Jan. 16 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner says the U.S. is in an automotive recession. It's not likely to end this year, and Wagoner and his fellow CEOs are looking abroad for help.

After falling 2.5 percent to the lowest in a decade last year, U.S. vehicle sales will drop further in 2008, industry officials and analysts said at the Detroit auto show this week.

The domestic auto market may shrink for the third straight year, battered by the worst housing slump in 16 years and the highest unemployment since late 2005. With sales stagnating in Europe and down in Japan as well, automakers are banking on developing markets such as China and India to ease the pain.

``It's not just the United States that's going down, it's western Europe,'' said Maryann Keller, an independent auto consultant based in Greenwich, Connecticut. ``Everybody is aiming at Russia, China and India.''

Ford Motor Co., the world's third-largest automaker, illustrates the diverging outlooks. Mark Fields, the company's president for the Americas, told reporters that the first half of 2008 ``will be challenging.''

John Parker, who oversees Asian operations, said Ford is studying whether to build a new plant in China after opening its second in September.

Ford has lost U.S. market share annually since 1995, and earnings in Europe and South America haven't overcome losses in North America. Its shares are trading at 22-year lows.

Emerging Markets

``China is a market that's going to be as big as the United States or EU,'' Parker told reporters at a dinner during the North American International Auto Show. ``We will do a third plant in China. The question is when.''

At a conference in Detroit yesterday, Ford's chief economist, Ellen Hughes-Cromwick, and GM's senior manager of economic and industry analysis, Ted Chu, both predicted 2008 vehicle sales of 15.7 million in the U.S., the world's largest auto market. That would be down from 16.1 million last year and the lowest total since 1998.

Worldwide industry sales may rise 4 percent this year to 75 million vehicles, Hughes-Cromwick said.

The biggest gains will come from countries where the rate of automobile ownership is climbing, Honda Motor Co. President Takeo Fukui said in an interview. ``China, Russia, Eastern Europe are all growing quickly,'' he said.

Honda said last month its global sales probably rose 6 percent to 3.76 million vehicles last year, as growth in emerging markets outpaced the U.S. and offset a 12 percent drop in Japan. The company said it expects sales in China to grow 17 percent, after a 31 percent advance in 2007.

Toyota's Outlook

Toyota Motor Corp. expects to boost sales in Asia outside Japan by 20 percent to 1.58 million vehicles this year, Executive Vice President Tokuichi Uranishi told reporters in Nagoya last month.

The company's sales in China may jump 43 percent to 700,000, he said. Toyota forecasts European volume to reach 1.27 million, helped by a record 200,000 in Russia.

GM believes sales in China will grow apace with the market's projected 15 percent increase this year, Kevin Wale, GM's top executive in the country, said Jan. 13. GM last year sold more than 1 million vehicles in China for the first time, he said.

The automaker also topped 1 million units in sales last year for the first time in the Latin America, Africa and Middle East region. Sales should increase in those markets again in 2008, said Maureen Kempston Darkes, the regional chief.

GM Versus Toyota

GM's Wagoner, who said on Jan. 14 that ``from the automotive perspective, it feels like'' a recession, also said growth outside the U.S. last year allowed GM to keep pace with Toyota as the Japanese rival tries to unseat the Detroit automaker as the world's largest.

GM's final tally will be ``close'' to Toyota's 9.37 million cars and trucks as GM had record sales in all regions outside the U.S., Wagoner said. GM will announce its results Jan. 23.

The company's shares rose 57 cents, or 2.6 percent, to $22.85 at 4:22 p.m. in New York Stock Exchange composite trading after reaching a 20-month low yesterday. Ford slid 11 cents to $5.86 and is at a 22-year low.

GM's 8.375 percent note due July 2033 rose 0.5 cent today to 78.25 cents on the dollar, yielding 10.92 percent, according to Trace, the NASD's bond-price reporting service. Ford's 7.45 percent note due July 2031 fell 0.5 cent to 71.5 cents on the dollar, yielding 10.82 percent.

Credit-default swaps on GM debt increased 39 basis points to 860 basis points, according to CMA Datavision in London. Ford's rose 27 basis points to 890. The contracts are designed to protect bondholders against default. An increase in the price indicates a decline in the perception of a company's credit quality.

Financial Pressure

Weakness in the U.S. adds to the financial pressure on GM, Ford and Chrysler LLC, all of which are losing money.

Chrysler is trying to end two years of losses by expanding outside North America, where it now gets more than 90 percent of its sales. The closely held company wants more partnerships such as one announced last week with Tokyo-based Nissan Motor Co. to supply small cars for Chrysler to sell in South America.

Keller, the independent analyst, cautioned that profit per vehicle will decline over time in developing markets, and automakers can't afford to neglect domestic sales.

``You better watch what happens at home,'' she said.

U.S. demand probably won't improve until next year, said Michael Jackson, CEO of AutoNation Inc., the largest publicly traded U.S. car dealer.

The housing slump and economic slowdown will require ``30 to 40 months to work through,'' Jackson said in an interview with Bloomberg Radio. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''

To contact the reporter on this story: Bill Koenig in Detroit at wkoenig@bloomberg.net;

Last Updated: January 16, 2008 17:06 EST