Detroit Isn’t Motor City

By | Updated March 14, 2016 8:23 PM UTC

Don’t call it Motor City anymore; the link between the auto industry and its birthplace has shattered. The world dominance of General Motors, Ford and Chrysler built Detroit into a prosperous city that reached a population of 1.85 million in 1950. Later, the decline of the Big Three brought Detroit low as they moved factories out of the city and foreign competitors won the hearts of drivers. General Motors and Chrysler declared bankruptcy in 2009 and Detroit’s municipal government followed in 2013, after the state turned over control of the city’s finances to an emergency manager. The city emerged from bankruptcy in 2014, but its 680,000 residents still face daunting struggles. Last year was the car companies’ best since 2007.

The Situation

After coming out of a record $18 billion bankruptcy in December 2014, Detroit’s street lights are lit, park land gets mowed and the municipal debt is sold on the public market. A vibrant downtown is attracting young people, while Quicken Loans Inc. and Blue Cross Blue Shield of Michigan are responsible for more than 15,000 jobs in the city center. Yet the recovery in Detroit is largely confined to downtown. Surrounding neighborhoods, which represent about 95 percent of the city’s 139 square miles (360 kilometers) define the long-term struggle. This area, roughly the size of Boston and Baltimore combined, is home to 70,000 vacant buildings. Despite downtown’s growth, the city continues to lose population. And the city’s school system faced the prospect of being unable to pay its bills as it reached its debt limit, while teachers protested deteriorating conditions. Michigan Governor Rick Snyder appointed the judge who had overseen the city’s bankruptcy to lead the school system as it sought to stabilize its finances.

Source: U.S. Census Bureau

The Background

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 348,000 in 1950 to 27,000 in 2012, with fewer than 10,000 working in the auto business. Even while the U.S. automakers ruled the roads in the ’50s and ’60s they moved much of their manufacturing out of Detroit to new factories elsewhere in the U.S. and around the world. That evacuation accelerated Detroit’s decline.  Later, when both the city and the carmakers had shrunk, they found themselves in the same situation — with staff and services sized for an entity twice as large. To cover its costs, the City Council took on debt, running up a deficit that reached $427.5 million by mid-2014. City employees, whose generous benefits were patterned on those in the auto industry in its glory days, were owed about $9.2 billion in pensions and other compensation.

The Argument

Struggling to cut costs deeply enough to allow the city to pay the bills, Detroit is mapping a road to recovery, starting with downtown development that includes a new sports arena complex and a streetcar system. The $320 million from various federal programs the Obama administration has pledged to Detroit pales when compared with the $80 billion the government spent to save the auto industry. Local business leaders are hoping to emulate troubled cities that rebounded, from Pittsburgh to Leipzig, through a combination of outsourcing, rezoning and public-private partnerships. A coalition of foundations committed $360 million over 20 years to help shore up the city’s pensions. Businesses have paid for the purchase of new police cars. Symbolizing the city’s renewed energy, traffic jams have returned to downtown streets. The city, though, continues to lose population.  Michael D. LaFaive of the conservative Mackinaw Center says Detroit should acknowledge its downsized reality and concentrate on creating a dramatically smaller, more efficient city structure.

The Reference Shelf

  • A special report by Bloomberg News, “Reckoning to Revival: How U.S. Workers Rebuilt an Industry.”
  • Detroit Works Project: Blueprint for a stable city by 2030.
  • Emergency Manager Kevyn Orr’s June 14, 2013 proposal to creditors.
  • Bankruptcy Judge Steven W. Rhodes’s opinion supporting Detroit’s Chapter 9 bankruptcy.
  • Report from the Center for Automotive Research on the effect on the U.S. economy of bailing out the auto industry.

First published Dec. 12, 2013

To contact the writer of this QuickTake:
Jeff Green in Southfield at jgreen16@bloomberg.net

To contact the editor responsible for this QuickTake:
John O'Neil at joneil18@bloomberg.net