A neon-yellow Nissan Xterra jutted recently from the front row of vehicles at Don Herring Mitsubishi in Plano, Texas.

It was flanked by two other used, late-model “aliens,” a Chevy Silverado pickup and a Ford Expedition SUV. All were symbols of the challenges facing Mitsubishi Motors Co.’s dealers.

In the first half of 2004, new car and truck sales at the formerly high-flying Japanese automaker plummeted 26.7 percent in the United States. That followed a 25.6 percent drop in 2003. Moreover, the company is $9 billion in debt, faces a recall scandal in Japan and is dropping two of its eight models in the United States.

As Mitsubishi’s 630 U.S. dealers await a reorganization, many have been forced to double and triple their sales of used cars and trucks to compensate for the decline in new vehicles. In fact, some sell more used vehicles now than new ones.

“Whenever new cars become tougher to sell, you have to rely on your service department and used-car sales,” said Herring, a dealer for 33 years.

And while Mitsubishi is largely responsible for its own troubles, it may be part of a bigger drama unfolding in the auto industry worldwide, some observers say.

For years, automakers have rushed to open new factories in developing regions such as China, Southeast Asia and Mexico. But the industry’s growing production capacity is creating intense competition among the world’s 40 or so automakers.

Mitsubishi’s problems “tee up a challenging period in the industry,” said David Cole, director of the Center for Automotive Research in Ann Arbor, Mich.

The automaker is just the latest in a long line of manufacturers that have suffered similar freefalls in sales and revenue in the last decade or so, including Audi, the Chrysler Group, Daewoo, Ford, General Motors, Hyundai, Isuzu, Kia, Mazda, Nissan and Volkswagen. Most eventually recovered.

“Worldwide, we have production capacity for 70 to 80 million vehicles,” Cole said. “We have 50 to 60 million sales. When you have that level of overcapacity, you get cutthroat competition.”

In the United States alone, “manufacturers will build 18.7 million vehicles next year in a market that has never bought more than 17.6 million,” said James Ziegler, a Georgia retail consultant who advises dealers. “Who is going to buy all of those cars?”

In an effort to keep their factories running at capacity _ and spread their huge costs over as many vehicles as they can _ automakers continue to offer incentives such as long warranties and low-interest financing. But those inducements cost millions and can drain a small or weak manufacturer.

“To some extent, I think what is developing here is the two strongest players in the industry _ probably Toyota and GM _ will square off at some point, and the fallout will kill off some of the weaker parts of the industry,” Cole said. “What Mitsubishi is facing is the restructuring of the global auto industry.”

The last few months have been rough. First, Mitsubishi’s minority partner, DaimlerChrysler, decided not to invest any more money in the debt-laden company. Then the company announced that it would lay off 1,200 workers at its only U.S. assembly plant in Illinois and discontinue two of its eight models _ the Diamante luxury sedan and Montero Sport mid-size sport-utility vehicle.

In late July, the Toyko-based company released its fiscal first-quarter results, reporting a net loss of $492.8 million and a 30 percent decline in U.S. sales.

Part of Mitsubishi’s problem is it has never established a solid niche or image in the United States, analysts say. Consequently, the company has relied heavily on discounts and special financing to sell vehicles.

“It all comes down to product, and they just haven’t had the money to truly develop their products,” said Wesley R. Brown, an analyst with industry consultant Iceology in Los Angeles. “From our perspective, there are too many brands in the marketplace and too many models. When you have this many, it’s very difficult for a manufacturer like Mitsubishi to have a clearly defined product line.”

Most analysts say they don’t know enough about Mitsubishi’s financial state to predict its chances for survival. Many think that the company will pull out of its dive the same way that Hyundai, Kia and Nissan did earlier. But it won’t be easy, they say.

“I think they are facing a very difficult challenge,” Cole said. “It’s an unfolding drama. It’s sort of Scene 12, Act 57, and it will continue for some time.”

In July, Mitsubishi fought back with what it says is the best new-car warranty in the industry. It initially covers everything _ including maintenance _ for three years or 45,000 miles. Beyond that, the warranty covers the engine, transmission and other parts of the so-called powertrain for 10 years or 100,000 miles.

Ken Konieczka, director of Mitsubishi’s Southwest region, said sales in the Dallas area jumped 60 percent in July, probably pushed up by the new warranties.

“One month is not a trend, but there is a lot of optimism going into August,” Konieczka said.

Next summer, dealers are supposed to get a new Eclipse sport-compact and a mid-size pickup based on the Dodge Dakota.

Until then, they are adjusting to their factory’s difficulties by selling more used vehicles _ which often generate higher profits than new vehicles _ and ratcheting up sales in their parts and service departments.

“You have to empathize with the dealers,” said Ziegler, the retail auto consultant. “Here they are with major financial commitments in their facilities and, through no fault of their own, are facing some tough times.”

Mitsubishi has 10 dealerships in Dallas-Fort Worth, about half of them standalone.

Until recently, Lewisville Mitsubishi sold more used vehicles than new ones, said general manager Doug Baum, who bought the dealership with his brother 18 months ago. The standalone dealership, which has 39 employees, is now selling about 50 new and 50 used vehicles a month, he said.

“We thought we’d be selling about 100 new a month when we bought the dealership,” said Baum, Mitsubishi’s top seller in the region. “I’m hoping now that it will get back up to that level in the next six months.”

Herring’s new-vehicle sales have fallen about 56 percent over the last three years from 2,981 in 2001 _ when his stores in Plano and Dallas were the top Mitsubishi retailers in the United States _ to 1,317 last year.

In 2002, Herring’s standalone dealerships sold about 2,700 new vehicles and 1,350 used ones. Last year, they sold about 1,300 new and 1,950 used. Herring has cut the staff at his two stores by 20 percent since 2002, to a total of about 80 people.

Nonetheless, he said, the dealerships remain profitable _ sustained by used-vehicle sales and strong parts and service departments.

“I sleep at night,” said Herring, whose 35-year-old son and 31-year-old daughter work in the business. “I was a Volkswagen dealer when they sold 350,000 cars in `85, and I was a dealer when they sold 48,000 cars in `93. Basically, you focus on your business and keep going.

“I feel very confident about Mitsubishi as a car company moving forward,” he said.