Say It Out Loud: Detroit!

Posted on July 19, 2013

Say it out loud: Detroit!

That’s all you have to do. Detroit. The Motor City. The Arsenal of Democracy. Motown. Techno. Detroit Rock City. “Imported from Detroit.” The city that put the world on wheels. The city that built the American middle class. Muscle cars. Marvin Gaye. Jack White. Kid Rock. Like a Rock. The D. Eight Mile. Miguel Cabrera.

This is a city with serious brand power, even if right now it has little else.

Detroit’s special place in American popular culture is just one reason why the city’s bankruptcy filing Thursday is such a big deal, even if it hardly qualified as a surprise. Detroit is the one-word metaphor for all the anxiety about American decline – even if the reality is that the Southeast Michigan economy all around Detroit is rebounding thanks to the increasing success of the hometown car makers.

The resurgence of the Detroit Three auto makers from their collective near-death experiences during the Great Recession drives the optimism expressed by a broad swath of Detroiters that eventually – after some tough decisions are made and painful losses absorbed – the city can rebound. Detroiters are used to seeing the mighty of the auto industry rise, and fall, and rise again on a roughly ten-year cycle.

Just like America, the Motor City was on top of the world in the 1950s and 1960s. So was the city’s most famous corporate citizen, General Motors Co. Their trajectories since then follow similar tracks.

In the immediate aftermath of World War II, General Motors was a powerhouse. It owned roughly half the U.S. car market, and could have grabbed more if its leaders weren’t worried about federal trustbusters. GM had two relevant rivals: Ford and Chrysler. It set the pace for automotive design and technology. Toyota,  BMW, Volkswagen They were making their first steps onto the world market after recovering from the havoc brought by bombers made in Detroit.

Detroit, likewise, thrived in this world where factories were still located in urban areas, and the development of suburbia as an alternative lifestyle for middle class families who could live father from work because of ever more affordable cars was just beginning. GM had a dominant market share, and so did Detroit.

Leaders of both institutions underestimated the threats posed by changes in technology, culture and global trade that began in the 1950s and 1960s. The first Volkswagen Beetles and Toyotas that appeared on American roads and the appearance in 1954 of the first suburban shopping mall just past Detroit’s northern boundary were warnings both institutions failed to heed.

By the late 1980s Toyota, Honda and other upstart rivals were clearly cutting into GM’s sales. Ford’s aerodynamic Taurus sedan had knocked Chevrolet off its perch as the trendsetter in the mainstream family car market. The company’s market share slid to 41% in 1986, and was heading lower. GM’s executives knew Japanese rivals were beating them on the company’s manufacturing efficiency and vehicle quality.

Still, the response was denial. Anyone who forecast that GM’s market share would fall below 38% was “smoking opium,” the company’s then-president declared. GM’s market share today: 18%.

Denial was the strategy for the city, as well. Old inner city factories were closing, and new ones were going up in suburbs and in farm country far from Detroit, including in Southern states, where taxes were lower and labor cheaper. People began to follow the jobs and homes sprang from former corn fields even as mansions sat empty downtown. The construction of freeways through Detroit carved up many once cohesive downtown neighborhoods, making it easier to hold a job in the city while living in one of the new subdivisions that sprawled across the northern suburbs.

Detroit’s leaders tried to stem the tide by encouraging development of new downtown monuments. But they balked at attacking the root causes of the outflow of people and money to communities with lower taxes, better services and better schools.

The city and GM also failed to have the showdowns with their respective unions made necessary by their failures in the marketplace. GM sold cars. Detroit sold the experience of living in the city. Not enough people were buying in either case. That meant the money wasn’t there to finance deals struck with employees in the fat years for generous pensions and retiree health care benefits.

After some bruising skirmishes in the late 1990s, GM’s leaders shied away from a war with the United Auto Workers. Instead, they opted for labor peace and a bet that the company could outrun the bear of retiree legacy costs and uncompetitive factories by selling enough vehicles to cover the ever-increasing costs.

If sales lagged, and they often did, GM just piled on discounts. The strategy would prove toxic – the rebates and cut-rate finance deals ran down the brand image and the resale value of GM cars, making new ones all the harder to sell.

Detroit’s leaders also spent the relatively prosperous 1990s and early 2000s betting that some new development downtown – casinos, new stadiums for the Detroit Lions and Tigers, some corporate offices enticed out of the suburbs by tax breaks – could give the city breathing room.

As the city’s share of Southeast Michigan’s population decreased, leaders shied away from cutting Detroit’s municipal workforce and spending to match the diminished tax base. Instead, they borrowed money to tide things over and deferred more fundamental reforms. The result: $18 billion in obligations, including debts to pensioners and bondholders, and basic services that have crumbled to a woeful state.

As Michigan Gov. Rick Snyder pointed out Thursday, it takes 58 minutes on average for police to respond to a call, compared to a national average of 11 minutes.

Both GM and Detroit hoped that a stable economy would allow time for less painful solutions. What they got instead was the financial crisis.

That cataclysm forced GM to make many of the long-needed accommodations to reality that its leaders had put off before. The success that the leaner, far less indebted GM has had since its trip through bankruptcy court is a cause for hope among Detroiters. That GM could go bankrupt was once unthinkable. Now, it’s easier to imagine that a giant institution can go bust, and be reborn.

In one key respect, Detroit’s story now diverges from GM’s. Saving the auto giant was deemed to be a national imperative, worthy of some $80 billion in federal funding.

So far, Detroit isn’t so lucky. City emergency manager Kevyn Orr’s 11th hour appeal to the White House for federal aid resulted in nothing. Detroit will have to fix this on its own. There are hopeful signs. A diverse collection of young entrepreneurs, as well as some big investors such as Quicken Loans chief Dan Gilbert, are bringing life to some downtown neighborhoods Whole Foods Market Inc. saw enough potential to open a store in the Midtown neighborhood near Wayne State University. The challenge will be spreading prosperity beyond the hipster enclaves.

Still, not for nothing is the city’s motto: “Speramus meliora; resurget cineribus,” or, “We hope for better things; it will arise from the ashes.”