Residents in Evansville, IN, will reap an economic bonanza when, as expected, Toyota Motor Corp. chooses the Hoosier city as the site for a plant to manufacture 100,000 T100 pickup trucks annually by 1999.

In Georgetown, KY., there'll be more jobs for the Blue Grass folks when Toyota starts production there of 70,000 units a year of its all-new Camry-based minivan in 1997. And in East Liberty, OH, Honda Motor Co. Ltd. will make the Buckeyes the first Americans to produce a Japanese luxury model when ramp-up begins on the new Acura coupe early next year.

With an exchange rate hovering around 100[yen]/$1, Japanese manufacturers are moving production of even more models to the U.S. As long as the rate stays at 100 or lower, it becomes an increasing disadvantage to develop cars in Japan and then convert their cost to dollars for sale in the U.S.

What's more, Japanese manufacturers have been hit with a double whammy at home. A four-year slump in Japan's domestic auto market continues, and the U.S./Japan automotive trade agreement, reached last summer, opens the Japanese auto market to U.S. suppliers and the Big Three.

The short story is that because of the strength of the yen, a stagnant home market and impending, real, competition from foreigners, Japan's automakers can no longer afford to subsidize their U.S. operations.

So Japanese transplants have to stand on their own. They have to become price-competitive in the U.S. market to add profits to the coffers of their corporate parents. That means even more Japanese models will be made in the U.S., as well as more and more of the parts for those vehicles.

Japan's automakers have obviously seen the need, for both economic and political reasons, to localize their operations here for some time. From a scant 1,500 cars in 1982, Japanese transplant production in the U.S. has grown exponentially, hitting 2.3 million vehicles this year; an additional 394,468 cars and trucks were made in Canada. Conservative forecasts put that transplant capacity at more than 3 million by 1998.

Add to that the growth, from $2.5 billion to $19 billion, of U.S. component procurement by Japanese automakers during the last decade, and the transplants have more than solidified their place in the American automotive market.

Those vehicles and their parts, however, are but a precursor to the transplants' transformation into manufacturing mainstays, not just assemblers, in the U.S.

Japan's Big Three -- Toyota, Nissan Motor Co. Ltd. and Honda -- all have increased their production capability here since 1992. Further, each has announced capacity enhancement strategies during the last 18 months.

More important is the sea-change, obscured by U.S./Japan trade disputes, that the numbers represent. Japan's Big Three now produce more vehicles in the U.S. than they export to the U.S. So does Mitsubishi Motors Corp. For the smaller Japanese players, Fuji Heavy Industries and Isuzu Motors Ltd. (Subaru-Isuzu Automotive Inc.) and Suzuki Motor Corp. (CAMI), just about every unit they sell here is produced in North America.

But in the past most of the value-added parts for those vehicles where either produced by Japanese-owned suppliers based in the U.S., or they were imported. Production of the big ticket items -- engines and drive-trains -- remained in Japan.

That's rapidly changing. In addition to increasing their purchase

of parts from U.S. suppliers, Japan's automakers are shifting more in-house component manufacturing capability to the U.S.

"There's no question about that," says David Cole, director of the University of Michigan's Office for the Study of Automotive Transportation. "(Japanese transplant) engine assembly and engine components production is moving here."

Some examples of the expansion:

* Toyota, an insider tells WAW, will soon announce the construction of its second engine plant. Once complete, Toyota will have capacity to produce 850,000 engines annually in th U.S.

* Honda is mounting a fullcourt production expansion. It will boost its automotive assembly capacity in North America from 610,000 to 720,000 by 1997. The company continues to "grow" Honda Engineering North America to support new model development, and it will double the size of its R&D operation. Honda will also expand its U.S. engine capacity from 500,000 to 750,000 annually by 1998.

* Nissan is building a new engine plant in Decherd, TN. With an annual capacity of 200,000, the plant will supply 4-cyl., dual overhead cam engines for the Altima sedan, which is built in Smyrna, TN.

* Mitsubishi is on the bubble. Its contract to produce 120,000 cars for Chrysler at its Normal, IL, assembly plant ends in 1999. With capacity of 240,000 at Diamond-star Motors Corp., Mitsubishi could produce its entire U.S. product line in the state of Abraham Lincoln at the beginning of the 21st Century. Tsuneo Ohinouye, president and CEO of Diamond-Star, also says his company may build an engine plant in the U.S.

It's called the hollowing of Japan. As manufacturers shift more vehicle and parts production overseas, they create excess capacity at home. Automotive assembly plants in Japan now run at an estimated 70% of maximum output. Some speculate that the country's automobile industry will have to close as many as five assembly plants to achieve a 90% utilization rate by the end of the decade.

But the roiling waters left at home don't mean there are calm seas in the U.S. The era of Japanese automakers' huge gains of U.S. market share every year is long gone, probably never to return.

On this side of the Pacific Ocean the domestic Big Three have finally gotten their wish. The playing field is now even, and it's one on which Japanese transplants have inherent strengths and inherent weaknesses that will be illuminated in the coming years.

U.S. light-vehicle sales for the '95 model year are a harbinger of trouble. They were flat, at 14,844,555, with only a razor-thin increase of about 4,000 when compared to the '94 model year.

"Passenger cars have taken it on the chin," says Richard Recehia, executive vice president and chief operating officer of Mitsubishi Motor Sales of America Inc. "The strength of the market has been minivans, sport utility vehicles (SUVs) and pickup trucks."

The current weakness in the U.S. automotive market has long been the strength of the Japanese transplants -- cars. There's an oversupply, says Mr. Recchia, and that has spurred an incentive-fueled melee for sales.

With yet another assault of new models coming to market, this one led by Ford Motor Co.'s Taurus and the next led by a bevy of General Motors Corp. new models, Japanese automakers will do well to hold onto their current share of car buyers.

Meanwhile, minivans, pickup trucks and SUVs continue to sell like cold beer on a hot day, slightly increasing sales during a flat year. To meet the demand, the Big Three have developed slickly styled, new offerings and are converting car assembly plants over to light truck production.

The segment is one that importers ignored and for good reason. The 25% duty on imported trucks was disincentive enough. But the domination of the market by the Big Three made gaining significant share an extraordinarily expensive and an excruciatingly long process for three reasons:

* American light-truck buyers have no giant reason to switch to imports, or transplants.

* Light trucks is the lone segment of the market in which the Big Three didn't lose buyers' trust. In good times and bad, Ford, Chrysler and GM produced great products.

* And the Big Three have volume that allows them to set volume prices.

Toyota, sitting on $28 billion in liquid assets, can afford to make a serious run at the U.S. light truck market. But the rest of the transplants are reluctant to make the kind of capital investments it would take to cover all bases of the light-truck market.

Besides, given the economic conditions in Japan, heavy investment

for the development of light trucks aimed at the U.S. market is a nonstarter for the transplants.

As for the noun transplants, a catchall for Japanese automotive companies that produce vehicles in North America, it's passe. BMW AG and Mercedes-Benz AG have constructed assembly plants in the southeastern U.S, And their presence will do more than simply change the automotive industry's lexicon.

After both plants are at full throttle, they threaten to change the very fabric of the U.S. luxury market, and make BMW and Mercedes formidable competitors for domestic and Japanese luxury marques alike.

The German transplants will be able to offer products that are even more price-competitive because they are manufactured in the U.S. Subtlely lethal, and predatory, is both luxury/performance automakers are creating new vehicles and entering segments of the market with an advantage: their cachet.

Mercedes' plant, in Vance, AL, is 75% complete. Workers have begun assembling pre-production models of an all-activity vehicle (AAV) that will be produced there. It'll compete against the coming upscale SUVs from Acura, Infiniti, Lexus, Lincoln and Mercury. All of these luxury SUVs (except Land Rover) are upgraded rebadges of current lower-end models.

The AAV, on the other hand, is new from the ground up and it's not based on a truck platform. Mercedes officials say their AAV will have the off-road capability expected of SUVs and the on-road performance expected of a Mercedes luxury performance sedan. If Stuttgart hits even close to that, Mercedes may have to revisit its decision to export half of the AAVs produced, after the plant ramps up to its annual capacity of 65,000.

BMW is producing the 318i sedan, the Z3 roadster and will soon begin production of the 328i sedan at its plant in Greenville, SC. The roadster opens a new niche in the U.S. luxury segment. Expected to go on sale here next March, the Z3 will have the global market to itself for at east a year before Mercedes' SLK and Porsche AG's Boxster go on sale. Half of the 10,000 Z3s scheduled for annual production here will be exported.

The flexibility of BMW's plant gives it leverage that no other foreign luxury marque enjoys in the U.S. The Greenville facility is capable of producing any BMW model, particularly the 3 series, which has seven models priced from $19,000 to $40,000. That covers the range where the bulk of luxury sales are made. The 90,000-unit plant gives BMW the ability to quickly change its production mix to better meet demand.

"To strengthen our long-term strategic position, we needed a stronger position in the U.S. car market," says Dr. Helmut Panke, president of BMW of North America Inc. And he recognizes the trend that's becoming more prevalent in the U.S. market -- brand identification.

"Anybody who does not have clear brand values for the years ahead will weaken," says Dr. Panke. "Whereas, those companies that do have clear brand values, which are unmistakable, will fare better."

Brand loyalty is where the transplants, both German and Japanese, have a clear advantage. And they'll need it. With the U.S./Japan automotive trade dispute settled, the field is now clear for automakers to slug it out on the merits of product.

Cadillac is trying to remake itself with new models aimed at younger customers. Lincoln and Continental will surely enter the fray. New entrants from the Japanese luxury marques, coupled with the resuscitated German luxury brands, portend a mammoth struggle for baby-boom buyers aging into affluence.

But the blood match will take place in the middle of the market. Japanese automakers have assiduously crafted citadels of brand loyalty based on value and quality. A strong yen, however, has created a crack through which the Big Three hope to capture import buyers with their price advantage.

The name of the game is now customer satisfaction, which starts with good products and ends with brand identification. The transplants are well positioned to wage the fight. So competition will be even more fierce.

The U.S. is now home to nine foreign-owned automakers. Add in the Big Three and it makes an even dozen manufacturers producing cars and trucks here. As the Germans ramp up their plants, the Japanese expand their operations, and the Big Three improve their products and costs, the country is truly becoming a strategic manufacturing center for a global automotive industry.

Now, not only are world class cars sold in the U.S., they'll be shipped from here, too.