of the European carmakers, just Skoda, Seat, Citroen and Saab are up.

It's not just the Europeans that are in trouble; the American duo of Ford and General Motors are under pressure in their home markets (Japanese carmakers now take 28%), and across the world. Ford is likely to lose its No 2 spot to Toyota this year.

"The Europeans and Americans hope to reverse that infliction in the ballooning South-east Asian market – new car sales in China, for example, are up 70% year-on-year - but simply investing millions of pounds will not guarantee success. The Japanese carmakers have the edge on pricing and build quality.

Several marques have already resorted to spoiling tactics that have been honed in Europe and the US: overproduction and discounting. That strategy is conspiring to slash margins in the Far East and will impact on the home producers. How they react to this new type of pressure will determine how the Asian markets develop.

Japan and China might be growing, but it is unlikely they will become the cash cows that many European and American carmakers hope.

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