As U.S. automakers thrive, Detroit goes bankrupt

Back in the post-war ‘50s, Charlie Wilson, the then CEO of GM said, “As GM goes, so goes America.” Today’s events belie that optimism and may more likely be prophetic of the U.S.’s stagnating economy. But then The Motor City was the car capital of the world in 1955. Six decades later, the “motor” has mostly moved out of the city, and the ugly shade of bankruptcy crept in, Bloomberg news reported.

Many of the factories that used to dot the city and employ thousands have moved to suburbs, other U.S. states, or to China and Brazil as the auto industry was globalized and manufacturing focused on producing faster and less expensive cars, said David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Michigan, and son of a General Motors Co. (GM) president.

Last Thursday, Detroit became the most populous U.S. city to file for bankruptcy seeking court protection from creditors while it tries to eliminate a budget deficit and cut long-term debt. However, lawyers representing pensioners and two city pension funds got a hearing Thursday before Circuit Judge Rosemarie Aquilina to stop the filing only to learn that unelected emergency manager Kevyn Orr had made the filing 5 minutes before their hearing. Aquilina ruled on Friday that the bankruptcy filing is unconstitutional and must be rescinded. Michigan Attorney General Bill Schuette says he will appeal Aquilina’s rulings and wants her orders stayed pending the appeals.

Nevertheless, GM builds the plug-in hybrid Chevrolet Volt at a factory in Detroit. And the headquarters of General Motors Co. still stands in Detroit, Michigan: so much for the positive side.

“The auto industry was forced to change, driven by industry pressure, and it evolved,” Cole said. “Detroit did not. It’s sad to see. We just took it all for granted,” which is obviously all on the down side.

The City of Detroit, hamstrung by $18 billion in debt, was forced to file the largest bankruptcy for a U.S. municipality yesterday. Yet GM, Ford Motor Co. (F) and Chrysler Group LLC, the automakers that call the region home, are profitable and thriving.

“For much of the 20th century, the auto industry and Detroit were synonymous,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “You couldn’t drive through Detroit but be aware of the presence of the automakers.” It was still basking in the light of Charlie Wilson’s post-war optimism.

Now, “The industry has become both global and very much decentralized in the U.S.,” he said. “Though there’s still a vital presence in Michigan and an important presence within the city, but their fates have diverged.”

“Much messier”

It isn’t likely that Detroit’s recovery will be as quick and easy as the turnaround of the U.S. automakers, said Steven Rattner, a New York financier who headed President Barack Obama’s auto-industry task force in 2009 that ultimately put GM and Chrysler into bankruptcy.

GM and Chrysler were scrubbed clean of debt by U.S.-backed bankruptcies that lasted about six weeks. Ford suffered through a painful restructuring on its own that cut debt and labor costs.

“This will be much messier than the auto companies,” Rattner said in an interview. “This will go on for a long time.”

Detroit’s ties to the fortunes of the auto industry have been fraying for six decades, as manufacturing jobs in the city fell from about 296,000 in 1950 to fewer than 27,000 in 2011. The U.S. automakers, still ruling the road in the ’50s and ’60s, moved much of their manufacturing out of Detroit as they built new factories elsewhere in the U.S. and world. That evacuation of the city accelerated Detroit’s decline, along with many other American industrial cities.

What’s left?

Chrysler, majority owned by Fiat SpA (F), has factories to make Jeeps and Viper sports cars in the city and a 70-person office downtown, about 30 miles (48 kilometers) from the suburban headquarters where it employs more than 10,000. GM builds the plug-in hybrid Chevrolet Volt at a factory in Detroit, where it also has its headquarters downtown. Ford, based in neighboring Dearborn, built Model Ts in Detroit until 1910 and hasn’t built cars in the city since. The GM building still stands in Detroit, almost as a symbol of days past.

Fortunately, the automakers each said Friday that they will continue to play a role in the city as it restructures. Let’s hope for that.

“Chrysler Group believes in the city of Detroit and its people,” the company said in an e-mailed statement. “We not only continue to invest in the city and its residents by adding to our presence in Detroit, we also are committed to playing a positive role in its revitalization.”

For GM, the bankruptcy filing may mark a “clean start” for the city. “A healthy auto industry will play a part in Detroit’s comeback story and GM is doing its part,” the company said in a statement.

Shares surge

Fortunately, the automakers can afford to be magnanimous. Ford, the oldest U.S. automaker, founded 110 years ago, reached a 29-month high on July 15 and its shares surged 31 percent this year through yesterday. GM has gained 28 percent so far this year.

In contrast, Michigan’s largest city has seen its population decline to just 701,475 in 2012, down from a peak of 1.85 million in 1950, when it was the fourth-largest city in the U.S., according to U.S. Census data.

The city listed assets and debt of more than $1 billion in a Chapter 9 petition filed last Thursday in court in Detroit. Detroit Emergency Financial Manager Kevyn Orr, who helped with the Chrysler bankruptcy, precipitated the filing after failing to reach cost cutting deals with debtors and city pension funds.

“Detroit has been working its way to a level of insolvency for decades—decades,” Orr said at a press conference yesterday in Detroit.

Detroit’s spiral

“Even the casual observer has had to understand for some period of time now that Detroit” was “simply not on a sustainable footing, continuing to borrow, continuing to defer pension payments, continuing not to pay its bills on time, continuing a deepening insolvency—$18 billion,” Orr said.

Detroit’s decline started in the 1950s with the closing of the massive Packard plant, said John Wolkonowicz, an independent auto consultant based in Boston and a former Ford product planner. The crumbling factory hasn’t been torn down and redeveloped. It’s an image of Detroit’s decay.

“The city and the automakers got complacent,” Wolkonowicz said. Until the U.S. government forced GM and Chrysler to change during the 2009 bankruptcies, they seemed destined for the same fate, he said.

“The Detroit mentality contributed to the decline of the auto industry,” Wolkonowicz said. “I worked in Detroit for a long time. I ran into so many people who worked for the car companies who could care less about the car companies or the industry. They were there because that’s the industry that was there.” I don’t know if we can blame working people who were just trying to hold on to their jobs.

Now, with the automakers doing well financially, “there is this disconnect,” Shaiken said. “An industrial revitalization within the city would be very positive, but that reaches beyond what the automakers can do.” I wonder what Charlie Wilson would have said about that. And what that says about the future of America itself.

Jerry Mazza is a freelance writer and life-long resident of New York City. An EBook version of his book of poems “State Of Shock,” on 9/11 and its after effects is now available at Amazon.com and Barnesandnoble.com. He has also written hundreds of articles on politics and government as Associate Editor of Intrepid Report (formerly Online Journal). Reach him at gvmaz@verizon.net.