Of the hundreds of thousands of South Korean workers who downed tools for a two-day strike last week in protest against the harsh economic reforms being forced on the country, it is the nation's car workers who may find they have the most to lose. The collapse of the Korean economy, alongside similar downturns in Indonesia, Thailand and the Philippines, has not only swallowed up domestic car markets, but is threatening to disrupt the entire global car industry. The financial crisis that is continuing to engulf Asia has come at a time when several key global car markets are also set to turn down. Japan is teetering on the brink of recession, South American registrations are expected to drop by 22 per cent next year and in North America slow growth at best is seen. Even Europe, which looks set to enjoy a record year, is widely adjudged to be at the peak of its cycle. Furthermore, overcapacity in the industry worldwide is now estimated at 40 per cent. In South Korea, the figure is much higher. 'In 1996 South Korea became the fifth-largest vehicle manufacturing nation in the world,' the Economist Intelligence Unit said in this year's World Car Forecasts report. 'In 1998 it is likely to fall down the rankings - to ninth or even 10th place.' Graeme Maxton, the report's author, believes in the long-term there will be only two Korean car manufacturers left, the well-established Hyundai Motor and Samsung, the latest entrant into the market. Of the rest, Daewoo is already rapidly amalgamating Ssangyong into its ranks, while Kia looks likely to be snapped up. Indeed Daewoo itself may end up becoming a victim of the consolidation, Mr Maxton said. Similar forces are expected to come into play in Japan, where the futures of medium-sized firms such as Suzuki, Subaru and Mitsubishi are in doubt, while in Malaysia, the government is expected to face increasing pressure to sell Proton. 'There are pressures on these car companies because the demand is simply not there,' said Christian Breitsprecher, analyst at Trinkhaus and Burkhardt in Frankfurt. 'Their finances are weak, they are vulnerable to takeover, but that also makes them less attractive.' In the longer term even European car-makers - who are enjoying a boom in their home markets - could succumb to the same pressures, as markets in their region begin to turn down. Such a contraction in global markets is bad for the entire industry, but analysts believe Korean manufacturers could be the worst hit. In the domestic market, the number of registrations of passenger cars is forecast to fall 63 per cent to 425,000 this year, from 1.16 million last year, the EIU said. Export markets will also be unable to offset the decline, given that most Korean car firms do not have the products, the product quality or the distribution network to adequately tap the European and United States markets. While analysts said this year could turn out to be the nadir for registrations in South Korea, the subsequent expected rise looks set to be sluggish, with domestic car purchasing only breaking back through the one million unit level after 2002. Globally it means that total registrations of new passenger cars will fall 4.1 per cent to 34.6 million units. 'It sounds catastrophic . . . 1998 will definitely see a slowdown or fall in South America, a collapse in Asia, and stagnation in Japan.' said IMI Sigeco analyst Sabine Blumel. In Japan in particular, the medium-sized car manufacturers are not expected to survive in the long term. Ms Blumel said the downturn in Japan, which is expected to see registrations drop 8.7 per cent to 4.1 million units this year, is likely to cause significant problems for manufacturers. Analysts said such bearish market conditions should make some Japanese and Korean firms potentially cheap acquisition targets for European and US companies seeking a foothold in Asia, but most concede that any consolidation is unlikely to be cross-border. Enskilda Securities analyst Lothar Lubinetzki believes that even between Japan and Korea there is such a cultural chasm that these two geographically close countries are unlikely to strike any mergers. 'Either some companies are simply going to go bankrupt, because they cannot find a buyer, or governments may step in to save them, which would cause political problems,' he said. Ford Motor of the US has attempted a closer relationship with Mazda by buying a 35 per cent stake in the company, and there are ongoing rumours that DaimlerChrysler is considering a deal to purchase the trucks division of Nissan, but analysts note that few are willing to launch into a full-scale merger. Among the European car-makers, the sole example of closer Euro-Asian co-ordination is that between Sweden's Volvo and Japan's Mitsubishi, which together produce the V40 from a single plant in the Netherlands. Most analysts expect such piecemeal alliances to be the preferred pattern, rather than wholesale cross-border consolidation, and that much of the expected shrinking in the industry will be through national amalgamation. Mr Breitsprecher said very few Asian car-makers were able to give US or European buyers any prospects for effective due diligence. They will probably not be very financially strong, not very transparent, and often be part of a bigger conglomerate. 'There are a whole load of problems,' he said. 'When someone from a Western industrial company gets interested in an emerging market company, it takes a lot more than courage to think about buying it.'