Detroit: Where did it all go wrong?
Detroit has filed for bankruptcy, unable to pay $18.5 billion in debts. How did the city of Motown and the car industry sink so low?
By Harriet Alexander11:58AM BST 19 Jul 2013
It shouldn’t have come to this. Detroit was once the pride of America; home of the car industry, and centre of the Motown music scene. In the 1950s 1.8 million people called the city, on the Canadian border, their home.
But it has all gone terribly wrong, with the city now unable to pay its $18.5 billion (£12bn) debt. On Thursday the city was forced to declare itself bankrupt – the largest municipal bankruptcy in history.
“This is a difficult step,” said Rick Snyder, governor of Michigan. “But it’s the only viable option to address a problem that has been six decades in the making.”
Once a bustling beacon of industrial might, the city is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.
Crime has soared and the murder rate is at a 40 year high; the council has literally been unable to keep the lights on, and 40 per cent of all street lights are out of order.
Now a third of Detroit’s 700,000 residents live in poverty and about a fifth are unemployed. The population has fallen by 60 per cent since its 1950s peak, as those able to leave the city do so. As a result, the educated people able to contribute to the economy, run businesses and pay their taxes have moved out, leaving behind those reliant on the state.
Almost 80,000 homes are empty, and more than half of the owners of Detroit’s 305,000 properties failed to pay their 2011 tax bills, exacerbating the city’s financial crisis.
The exodus from the city stemmed from race riots in the 1960s – in particular the July 1967 riots, which killed 43, left 467 injured, and destroyed over 2,000 buildings when the army were sent in to quell the violence.
The trickle of departure became a flood, and with it went the businesses.
The collapse of the motoring industry played a part over the years, as car manufacturers went through round after round of mass layoffs as factories were automated or outsourced and Asian competitors siphoned away market share. President Barack Obama’s decision to prop up the drowning General Motors in 2009 saved the main company, however, and GM has, since 2010, returned to being profitable.
But perhaps just as damaging as population flight and car manufacturing problems was the general mismanagement of the city’s finances.
The city has been borrowing money to pay its bills for more than a decade, a short-sighted move that further depleted its coffers.
Some 38 cents of every city dollar was going to debt repayment and obligations like pensions, and that was projected to hit 65 cents on the dollar by 2017.
Detroit’s municipal government is crippled by its pension bills for staff – the city owes $9 billion to the pension fund.
A plan devised in June called for city-employed retirees to accept less than 10 per cent of what they were owed under pension plans. But earlier this week the city’s two pension funds sued Detroit’s state-appointed emergency manager in an attempt to stop the cuts in retirement pay. An insurance group also threatened legal action.
Meanwhile, life in the city has got increasingly poor.
Only a third of ambulances are in working order, and police take an average of 58 minutes to arrive on crime scenes. Anyone who can leave has done so.
The governor of Michigan summed the situation up neatly.
“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” he said.
Anatomy of Detroit’s Decline
Reliance on a Single Industry
The expansion of the auto industry nearly a century ago fueled a growth spurt that made Detroit the fourth largest city in the country. By 1950, the population peaked at almost 1.85 million as people moved to Detroit to work at the Big Three auto companies: Ford, General Motors and Chrysler. But it was at the height of this prosperity that the manufacturers began to restructure, and the risks of the city’s reliance on a single industry became apparent, according to Thomas J. Sugrue’s essay “Motor City: The Story of Detroit.”
First, there was decentralization. Strikes, inspired by union negotiations and a refusal by blacks and whites to work side by side, were halting progress, according to “Detroit, Race and Uneven Development,” co-written by Joe T. Darden. Factories were built in the suburbs and in neighboring states so that if there was a protest in one factory, work could still continue elsewhere. But as the factories spread out, so too did the job opportunities.
When the industry then experimented with automation, replacing assembly-line jobs with machinery, tens of thousands of jobs were lost. The industry shrank even more during the energy crisis in the 1970s and the economic recession in the 1980s. And foreign competition caused profits to plummet.
As auto jobs moved elsewhere and the region aged, Detroit’s labor costs — retiree health care costs, especially — increased substantially.
Though other cities experienced their own booms and busts, Detroit suffered more because it didn’t diversify, said Kevin Boyle, a Detroit historian who has written extensively about his native city. Places such as Chicago and Pittsburgh relied on other areas – like banking or education – beyond the industries that started their success.
The auto industry “was like Silicon Valley in the 1980s,” Mr. Boyle said. It was doing so well, he said, that Detroit officials didn’t see a need to do anything differently.
Tensions between the races have been high since the 1940s, when Southern blacks began moving to Detroit in search of work at automobile factories, said Mr. Boyle, the historian.
As the migration of blacks who swept into Detroit became especially intense, middle-class whites began moving to the newly built suburbs. But violent 1967 riots turned this stream into a torrent.
“It’s really hard to overstate how deep the fear was, on both sides of the color line,” Mr. Boyle said.
And after the riots, Detroit failed to bounce back, Mr. Boyle said. Businesses followed their customers. Thousands of houses were abandoned as the city’s population plunged.
“In some cities like Chicago, Boston and maybe New York, people say to themselves, ‘I want to be in this neighborhood where I grew up, where my grandparents live or where my synagogue is’ — that really roots people in place,” he said. “Detroit didn’t work that way.”
During the 1950s, the city lost 363,000 white residents while it gained 182,000 black residents. In 1950, the population was 16 percent black, and by the time of the 1967 riot it had grown to a third. Today, about 82 percent of the city’s population is black.
The Rev. Charles Williams II, who leads the Detroit chapter of the National Action Network, said little had been done to ease tensions. Those strained relations have hindered the city’s efforts toward economic progress.
“Race has basically been used as a tool to pit people against each other,” he said. “There’s a sincere, in-depth hate. Folks in the city have been taught to not trust those in the suburbs. Folks in the suburbs don’t trust those in the city.”
Shortcomings of Leadership
The financial crisis facing Detroit was decades in the making, caused in part by a trail of missteps, suspected corruption and inaction. Here is a sampling of some city leaders who trimmed too little, too late and, rather than tackling problems head on, hoped that deep-rooted structural problems would turn out to be cyclical downturns.
Charles E. Bowles, backed by the Ku Klux Klan, was in office for seven months in 1930 before people demanded his removal. His ascension to the mayor’s office was followed by a spike in crime, and he was suspected to be linked to some of Detroit’s underworld figures, according to “Detroit: A Biography” by Scott Martelle. “The stories of gangland feuds and killings were diversions from the deeper agony that spread across Detroit in the 1930s,” Mr. Martelle wrote. “Unemployment was high and deep poverty endemic.”
Edward Jeffries, who served as mayor from 1940 to 1948, developed the Detroit Plan, which involved razing 100 blighted acres and preparing the land for redevelopment. The area sat vacant for several years, and the 7,000 black residents who were displaced moved to neighboring areas where whites, in turn, left. Rather than ending blight, the project simply redistributed it.
Albert Cobo was considered a candidate of the wealthy and of the white during his tenure from 1950 to 1957. He declined federal money for housing projects and facilitated the construction of freeways. Highways were being built across the country that encouraged suburbanization, but while the rest of the nation was expanding, Detroit’s population was shrinking as people used the newly built roadways to leave.
Coleman A. Young was seen as a divisive figure in the 20 years he served as mayor. He won his first mayoral election in 1973, largely on the promise to ease tension between the police and black residents. But while many blacks saw him as a hero who pledged to fight crime, some whites felt he wasn’t looking out for their interests. Mr. Young seemingly breezed to second, third and fourth terms without making the expected bridge-building racial appeals. Isabel Wilkerson, writing in The New York Times in 1989, said the mayor, running in a city in which 70 percent of the voters were black, seemed “to revel in the sort of polarization that other politicians dread.” Though Mr. Young was credited with revitalizing the waterfront, the rest of downtown was often compared to a war zone, with neighborhoods crumbling, businesses boarded up and poverty remaining high.
Kwame M. Kilpatrick, who led Detroit from 2001 to 2008, was nicknamed the “hip-hop mayor” when first elected at 31, in part for his larger-than-life persona, flashy suits and the diamond stud in his ear. He brought new attractions to the city’s riverfront and much-needed business investment downtown, but he also increased the city’s debt obligations to fill budget gaps. After a series of scandals he resigned in 2008 and pleaded guilty later that year to obstruction of justice charges, served four months in jail and was ordered to pay $1 million to the city. He was behind bars two years later for hiding assets from the court, and in October he was sentenced to 28 years in prison after he was found guilty of racketeering, fraud and extortion.
Dave Bing, a former professional basketball star, took office in 2009 pledging to solve Detroit’s fiscal problems, which by then were already overwhelming. During his term, there were numerous announcements of cuts to the city’s work force, efforts to fill annual budget deficits and urgent calls for sacrifices from labor groups. Then in March the state appointed Kevyn D. Orr, a veteran lawyer, as an emergency manager to oversee the city’s operations, rendering Mr. Bing virtually powerless. Mr. Bing announced in May that he would not run for re-election. And in November Mike Duggan, a former hospital executive who campaigned with the backing of Detroit’s business leaders, was elected mayor.
Lack of an Efficient Transit System
In the hometown of the auto industry, public policies encouraged a car culture, with more money being invested in building highways rather than a public transportation system.
Efforts like Dwight D. Eisenhower’s Federal-Aid Highway Act of 1956 helped fuel urban sprawl, and the city’s streetcar system was dismantled the same year. In the 1980s, with federal aid, the city built its People Mover, a monorail that looped around three miles in the downtown area. The project was criticized as not being cost effective, as it primarily serviced visitors to restaurants or the stadium rather than helping the city’s residents get around effectively. Though there is a bus system, it is thought to be unreliable, said Mr. Williams of the National Action Network, a Detroit native. A light-rail system, backed in part by corporate donors, is slated to begin operating in early 2016.
“It’s almost like two Detroits,” Mr. Williams said. “The light rail will go up to West Grand Boulevard, where all the development is taking place. The other side is where the poverty is.”
Without an efficient mode of transportation over the past few decades, blacks and whites didn’t travel side by side as they did in other cities, a missed opportunity to ease racial tensions, said Mr. Boyle, the historian.
“It makes a difference that you have to sit in a subway car or a bus with people who are of different races and different ethnicities, different ages different classes,” he said. “It creates a sense of connection, even if it’s just a superficial one.”
Impact of Poverty
Officials are now faced with trying to shrink the city, a complicated task because dilapidated homes and empty lots are speckled throughout neighborhoods rather than consolidated in convenient chunks.
About 36 percent of the city’s population is below the poverty level, and, by 2010, the residential vacancy rate was 27.8 percent. With fewer people paying taxes, the city has starved financially and has struggled to maintain social services. Swaths of the city are in total darkness because of nonfunctioning street lights. And the average police response time, including top priority calls, is 58 minutes, according to a report by the emergency manager.
The student enrollment at Detroit’s public schools has drastically declined to 52,981 in 2012 from 164,496 in 2002, according to Michelle A. Zdrodowski, a spokeswoman for the district. In response, several school buildings have been shuttered.
Poverty has been exacerbated by middle-class black families’ moving to the suburbs to pursue jobs or better schools, and to escape crime. Meanwhile, the city’s poor have stayed in Detroit. The city’s unemployment rate is about 19 percent, but the lack of a transportation system has prevented residents from commuting to jobs elsewhere. A plan to cut retiree pensions, which some estimate account for $3.5 billion of the city’s $18 billion in debt, could worsen the lives of some.
As the city works to reinvent itself, it has drawn a community of artists and young people with big dreams of a total makeover for Detroit. Mr. Williams said the challenge was to make sure longtime residents were included in the movement.
“The people who are living in the city of Detroit, who have been holding on,” he said, “they should be a part of the progress.”
Who Killed the American Auto Industry? Not Unions!
The GOP meme has always been that Unions kill industries. They hold up the American Auto Industry as the prime example.
It was not the Unions that has destroyed the American Industry but the greed of the American Auto Executives.
Up until the 80s American car buyers had to order their new cars from a la carte menus. With or without such things as radios, heaters, defrosters, seat covers, air conditioning, power steering, and until mandated by Congress without seat belts.
In the 60s-70s these pesky Japanese thought of a way to cut costs. They would not offer a al carte shopping for their but would offer only fully loaded car models. You know as the cars now a days. They had one more trick, all the cars on the lots were the same. All had the same options, radios, heaters, defrosters, seat covers, air conditioning, power steering, and same price tag. You could walk onto a Japanese car deanship and pick any car on the lot of the same model and the price was the same.
While over at the American Auto Dealership every car had a different price. That is how they could list a car for a price to bring you in only to find that price was for a specific car (specific lot number) which never seem to exist, “The old bait and switch.”
Well Japanese were kicked Detroit’s asses. American buyers wanted cars that were fully loaded without the price gouging of the American Dealerships for air conditioning or power steering, or a heater, or defroster. You could still buy a used car in Minnesota that was ordered new in Florida without either a heater or defroster, yet have air conditioning. Who knew?
But the GOP meme that the Unions were to blame for the failing car sales was just to easy to sell to the American public.
In the 80s the American Auto Industry had a rude awaiting. Americans did not like American autos or the way of buying them.
Americans liked the Japanese Auto Industry approach to buying cars. Same models with the same options, fully loaded, and all were the same price. Did that catch on? Check the way you buy a car now.
Before everyone goes crazy we studied this issue in our economic classes in the 80s. The Japanese Auto Industry was kicking American Auto Industry on every issue. American Auto Industry market shares were dropping and faced total elimination.
What did the American Auto Industry do? Chrysler asks for and gets a government bailout.
General Motors began responding first to the high gas prices, by downsizing most of their models by 1977. In 1979, the second oil price spike occurred, precipitated by political events in Iran, resulting in the 1979 energy crisis. By 1980, the economy slid into turmoil, with high inflation, high unemployment, and high interest rates. The automakers suffered large operating losses. Chrysler was hurt most severely and in 1979 received a bailout from the federal government in the form of $1.5 billion in loan guarantees, one quick fix was a Detroit-built version of their then-new French (Simca) economy car, the Horizon. As a result of its financial difficulties, Chrysler sold its British and French subsidiaries, Rootes Group and Simca.
That was just for starters, the crap continued:
As bold and confident as the Big Three automakers were in the 1950s and 1960s, the American auto makers in the 1970s and 1980s stumbled badly, going from one engineering, manufacturing or marketing disaster to another. Ford reaped a public relations nightmare when it was revealed that the Ford Pinto’s gas tank was vulnerable to exploding when hit from behind. Ford knew about this vulnerability but did not design any safeguards in order to save a few dollars per vehicle. They rationalized that the cost of lawsuits would be less than the cost of redesigning the car. GM had a string of miscues starting with the Chevrolet Vega, which developed a reputation for rapidly rusting and having major problems with the aluminum engine. Cadillac damaged their reputation when the four-cylinder Cadillac Cimarron was introduced in 1981 (a gussied-up Chevrolet Cavalier at twice the price) and the “V8-6-4” engine didn’t work as advertised. GM’s reputation was also damaged when it revealed in 1977 that they were installing Chevrolet engines in Oldsmobiles, and lawsuits from aggrieved Oldsmobile owners followed. Likewise litigation ensued when a trio of diesel engines, designed from gasoline engines and used in GM cars from 1978 to 1985 suffered major problems. Class action lawsuits and efforts from the Federal Trade Commission resulted in buybacks of the cars from GM. Chrysler also suffered damage to its reputation when its compact cars, the Plymouth Volaré and Dodge Aspen, were developed quickly and suffered from massive recalls and poor quality.
American Auto Industry Executives went to Congress and demanded that import quotas be implemented to reduce the Japanese Auto Imports. All to get the American Auto Industry breathing room to get back on its feet. If not implemented the American Auto Industry was done for forever. The Japanese Auto Industry entered into the “Voluntary Restraint Agreement” for Japanese imports. What this did was to give Japanese Auto Industry the means to drive up the prices for their cars, while that actual costs to produce the cars were unchanged. This meant the higher prices they were setting due to lower supply was pure profit. The Japanese Auto Industry had the greatest gift any corporation could ask for, the ability to set the unchallenged profit from each item produced. They double the price and increase their profit not by 10% or 20% but 5 to 10 times their normal profit margins.
In 1981, Japanese automakers entered into a so-called “Voluntary restraint agreement” limiting the number of autos that they could import to the U.S. to 1.68 million per year. One side effect of this quota was that the Japanese car companies began developing luxury cars that had higher profit margins, such as Toyota’s Lexus, Honda’s Acura,and Nissan Motor Company’s Infiniti divisions. Another consequence was that the Japanese car makers began opening auto production plants in the U.S., with the three largest Japanese auto manufacturers all opening production facilities by 1985. These facilities were opened primarily in the southern U.S., in states that were not union friendly. Although the U.A.W. made substantial union -organizing efforts at these plants, they remained non-union.
So did the American Auto Industry do? Did they go after the possible price difference between American cars and Japanese cars so they could regain their market share or to compete against the Japanese Auto Industry? Nope the American Auto executives did not want to compete the for American car buyers no they decided to to push their car prices higher to match the Japanese Auto prices.
So the American Auto Industry that could not compete with the Japanese Auto Industry at the lower prices now was offering the American auto buyer the same piece of fail at double or triple the price.
The unions did not drive the price of cars out reach of most Americans it was the American Auto Industry executives and their greed to get short term profits at the expense of the Americans. Look at the SUV craze in the 1990s, the American Auto Industry were happy with it because they were making a reported (by them) $20,000 to $26,000 profit on each SUV or truck made.
Making a profit of $20,000 or more on each SUV or truck and the Unions are at fault for the failure of the American Auto Industry! WoW!
The GOP is at fault for the total destruction of the middle class and push meme against unions when they are the greedy fools screwing the Americans.