Being There: A Michigan Resident’s Take on Detroit’s Woes

By J. S. Smith

11.18.2008

Here in the Mitten State (or Wolverine State), we’ve been getting slapped around for a while. In the late 1970’s and early 1980’s there was an exodus from the state as the U.S. auto industry hemorrhaged jobs and money. Things stabilized, eventually, and with the exception of a dip in the 1991 recession, the times were pretty good.

When SUV sales took off, with concomitant massive profits for the Big Three—they really were big back then—in the 1990’s, Michigan was again awash in high wages and expanding auto plants. Overtime was commonplace. Autoworkers were getting bonuses of several thousand dollars. Employers in the lower part of the state had trouble filling positions because employment demand was so strong. The Ford truck plant in Wayne, which made the Ford Expedition and Lincoln Navigator, grossed over $11 billion in 1998. The Big Three and thus the State of Michigan was awash in money.

I remember back in the heady days of 1999, I spent a summer interning at a small law firm in Jackson. I remember quite vividly two partners discussing how clients were complaining about how difficult it was to find workers. Not qualified workers—any workers.

So, where did the money go? Well, the State of Michigan pissed the money away on tax cuts that promised long-term prosperity. The Big Three? Dividends. Executive bonuses. Management bonuses. Employee profit sharing. And R&D. For trucks and SUVs.

I used to work with a woman whose brother worked as an engineer in the Ford heavy-duty “light” truck department. During the 9/11 recession, Ford cut R&D on everything. Everything except trucks and SUVs.

Cars? Merely a side business to satisfy fleet buyers and the elderly. One of the biggest Ford dealerships in Lansing ditched cars altogether around 2000 or so.

Returning to the narrative, by the late 1990’s, things were good. But not perfect. There were a few problems. A UAW strike in 1997, caused by a work-rule strike at a single Flint local, hurt things somewhat, but Ford and Chrysler were more or less money-minting machines at the time. Moreover, the Japanese and European makes could not compete in the light-truck sector (to be fair, Chrysler did have some very innovative designs, but reliability was rather iffy). The Big Three figured that the imports could have the car market and failed to invest in it. After all, we’d never have another fuel crisis again . . . and the imports could never compete against Big Manly Amurkin Trucks . . .

Auto sales were decent, so we were no worse off than a lot of other states. But government was cut. There were also some one-time fixes, tobacco tax increases, early retirements, but the structural problems remained. The Democrats won the governorship in 2002, and Jennifer Granholm inherited a worsening mess. Big Three auto sales were on a slow decline; SUVs were both declining in popularity and the Japanese and European—shockingly—learned to build their own—the nerve of some people! As the rest of the nation emerged from recession, Michigan remained mired in malaise.

And it only got worse. Soon, all of the Big Three were posting record losses. Parts suppliers, like Delphi, were filing for bankruptcy, closing shop, or moving out of Michigan. But, we figured the traditional industry boom-bust cycle would hit an upturn. Eventually. It always had before.

Yet the roller coaster kept going down, down, down. Like the lyrics of a Bruce Springsteen song.

The myopic leadership of the Big Three seemingly paid no attention. It kept driving the SUV blindly into the foggy freeway at night, pedal planted firmly to the floor, eyes stuck to the latest quarterly report rather than the rapidly approaching “bridge out” placard.

Year by year, in increments tiny and large, the Japanese encroached on Detroit’s market share. A few years ago, imports passed Detroit’s share of the car market. But this wasn’t a problem. All of the growth was in light trucks—SUVs, minivans and pick-ups. Cars were passé. And not profitable. Let the Japanese have the market. We’ll concentrate on manly, profitable stuff. Like the Bush Administration, Detroit created its own version of the world, leaving the “reality-based world” to the Japanese and Europeans.

On the eve of Katrina, two of the Big Three were chronically unhealthy. And the car fleets had been ignored to the point that a middle-class family looking for a car was unlikely to even look at, let alone consider, a domestic model. Once Katrina struck, a seismic shift took place. The market moved quickly, furthering the deepening crisis at the Big Three, and putting Chrysler in the red.

They tottered on or a few more years, restructuring here, putting a few more dollars into car platforms there, and bleeding a big pool of red all over southeast Michigan. A group of three drunks, impelled towards some unknown destination by pure inertia.

By late 2007, it looked like things would, finally, turn around. Decent restructuring plans were aided by significant UAW concessions—because it is always the unions fault, they must always make concessions—in 2007, including a lower wage for new hires and transferring retiree healthcare costs to a separate trust. In addition, GM had introduced some excellent new models—the new CTS and Malibu being highlights—and Ford had a boffo plan to retool its factories to make its outstanding European models here. It looked good, or at least like it could get good again. For a while.

Then came the oil bubble of 2008. If Katrina hadn’t been the breaking point for America’s SUV addiction, $4.00 a gallon gas finally forced SUVstance abusers into Betty Ford. Three already weak companies were hit hard, like Cassius Clay punching Steven Hawking in the gut.

But it got even better. As a result of the collapse of the housing bubble—thank you Alan Greenspan—credit dried, the nation slipped into seemingly deep recession, and people still stayed away from Trucks and SUVs. There was no joy in Motown. The three drunks, sobered, have stumbled to a precipice.

And it’s a long, long way to the bottom.

COPYRIGHT Autosavant – All Rights Reserved

Author: J.S. Smith

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9 Comments

  1. I agree mostly, but the American public wanted these SUVs – in a big way. American SUV purchasers are also responsible for this mess: they enabled Detroit’s catastrophic present situation.

  2. Great article. So what do we do now? Do we let them die, or do we rush in to save the day? Will that even work? I’m ok with bailing the auto industry out, but I would like one rational response to the question, “How are you going to use the money.”

  3. I agree, how would they use the money? I think Ford at present is pointed in the right direction (at least when considering what they are trying to do), but I don’t know about GM under its present leadership. For example, when I think of Ford’s stewardship of Volvo, and GM’s of Saab, I have much more confidence in Ford. I think GM is in dire need of severe restructuring, by some group other than its present management.

  4. Bailout or no, Ford is in good shape. They borrowed massively while credit was available and have some very tasty Euro-spec models on the way. I’m holding out on a new car until I can get the Fiesta hatchback or a Euro-spec Focus wagon.

    GM and Chrysler simply need the cash now. GM will make money in a few years, with the new UAW contract and some good new products. But top GM management needs a lenghty vacation in Iraq. People don’t shop their cars because they don’t believe they make any good ones–even when they do (CTS, Malibu).

    Chrysler desperately needs a foriegn partner. They don’t have the ability to invest in R&D for a full line of cars and need to hook up with someone who can both supply small car design and help with overseas sales. I am a little more sympathetic to their problems than GM because they were immensely successful until Daimler ate them.

    Needless to say, I am completely biased, but it is important to have a strong manufacturing base. It is also important to have a cadre of top engineers in this nation. But Detroit needs many strings attached. Their executives are out of touch and arrogant. GM in particular needs a thorough housecleaning.

  5. It is certainly important to have a strong manufacturing base in this country. Our government, though, seems biased against manufacturing.

  6. There is no way that Chrysler can survive, GM is iffy at this point, and I think Ford will make it.

    In Germany, contingency plans are already being drawn up to ensure Opel’s survival if the GM parent expires. Same in Australia with Holden.

  7. “In Germany, contingency plans are already being drawn up to ensure Opel’s survival if the GM parent expires. Same in Australia with Holden.” Well, at least some nations are concerned about their manufacturing base.

  8. Chrysler can merge with Mitsu. Mitsu knows how to make small cars actually the only car that are able to sell is Lancer. Galant is not such a bad car. If Chrysler stylists come-up with better style – Galant can compete. And Chrysler has cheap full-size RWD platform, trucks, SUVs and minivans. And Viper. And Jeep.

    So what do you think.? IMO Mitsu parent could take Chrysler over and invests some money. Of course they cancel Chrysler made small cars. But even then – they can cooperarate an make better Galant/Avernger replacement together, just like Fusion/Milan. Mitsu almost have no presence in important American market and Chrysler – in global market – so it is ideal partnership. Did not GRenault did the same with Nissan?

  9. Renault and Nissan were both much larger than Chrysler and Mitsu. And Renault was in good shape at the time; I don’t know if Mitsu is in as good a position to help Chrysler as Renalut was with Nissan. But it is certainly worth exploring.

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