The bullish mood in Frankfurt belies an uncertain future for the car giants

A CASUAL visitor to this week's sprawling motor show in Frankfurt would conclude that the global car industry is robustly self-confident as it churns out new models to fill every niche of consumer demand and forges ahead with the green technologies that will reconcile the car with the future health of the planet. The reality is different. There is little or no growth in the carmakers' oldest markets. Demand in western Europe is flat; North American sales, hit by fall-out from the collapse of subprime lending, are on the brink of recession; and Japanese sales are shrinking as the population declines.

Everybody agrees that an industry needing growth must look to emerging markets such as China, India, Russia and Brazil. Carlos Ghosn, the boss of the Renault-Nissan alliance (see article), points out that sales in those countries doubled between 1999 and 2006. Now that these emerging markets have started to matter, the established carmakers are racing to find local partners and produce vehicles that will appeal to new buyers in Asia and South America. Volkswagen (VW), a latecomer to the party, this week announced the Up!, a €6,000 ($8,300) small car for emerging markets with a rear-mounted engine that harks back to the original VW Beetle.

Another danger for the established carmakers is the rate at which they are transferring technology to joint-venture partners as the price of market access. Some of those partners are turning into formidable competitors themselves, with ambitions both in their own markets and further afield. For the moment the threat is limited. Chinese and Indian firms will struggle to meet safety and emission standards in America, Japan and the European Union. But that will not hold them up for ever.

It is not just the scramble for customers in new markets that will divide the industry into winners and losers. So will the imposition of stricter emissions standards and ever more punitive taxes on polluting vehicles. Just now the industry is trying to have it both ways. It is arguing furiously against the European Commission's goal of reducing average fleet emissions to 130 grams of CO₂ per kilometre by 2012, and the new fuel-economy rules being drawn up in America. But at the same time it is talking a green game and showing off new fuel-sipping technologies.

Several manufacturers, such as Ford Europe and VW, have introduced high-economy sub-brands across their ranges. VW's green range is called BlueMotion, and this week Ford announced a similar idea called ECOnetic. Using affordable technologies such as improved aerodynamics, various electronic tweaks and low-resistance tyres, Ford's new Focus and VW's new Polo have CO₂ emissions comparable to Toyota's Prius hybrid. The southern European producers, Renault, PSA Peugeot Citroën and Fiat, already make large numbers of small cars with efficient diesel engines. But greenery poses more of a problem for BMW, Mercedes, Audi and Porsche. They are exploring every possibility—Porsche is even making a hybrid version of its indecently rapid Cayenne SUV—but they may simply have to make smaller, less powerful cars in future.

As to which of the green technologies will dominate in the future, the mantra of most car executives is that it will vary from market to market. In Europe ever-cleaner diesels lead the way and hybrids have yet to make much headway. In America, clean-air regulations that have blocked diesel cars are due to get tighter still. “I have the gravest doubts whether diesel will ever be a solution in the US,” says Bob Lutz, vice-chairman of General Motors (GM).

Accordingly, GM plans to produce a wide range of mainstream vehicles using the E-Flex powertrain that first appeared in its Volt concept car in Detroit earlier this year. At Frankfurt GM's Opel unit showed a small diesel-electric hybrid with a battery that can be recharged from the mains to give an electric-only range of 40 miles. On longer trips, the diesel engine acts as a generator to recharge the battery, rather than driving the wheels directly. Toyota, in contrast, relies on a more complex hybrid architecture in which both the petrol engine and the electric motor can drive the wheels. Mr Lutz says he believes that consumers will overwhelmingly prefer GM's approach. Place your bets.