The global auto industry starts 2010 with an almighty hangover. Last year was awful but momentous. The US saw two of Detroit's “big three” automakers collapse into Chapter 11, then emerge, slimmer and under new ownership, after billions in taxpayer bail-outs. China, meanwhile, toppled the US from its decades-long position as the world's largest auto market. But what made 2009 less awful than it might have been – as well as propelling the Chinese car buyer – was government support, above all “scrappage” incentives.

That is a problem. Beijing's initiatives, including reduced sales taxes, helped put cars in reach of many consumers for the first time. But in developed markets, scrappage schemes mostly pulled forward future demand, weakening 2010's potential recovery, and probably putting pressure on prices. PwC Autofacts estimates global light vehicle assembly at 56m units in 2009, recovering to 61m in 2010; assembly volumes will not beat 2007 pre-crisis levels until 2012. The deeper problem is that, outside the US, government aid has meant carmakers have avoided vitally needed shrinkage. In Europe, extraordinarily, not one plant has closed. Sergio Marchionne, now chief of both Fiat and Chrysler, warns that overcapacity could depress European returns for years.

Further out loom one big opportunity and one big challenge. The opportunity is the increasing affluence of emerging market consumers, especially in Brazil, Russia, India and China. Goldman Sachs estimates this could push up global car sales by 70 per cent over the next decade, adding $86bn to industry profits over 10 years. The challenge is the cost of developing technology to reduce carbon dioxide emissions, which could cost more than $100bn. While auto mergers have a chequered history, the need to tackle these two factors is likely to spur more international alliances between automakers. Last month's tie-up between Volkswagen and Suzuki may point the way.