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America's growing overseas trade ties; Will GM-Toyota link shake the auto world?

This is one production tie-up that could send shock waves throughout the world auto industry.

General Motors and Toyota Motors -- the world's No. 1 and 2 auto manufacturers -- are negotiating to jointly produce, initially, between 300,000 and 500,000 subcompacts a year at a GM plant in the United States.

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Industry analysts here see this as just the first step in a drastic industrial realignment throughout the world including technical, capital, and production tie-ups and mergers, and the possible disappearance of some weaker competitors.

Despite bitter American complaints about Japanese auto exports, there are already strong cooperative links between Detroit and Tokyo. But these are dwarfed by the potential offered by GM and Toyota pooling their financial resources to dominate the increasingly costly battle to produce the ultimate fuel-efficient passenger car.

Within the Japanese auto industry, Toyota's rivals are already preparing for the worst by forging their own alliances across the globe.

2 Although Japan is now the world's top motor vehicle producer (outdoing the US last year by some 3 million units) no one is celebrating. ''It's more a matter of current American weakness -- which won't necessarily last -- than of our own particular strength,'' insists one senior executive.

There is a feeling here that the peak has been passed and that it is going to be more difficult from now on. The US, many experts insist, could soon be back in the driver's seat.

There are currently 11 manufacturers in Japan competing for a shrinking market. Export self-restraint agreements with the United States and parts of Europe have cut into exports. This forces manufacturers to concentrate their sales strategy more on the domestic market. But this is now close to the saturation point.

Less than 20 percent of new car sales now are first-time buyers. And the average penny-conscious Japanese motorist is hanging onto his old model for six years against the previous four, no longer ashamed to buy a secondhand model.

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A drastic increase in quality has overcome the old trend towards built-in obsolesence here, making secondhand cars a good buy in recent years.

There is general agreement now that Japan, with half the population of the United States, can no longer afford the luxury of 11 separate manufacturers. Toyota now has about 40 percent of the domestic market, and Nissan just under 30 . There simply isn't enough left to support another nine companies.

''What you are seeing now is a crucial period when sales and production strategy undergoes a drastic change,'' says a Nissan spokesman. ''The domestic market is going to get more difficult from now on. And there is a growing acceptance that the future lies in more overseas production facilities and tie-ups with other makers for survival. We no longer believe we can go it alone in the world.''

General Motors seems destined to play a key catalyst role. It already has a small equity share in the relatively weak Suzuki Motors, and a 34.2 percent share in Isuzu motors, which is currently suffering from lack of a good product. But Isuzu's fortunes could change drastically if, as expected, GM allows it to build and market its ''J'' car in Japan and overseas.

A GM-Toyota tie-up is seen as luring Mitsubishi Motors, with the abundant cash reserves of the powerful Mitsubishi group behind it, into closer embrace with Chrysler Corporation.

Chrysler has a 15 percent share of Mitsubishi, and the two have been developing their cooperation steadily in recent years. Co-production in the United States is now considered a distinct possibility by many industry analysts here.

Ford, meanwhile, has an arrangement with Toyo Kogyo (maker of Mazda cars), under which the Japanese firm looks like becoming a major parts supplier to its partner's global operations.

With no American partners available for them, other major Japanese makers are going it alone in the American market and developing networks of cooperation in Europe.

Nissan, for example, is building a truck assembly plant in Smyrna, Tennessee. It has its own vehicle assembly operations in Mexico and Australia and is about to announce a decision on a passenger car assembly plant in Britain. Both it and Toyota are established in joint ventures in Spain, while Nissan plans to start joint production in Italy next year with Alfa Romeo. At the same time, it will build a Volkswagen-developed ''up market'' (higher-priced) car in Japan.

Honda, which is planning to assemble passenger cars in Marysville, Ohio, on its own, has also come down in favor of strengthening its ties with Europe to combat the American ties forged by its rivals. It is engaged already in a joint production venture with Britain's BL (formerly British Leyland), which many analysts feel will help the Japanese firm expand its model range - now dominated by smaller vehicles - to compete more effectively internationally against the GM-Toyota, Chrysler-Mitsubishi combines.

The battle for survival is also persuading Japanese companies to look for allies even amongst the newly emerging auto manufacturing countries in Asia.

Toyota and Nissan, for example, are competing to be chosen as partner with a Taiwanese company to develop the island's nascent auto industry. Mitsubishi Motors has signed up to help the expansion-minded South Koreans, while Suzuki motors is to cooperate with India in small car production.

The ultimate aim for everyone is expanded market share and a broader capital base to fund the multi-billion dollar search for a better internal combustion engine and ever lighter-weight materials to make a gallon of gasoline go much further. The prize is the prospect of being first with a truly ''world car'' based on an international division of labor.

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