Japan's auto market is in a slump. Korea's overcapacity crisis has debt-ridden Kia Motors in dire straits. Currencies in Thailand, Malaysia, Indonesia and the Philippines are plummeting. In China, huge auto inventories pile up, with only a slight recovery in sales.

Is the Asia/Pacific automotive market turning into an illusion? In a quintessentially Asian view, the answer is "yes" and "no."

"Asia still has 55% of the world's population and they still have very few vehicles per population," says Linda Lim, associate professor of international business at the University of Michigan. "The kinds of vehicles that are needed in Asia may not be the types of vehicles we have in our American parking lots, and that's one reason why there may be more opportunities for suppliers than for assemblers."

But what happened in Thailand is a cautionary tale illustrating the volatility that comes with doing business in this high-growth region.

After selling itself as an export platform to the rest of Asia, Thailand scored big when Ford Motor Co. and partner Mazda Motor Corp. decided to build a 130,000 unit-a-year pickup truck factory there. General Motors Corp. also chose Thailand for a $750 million plant, where it plans to build the Opel Astra beginning in 1999, mostly for export. In all, some 15 of the world's automakers assemble trucks and cars there, producing 589,000 vehicles in 1996.

Thailand's booming economic growth seemed limitless, with banks approving every real estate loan presented to them. But the exports that were supposed to fuel 10% annual growth never materialized. As Thai workers began enjoying higher living standards, labor costs rose. Consequently, many manufacturers shifted production to lower-wage locations, particularly China.

Thailand's dollar-linked economic program and trade imbalance became unsustainable. As many of the high-risk loans defaulted, there was a run on the Thai baht, the country's unit of currency, which has fallen nearly 40% since July 1.

All this unfolded against a backdrop of political instability and a sometimes-chaotic effort to draft a new national constitution. The constitution has been approved, taking effect in October, and there likely will be elections early in 1998. Meanwhile, new vehicle sales in Thailand are expected to drop to about 400,000 this year.

Has the downturn hit bottom? "Yes, but only if two things happen," says Richard Doner, professor of political science at Emory University in Atlanta and an expert on Thai politics. "First, business has to start exerting its influence and, secondly, there has to be significant development in the area of rules governing the workplace, so the upper class doesn't continue a rather rampant exploitation of the peasant class."

Mr. Doner predicts it will take 18 months to two years for the crisis to reverse itself, but up to five years for a sustained economic expansion to gather steam.

The good news is that Honda and Toyota, each of which has developed a small family car (Honda's City and Toyota's Soluna) that they are building in Thailand, will stay.

In some cases, Toyota is helping prop up its Thai joint venture partners during the currency crisis. A few years ago, it would have been unthinkable for Japan to import engine parts from another Asian nation, especially when its own industry was in a downturn.

But that is exactly what is happening today with the partnership between the No. 1 Japanese automaker and Electrical & Metal Group of Siam Cement Public Co. Ltd. "Still, our production has dropped by about half from last year's level," says Pramon Sutivong, senior vice president of Siam's Electrical & Metals Group.

For U.S. automakers just getting started on their Thai manufacturing programs there might be a silver lining in the baht devaluation.

"We think, when the currencies throughout Southeast Asia have settled down, what is happening could well be an advantage for our factory in Thailand because we will have a lower-cost source for exporting pickup trucks, which has been our plan all along," says Ford Motor Co. Chairman Alex Trotman.

Ford does hold a 9.4% stake in Kia Motors, which was teetering on the brink of receivership as of mid-October. The second largest Korean automaker has eliminated 7,400 jobs since July. Rumors persist that Samsung Group may buy out Kia, but Samsung officials deny any interest.

"Korea is in a situation where companies took on so much debt trying to grow so fast. All it takes is a minor hiccup and you've got major problems," says Chrysler Corp. Chairman Robert Eaton. "For example, Kia is carrying $10.5 billion of debt. Never in our darkest days was Chrysler ever that leveraged."

Chrysler, meanwhile, has nearly halted production of the Jeep Cherokee and Grand Cherokee in Thailand. Mr. Eaton says, however, that a weaker baht allows dollar-denominated investments to buy more technology and training, which make the company's long-term prospects even brighter, especially if the export market grows.