Don't blame Detroit's woes on car industry?

Bankrate.com

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Arthur Wheaton, Cornell University
In many ways, Detroit has become the poster child for all that can go wrong with a great American city.

Once an economic and cultural power, Detroit's standing has eroded sharply for decades. Some critics blame the decline of the U.S. auto industry for contributing to Motor City blight.

However, the truth is not that simple, according to Arthur Wheaton, an auto industry expert and director of western New York labor and environmental programs at the Worker Institute at Cornell University in Ithaca, New York.

Wheaton says many factors contributed to Detroit's decline, including a mass exodus of city residents who moved to new locales. And, he argues that today's auto industry is playing an important role in getting the city back on track.

He expands on those thoughts in the following interview.

You state that it is unfair to blame the U.S. car industry for Detroit's urban blight. Why do critics say the auto industry is to blame for Detroit's downfall?

Many folks associate the auto industry with Detroit and refer to the city as Motor City.

Clearly the auto industry is related to the city of Detroit. The bankruptcy of General Motors, once the largest corporation in the world, had an impact on the city. There is very strong imagery associated with General Motors' bankruptcy, and that had a negative impact on the reputation of the city.

Some of the criticism about the auto industry and blight (in) Detroit is not unreasonable. There are many abandoned buildings and underutilized buildings in the city of Detroit that used to be automotive-related buildings.

The manufacturing base in the Rust Belt cities has certainly left behind more than their fair share of brown fields and dilapidated buildings. Showing pictures or photographs of former plants is easy and powerful in placing blame on the auto industry.

Why do you think the critics are incorrect?

The automotive industry association with the city of Detroit is quite different from the cause of the financial blight of the city.

(Of) the Detroit Three automakers, only General Motors has their corporate headquarters in Detroit. Ford has long been the face of the city of Dearborn, and Chrysler is located in Auburn Hills. Both are suburbs of Detroit but share little in terms of budgets and financial planning.

From the global perspective, there is no clear geographic boundary between suburbs and the city. It all appears to be Detroit from outside of Michigan. The automotive industry is certainly important to the state of Michigan and employs tens of thousands of workers in the state.

(A study by business consultant Jon) Gabrielsen estimates that 95 percent of the jobs in metro Detroit are outside the city limits of Detroit. The geographic boundary is important for tax and revenue purposes. While people in the Detroit area may work in auto-related jobs, they do not provide tax revenue to pay the services and benefits for the city.

These 95 percent (of) jobs make a big difference for the local school districts, maintenance fees and other local infrastructure projects, but they do not necessarily help the public schools and city workers in Detroit.

Which other factors have contributed to Detroit's fall?

The exodus of manufacturing jobs from the Rust Belt cities is an unfortunate and common phenomenon. Another factor in reducing the number of auto jobs is directly linked to advances in productivity and technology. The automotive industry can simply build many more vehicles today with far fewer hourly workers.

The Detroit Free Press conducted an exhaustive story on the truth and myths surrounding the Detroit bankruptcy. There was little blame placed on the auto industry as the cause of the bankruptcy. There are a variety of factors that led to the bankruptcy, with many relating to a mass exodus of residents.

The cause of Detroit's bankruptcy is very easy to figure out -- 60 percent of the population moved. The reasons for Detroit's bankruptcy and the reason for the mass exodus of over 1 million people from the city are more complicated. Some of those reasons through the years have included race relations, crime, underperforming schools and lack of good-paying jobs.

What does Detroit have to do to get back on its feet? What role can the auto industry play in helping to turn the city around?

Detroit will not be able to get back on its feet without help from its many constituents. In a major step toward stabilizing and rebuilding Detroit and the Detroit Institute of the Arts, a "grand bargain" has been struck.

General Motors (and the) General Motors trust fund each contributed $5 million to this effort. Fiat Chrysler Automobiles contributed $6 million and Ford Motor Company has contributed $10 million. The Detroit Three, along with the GM trust fund, have contributed $26 million to help in this process. The state of Michigan -- in an unusual show of solidarity -- also contributed $194.8 million to assist in this effort.

The grand bargain is designed to raise as much as $894 million to spin off the Detroit Institute of the Arts into a private entity and use the proceeds to fund retiree pension and benefit obligations. The UAW (United Automobile Workers) has also pledged support in raising funds for this effort. Individual retirees are scheduled to vote on their agreement to this plan and make some sacrifice in benefits as well. Creative solutions and joint sacrifice are keys to rebuilding Detroit.

Investors and entrepreneurs have begun placing both faith and dollars into rebuilding Detroit. It has become an incubator for creative and environmentally friendly small-business owners and artists. Detroit will require many great small successes to bring prosperity to the neighborhoods.

Just a few years ago, it appeared Detroit's automobile manufacturers were on the verge of collapse. In your opinion, what is the state of the U.S. auto industry -- in Detroit and elsewhere -- today? What does the future likely hold?

The state of the U.S. auto industry is quite profitable at the moment. Sales that plummeted to less than 10 million new vehicles per year in 2009 have bounced back to the 15-million-vehicle range.

Chrysler has had a remarkable turnaround with new ownership with Fiat. Jeep is doing extremely well and Ram pickup sales threaten to overtake Chevrolet Silverado sales in what would be a stunning development.

Chrysler has added two shifts at the Jefferson North Assembly plant -- adding 2,200 jobs -- and plans about 400 jobs in other Detroit facilities. Chrysler has actually saved Fiat in their time of need in the European market.

Ford, under the One Ford policy, has rebuilt itself into a profitable and well-respected maker of cars and trucks. Ford has been making quality trucks for generations; the success on the car and SUV business has helped create a more sustainable company on the global stage.

General Motors is currently under fire for a series of recalls and bad corporate behavior related to a faulty ignition switch. Fortunately for GM, it has rebounded under bankruptcy restructuring and has added over 600 salaried and 430 hourly workers in Detroit. General Motors is doing extremely well in other countries such as China and is developing much better vehicles.

Even new car companies have had success in the U.S. auto industry. Elon Musk has built a surprisingly competitive electric car company in Tesla, and a new three-wheel company has begun in the former Hummer plant. Elio Motors has taken over the Shreveport, Louisiana plant and is building a new three-wheel vehicle estimated to cost about $6,700 and get 84 mpg.

The future for the U.S. auto industry looks bright and appears strong enough to sustain itself in case the economy stutters.



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