Micheal Dunne writes in the WSJ:

As with solar panels, the decisive car battleground will be in Europe, where Germany is the only remaining competitive manufacturer of cars. Look for the Chinese to enter the continental market via the younger markets in Eastern Europe.But they won’t stop there Great Wall Motor , China’s largest SUV maker, has already planted showrooms in Rome and other European capitals.

How things play out in Europe will undoubtedly have implications for the U.S. market in the years ahead. If car demand in China remains tepid, you can bet on seeing more Chinese cars on European streets in a hurry. Then it will be up to the European Commission to determine just how far below market value China-made cars are priced.

China, already angry about new EU tariffs on solar panels, will no doubt counter punch with an investigation into Europe’s lucrative luxury car exports to China.

When trade tempers flare it is easy to lose sight of the core provocateur. There’s simply too much capacity. Massive investment in new car plants–by both foreign joint ventures and Chinese companies – has been based on the key assumption that China’s economy would continue to expand at high rates of growth. That’s no longer the case–and the pain is just starting to register.

Read more: http://blogs.wsj.com/chinarealtime/2013/06/12/with-capacity-to-the-gills-how-will-this-play-out/