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John McElroy: Big Three unlikely to turn Big One

Joanne Jiu From Gasgoo.com| December 29 , 2008

As a famous auto industry journalist, John McElroy puts his automotive background to good use. His previous experience includes five years as Detroit Editor of Road & Track magazine, and as the American correspondent for World Cars, which was published by the Automobile Club of Italy. Most recently he was Editorial Director of Automotive Industries magazine.

He has written the annual automotive entry for the Encyclopedia Britannica Yearbook and has five daily radio reports on WWJ 950 AM in Detroit, the all-news CBS affiliate. He also hosts the television programs "Autoline Detroit" and "American Driver" which air on Detroit Public Television. He is frequently interviewed by the media, asked to speak to automakers, suppliers and industry organizations. Here John McElroy brings his understanding of the US auto industry.

Gasgoo.com: Recently the US federal government would provide up to $17.4 billion to troubled automakers General Motors and Chrysler, but warned that the loans would have to be paid back in several months if the companies fail to come up with restructuring plans. Should or could the Detroit 3 become the Detroit 1?

John McElroy: Big Three unlikely to turn Big OneJohn McElroy: It's unlikely the Big Three will combine to become the Big One. While there are questions about Chrysler being able to go it alone in the long term, both GM and Ford will remain as independent automakers. Even in their weakened state, GM and Ford are still very large and capable companies.

The main problem facing the Big Three is their legacy costs. These are mostly generous payments that they agreed to give to their union workers going back decades ago, including health care, pensions and wages. While they will not eliminate these costs entirely, they will be reduced to match what foreign automakers are paying their workers in the United States.

Gasgoo.com: There're lots of rumors about Chinese automakers' intention to make overseas expansion (majorly the Detroit player's sub-brands). Could it turn truth?

John McElroy: I have no question there are several Chinese automakers (and European) that are very interested in buying some of the brands that General Motors would like to sell: Hummer, Saturn, and Saab. It would give them an instant presence in the American market, with an established brand and a nation-wide dealer network.

Gasgoo.com: According to the NADA, about 2,000 new-vehicle dealerships in the US— which works out to one of every 10 — are expected to shutter in 2008 and 2009. So how would the dealers survive the hardship?

John McElroy: Many dealers in the U.S.  are not going to survive this downturn. In one sense this will actually be good for the market. For years, analysts have been saying that the Big Three have too many dealers. However, it would be better to have the automakers figure out which regional markets have too many dealers and work on reducing them in an organized fashion. With the current economic recessions, they are going to have little control over which dealers survive and which don't.

Gasgoo.com: We can hear news and reports about more governments mulling to or have already helped their auto industry. How do you think of the relationship between Detroit and Washington (or the industry and the government)?

John McElroy: I think that the relationship between Detroit and Washington will be rocky, but once the car companies complete their restructuring I think that relationship will get much, much better.

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