Photo by: Cybelle Codish
The impact of the auto bailout on Detroit, the city, is hard to specify because the physical footprint of the auto industry largely lies outside the municipal boundaries.
DETROIT – The moniker Hollywood means both the Los Angeles enclave as well as the film industry as a whole, and to label something as being on Wall Street refers to an address on the actual roadway or some facet of the giant financial industry headquartered there.
But the term Detroit is even more complicated. Geographically speaking, Detroit is both a city and a metropolitan area. Conceptually, it’s the one-word designator for the domestic auto industry. Symbolically, it’s a byword for urban decline.
Consider: Detroit’s (the city’s, that is) population has been in steady decline since 1950, suffering a 25 percent drop from 2000 to 2010. More people have left Detroit in the past decade than now live in Orlando. The city’s overwhelmingly African-American population is largely impoverished and unemployed; Detroit’s 19.2 percent October unemployment rate looks better than the 27 percent the city hit in June 2009 but mainly reflects the fact that an estimated 38,000 people dropped out of Detroit’s labor force altogether. The region generally remains grossly segregated—white, wealthy, suburban neighborhoods are separated by canals and freeways from poor, largely minority areas. All neighborhoods have watched property values slide as the foreclosure crisis hit; Motown led the nation in foreclosure rates in 2006 and 2007, and in more recent years, its dismal real estate situation has been blamed by some for dragging down the national housing market.
The formula for Detroit’s current status is complicated—a mix of local, regional and national socioeconomic forces that are driven by politics, capitalism and racial dynamics evident throughout the region. But while many hands have shaped the good and bad of today’s Detroit, the impact of current federal policy is easy to spot.
For example, the U.S. Department of Transportation recently backed off a pledge of $550 million for a 9-mile light-rail project to connect downtown to the relatively populous and wealthy Oakland County, and might fund high-speed buses instead. Several federal law enforcement agencies are putting resources toward prosecuting gun crimes in the city to help reduce a high crime rate. Homeland Security vehicles are seen patrolling the streets and waterways along the nearby border with Canada. But in recent memory, no federal policy has more directly affected Detroit—and stirred national debate—than the auto bailout.
A Political Target
Historically, the fate of the city and region has been tied to a single industry: car manufacturing. Concentrated in Michigan’s southeast corner, the state’s motor vehicle manufacturing and motor vehicle parts manufacturing industries employed about 120,000 people in 2010, according to the U.S. Bureau of Labor Statistics. Compare that with the roughly 296,000 that had those jobs in 2001 and the impact of the automobile industry’s contraction is obvious.
National election rhetoric for decades has included aspects of Detroit, the industry. Conservatives decry labor’s influence, but progressives court it, reflecting the ongoing relevance of the United Auto Workers union. Candidates have debated the wisdom of government mandates for fuel standards and whose fault it is that former U.S.-based manufacturing jobs have moved overseas. More recently, the preferred public investment in alternative energies has entered the fray. All issues directly affect Detroit, the industry.
But it’s the controversial federal government loans approved in 2009 by President Obama in his first weeks in office that have sparked debate during this Republican primary season.
“My view with regard to the bailout was whether it was by President Bush or by President Obama, it was the wrong way to go,” GOP candidate Mitt Romney—whose father ran an automobile company before serving as Michigan’s governor in the 1960s—said during a November debate in the Wolverine State.
He was echoed by another candidate on the stage. “I do agree that this country is never again going to bail out corporations,” said Jon Huntsman.
Obama’s handling of the automotive industry was one of his first big tasks, and David Bonior had a front-row seat to watch him tackle it. A 13-term congressman from a suburban-Detroit district, Bonior managed John Edwards’ 2008 presidential campaign and served on Obama’s economic advisory board during the White House transition. He was one of the few left-wing members of that team and part of intense discussions in advance of the auto bailout announcement.
Bonior traveled to Chicago on the Friday after the 2008 election, meeting with nearly two dozen economic, corporate and government leaders who had been assembled by the new president-elect. “The two issues we talked about were the collapsing economy and the banking issue,” Bonior recalls. “But Obama started out with the auto piece as part of that.”
The panel’s majority advocated letting the Big Three fail and proceed through private bankruptcy filings, Bonior says, and he gives Obama credit for pushing the bailout, which provided roughly $80 billion to GM and Chrysler; Ford didn’t take the deal. “He stayed with a very strong policy, although it was unpopular,” Bonior says. “The fact of the matter is the companies paid back [most of] the money they borrowed. They restructured based on his insistence on standards and mileage, and we get a better product today.”
Bill Vlasic remembers that time with a shudder. A longtime auto industry reporter at The Detroit News, Vlasic now reports for The New York Times. His book Once Upon a Car: The Fall and Resurrection of America’s Big Three Automakers—GM, Ford, and Chrysler hit bookstores in October. Vlasic weaves a corporate thriller based on interviews done months after the crisis period. He chronicles the failings within the industry—unwieldy egos, too many unprofitable product lines, massive bureaucracies, failure to predict rising fuel prices and respond to consumer demands for more fuel-efficient cars, and an inability to effect rapid change. These flaws seemed to come to a head in a moment that gave much of America and auto industry naysayers a reason to view the corporations with disdain: the three CEOs flew to Washington on private jets to beg for taxpayer money without so much as a chat beforehand to craft an effective message.
The auto execs “were amazed when they got to Washington and how negative it was from every direction: liberals on the environment; Southerners on unions; Republicans who didn’t like Detroit’s way of doing business,” Vlasic says. However, resentment toward the industry and the revulsion at its tone-deaf leaders soon gave way to more practical considerations: “All of a sudden it was ‘My gosh, we could lose this industry, and it will be a lot more painful than swallowing hard and loaning them money.’ “
Check Engine
Only one of the Big Three automakers, General Motors Co., is actually headquartered within Detroit city limits. Ford Motor Co. and Chrysler Group LLC are based in nearby suburbs. But that doesn’t matter. The city’s fortunes are clearly linked to the auto industry. In 2010 the city estimated its general fund suffered a $24 million decline in income tax revenue from GM and Chrysler alone. The two automakers’ employment numbers within city limits fell from 7,574 and 14,282 in 2001 to 4,517 and 4,652 a decade later.
Detroit residents, the white- and blue-collar workers who lost jobs in droves, might be seeing the first stages of a turnaround in auto employment, thanks mostly to the federal moneys and the conditions they came with. The federal assistance—a controversial part of the $700 billion Troubled Asset Relief Program—forced the restructuring and streamlining of companies; the discontinuation of unprofitable divisions, which were sold off or terminated; and the negotiated reduction of corporate pension and health care obligations, which has meant the union rank and file have assumed a bigger share of the costs.
“I’m not exactly sure how it’s is going to play out,” says Paul Eisenstein, publisher of TheDetroitBureau.com, one of the leading auto industry news sources, discussing the political ramifications of the bailout in 2012. But he might as well have been talking about its economic impact. “If you look at it right now, auto sales … have been one of the few positive indicators in an otherwise gloomy economic institution here in the United States. One could argue that the auto industry is helping prop up the economy, and the bailout has helped.”
The bailout’s performance continues to defy easy analysis. For example, as of December, GM had directly repaid $23.2 billion of the $49.5 billion it took from the government. But the government owns company stock, and as share prices rise or fall, so too does the public’s investment in the company. A drop in price equals a higher cost of the bailout. A rise means it was a “better” investment.
Detroit is the largest city in a perpetual battleground state that shades blue in presidential elections but elected a Republican governor in 2010, so issues related to the auto bailout promise to be if not in the driver’s seat, at least riding shotgun in the 2012 national elections. Interwoven into that debate are divergent opinions about what nudged the auto industry to the edge of the cliff from which the bailout saved it.
Aftah NAFTA
Now the chairman of the Washington-based American Rights at Work, Bonior is steadfast as ever in his stance that the North American Free Trade Agreement, in opening the U.S., Canada and Mexico to free trade, ruined the domestic manufacturing economy.
“It was the first unfettered, unprotected trade bill that we had. There was no protection for working people. It was designed for multinational corporations, and it’s what we’ve operated under since,” Bonior says. “It’s cost us literally hundreds of thousands of jobs if not millions in the United States. Good jobs—jobs that people could raise a family on and have a future.”
NAFTA’s implementation began in 1994 and eliminated tariffs and other barriers to trade between Canada, Mexico and the U.S. The office of the United States Trade Representative contends that in the first years after its passage, wages of American workers increased and employment rates rose.
But a 2006 Economic Policy Institute study found problems. “Workers’ share of the gains from rising productivity fell and the proportion of income and wealth going to those at the very top of the economic pyramid grew,” the report states. Bonior and some economists contend that any manufacturing job in the auto industry that left the U.S. took up to seven multiplier positions with it. That’s because for every one production worker on an assembly line, seven employees at suppliers, shippers, research facilities and other facets of the industry exist as support. “That’s quite different from a retail position that’s created, where the spin-off is infinitely smaller than that,” Bonior says.
Nowhere is the effect more apparent than in Detroit, Bonior says, which as a city has been hollowed of its industry as factories shut down.
But while he wishes it would, Bonior doesn’t expect NAFTA to resurface as an issue in the 2012 campaign, at least as a stand-alone philosophical discussion. “The economy is so important because it’s the overriding issue, and jobs are the overriding issue within the economic construct,” he says. “It will inevitably lead to some discussion of our trade regimes, and so it will probably be somewhat of an issue again. But I think it will probably get lost in the general debate about the economy.” And in that general debate, the mainstream of both major parties is staunchly pro–free trade.
Of course, blaming NAFTA for Detroit’s empty factories and neighborhoods is oversimplifying the dynamics at play in the late 20th century. The city’s population peaked in 1950, indicating that at least some of the city-to-suburb migration followed national patterns. The 1967 racial unrest—some say riots, others say revolution—sparked not just white but also black middle-class flight beyond the city borders.
Federal interstates designed to facilitate cross-country military traffic also encouraged the middle class to move out of denser city neighborhoods and into suburban subdivisions. (Of course, this spurred auto sales as well, which benefited Detroit the industry if not Detroit the city itself.) And the jobs often followed the population, with suburban office parks replacing downtown skyscrapers as employment centers.
More recently, a complicated mix of pressures and policies bore down on Detroit; NAFTA was hardly alone. For decades before the 1994 pact, Rust Belt states watched manufacturing move not to Mexico but to cheaper Sun Belt states. And the trade imbalance with Japan was a worry long before Mexico became a threat. What’s more, since NAFTA, China’s growth as an economic competitor has complicated attempts to estimate the 1994 trade pact’s impact on auto and other industries.
Meanwhile, pro-trade commentators blame the auto industry’s health and pension costs for hurting its competitiveness. And some critics say the Big Three simply made lousy cars at a time when foreign competitors, many of whom actually manufacture their autos in the U.S., churned out the chassis that Americans wanted to buy.
But there’s no doubt that trade liberalization exacerbated those problems. The Big Three’s share of the American auto market decreased from 70 percent in 1998 to just over 50 percent in 2007.
Today just two major auto assembly plants remain operational within the city boundaries. On the east side, the Jefferson Avenue site is where Chrysler builds Jeep Grand Cherokees, and GM’s Detroit/Hamtramck plant is where the electric Chevy Volt, the Buick Malibu and the Opel Ampera are produced.
Hope on the Border
As two border crossings from Detroit to Canada direct crossing freight traffic—much of it auto-related—and people through Detroit’s downtown and southwestern neighborhoods, it’s not hard to see that while freight moves easily across the Detroit River, people have more legal obstacles. Still, Detroit the region is home to the country’s largest Arab-American population as well as an increasing Hispanic citizenry and has a noticeable presence of Southeast Asians and Indians, many of whom work in the automobile industry.
With states like Arizona and Alabama largely framing the national discussion about immigration—namely how to keep numbers of unskilled, unauthorized immigrants from entering the U.S.—a more nuanced immigration discussion is beginning to take hold in Detroit. It builds on the region’s history of attracting workers of varying ethnicities to work in the auto factories.
The abundant, low-skill jobs that greeted those earlier immigrants have nearly disappeared, but reminders of their legacy remain, and the idea of a “new” population providing some future promise for Detroit is being espoused by some.
In Detroit, immigration debate is starting to focus on balancing industry’s need for qualified workers with a respect for current residents who suffer some of the highest unemployment rates in the country. It’s also about making the city attractive to immigrants who could help repopulate it, says Hayg Oshagan, an associate professor of communication at Wayne State University.
In 2006, Oshagan launched the New Michigan Media initiative. It’s a collaboration of the state’s 140 ethnic and minority media led by the publishers of the top five newspapers in the state. The group has grown into a policy advocacy organization.
Last summer Oshagan’s organization co-hosted a conference titled Immigration and Michigan’s Economic Future in Detroit, which was attended by corporate executives, immigration advocates, policymakers and elected officials. One of the keynote speakers, Michigan Gov. Rick Snyder, a Republican and former business executive and venture capitalist, has said one of the keys to building a diverse, successful state economy is turning to immigrants. “In terms of the popular perception of losing jobs to immigrants, we have to overcome that,” Snyder said at the conference. He touts immigrants as “job creators” that the state should embrace.
New York City Mayor Michael Bloomberg attended via teleconference. Earlier in the year, Bloomberg had publicly urged Detroit Mayor Dave Bing to find ways to lure immigrants and keep them in city boundaries, pointing out that an influx of immigrants had helped keep New York City at a similar population level for the past decade. Bing’s office declined several requests for interviews for this article, but at the time of Bloomberg’s comments, Bing said, “I don’t know what [Bloomberg] was on. … We can’t provide jobs for the people here.”
But University of Detroit Mercy School of Law professor David Koelsch touts Detroit’s vast tracts of land available for entrepreneurs to develop into businesses, the low cost of living and an already multicultural climate in the area (thanks, in part, to the auto industry) as potential lures for immigrant entrepreneurs who might, instead of taking jobs, create them, meeting Motown’s two most pressing needs.
“In Detroit we want people who are going to come in and invest in real production facilities,” Koelsch says. “And we need jobs for people here who are semiskilled or even moderately skilled.”
Oshagan and other immigration advocates have been brainstorming to develop policy initiatives that could support immigration. How could new residents provide jobs or fill vacancies without hurting Detroit’s current population? Could a municipal office of immigration affairs help? How can they overcome the popular perception that immigrants take jobs? How can the visa process better allow for an influx of educated workers needed to fill technical jobs? Can the immigration debate in campaigns be structured so candidates differentiate between low-skilled laborers and high-skilled professionals who will buy cars, houses and other products while they live in the U.S.?
As much as local initiatives can help, Oshagan says federal law must be redesigned to address migration and residency issues. “It’s hard to imagine that happening here and now,” he says. “But it would be a collaboration with cities who need this kind of federal help.”
Stuck in Neutral
Immigration could be a passenger on the ride to Election Day if—and it’s a big if—candidates raise the level of discussion from “Why aren’t we building a wall and keeping illegal aliens out?” to “How can immigration policy better support American industry’s needs and be an engine for more economic successes?”
Koelsch is not optimistic that campaign rhetoric about immigration policy will reflect any economic urgency related to the need in cities like Detroit for a highly skilled immigrant workforce. That’s just too complicated. He expects Obama to shy away from promoting policies he has in the past supported—like the Dream Act, a measure that would provide a path to citizenship for undocumented children brought to the U.S. by their parents. “And the Republicans are really having a race to the bottom of the barrel,” he says. “They’re taking such extreme positions to cater to the Tea Party base. It’s going to come back and haunt them because the polls show the vast majority of Americans are not that extreme on immigration issues.”
That’s true if Detroit’s ethnic destinations are an indication. Mexicantown, located adjacent to the Ambassador Bridge crossing to Canada, lures urban and suburban patrons, who find restaurants, groceries and food trucks for jalapeño-laced feasts. Carryout Middle Eastern food is common fare for the downtown office set, and Asian markets—Pakistani, Bangladeshi and Indian, specifically—are setting up in the neighborhood around Wayne State University, the main downtown campus.
Parking spaces outside any of these are overwhelmingly filled with American-made (or, at least, assembled) cars and trucks. Detroit supports its own. Will America do the same for its auto industry, and the city that shares its name?
