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The wheeling and dealing in the auto industry has gone into high gear. Last year’s megamerger of Daimler-Benz and Chrysler began the process of consolidation, but it was always just a matter of time. The world cannot support 40 automakers. Manufacturers already have the facilities to make 20 million cars more than the market can absorb each year, and India and China are expected to push their own national champions in the coming years. One study estimates that overcapacity and inefficient supply and distribution chains cost automakers $130 billion a year, a sum greater than the combined profits of the entire industry.

Transformation of the industry is inevitable. The cost of developing a new automobile from the ground up now exceeds $3 billion. Customers are getting choosier, and the need to anticipate future trends — “smart” cars, green cars, minicars — demands ever more research and development. In this increasingly competitive environment, economies of scale, expertise and global production and distribution networks will be essential to long-term survival. Within a few years, there will be less than half the number of current automakers. Mr. Hiroshi Okuda, the president of Toyota Motors, envisions a world of five or six manufacturers. Toyota and Honda are almost certain to be among them, but beyond that, anything can happen.

In the wake of the DaimlerChrysler merger, Ford has agreed to buy the cars division of Volvo, Volvo is negotiating the purchase of Scania, the Swedish heavy-truck maker, and General Motors has virtually taken over Saab while increasing its stakes in Isuzu Motor Co. and Suzuki. The big questions now concern the fate of such manufacturers as Fiat, Peugeot, Renault, Nissan and Mitsubishi Motor Corp.

Yes, even in Japan, tectonic shifts in the industry are under way. Sales of new cars have declined for 22 consecutive months. Domestic production fell 8.4 percent last year, the first decline in three years, to reach the lowest level since 1979. Although Japanese automakers have forecast a turnaround in 1999, most industry analysts are skeptical, given the continuing weakness in the domestic economy and Asia, and fears of a slowdown in the United States.

The initial tremors were felt two years ago, when Ford Motor Co. bought a 33.4 percent stake in Mazda Motors. American claims to a chair in a Japanese boardroom jolted the industry. Not only was the shareholding seen as an encroachment upon an industry that Japan had claimed as its own, but it signaled a shift in a mind-set that has traditionally been antagonistic toward foreign direct investment.

Evidence of the revolution in Japanese thinking comes from officials in the Ministry of International Trade and Industry. Mr. Masao Omichi, director of MITI’s vehicle-industry division, recently endorsed efforts by Japanese automakers to ally with foreign manufacturers. Those comments came after officials at Nissan and DaimlerChrysler acknowledged that they were negotiating some form of tieup and follow heated speculation about American or European investment in Mitsubishi. In one sign of the progress that has been made, none of the rumors and speculation have triggered the breast-beating and soul searching about “foreign invasions” that were routine in the past.

With 11 automakers, Japan is ripe for a shakeout. Job losses and plant closings are inevitable. Recognizing that simple fact is critical. It should certainly influence the thinking of officials at the Japan Development Bank, who are reportedly considering a 100 billion yen loan for Nissan. It is far better that the market come up with the money and impetus for restructuring Nissan — as well as other manufacturers, and not only in the auto industry — and not the bureaucrats who have exhibited so much influence over investment decisions in the past.

An era is ending. The industries that made the world equate Japan with “quality manufacturing” will be vastly transformed. This country will still have the skills, the expertise and the creativity to turn out unique, quality products. But the marketplace is forcing companies to go global in ways that they never before contemplated. Merely setting up shop overseas will not be enough. Global alliances will become a key feature of the world economy, and that means abandoning the nationalism that has often dominated the thinking in boardrooms. In this, the auto industry is setting the pace for the 21st century economy.

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