>From Indonesia's burning forests to Thailand's downward spiraling baht to Japan Inc.'s slippery slide to Hong Kong's plunging stock markets - Asia/Pacific's boom times turned to bust in the economic meltdown of late 1997.

"It was a horrible year," says Linda Yuen-Ching Lim, director of the Southeast Asia Business Program at the University of Michigan School of Business. "And next year should be just as bad, if not worse."

Asia still will be one of the world's largest growing vehicle markets in 1998, but it will be a rough ride. No one is sure how long the region's financial convulsions will last. Analysts say to expect growth but at a much slower pace. Look for increased competition as foreign automakers complete joint-venture commitments and new domestic companies come on line. Overcapacity will remain an issue, but look for attempts at improved economies of scale.

Technological weakness in the supplier base will persist in developing markets until enough global suppliers locate to the region. Trade imbalance issues will be ongoing, but expect local content cuts. Watch for exchange rate instability to continue.

China's passenger car sales were up this year and are expected to grow in 1998. But vehicle sales in Thailand - Southeast Asia's largest vehicle market - will continue to fall. Sales are predicted to tumble 39% from 590,000 units in 1996 to 360,000 by 1997's end. Some manufacturers, such as Nissan Motor Co. Ltd. and AB Volvo, which depend on sales within the country, have temporarily closed factories there. Other Japanese carmakers are propping up local suppliers by importing their goods into Japan.

Analysts saw trouble on the horizon as '96 car sales began to dip in the region, but no one predicted that this year would be quite so onerous. They expected a certain cooling off of the developing tigers, but few anticipated the wave of instability Japan's new consumption tax would wreak on that nation's teetering economy.

Few were able to foresee the Thai baht's plunge of more than 40%, nor the damaging domino effect suffered by neighboring Indonesia, Malaysia and the Philippines, followed by Hong Kong's stock market crash. Few predicted crippling labor strikes in South Korea and the fall of an over-leveraged Kia Motors Corp., as it raced to save itself from bankruptcy triggered by $10 billion in unpaid loans.

And few guessed how dire the relationship in India would become between government-owned Maruti Udyog Ltd. and partner Suzuki Motor Corp. - which together hold an 82% market share - over Maruti's choice of a joint-venture director. Suzuki is holding firm heading into 1998, despite pressure to exit the JV and the country.

Nor was the rift between PSA Peugeot Citroen and its Indian partner expected to turn so sour, losing $35 million in three years. The French automaker's woes mark a second blow for Peugeot's Asia strategy, as it seeks to divorce its Chinese partner after 10 years of making cars in Guangzhou.

Asia "is the most interesting part of the world for doing business, with the most uncertainty," says David E. Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan.

While such prognoses might scare the weak, U.S. automakers intend to follow through on long-term investment plans. Ford Motor Co. is not pulling back from any of its expansion plans in China, India, Malaysia, Vietnam and Thailand - investments totaling about $1 billion (see story, p.73).

General Motors Corp. has temporarily halted construction of its $750 million Opel Astra plant in Thailand, but still expects a scaled-down plant to open. It is proceeding with its $1.5 billion Buick joint venture plant, to open in China next year. GM Chairman John F. Smith Jr. says he's optimistic, despite the devaluations.

Francois Castaing, head of Chrysler Corp.'s international operations, says that while devaluation of the Thai baht hurt local partners as well as sales in the region, the automaker is taking a wait-and-see attitude. Chrysler, meanwhile, is giving serious consideration to introducing its plastic Composite Concept Vehicle, unveiled in Frankfurt, in India and, eventually, in China.

Auto analysts say that overall economic fundamentals are not bad in the Asia/Pacific region. Others liken doing business there to a high-wire act on a windy day. It certainly is a region where capability is as important as capital. But in truth, Asia/Pacific is not one homogenized region; rather it's made up of very distinct countries, with very distinct governments, needs and markets.

Yet, while most governments are cutting budgets, they are not cutting car programs. "If you want to be there, these countries will grow, and we know cars will be made," Ms. Lim says. "The question is, by whom?"