Every automobile on the roads of the world reflects a long and complex chain of industrial production and energy usage. Yet we live in a world where many of the highest quality resources and energy supplies have already been exploited and lower quality resources are more expensive to extract and exploit, if they are even available. So the world’s automobile industry is in the midst of a revolution in both resource availability and energy consumption. 

Today the automobile business is vast. It is a global industry that has evolved by leaps and bounds in the 100 years since Henry Ford made his famous remark in 1908 about building "a car for the great multitude." The worldwide customer base includes at least a billion people – spread over six continents – who have sufficient income to buy a car or small truck.

According to figures assembled at the MIT Sloan Automotive Laboratory, there are about 700 million automobiles and light trucks in the world. About 30% of those vehicles are in North America. 

Every car requires steel, aluminum, copper and lead. Each car requires rubber, plastic, and myriad of other petroleum and natural gas by-products. And there is much else in the long industrial ladder of automobile production. Just think in terms of the energy that goes into processing materials, fabricating parts, building components, assembling a finished product – and all the transportation along the way.

In addition to the basic energy and material resources that go into manufacturing an automobile, the sheer number of vehicles reflects a lot of fuel tanks to fill with gasoline and diesel. And this does not even touch on the energy and resources that go into building road systems.

Oil Crises – 25 Years Ago and Today

The oil shocks of the 1970s – in both price and availability – spurred improvements in auto energy efficiency within the United States as well as worldwide. In the United States, the increase in fuel efficiency was related to rising costs for gasoline, as well as government mandates for higher fuel efficiency dating from the late 1970s.

On average over the past 25 years, the typical power train of gasoline-fueled automobiles in the United States has improved in efficiency by about 1% per year according to data gathered by MIT. While discrete, 1% improvements may not appear to be much, the compound improvement in the typical U.S. automotive engine over 25 years has been about 30%.

There has been even more progress in the fuel efficiency of diesel engines over the past 25 years. Diesel power trains are no longer the sooty "knock-knock" devices that they were back in the days of disco. Most cars sold today in the European Union (EU), for example, are powered with clean-burning, fuel efficient, smoothly running diesel engines.

In fact, the demand for diesel fuel in Europe is such that EU refineries routinely ship surplus gasoline to sell in the North American market. And in North America the relatively low prices for gasoline throughout the 1980s and 1990s discouraged the use of diesel engines.

So there have been significant improvements in automobile power train efficiencies over the past couple of decades. But have these improvements translated into any overall reduction in demand for fuel? No.

In 2007, motor fuel consumption in the United States was as high as it has ever been (Although according to the American Petroleum Institute, demand for motor fuel may be at a plateau due to price increases at the pump in 2006 and 2007.). In the past 25 years, we’ve seen more people driving more cars for more miles. But compounding the fuel issue, the cars that people are buying and driving tend to weigh more and offer higher performance.

Is a Car-dependent Culture Sustainable?

We live in a world of peaking oil output, and of energy and resource scarcity. So the trend lines for fuel usage by automobiles simply cannot continue for much longer. The most obvious sign is the rising price for oil and by extension for fuel at the pump. Something has got to give, and the energy markets are sending signals of long-term high prices for motor fuel. Where do we go from here?

Well first, people and policy makers have to realize that there is an energy problem. Everyone has to realize that this is something permanent, going forward. "Peak Oil" will not pass if we ignore it long enough. And no one can solve the problem just by bellyaching about the rising price for gasoline.

It helps to view the age of the automobile – and its future – as a systemic whole. And some social critics are out in front of the broad discussion, with a sharp focus on the automobile and what it has brought us as a society. James Kunstler, for example, author of highly regarded books such as The Geography of Nowhere and The Long Emergency, believes that the car-dependent suburban build-out in the United States may be "the greatest misallocation of resources in all of human history."

That is, in an era of expensive energy and scarce resources, a car-dependent culture has no real future and is in fact a hindrance to progress in other directions. That is quite a viewpoint, well-presented by Kunstler in his writing. It’s depressing, but it sure gets your attention.

Criticism of the automobile culture is not confined just to social commentators like Kunstler. Another remarkable indictment comes from no less an automotive insider than John Heywood, the director of the MIT Sloan Automotive Laboratory. He has stated that "cars may prove to be the worst commodity of all."

What’s worse, even if we improve vehicle efficiency, turn to fuel hybrids or make rapid advances in hydrogen-based fuel technologies, the scale for slowing down the degradation may run to the decades. Turning the curve won’t be easy," Heywood said.

People are going to have to do things differently

You can agree or disagree with the broad themes of Jim Kunstler or John Heywood. But there’s no argument with one of Heywood’s points. Wherever we are going, it will not be easy to "turn the curve." Looking forward, the oil just is not there to fuel cars in the future in the way that we did it in the past. So a lot of people are going to have to do things differently.

Worldwide, the automobile industry has seen the handwriting on the wall. Fuel is expensive, and is getting more so with each passing year. So the industry has invested tens of billions of dollars in improving engine and power train efficiency.

In addition, auto designers are coming up with new ways to eliminate weight and drag. (At higher speeds, up to 70 percent of the energy used to turn the wheels on a car goes just to push the air out of the way of the chassis.) The auto industry is looking towards different sorts of fuels, and moving towards what is called fuel-flexibility. 

Profit Plays for the Next Great Car Market

Already we’re seeing signs of the automobile’s future, as well as who are becoming the biggest car buyers.

Sales have tumbled for U.S. automotive titans Ford Motor Co. (F), General Motors Corp. (GM) and Chrysler LLC because of soaring gas prices, slowing U.S. economy and global interest trending toward smaller and greener cars.

Meanwhile, new battlegrounds emerged – China and India. General Motors and Toyota Motor Corp. (TM) have different strategies for capturing the burgeoning Chinese consumer market.

However, the company that could best them all (and dually serve its investors nicely) is Tata Motor Group (TTM), which just recently purchased luxury brands Jaguar and Land Rover from Ford for $2.3 billion. 

It’s also creating a huge buzz for its $2,500 car, the Nano, a stripped down two-seater designed solely to get from point A-to-B. That price undercuts Tata’s Indian competition by about 30%, and is certain to add to the company’s market share even as it causes that country’s overall auto market to expand.

Not only is Tata a formidable competitor at the bottom end of the market, in India and other emerging markets, but with its new marquee brands and strong manufacturing capabilities it is likely to make substantial inroads at the top end also.

Where the Rubber Meets the Road

China and India have populations several times those of the United States and European Union, an increasing proportion of whom are becoming wealthy enough to buy an automobile, yet their labor costs are and will remain a small fraction of those in the United States, Japan or Germany.

At the same time, because of their size, India and China will retain important economies of scale in their domestic markets over other countries with similarly low-wage costs. That suggests that more and more of the world automobile industry will migrate to those two countries in the next 25 years. Investors in Indian and Chinese automobile manufacturers are likely to make a lot more money than buyers of Ford, General Motors or even Toyota.

Tata Motors has ADRs fully listed on the New York Stock Exchange so its shares are easy to buy, and currently trade at an earnings multiple in the mid-teens. Its main rival Mahindra does not have ADRs so you’d have to buy its Global Depositary Receipts through London or Frankfurt.

In China, the only automobile manufacturer with ADRs, although only on the Pink Sheets, is Brilliance China (BCAHY), which is currently loss-making.

That doesn’t give you a lot of choice. However, never fear: the automobile business requires large amounts of capital, so in future years both Indian and Chinese manufacturers will doubtless come to New York seeking your money.

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Indian automotive titan Tata Motos Ltd. (TTM) plans to raise as much as $1 billion by selling securities, in an effort to partly fund its acquisitions. 

At the top of that list of acquisitions is Tata’s pending purchase of luxury brands Jaguar and Land Rover from Ford Motor Co. (F). Bloomberg reported, citing three sources close to the deal, the company might need $3 billion in loans to fund the purchase. 

Tata also needs capital to build the "world’s cheapest car," the $2,500 Nano. Demand for the Nano is sweltering, even though it has yet to be sold. Tata also plans on selling a more upscale version of the Nano in Europe.

"The Nano will address global markets in due course but when it will do so has not been decided," Ratan Tata told an audience at the Geneva Auto Show, the Times of India reported. 

And that’s just Tata’s short-term plan.

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On top of those billion-dollar deals and operations, Tata Group Chairman Ratan Tata recently said he would like to buy a stake in luxury sports car Ferrari, a unit of Torino, Italy-based Fiat S.p.A (OTC:FIATY). 

But each of these short-term, high-profile moves offer a great view at how Tata Motors is going to supply its emerging domestic demand for different kind of automobiles.

China and India are home to 2.5 billion people, nearly half the world’s population, and each has a growing consumer class moving into the automotive market. Yet their labor costs are and will remain a small fraction of those in the United States, Japan or Germany.

At the same time, because of their size, India and China will retain important economies of scale in their domestic markets over other countries with similarly low-wage costs. That suggests that more of the world automobile industry will migrate to those two countries in the next 25 years.

Investors in Indian and Chinese automobile manufacturers are likely to make a lot more money than buyers of Ford, General Motors Corp. (GM) or even Toyota Motor Corp. (TM).

Hundreds of millions of people are forming a new middle class in those countries. And in the process, they are making their first big purchases of items – such as cars – that Americans often take for granted.

And with luxury brands Jaguar and Land Rover and the über-affordable Nano [and accompanying advertising blitzes], Tata is trying to be the name that first comes to mind for both classes of auto consumers.

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General Motors Corp. (GM) said Wednesday that half its U.S. vehicles will run on ethanol by 2012, the Associated Press reported.

Giving a speech at the Chicago Auto Show, GM North American President Troy Clarke said his company will have 11 ethanol-capable vehicles on the market this year and 15 in 2009. GM already has 2.5 million ethanol-capable vehicles on the road and hopes to have 20 million in service by 2020.

"We don’t only want to respond to the needs of the market, we want to anticipate them," Clarke said.

If GM, Ford Motor Co. (F), and Chrysler LLC were to meet their expected quotas for ethanol capable vehicles over the next 12 years, the United States would save 29 billion gallons of fuel annually.

Clarke and GM also announced that Coskata Inc., a GM partner, will team with ICM Inc. in building an ethanol plant. The plant will be designed and constructed by ICM, which specializes in ethanol plant design. It is set to open in late 2010 and will be Coskata’s first ethanol plant.

Coskata said the plant will be capable of converting feedstock, biomass and agricultural or municipal waste into ethanol for less than $1 a gallon. The company claims its process uses less than one gallon of water for every gallon of cellulosic ethanol produced and reduces carbon dioxide emissions by 84 percent compared with gasoline.

Tests carried out by Argonne National Laboratory have shown Coskata’s cellulosic ethanol generates 7.7 times the energy used to produce it, compared with 1.3 times for corn-based ethanol, Reuters News Agency reports.

Cellulose is a structural material contained in nearly every plant and tree, as opposed to traditional ethanol, which comes mostly from corn.  However, right now it costs twice as much to produce cellulosic ethanol than it does ethanol derived from corn or sugar.

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After a year in which Toyota Motor Corp. (TM) saw its stock drop 21.5% and its rivalry with General Motors Corp. (GM) intensify, the Japan-based carmaker is trying to recapture its momentum by investing heavily in China.

BizChina reported that Toyota plans to set up a new automobile plant in China’s Jilin province – its eighth production plant in the country. Operations are expected to start in 2010, and the plant’s production could be as high as 100,000 vehicles a year.

BizChina also reported that Toyota is opening its first research-and-development center in China next year. Based near Shanghai, it will develop and test drive models specifically for Chinese consumers.

Toyota may also add more R&D sites in Tianjin [China's third largest urban area near Beijing] and Guangzhou [China's third-largest metropolitan area about 75 miles north of Hong Kong]

Toyota’s aggressive steps are aimed at getting a better footing in China’s exploding automotive market, the next primary battleground for the global automotive industry – especially since the Detroit-based GM barely retained its title as world’s No. 1 automaker in 2007, selling a mere 3,000 more vehicles than Toyota [GM sold 9,369 million vehicles; Toyota sold 9.366 million].

On Monday, Toyota posted a 7.5% increase in profits for its fiscal third quarter, ended Dec. 31. Even more telling: Toyota’s quarterly sales advanced 5.3%. while GM’s grew 4.8%.

GM’s China strategy is very different than Toyota’s. The U.S. carmaker – which controls such key brands as Chevrolet, Buick, Pontiac and Saturn – operates seven joint ventures in China, allowing the company to diffuse risk and save money on labor and production costs.

However, GM’s 18.5% sales growth in China last year was its slowest in that market five years, Forbes reported, prompting the company to seek a larger share in a joint venture with Shanghai Automotive and Liuzhou Wuling Automotive Co., which was formed in 2002. 

GM also plans to introduce several models in China this year.

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Strong emerging market sales provided a huge boost for automotive titan Toyota Motor Corp. (TM), which posted a 7.5% rise in profit for the quarter ended Dec. 31.

Quarterly operating profit – excluding joint ventures in China – rose 4.7% and revenue gained 9.2% in the company’s fiscal third quarter.

"We believe our record high financial results can be attributed to Toyota’s growth strategy of utilizing every opportunity across the full product line-up and all regions," Takeshi Suzuki, the company’s senior managing director, said in a company statement.

Suzuki has a guarded outlook for the fourth quarter because of a slowing U.S. market and strengthening yen, Reuters reported. But behind closed doors, Toyota executives are patting each other on the back.

Last week, the world’s second-biggest carmaker inched closer to the top spot, a title that General Motors Corp. (GM) has held for the past 76 years. Toyota sold 9.366 million vehicles in 2007, about 3,000 shy of GM’s 9.369 million sales total.

That momentum is evident in each company’s recent quarterly statements – Toyota’s sales grew 5.3% while GM’s grew 4.8%. If that trend carries throughout 2008, Toyota will dethrone GM, and by a much wider margin than just 3,000 vehicles.

This rivalry will continue for a long time, but North America won’t be the crucial battleground. Instead, the winner will be the one who can capture emerging markets spanning several continents where new classes of consumers haven’t yet established brand loyalty.

Behind the United States, China is GM’s second largest market. The company sold more than 1 million vehicles there for the first time in 2007.

Meanwhile, Toyota is beefing up its presence in Russia [with a new factory last year] and is adding capacity in China, Thailand, Brazil and Canada, Reuters reported.

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Despite recession fears and a temporary pullback in the price of oil, gasoline prices will likely tease record highs even before the summer driving season kicks back into gear.

The price of crude oil accounts for more than 55% of the retail price of gasoline, according to the federal Energy Information Administration. So it came as no surprise that – as oil breached the $100 a barrel mark earlier this month – gas prices soared up over the $3.00 a gallon level.

However, fears of a recession and slumping demand slowly weighed on oil prices, and gasoline followed suit. The Lundberg Survey, which tabulates the prices at about 5,000 gas stations across the country, found that average retail gas prices have fallen 9.43 cents a gallon in the past two weeks. The price of gas had risen in each of the three prior weeks.

Survey Publisher Trilby Lundberg attributed the decline to sagging oil prices and shrinking profit margins among refiners and retailers. But Lundberg doesn’t think that prices will fall much further.

"Retail gasoline prices will probably hover around this level – just under $3 per gallon – for perhaps up to a month," she predicted. And even if oil prices don’t rise during that time, "there will be big pressure on gasoline prices to go up because our spring demand will pull it up."

Even though supplies are sufficient to meet demand, "When consumers soak up that extra supply, prices will stop falling and be on the rise, possibly to a dramatic degree," Lundberg added.

While slumping consumer spending and rising unemployment will threaten demand for both oil and gasoline, it’s likely that the Organization of Petroleum Exporting Countries will scale back its production over the next few months as evidence of an economic slowdown continues to emerge. For that reason, few analysts believe gasoline will drop much further than $2.50 a gallon, from its current price around $3.00.

In the short term, fears of a slowing economy, or even an outright recession, could cause gas prices to fall and range between $2.50 and $2.80 over the next few weeks, Tom Kloza, chief oil analyst at Oil Price Information Service, told CNNMoney.

But after that, Kloza expects gas prices to surge again to reach a new record of more than  $3.22 a gallon in the Spring, whether there is a recession or not.

"The same things that make the rally every spring are still there," he said.

That includes a drop in inventories as refiners switch to summer blends, and increased demand heading into the heavier summer driving season.  Also, a lack of refining capacity is beginning to take its toll, as there hasn’t been a refinery built in the United States in roughly 30 years.

Nor is it likely that OPEC will come riding to the rescue, either. Crude oil hit $100 a barrel earlier this month, but the price has slipped significantly since, as the strength of the U.S. economy begins to wane.

And as U.S. Federal Reserve Chairman Ben S. Bernanke and central bank policymakers issued an emergency three-quarter-point rate cut a week ago (Jan. 22) and the stock markets sputtered, the price of oil dropped to a low of $86.11, before settling at $89.85 a barrel on the New York Mercantile Exchange.

OPEC doesn’t want prices to rise so high that it weighs down global growth and further erodes demand, but if it increases its output – and the world economy stalls anyway – oil prices could collapse.

The bottom line: OPEC will continue to maintain that bottlenecks in refining, a falling dollar, and speculative investing are the reason for high oil prices, not a lack of crude. An Energy Department report released today shows that U.S. crude inventories rose in the week ended Jan. 25 rose 1.8 million barrels.

Additionally, the average price OPEC charges for oil has dropped in each of the past three weeks. After hitting a record high of $93.78 a barrel Jan. 3, the price has dropped to $85.07 per barrel, according to Xinhua, the state-run China news agency.

Given that global growth is going to slow anyway – and the cartel’s profits already are destined to shrink – it’s unlikely that OPEC will open up its spigots. And given that OPEC provides the world with 40% of its oil, that will affect crude oil prices.

The leaders of OPEC-member nations are set to next meet in Vienna on Friday.

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The automotive industry is one of the most competitive in the world. It’s so competitive that the Ford Motor Co. (F), founded in 1903 by Henry Ford the legendary pioneer, innovator, and father of the assembly line, has fallen all the way to the third spot in U.S. auto sales. Just a few weeks ago, Ford was ousted from its longtime No. 2 spot by the Japan-based Toyota Motor Co. (TM), a clear sign that the strategic landscape in the auto sector is changing, and that nothing can be taken for granted.

Innovation has long been an industry hallmark and, as oil hovers near $100 a barrel, fuel efficiency has emerged as the latest way to get ahead in the race for auto sales.

The price of crude oil accounts for more than 55% of the retail price of gasoline, according to the federal Energy Information Administration.

AAA, formerly the American Automobile Association, recently reported that the average price for a gallon of regular gasoline nationwide is $3.07, up from $2.32 a year ago. The record national average of $3.23 per gallon was set last May. 

"It’s hard to predict, but the chances are good we’ll reach record high prices at the pump this year because of record prices for crude oil and high demand," Elaine Zeinner, spokeswoman for AAA, told the Charleston Daily Mail.

Zeinner said the AAA and industry analysts estimate that the price of gas could range between $3.40 and $3.70 a gallon this year. Some believe the price could climb as high as $4.00 a gallon.

Soaring gas prices and environmental concerns have blown the door wide open for fuel-efficient hybrid cars.  Registrations of new hybrid automobiles increased 35% to nearly 290,000 vehicles in the first 10 months of 2007, according to data from R.L. Polk and Co., an auto information and marketing company.

Toyota Taps an Emerging Trend

Toyota is the world leader in hybrid technology. The company sold 277,750 hybrid vehicles last year, up 44% from 2006. Toyota’s Prius, Camry, and Highlander are considered the best hybrids on the market today. In fact, the Prius is the industry’s best-selling hybrid vehicle.

The latest addition to Toyota’s hybrid family is the company’s A-BAT, a concept truck set to debut at the 2008 North American International Auto Show in Detroit. According to BusinessWeek, the vehicle is roughly the size of Toyota’s smallest SUV, the RAV4. Its oversized grill and rugged body type are designed to appeal to truck enthusiasts, but the heart of the truck is its hybrid engine. Analysts have labeled the pseudo-truck as a bold attempt to capitalize on a market shift toward fuel-efficient and eco-friendly vehicles, without alienating traditional "red-state" truck owners.

"This is classic Toyota," Erich Merkle, of automotive forecasting firm IRN, told BusinessWeek. "They’re positioning themselves ahead of the curve, preparing products for a generation of consumers that is still coming up."

It’s such innovative thinking that’s helped Toyota leapfrog Ford in U.S. sales, and possibly even to supplant General Motors Co. (GM) as the global leader in auto sales. GM is still first in the United States, but Toyota is gaining fast.

So now GM has launched an aggressive plan of its own as a counterstrike. 

GM Cleans Up In China

Saturn, the General Motors specialty nameplate, is trying to establish itself in the hybrid market with a compact SUV. Like the A-BAT, Saturn’s 2009 Vue Green Line two-mode hybrid, is an attempt to reach consumers by combining towing capacity with fuel-savings.

The "two-mode" hybrid system has also been showcased on the Chevrolet Tahoe and GMC Yukon SUVs. And it will be appearing on the Chevrolet Silverado pickup and Cadillac Escalade later this year.

GM isn’t stopping with its product line either. The company’s taking its eco-renovation to China, where pollution has become an epidemic.  In October, GM announced plans for a $250 million research and development center to be built in Shanghai.  The center will focus development on eco-friendly technology, such as alternative fuels, hybrid cars, and more efficient power trains.  The R&D center will also serve as headquarters for GM’s China and Asian-Pacific operations.

GM is trying to use China’s well-known pollution problem as a means of strengthening its toehold in the world’s second-largest – but fastest-growing – automotive market. It also capitalizes on the growing trend toward global diversification.

More than 7 million cars were sold in China in 2006, already outpacing Japan. And 4.58 million vehicles were sold in China in the first nine months of 2007, a 23.8% jump from the year before.

Two weeks ago, GM proudly announced that it was the first automaker to sell a million vehicles in China in a single year.
"From day one, GM and our partners have been committed to continually rolling out new and upgraded models with specific engineering done in China for China to satisfy the needs of Chinese vehicle buyers across the country," said GM Chief Executive Officer Rick Wagoner.

The partners Wagoner mentioned are a big reason why GM was the first to hit the million-car milestone. GM’s flagship joint venture in China, Shanghai General Motors Co. Ltd., sold 500,308 vehicles in 2007, a 22% increase from a year ago, Shanghai Securities News reported. 

According to Kevin Wale, president of GM’s China unit, the company won’t be tapping the brakes on its China-focused investments anytime soon. He recently told Bloomberg News that GM would spend about $1 billion a year on production and sales in China over the next five years. Wale estimates that China’s total automotive demand will rise to 9.5 million to 10 million vehicles in 2008. 

"GM’s main hope is put in Asia-Pacific within which China is the most important part," Ashvin Chotai, an analyst with Global Insight Inc., told Bloomberg. "Even with this $1 billion a year, it’ll be tough to remain No. 1 in China.  With China becoming the most important strategic market in the world, it’s crucial to have their investment to stay in the race."

Who Else Is On Track For Global Diversification?

Wagoner expects that GM alone will get 75% of its car-and-truck sales from outside the United States in the next decade. That’s a staggering assertion, considering GM has been one of the biggest names in the American automotive industry since 1908. But it’s become increasingly clear that global diversification is the way of the future, and GM and Toyota aren’t the only ones capitalizing on the trend.

Even a company with a more-exclusive clientele, the Rolls-Royce Motor Cars unit of owner BMW, has been something of a clunker in terms of its performance. BMW is part of Daimler AG (DAI).

In the past, the Rolls-Royce brand struggled to expand its client base beyond the super-wealthy. Owning a Rolls has traditionally been more about prestige than profit, but that’s all beginning to change.

Sales of Rolls-Royce cars for 2007 are expected to be up nearly 25% from 2006.  And that increase in sales has been largely attributed to success in China. China is Rolls’ third-largest and fastest-growing market, accounting for 10% of sales in 2007. According to TIME magazine, one well-heeled Bejing property developer paid $2.3 million for a stretch Phantom, a customized version of the company’s most popular model.

Many industry analysts believe China will be the company’s No. 2 customer by the end of 2008, surpassing its one-time home market of Great Britain. The United States remains Rolls’ primary customer, accounting for 45% of the company’s sales.

Even BMW is willing to admit that if the company hit a rough patch, the Rolls-Royce brand would be first to go up on the auction block, but as the brand flexes it global muscle it’s becoming increasingly viable.

BMW isn’t the only company to pounce on a luxury brand either. Tata Motors Ltd. (TTM) is the leading candidate to obtain Ford’s Jaguar and Land Rover brands. Tata Motors is a well-known player in the Indian automotive market. While primarily a truck company, it also accounts for 17% of the country’s passenger vehicle sales. The acquisition of Jaguar and Land Rover would bump up its brand equity, giving it two platinum nameplates that would increase its prestige, boost its overall visibility and likely also enable it to access customers in much-higher income classes.

"The acquisition of the Jaguar and Land Rover brands will expose the company to the luxury product category, as well as to broader geographies; these are areas in which TML lacks experience," Elizabeth Allen, senior analyst at Moody’s Corp. (MCO), told the Economic Times.

In the meantime, Ford – which owns the Jag and Rover brands – is looking to slim down in order to better expand its foreign-market initiative. As part of that, it may also be reducing its involvement in the U.S. and European markets, to better focus on the higher-growth markets of China and India.

The move looks to be paying off.

The company’s retail sales in China rose 30% – to a record 216,324 vehicles – in 2007, Reuters News Agency reported.  Ford also said its joint venture with Chongqing Changan Automobile Co. Ltd., and Mazda Motor Corp. (PINK: MZDAF) enjoyed a 60% increase in wholesale volume.

Ford and its joint venture partners operate three vehicle assembly plants and one engine manufacturing plant in China. The company also announced recently that it would put half a billion dollars into the expansion of its manufacturing facilities in the India city of Chennai. The investment will bring total capital expenditures in India to $875 million.

"We have embarked on a strategy of growing our business across Asia Pacific," John Parker, Ford’s executive vice-president for Asia Pacific & Africa told BusinessWeek. "We want to grow our manufacturing-and-supply footprint in China, Southeast Asia, and India."

Parker estimated that Asia, the Pacific, and Africa would account for 70% of the growth in demand for passenger cars in the next decade.

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Ford Motor Co. (F) posted a 30% increase of year-over-year sales in China, outpacing the average industry rate in that country, the world’s fastest growing economy.

Overall, the Dearborn, Michigan-based carmaker sold 216,324 units [up from 166,664]. More than half of those sales were the Ford Focus, the company’s compact model that’s the fastest-growing "mid-sized" car in China.

In addition to its own nameplate, Ford owns the auto brands Lincoln, Volvo, Jaguar and Land Rover – the latter two are likely to be sold to India’s Tata Motors Ltd. (TTM).

Ford also operates a joint venture with Mazda Motor Corp, Changan Ford Mazda Automobile Co., Ltd., which produces Ford, Volvo and Mazda vehicles for the Chinese market [note the exclusion of Jaguar and Land Rover]. Changan Ford Mazda also posted record annual sales – up 60% to 217,100 vehicles.

The two companies operate three assembly plants and one engine manufacturing plant in China.

"We will continue to invest in China and expand our operations to prepare for the next phase of our strategic growth program," Mei-Wei Cheng, Chairman and CEO of Ford Motor China, said in a statement. "We plan to continue to grow at a fast pace to further strengthen our position in China’s auto market."

A New ‘Model’ for Ford

Ford is still reeling from the shock of being surpassed by Toyota in U.S. market sales. Its stock plummeted to a 22-year low last week when the news broke. If Ford’s going to regain traction, the company will have to rely heavily on its overseas operations.

U.S. sales were down 12% last year, which has made foreign partnerships crucial to the company’s success. More than 7 million cars were sold in China in 2006, already outpacing Japan. And 4.58 million vehicles were sold in China in the first nine months of 2007, a 23.84% jump from 2006.

In addition to its Chinese operations, Ford also announced that it would put $500 million into the expansion of its manufacturing facilities in the India city of Chennai. The investment will bring total capital expenditures in India to $875 million.

"We have embarked on a strategy of growing our business across Asia Pacific," John Parker, Ford’s executive vice-president for Asia Pacific & Africa told BusinessWeek. "We want to grow our manufacturing and supply footprint in China, Southeast Asia, and India."

Parker estimated that Asia, the Pacific and Africa would account for 70% of the growth in demand for passenger cars in the next decade. That’s going to have to be the case if Ford’s going to survive in a very competitive global market.

Competition in foreign markets will be tough. Last week General Motors Corp. (GM) proudly announced that they are the first automaker to sell a million vehicles in China inside a single year. The company has also announced plans for a $250 million research and development center in Shanghai. 

GM Chief Executive Officer Rick Wagoner expects that GM alone will get 75% of its car and truck sales from outside the U.S. in the next decade.

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Automakers are expected to post the worst results in the past nine years as even foreign giants Toyota Motor Corp. (TM), Nissan Motor Co. Ltd. (NSANY) and Honda Motor Co. Ltd. (HMC) are all expected to have declining sales year-over-year for the month of December.  And the outlook for 2008 isn’t much better.

"When the consumer gets squeezed, he gets squeezed in all areas and that will include car and truck sales," Pete Hastings, a fixed-income analyst at Memphis, Tennessee-based Morgan Keegan & Co. told Bloomberg News. "It’s going to be a brutal year for autos, we’re headed into a recession."

Detroit’s big three fared even worst. The big loser was Ford Motor Co. (F), where December sales declined by 9.2%, capped off a bad year. Sales declined 12% for 2007. 

"We are restructuring our business to be profitable at lower demand and changed mix and accelerating the development of new products people want to buy," Jim Farley, Ford’s group vice president, Marketing and Communications said in a statement. "We have more work to do to reach our ultimate goal – profitable growth for all. But we have made progress in a short amount of time in several key areas."

Ford is looking to sell its Jaguar and Land Rover units and recently announced India-based Tata Motors as the front-runner in negotiations. 

General Motors Corp. (GM) sales are expected to drop 5.6% for December, causing the Dow Jones Industrial Average component’s share price to reach its lowest point in the past year and a half ahead of the official sales release.   

Chrysler LLC sales are expected to drop 7.9% for December. The privately held automaker, bought by private equity firm Cerberus Capital Management, LP in 2007, cut over 1,000 jobs at its St. Louis-based factory yesterday (Thursday) and expects to lay off another 8,000 to 10,000 hourly workers before March.

"Given the current economic challenges and the uncertainty associated with the upcoming presidential election, we do not anticipate that 2008 will be any more robust for the car business," Jesse Toprak, Edmunds.com analyst, told MarketWatch.

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General Motors Corp. (GM), the world’s largest automaker, will invest as much as $5 billion in China over the next five years.

Detroit- based GM has fallen on hard times in its home market recently, but business in emerging markets has shown promise.  With its status as an industry leader on the line, the company understands that the Chinese marketplace is its best opportunity to re- invent itself and lay a whole new foundation for the future. 

GM’s restructuring efforts date back to 2005 when it first announced its "Four Point Turnaround Plan." The plan included healthcare cost reductions, adjustments to the company’s product line, and 30,000 job cuts. The plan had some success but lost traction last month when the company announced its largest quarterly loss.

Over the course of its restructuring effort, GM accumulated a number of deferred tax credits. Unfortunately, the company’s auditors determined that a weak financial position meant GM would not be able to claim those credits and had to account for their value. As a result, GM took a $38.6 billion deferred tax charge.

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GM was also devastated by losses related to its financing arm. GM owns 49% of General Motors Acceptance Corp., which was previously the company’s life preserver. But in the third quarter, GMAC contributed a $757 million loss, most all of which could be attributed to mortgage write- offs.

Even without the near $39 billion bombshell, GM said it lost $1.6 billion, $2.80 a share, in the third quarter – more than ten times the loss initially forecast by industry analysts. That’s partly because GM also reported a net loss of $247 million from its North American automotive operations, an area in which analysts expected the company to turn a small profit. In 2006, the company lost $660 billion in North America. So, it’s no surprise that GM is ramping up its foreign operations.

Globally, GM’s automotive operations earned $122 million in the third quarter. Total revenue reached a record high $43.1 billion. According the New York Times, sales of cars and trucks increased 4% worldwide in the third quarter, to a record 2.39 million.

In the first nine months of 2007, GM sold 7.05 million vehicles, enough to pull even with Toyota Motor Corporation (TM), which had held the title of world’s largest automaker for the first half of the year. Over that same nine- month period, GM posted a net income of $481 million in the Asia Pacific region and $754 million in Latin America.

Gaining Ground in the Fastest Moving Auto- Market

With North American profits running in the red, a shift in business towards emerging markets looks to be the company’s best play. To that end, carving out a niche in China, the world’s fastest growing major auto- market, is absolutely vital.

It appears the company understands what it needs to do. GM is currently building a $250 million research and development center in Shanghai. The new building will also serve as the company’s China office and Asia- Pacific headquarters.

And, as Kevin Wale, president of the company’s China unit, told Bloomberg News, GM will also spend about  $1 billion a year on production and sales in China over the next five years.

Wale also said China’s total automotive demand will rise to 9.5 – 10 million vehicles next year, and that GM expects to sell more than 1 million cars in the region in 2008, a 150- fold increase in sales from a decade ago. 

"GM’s main hope is put in Asia Pacific, within which China is the most important part," Ashvin Chotai, an analyst with Global Insight Inc. told Bloomberg.  "Even with this $1 billion a year, it’ll be tough to remain No. 1 in China. With China becoming the most important strategic market in the world, it’s crucial to have their investment to stay in the race."

The China Association of Automobile Manufacturers estimates 2007 will total between 8 – 8.5 million vehicles, which means Wale’s 2008 estimate could be right on target. And it seems as though every major carmaker is competing to get a piece of China’s automotive market share.

Volkswagen (VLKAY) has set a 2007 target of 900,000 units, and Toyota expects to sell more than 450,000 vehicles this year. Toyota also started construction on a plant in Guangzhou in June that will make Camry sedans and Yaris compacts.

Still, GM is currently the China market leader, and with a preponderance of domestic troubles it will no doubt be looking to increase its role in the global marketplace.

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