And even as manufacturers struggle to meet demanding rules on tighter CO2 emissions, they will exploit new markets in the populous developing world.
Is the global motor industry, the driving force behind so much of last century's prosperity, wealth and freedom, sliding into irreversible decline? For champions of this business, the signs are not good. Oil production is said to have peaked. Global warming is causing many to question the sense of our dependence on the car, and the imperative to develop affordable, zero-emission vehicles and the fuelling infrastructure to support them is decades away. And although the scale of the global car market is vast - about 60 million units annually - great chunks of the industry struggle to make any money at all.
The US's domestic makers GM, Ford and Chrysler - once the powerhouses of the global industry - are being ravaged by losses. Other makers subsist on margins that seem risible in the face of the industry's capital demands, a problem compounded by a consistent fall in average new car prices over the past 10 years or more.
Listen to the media in Britain and you might believe that the beginning of the end of Margaret Thatcher's great car economy has begun. From attacks on four-wheel-drive vehicles to proposals for swingeing congestion charges on big CO2 emitters in London - never mind growing anti-car sentiment fuelled by concerns about global warming - the car, its use and its makers are under pressure as never before.
By far the most serious threat of them all is the environmental one. The industry has made great strides in cutting dirty emissions - introducing lead-free petrol and catalytic converters, for example - but the climate-change enemy is carbon dioxide (see panel, p53).
Says Richard Parry-Jones, Ford's group vice-president for product development and chief technical officer: 'Climate change is the biggest challenge we're all focused on. It's the most disturbing factor, the biggest change agent and requires a disproportionate research and development effort because it's new.'
For Thierry Dombreval, Toyota Motor Europe's executive vice-president and COO, the automotive industry's challenge 'is to provide increased mobility to new markets, while reducing the impact of the automobile on the environment'. A concise assessment, but one that contains the odd towering hurdle.
And that's not all. Parry-Jones adds 'fragmentation of the market' to his list of the industry's travails, or the 'disaggregation of scale', which is shorthand for the market's desire for ever more targeted models and personalised cars. Thirty years ago, Ford of Britain offered five model ranges, but today it has a nine-strong line-up, to which a 10th model is shortly to be added - and a much smaller UK market share. 'We used to bank on annual production runs of 600,000 units; now it can be as little as 30,000 a year. If the market has fragmented, so has the business model.'
The cost burden of model proliferation, over-capacity, static markets and the declining price of cars - not to mention the R&D challenge of global warming - is placing huge pressures on the profits of an industry that too often swims in red ink. But the real agenda-setter is global warming. 'Environmental pressures are driving the industry at the moment,' says Tom De Vleeschauwer of Global Insight, the market intelligence specialists. He cites the 40% rise of BMW's R&D spend last year in support of its CO2-reducing 'EfficientDynamics' programme. Even so, the forthcoming EU emissions limit of 130 grammes of CO2 per km represents an insurmountable hurdle for companies like BMW in the near term, because it builds thirsty cars, mostly.
Says Peter Schmidt of Automotive Industry Data (AID), publisher of Central and Eastern Europe Car Sales Prospects to 2012: 'If the 130 g/km corporate average fuel consumption requirement is introduced, it will be death for Mercedes, BMW and Jaguar.'
He believes that the EU will make concessions, 'as long as the manufacturers improve. They more or less have a cast-iron agreement from Brussels on exemptions, but the EU is looking for a continuous improvement as a gesture of goodwill. Porsche, for instance, has said that by 2011 it will show a 25% improvement in the fuel economy of its sports cars.'
One of the sickest car-makers today is among the largest and best known - Ford. A manufacturing icon, this is the firm that practically wrote the book on modern mass-production techniques. However, last year Ford lost $12.8bn, close to an industry record, much of it by its North American operations, although a substantial contribution came from its Jaguar subsidiary (now up for sale), which can usually be relied upon to burn off a few hundred million dollars.
Ford's problems are legion and well known, not least union troubles and the huge legacy costs of its retired former workforce. But there's no doubt that its over-reliance on big-engined, gas-guzzling SUVs that people no longer want to buy has been a contributory factor, in its domestic market at least. That the US's 'Big Three' label has been forcibly retired - because Toyota's US operations make it bigger than Chrysler - indicates how its indigenous car industry is contracting. More humiliating still was that last year Toyota ended General Motors' unbroken 76-year run as the world's biggest-selling car manufacturer.
But even Japan, for so long the dynamic powerhouse of the industry, has had its troubles. Nissan, Mitsubishi and Mazda have all been staring into the abyss in the past decade. But the giant of the Japanese - and global - industry is Toyota, whose profitability is legendary. Its market capitalisation exceeds that of GM, Ford and Chrysler combined, and it sits on a vast cash mountain, proving that there is plenty of life left in the business if you know where to look. Another Japanese firm, the mildly maverick Honda - the world's biggest maker of internal combustion engines - is 'fabulously well managed', according to Max Warburton, UBS's head of automotive research.
Closer to home, the prospects for the so-called premium brands, led by Audi, BMW and Mercedes but also including Britain's Jaguar and Land Rover, look less rosy in the glare of global warming. Their problem is simple - the average CO2 output of their models lies in the 160 to 190 g/km range, a long way over that 130 g/km target. Hitting it is a big ask for companies making machines such as the 2.5 tonne Range Rover, while the Mercedes S Class, BMW 7 Series and Audi A8 saloons aren't much less corpulent.
Making smaller cars is one way out, developing hybrid technology another, but both options are expensive. The challenge is substantial - and a major reason, insiders say, why Ford is so eager to dispose of its famous British brands. Aston Martin has gone already, and the 'for sale' sticker is now on the windscreens of both Jaguar and Land Rover.
But for the European volume manufacturers, says Warburton - the likes of the Volkswagen Group, Fiat, Renault and PSA Peugeot Citroen: 'Management has changed, and profitability is improving. The US car-makers have been getting hosed down by the Asians, so the Europeans have been trying to avoid the same. I'd argue that the industry is now better run.'
In support, he points out that 'the total value of the Euro industry is in equity - there is no debt, overall, in western Europe. They've cut capital expenditure, and most are healthily profitable, despite flat demand. There's not too much government meddling and the unions are not very resistant; that has allowed the industry to cut 60,000 heads in the past five years.'
Even so, Warburton describes Europe's margins as pathetic. 'But they are growing, if from a low base. If you look at the profitability pool of the volume players, it has grown from EUR2bn in 2003 to EUR4bn in 2006, though the margin is only 1.2%.' And of course, soft-roaders and high-performance car sales will sag under the weight of emissions targets.
Those emissions again. Reducing its carbon footprint will stay at the top of the industry's to-do list for some time. For despite vast sums of money and research effort over several decades, true clean-car technology has yet to appear on our streets. Despite much talk of hydrogen fuel cell-powered electric cars - Honda is to be first to market with 100 such bespoke vehicles available for lease next year - Ford's Parry-Jones doesn't expect them to be a significant part of sales for well over a decade. The inherently dirty, smelly and old-fashioned internal combustion engine will be around for a good while yet, he says. 'It will still be dominant in 2020, but there will be a bigger slice of hybrids, which will be of the plug-in variety for large and luxury vehicles.'
Plug-in hybrids, propelled entirely by electric motors, use the domestic mains to charge overnight for short-range commutes, while an on-board generator - a small petrol or diesel engine or a fuel cell - charges the car's batteries for longer journeys. But in an oblique attack on Toyota, BMW's R&D chief Norbert Reithofer argues that hybrids can only be an intermediate step. 'The environment does not really stand to benefit from the combination of an inefficient engine with an electric motor and a battery followed by a PR campaign that sounds as if the perpetual motion machine has just been invented.'
Parry-Jones sees a small number of electric city cars by 2020, and biofuels playing a more significant role. 'We'll still be using fossil fuel, but less of it, and electricity will be starting to bite,' he says. Beyond 2020, he doesn't write off the emergence of zero-emission hydrogen fuel cell vehicles, but is doubtful.
So for the next 13 years at least, car technology will be based around 'intermediate solutions' to lessen the eco-impact of vehicles, tackling the CO2 symptoms rather than providing a genuine cure.
And both hybrid petrol/electric cars and the use of biofuels have attracted their fair share of eco-brickbats themselves. Despite their popularity with Hollywood celebs like Julia Roberts, Tom Hanks and Cameron Diaz, hybrids such as Toyota's Prius may turn out to have been a triumph of green marketing rather than green living - the jury is out on their likely whole-life environmental impact. And critics say that biofuel cultivation threatens to skew the global market in food crops, to the considerable detriment of developing nations.
Against this background of technological change and uncertainty, some say that the European operations of Ford and GM could end up with new owners. Although they remain marginally profitable, these big subsidiaries are a significant distraction from the business in hand - that of restoring Detroit to fiscal health. 'Both Ford and GM have managed their balance sheets to amass big cash piles and take advantage of cheap money to borrow,' says Warburton. 'But the cash burn is still pretty frightening. However, tens of thousands of heads have gone, and the bosses who previously blamed the economy for poor performance have now faced up to the problems.'
As it is, Warburton argues, the collapse of Ford, GM and Chrysler is good for everyone else. 'The Japanese are making their profits on the retreat of US makers, their profitability achieved out of the umbrella that those domestic makers provide because they cannot sell for as little as the Japanese.
'Will the US industry go head-to-head with United Auto Workers, break the unions and stop paying (workers) $100,000 for bolting cars together?' he asks. If they do, they could become competitive again.
In Europe, plenty of car-makers have benefited from the sudden growth of markets in Russia and central and eastern Europe. Says AID's Schmidt: 'What we're seeing is a godsend to the industry here. Western Europe is at best static, but that's more than offset by east European markets, and Russia is growing even faster. So there's a drastic shift in priorities and markets. The EU is now a bigger market than the US, comprising 27 countries and 490 million people; the US has just over 300 million.'
Indeed, despite the widespread and apparently very real threat of global warming, the worldwide popularity of the car is not so much in decline as about to shift from fifth gear into sixth. Globally, about 60 million cars are produced every year, and that figure is accelerating to 80 million, says Global Insight's De Vleeschauwer, who reckons this milestone will be reached by 2020.
Consumers in the developed West may have a more ambivalent relationship with the car than their parents did, but elsewhere it remains a symbol of personal economic progress, and demand is booming. Much of this predicted expansion will be driven by Brazil, Russia, India and China. Says Schmidt: 'Countries that were barely a blip on the radar are becoming powerhouses. In China, a milestone has been reached almost unnoticed: in the first half of this year, it overtook Japan as Asia's biggest car market.'
In Russia, too, growth in new-car demand is almost on a par with China. 'This year,' says Schmidt, 'the Russian market is as big as France and Italy. A few years ago it was an also-ran. What we are witnessing is an almost total change in the automotive world order.'
Toyota's Dombreval also expects impressive growth in Brazil, Russia, India and China and perhaps elsewhere. 'In 2006, about 90% of the global population did not own a car.' From a climate-change perspective, that statistic makes the blood run cold, especially given that the prospect of anything even close to a truly green car is so distant.
There are two main challenges to urban car use, says Dombreval: pollution and congestion. He believes car-makers are responding positively to the first. With regard to congestion, 'they need to work closely with public authorities to develop and introduce intelligent transport management systems that mitigate congestion and improve mobility.
'We need to be selective in our mode of transport. Cars are not the answer to all urban transport needs, but, equally, we do not think it likely that consumers will give up the convenience of cars, which have opened opportunities for employment and leisure that even the most sophisticated public transport cannot provide.'
So reports of the death of the car industry may be exaggerated. The US auto industry alone accounts for 10% of America's economy, while Fortune magazine's recent Global 500 round-up of the world's biggest companies revealed that motor vehicles and parts make up the third-largest sector, with revenues of nearly $2trn in 2006. That vast chunk of the global economy is not about to disappear overnight.
And yet the potential impact of global warming - and the industry's ability to engage with it - remains the great unknown. Faced with sudden and swingeing action against CO2 producers - provoked by, say, a catastrophic climate-change event or series of events - car-making could change rapidly. How the industry might deal with that and whether it can develop more sustainable models of growth in response to climate-change concerns could decide the future of a business that has, more than almost any other, defined the world we live in today.
- Cars, carbon dioxide and red tape
Cars have always polluted, and since the passing of California's Clean Air Act 1996, efforts have concentrated on removing dirty emissions such as heavy metals, unburnt hydrocarbons, particulates (soot) and nitrogen oxides from their exhausts. And the strides here have been mighty - for example, the removal of lead from petrol and the introduction of catalytic convertors and 'lean burn' technologies. But now carbon dioxide is the issue, and it's technically a much trickier nut to crack. However clean the combustion process, burning oil will always produce CO2. The only options are to burn less through improved fuel consumption or to adopt radical, non-fossil-based fuels such as hydrogen.
While the US is currently more concerned about fuel consumption - which is directly linked to CO2 output - and the emerging markets argue that the developed world should bear the brunt of regulation aimed at curbing the consequences of global warming, the EU is mandating a 130 g/km corporate fleet average by 2012 (it currently stands at 162 g/km) and a challenging 100 g/km by 2020. That goal will be achieved mainly through technical developments but also because people will buy smaller cars.
'But,' says Thierry Dombreval, COO at Toyota Motor Europe, 'whatever the regulatory direction - and these could vary depending on local markets, conditions and needs - it is important that the consumer supports it. Regulations can be introduced, but such measures can carry costs and customers must be willing to pay. If they're not, then either the car companies' viability is threatened or the regulation or fiscal measure will plainly have failed.'
Richard Parry-Jones, group chief technical officer at Ford, worries about regulatory confusion. 'The bigger challenge is the lack of harmony. Too many countries have their own view - which destroys economies of scale. Even municipal government is making regulations. If every authority decides on different criteria, we'll end up with different, costly solutions to a global problem.'
1973: First fuel crisis produces dash to economy cars 1975: Catalytic converters introduced to meet tightening US emission regulations 1984: Fiat and VW introduce special economy models, some with fuel-saving stop-start systems, to an indifferent market 1992: Catalytic converters mandated within the EU 1997: Toyota releases first-generation Prius hybrid car to Japanese motorists 1999: Honda launches Insight, the first mass-production petrol/electric hybrid to be sold into the US market 1999: Ford launches huge, much criticised Excursion SUV. It's almost 19ft long, weighs more than three tonnes and has 5.4 litre to 7.3 litre engines 2000: Audi launches lightweight A2 hatchback - one version achieving 90 mpg-plus - as an upmarket econo-car, but withdraws it after five years of slow sales 2003: Honda delivers first - and only - experimental hydrogen fuel-cell car to a customer 2005: Toyota launches successful second-generation Prius hybrid. Hollywood celebrities, including Tom Hanks and Leonardo DiCaprio, queue up to drive one 2007: Millionth hybrid produced by Toyota 2007: GM announces Volt plug-in hybrid concept, for production in 2012 2007: VW launches Bluemotion diesel Polo, which produces less CO2 than a Prius 2008: London's congestion charge to become a CO2 charge. Honda to lease 100 hydrogen fuel-cell cars to customers.