IN the wake of the largest industrial merger, confirmed yesterday by Germany's Daimler-Benz and Chrysler of the US, and the continuing tussle over Rolls-Royce, the motor industry world-wide is ripe for further rationalisation.

Although the industry, certainly in Europe, is fairly buoyant, there is clearly far too much capacity in the medium to longer term.

This position, which has been caused in part by the series of Japanese ''implants'' into the UK, has heaped pressure on European car manufacturers (including extensive US-owned subsidiaries of Ford and General Motors) which have been forced to strive to compete with these ultra modern greenfield site operations.

Last week General Motors revealed it was to take a stake of between 35% and 50% in the motor business of Korean conglomerate Daewoo, which in turn is to take a 50% stake in British van maker LDV, formerly Leyland Daf.

There have also been hints that a Daewoo car production line might be set up in the UK.

Although Ford has taken over Jaguar and Aston Martin, the big German auto manufacturers have tended to be the main players in the market of late as BMW absorbed Rover while Volkswagen gobbled up Seat of Spain and Skoda of the Czech

Republic.

It was as BMW and

Volkswagen vied for the small but immensely prestigious Rolls-Royce Motors - which now seems to have gone VW's way after initial agreement between owners Vickers and BMW was announced last week - that Daimler-Benz secretly negotiated the much bigger merger with Chrysler.

The shake-out of the motor industry looks set to continue, especially in Europe with

governments and motor manufacturers all anxious to ensure that their car operations and jobs are not sacrificed on the altar of overcapacity.

It seems that they cannot all be successful and that before long there will be more more mergers. Ultimately some heads will roll . . . but whose?