Asia/Pacific automakers already were looking to the future with cautious optimism, aware that things could get worse before they got better. Now the fallout from the Sept. 11 terrorist assault on the U.S. has the region bracing for a definite downturn.

Well beforehand, road signs were indicating a slowdown. Ripple effects from a prolonged Japan Inc. stagnation coupled with aftershocks from the region's 1997 crash had left much of Asia still shoveling its way out of an economic hole.

The expectation was that an uptick in the U.S. economy in the year's second half would strengthen Asia's export trade. With that hope now dashed, companies worry that should the U.S. dollar weaken, as some economists predict, the competitiveness of the region's exports will take an even greater hit.

Add to that an anticipated falloff in foreign direct investment and a drop in tourism — a significant component of many Asian economies' gross domestic product — and prospects for the auto industry's short-term recovery quickly diminish.

Such volatile conditions leave the region dependent on government spending measures and consumption stimulants, such as interest-rate cuts, to keep afloat. Yet, for highly export-oriented countries such as Malaysia, Hong Kong and Singapore, recession is unavoidable.

Although the region's automakers have yet to announce downward revisions in production targets, it's sure to come, says Ashvin Chotai, analyst for DRI-WEFA Global Automotive Group. The group's post-Sept. 11 forecast for Asia (excluding Japan) calls for a 495,000-unit reduction in production in 2002, compared with earlier forecasts made in July.

The primary countries that make up the Assn. of Southeast Asian Nations (ASEAN) — especially the automotive hub of Thailand — will take the brunt of such production cuts, with 5% regional growth this year, followed by no growth in 2002. The good news is that since automotive sales have yet to rebound to pre-1997 levels, there is less room to slide. Vehicle demand most likely will stagnate throughout the region for the remainder of 2001; with the rebound originally expected for this year's fourth quarter put off until the second half of 2002.

Multinational automakers in the country expect a fall of between 5% and 20% in vehicle exports from Thailand in the next year. The country's largest exporter, MMC Sittipol Co., which sells Mitsubishi brand vehicles, forecast a 20% plunge in exports. Toyota Motor Thailand Co. sees a 5% decline from original projections of 200,000 vehicles to be exported. Thai Industries Automobile Industry Club officials say domestic sales will drop to 290,000 units, from original projections of 300,000 to 320,000 units.

Sales in primary ASEAN markets were slated to worsen well before September, however, spurred by weakening consumer confidence and political unrest in Indonesia and the Philippines. Plus, although ASEAN is due to enact a free trade agreement that stipulates automotive tariffs to fall to 0% to 5% by the end of 2002, trouble lies ahead.

Malaysia has been reticent to subject its state-owned automotive industry to tariff-free competition, asking for privileges outside the trade pact. Delays in trade liberalization likely will cost the nations future investment from global automakers, which may choose China's ever-widening market over Southeast Asia.

Korea, the world's 11th largest industrialized nation, will not suffer a global recession lightly. In September, automotive surpassed semiconductors as its largest export. But being both export- and technology-reliant makes Korea vulnerable.

Despite economic reforms and major victories that include striking a deal to sell Daewoo Motor Co. Ltd. to General Motors Corp., Korea recently was forced to slash its 2001 increase in GDP to 2% to 3% (DRI-WEFA forecasts 2.2%) from the 4% to 5% projected before Sept. 11.

The Korea Automobile Manufacturers Assn. now says that domestic vehicle sales may fall 3.5% year-on-year to 1.38 million vehicles this year, while exports may drop 3% to 1.63 million units. The projected fall in exports would be the first in 11 years, while a domestic sales drop would be the first since the Asian crisis of 1997. KAMA says the projected drops are a direct result of terrorist attacks and ensuing combat.

DRI-WEFA forecasts total vehicle demand will slow for the rest of the year, dropping 1.6% from 2000 levels of 1.43 million vehicles, and falling an additional 2.9% in 2002 — a year in which market leaders Hyundai Motor Co. Ltd. and Kia Motors Corp. will see shares decline and Daewoo finally will hit the bottom of its long slide and recover through the aid of GM.

Korean automakers likely will cut back production for the next year, despite the fact that Hyundai and Kia had been posting double-digit sales increases in the waning U.S. market.

India, an emerging market more self-contained and less export-oriented, normally is relatively immune to a jarring of the world economy. Despite a projected 5.3% growth in GDP for 2001, India, by virtue of its proximity to the war zone — it's near Afghanistan and shares a lengthy and contentious border with Pakistan — most likely will see consumer confidence suffer as fear builds of a conflict spilling over its borders.

A nearby war also has the potential to delay foreign direct investment.

And the country's emerging professional middle class largely is supported by technology-related jobs, many entwined with the U.S., a sector bound to take a hit in the changing economy.

Still, the Indian automotive market, which has not performed up to expectations in 2001, is likely to rebound in 2002 — as long as the bottom doesn't drop out of consumer confidence and the rupee doesn't weaken to the point of driving car prices upwards, says Mr. Chotai, who sees a 6.5% growth in the automotive sector next year, mostly in the second half.

The smaller A and B car segments will lead the revival, which will be further fueled by new model introductions, such as the launch of the Fiat Palio. Demand for sport/utility and multipurpose vehicles is slated to rise 6% in the coming year, as well.

Industry insiders have been closely monitoring the fate of Maruti Udyog Ltd., the country's leading automaker. The small-car specialist represents an equal joint venture between Suzuki Motor Corp. and the Indian government, which this year has been seeking to sell off its 50% share.

The state reportedly has abandoned plans to sell its portion to financial institutions through a rights issue of new shares. The move clears the way for Suzuki — or its partner, GM, which owns 20% of Suzuki — to pick up the remainder. GM's relatively small India presence currently revolves around the assembly of the Opel Corsa.

No matter which automaker picks up Maruti's remaining 50%, the automaker plans to transform its aged lineup with a new model launch every year, starting with this year's Versa multipurpose vehicle.

Neighboring China, with GDP growth of 7.2% and plans to sign on with the WTO all but finalized, is one of the few countries in the region to maintain its positive economic outlook. The most insular of major Asian nations, China should be relatively immune to a potential global recession.

China's automotive industry, which is not export-dependent, anticipates continuing its hot streak. Passenger car demand, in the 600,000 range last year, is expected to jump 20% to 800,000 units this year, followed by 13% growth in 2002, with steady growth continuing into 2006, when it is expected to nearly double to 1.4 million units, say DRI-WEFA forecasts. The B and C segments are forecast to account for 70% of growth between 2000 and 2006.

This year saw the launch of GM's Sail small car. Priced at about $12,000, it was the first designed to target the emerging middle class. Others followed, including Volkswagen AG with its small Polo and new-model Bora through its joint ventures.

Also slated to begin small-car production in China this year are Fiat Auto SpA and Toyota Motor Corp., which is building a car based on its New Basic Car platform — the basis for the Vitz, Yaris and Echo. Ford Motor Co. aims to start building its small car, most likely based on the global Fiesta platform that also serves as the basis for the Ikon in India, by early 2003.

Honda Motor Co. Ltd. will add the Odyssey minivan to its Accord production, while DaimlerChrysler AG in Beijing updated its Grand Cherokee. BMW AG is eyeing production of its 3- and 5-series through a joint venture.

The light commercial vehicle segment, boosted by minibuses, is expected to see 9.6% growth this year, tapering off to 4.2% next year. Infrastructure spending continues to fuel the heavy-truck market, with First Automotive Works and Dongfeng Motor Corp. maintaining their industry leading roles.

Australia saw new vehicle sales slump 10.2% in September, but officials don't expect a prolonged slowdown. Forecasts have been revised to 780,000 units for 2001, down from 800,000. As the year winds down, Mitsubishi Motors Australia Ltd. continues to await a decision on the future of its Adelaide plant. The ailing parent company says the operation needs more help from Australian governments before its future is guaranteed.

Ford of Australia is again tweaking its flagship Falcon as sales remain far behind projections. Australia's big winner this year has been GM subsidiary Holden's Ltd., which held market leadership for nine straight months, retaining a market share of 21.5%.

Holden is about to release the 2-door Commodore Monaro, a vehicle originally produced as a one-off showstopper for the 1998 Sydney Motor Show. Public reaction was such that the company was forced to put it into production. If only Holden's luck can spread throughout Asia/Pacific.