The name “Detroit” is still synonymous with auto manufacturing in the U.S., but the strong revival in the auto industry in the past four years, after decades of globalization, has done little to lift the beleaguered city’s economy or reputation.
All three major U.S. automakers still have headquarters in the Detroit metropolitan area, where the world’s auto industry was born. But the Big Three long ago moved some of the biggest chunks of their production, jobs and plants to places as near as Ohio and Ontario and as far away as China, Brazil and Russia. Without the plentiful factory jobs and incomes that once made Detroit a wealthy and teeming metropolis, the city steadily deteriorated into a hollow shell of vacant buildings and weed-covered lots. Last month, it became the largest American city ever to declare bankruptcy.
All three U.S. automakers have been reporting strong sales and earnings, with General Motors Co.’s Chevrolet division posting record sales worldwide in the first half of the year and Ford Motor Co. posting record profits in the U.S. But the benefits of their good fortunes are accruing as much to workers and investors overseas as to Americans. Detroit stands as perhaps the most extreme example of how globalization has gutted major American-based industries in the past two decades.
The car industry’s rebound hasn’t reversed the trend.
“Detroit has been in decline since the 1960s, when auto plants began to close and the city started hemorrhaging jobs,” said Kim Rueben, an analyst at the Urban Institute. “Its population declined from 2 million in 1950 to less than 700,000 today,” as Detroit lost more than 90 percent of its midcentury peak of 200,000 factory jobs. “But the city was slow” to react to the exodus and increasing globalization of the industry by reducing public payroll and pension obligations in the face of a shrinking workforce, she said.
Detroit never quite adjusted to its more peripheral role in the auto world, said Christopher Whalen, an analyst at Zero Hedge.
“Once upon a time, locating the U.S. auto industry in Michigan made a lot of sense,” he said, noting that 100 years ago when the auto industry was just getting started, Detroit was the logical central hub in the vital industrial corridor along the St. Lawrence Seaway. At that time, industrial trade was mostly a two-way avenue between the U.S. and Europe that was conveniently serviced by the inland ports bordering the Great Lakes.
“But today, the global nature of the auto industry probably means that factories are more likely to be located in the [southeastern U.S.] or Mexico to serve the markets of the U.S. and Canada,” Mr. Whalen said, while the burgeoning consumer appetite for cars in China, Russia and other rapidly developing nations is being satisfied for the most part by factories within those countries.
“Detroit is no longer so relevant to the global auto sector of 2013,” Mr. Whalen said. “In today’s economy, locating auto production and assembly facilities near deep ocean ports on either coast is probably more attractive than interior seaports like Detroit. Indeed, all of the suppliers and ancillary services which make the auto industry work have long since adjusted to this reality.”
The robust health of the auto industry — a mere four years after two of Detroit’s Big Three fell into historic bankruptcies and were given taxpayer-financed bailouts — is a testament to how well they negotiated the 2008 financial crisis and changing tides of globalization.
General Motors, which manufactures cars in 19 countries outside the U.S., reported global sales growth of 3.9 percent in the first half of the year, led by a record-breaking 10.6 percent jump in sales in China to 1,567,392, rivaling its total sales in North America of 1,614,717 during the same period.
GM has been a leading producer for years in China, which surpassed the U.S. as the world’s biggest car market four years ago. The world’s second-largest automaker behind Toyota Motor Corp. makes no bones about having its fortunes lie more in the developing world than the slower-growing U.S. market.
GM Senior Vice President Alan Batey noted last month that Chevrolet, GM’s leading brand, enjoyed a record-breaking first half this year thanks to its growing popularity overseas. “The continued sales growth around the world is a result of a focused effort to strengthen Chevrolet’s presence in developing markets,” he said.
Ford, which manufactures cars in 65 plants on six continents, posted its fourth straight year of profitability led by record profits in North America in the first half. Though the company has lost money in recent years in South America and Europe, Ford President Alan Mulally said, “We remain absolutely committed to our plan of serving customers in all markets.” Ford has been expanding aggressively in China and other foreign markets.
Even Chrysler, which in 2009 was nearly written off for dead until Italian automaker Fiat emerged as a last-minute buyer, last week reported an eighth straight quarter of income gains. “Our indications are that today we will be able to continue the trend that we have started some 40 months ago in terms of year-over-year improvement,” said Sergio Marchionne, chief executive of Chrysler and Fiat.
Although China has led growth in auto sales worldwide in recent years, sales in the U.S. also have been doing well and are approaching the peak levels achieved before the Great Recession. All three automakers had another strong month in July, with GM reporting a surge of 16 percent in U.S. sales, and Ford and Chrysler sales jumping by 11 percent apiece.
Analysts attribute the car-buying binge to an aging fleet of vehicles that must be replaced.
“Would-be buyers shied away from auto purchases in the wake of the 2008 recession, preferring to put more miles on their used vehicles amid concerns about the job market and hits to personal wealth from slumping housing markets,” said Jefferson Harralson, an analyst at Keefe Bruyette & Woods. “The cars on the road today are the oldest they’ve ever been, so we’re seeing that inventory needing to be replaced at the same time that the economy is healing, so there is a bullish long-term view on autos.”
The average age of the 247 million cars and trucks on U.S. roads hit a record 11.4 years in January, according to the latest figures available from state registration data, released last week by industry research firm Polk.
That was up from 11.2 years in 2012, and nearly two full years older than in 2007, before the start of the Great Recession, Polk analysts said.
The annual rate of auto sales in the U.S. is growing at close to 16 million, the highest level since before the recession. But Detroit has not benefited from the revival.
David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich., and son of a former GM president, noted the irony that the automakers are thriving even as Detroit is forced into default and bankruptcy.
“The auto industry was forced to change, driven by industry pressure, and it evolved,” he told the Detroit Business Mirror. “Detroit did not. It’s sad to see. We just took it all for granted.”