Refueled Domestic Automakers Poised to Lead Detroit’s Revival

While you weren’t looking, Detroit’s car companies pulled off a global comeback with better vehicles and innovative technology.

The all-new 2015 GMC Canyon midsize truck makes its world debut on the eve of the Press preview of the 2014 North American International Auto Show January 12, 2014 in Detroit, Michigan.
National Journal
March 4, 2014, 5:29 a.m.

This art­icle is part of a weeklong Amer­ica 360 series on De­troit.

DE­TROIT — A co­lossal pickup truck, spin­ning clock­wise un­der a bay of bright flor­es­cent lights, is decked out with an am­al­gam­a­tion of di­git­al cam­ou­flage and rugged wood­lands. Splattered across the side of the vehicle are the three massive words, “MADE IN AMER­ICA.” But there’s an as­ter­isk after “Amer­ica,” and upon closer ex­am­in­a­tion the fine print comes in­to fo­cus: “As­sembled in Texas with U.S. and glob­ally sourced parts.”

It’s a Toyota.

There’s noth­ing de­ceit­ful about a Ja­pan­ese auto­maker claim­ing to be a do­mest­ic man­u­fac­turer; Toyota makes cer­tain products in the U.S., as do oth­er for­eign com­pan­ies. But here, at the North Amer­ic­an In­ter­na­tion­al Auto Show, the irony is in­es­cap­able. Toyota’s rise to the top of the glob­al auto­mot­ive mar­ket over the past few dec­ades was aided by a grow­ing per­cep­tion that “Made in Amer­ica” trans­lated loosely to “Piece of Junk.” The De­troit auto­makers, fat and sat­is­fied after their factor­ies had deftly con­ver­ted to war pro­duc­tion, grew com­pla­cent in the post-war mar­ket­place and ig­nored the in­nov­a­tions of their over­seas com­pet­i­tion. De­troit made bad cars and worse busi­ness de­cisions, dol­ing out pen­sion pack­ages that saddled their com­pan­ies (and their sub­par vehicles) with un­sus­tain­able leg­acy costs. Little was done to slow this down­ward spir­al, and in Novem­ber 2008, as fin­an­cial mar­kets col­lapsed, Michig­anders watched in­cred­u­lously as the Mo­tor City’s money men bowed be­fore Con­gress and begged for a bail­out.

Today that em­bar­rass­ment seems like an­cient his­tory. Not only are the do­mest­ic auto­makers fin­an­cially sound, but both Ford and Gen­er­al Mo­tors are viewed as in­dustry lead­ers. They boast in­creased mar­ket shares, his­tor­ic mod­el launches, and vastly im­proved product lines. (Chrysler re­cently be­came a wholly owned sub­si­di­ary of Fi­at; the Itali­an-owned and Dutch-headquartered com­pany was re­named Fi­at Chrysler Auto­mot­ive. Chrysler, then, is no longer a “do­mest­ic” auto­maker.)

Any linger­ing skep­ti­cism about a do­mest­ic auto­mot­ive re­sur­gence is quelled here; the De­troit Two have stolen the show in­side Cobo Cen­ter. Ford has stunned the in­dustry by in­tro­du­cing an alu­min­um body on its F-150 truck, part of the F-Series that has been Amer­ica’s top-selling vehicle for 32 con­sec­ut­ive years; this in­nov­a­tion will shed 700 pounds while im­prov­ing fuel eco­nomy and tow­ing ca­pa­city. Across the arena, GM’s best-selling brand, Chev­ro­let, has com­pleted a rare sweep of the show’s mar­quee awards, with its re­vamped, tech-heavy Sil­verado win­ning “North Amer­ic­an Truck of the Year” and its re­designed Cor­vette Stin­gray named “North Amer­ic­an Car of the Year.”

Every power­house urb­an eco­nomy needs an an­chor. And while De­troit still lacks a strong sup­port­ing cast, it once again boasts something few of its com­pet­it­ors have: an eco­nom­ic corner­stone. The do­mest­ic auto in­dustry is back from the brink of col­lapse, and not co­in­cid­ent­ally, so is the eco­nomy of metro De­troit. Five years re­moved from the threat of ex­tinc­tion, the auto­makers are pro­du­cing bet­ter cars, hir­ing more work­ers, and as­sert­ing them­selves as the cata­lyst of De­troit’s eco­nom­ic re­sur­gence.

“The em­ploy­ment gains over­all in south­east Michigan in the last two years have been largely on the back of the re­cov­ery of the do­mest­ic auto in­dustry and the sup­pli­ers here,” said Kristin Dz­iczek, dir­ect­or of the Labor and In­dustry Group at the Cen­ter for Auto­mot­ive Re­search in Ann Ar­bor, Mich.

The smarter, more tech­no­logy-re­li­ant auto in­dustry has be­come a “base for growth” for De­troit be­cause of the tal­ent it’s at­tract­ing, Dz­iczek ex­plained. She cited CAR re­search that shows Michigan now has a high­er dens­ity of en­gin­eers than any state in the coun­try. This in­flux of sci­entif­ic en­dow­ment, Dz­iczek said, is “help­ing to drive in­nov­a­tion in metro De­troit, in the auto in­dustry, and bey­ond.”

This mul­ti­pli­er ef­fect un­der­scores the auto­makers’ im­port­ance to De­troit’s eco­nomy — and the dev­ast­a­tion their dis­ap­pear­ance could have triggered. “It would be very hard for oth­er com­pan­ies to grow around De­troit if you didn’t have a stable core in­dustry already here,” Dz­iczek said.

Wheth­er De­troit would ever again boast a “stable core in­dustry” was an open ques­tion when Wash­ing­ton bailed out GM and Chrysler. The com­pan­ies were drown­ing in debt and had done little to ad­dress the sys­tem­ic fin­an­cial prob­lems plaguing their bal­ance sheets. (The same went for Ford, though it had dia­gnosed its troubles early enough to ac­cess some cap­it­al when the mar­kets still func­tioned.)

But their em­ploy­ees wer­en’t the only ones whose live­li­hood was on the line. De­troit’s auto in­dustry sup­ports a sprawl­ing sec­ond­ary net­work of work­ers in the man­u­fac­tur­ing and ser­vice sec­tors, most of which de­pend dir­ectly on the do­mest­ic auto­makers for sur­viv­al. All told, more than a mil­lion Amer­ic­an jobs could be lost if any of the De­troit Three went un­der, stud­ies showed, with hun­dreds of thou­sands of those work­ers resid­ing in the De­troit area. Ul­ti­mately the $80 bil­lion that was giv­en to GM and Chrysler was more about pre­vent­ing his­tor­ic, cas­cad­ing job loss than it was about bet­ting on the pro­spects of two in­com­pet­ently man­aged in­dus­tri­al be­hemoths.

Re­gard­less of polit­ic­al ideo­logy, one thing is already clear about the auto bail­outs: They ac­com­plished the ob­ject­ive of sav­ing south­east Michigan’s eco­nomy. Al­though all three com­pan­ies are smal­ler than they were 10 or cer­tainly 20 years ago, Ford, Gen­er­al Mo­tors and Chrysler were still three of the four largest em­ploy­ers in metro De­troit in 2013, ac­cord­ing to Crain’s De­troit Busi­ness, with more than 100,000 com­bined em­ploy­ees. That num­ber is pro­jec­ted to rise stead­ily over the next sev­er­al years; CAR es­tim­ates the auto­mot­ive in­dustry will add 16,000 new jobs in metro De­troit by 2016.

The ex­plan­a­tion for this growth is simple: Ford and Gen­er­al Mo­tors are mak­ing bet­ter vehicles and selling more of them. More sales mean more pro­duc­tion, and ac­cord­ing to the Bur­eau of Labor Stat­ist­ics, Michigan’s auto­mot­ive sec­tor ad­ded more than 5,000 new work­ers last year to get the job done. (Ford alone ad­ded thou­sands of jobs here in 2013, and will hire thou­sands more this year.)

This suc­cess story is about more than jobs saved or cre­ated. The auto bail­outs — and the man­aged bank­ruptcies that fol­lowed — were crit­ic­al in for­ging lean­er, smarter com­pan­ies that could com­pete fin­an­cially with for­eign rivals. Most im­port­antly, new uni­on con­tracts were ne­go­ti­ated that al­lowed the auto­makers to shed costs and, in turn, make high­er profits off each car sold.

“The re­struc­tur­ing of the com­pan­ies, of their costs and op­er­a­tions, has been huge,” said Lacey Plache, chief eco­nom­ist for Ed­munds, an auto­mot­ive-re­source pub­lic­a­tion. “It has al­lowed them to be highly com­pet­it­ive once again.”

But health­i­er bal­ance sheets alone don’t ex­plain the im­proved repu­ta­tions GM and Ford en­joy today. Rather, in­dustry ex­perts point to un­pre­ced­en­ted levels of “in­nov­a­tion and activ­ity” that have pro­duced smarter, more fuel-ef­fi­cient vehicles. Ford has pushed the en­vel­ope with its “Eco­boost” concept that max­im­izes ef­fi­ciency by turbo-char­ging smal­ler en­gines. And GM has met mar­ket de­mand by pro­du­cing smal­ler cars (such as the Cruze, one of the world’s top-10 selling mod­els in 2013) and ex­per­i­ment­ing with elec­tric mo­tors. Both have tinkered with new tech­no­lo­gies to in­fuse their vehicles with a sense of con­nectiv­ity, and are seen as in­dustry pi­on­eers in that re­gard. (Such in­nov­a­tion can have a down­side, as new­er mod­els have suffered in “re­li­ab­il­ity” rank­ings due to grow­ing pains with new tech­no­logy sys­tems.) After dec­ades of slug­gishly chas­ing for­eign in­nov­a­tion, the De­troit auto­makers are viewed by in­dustry ex­perts today as re­spons­ive and trail­blaz­ing.

“They’ve really fought back by re­spond­ing to what con­sumers want. In terms of qual­ity they have not only come back, but then some,” Plache said of Ford and GM. “Today they have very strong products that are very com­pet­it­ive across the in­dustry…. They are con­tinu­ally striv­ing for high­er qual­ity, and they are tak­ing risks, in­tro­du­cing things ahead of the in­dustry.”

This re­com­mit­ment to qual­ity and in­nov­a­tion is already pay­ing di­vidends. San Diego-based re­search firm Stra­tegic Vis­ion, which meas­ures vehicles with its “Total Qual­ity In­dex,” last year found the De­troit auto­makers out­per­form­ing their for­eign rivals for the first time in over a dec­ade.

Glob­al mar­kets have re­spon­ded. Ford claimed two of the world’s top-10 selling mod­els in 2013, ac­cord­ing to For­bes. (The tiny Fiesta is hugely pop­u­lar over­seas, and this year’s mod­el will of­fer a re­volu­tion­ary three-cyl­in­der en­gine; the ver­sat­ile Fo­cus was the world’s top-selling mod­el for a second con­sec­ut­ive year.) Gen­er­al Mo­tors, mean­while, con­tin­ues to ex­pand glob­ally. It will in­tro­duce more than a dozen new or up­dated mod­els this year, many of them in China, the world’s largest auto­mot­ive mar­ket. And des­pite rank­ing as the world’s third-largest auto­maker in 2013, GM re­mains in fierce com­pet­i­tion with Toyota and Volk­swa­gen for the top spot it held from 1931 to 2007, and again in 2011.

The best news for the auto­makers—and De­troit—is that Amer­ic­ans are buy­ing cars again. U.S. sales jumped 8 per­cent in 2013, on the heels of a 13-per­cent spike in 2012. Ford saw its sales rise an in­dustry-best 11 per­cent from 2012, while GM’s sales went up 7 per­cent. As the eco­nomy con­tin­ues to im­prove, in­dustry ana­lysts ex­pect auto sales to re­main strong at least through 2014.

Still, these com­pan­ies know first-hand that noth­ing is cer­tain in the al­ways-evolving glob­al eco­nomy. That’s why both Ford and GM are re­launch­ing old mod­els and hir­ing new tech­no­logy pro­fes­sion­als to in­nov­ate for fu­ture products. The auto­makers real­ize that while bot­tom lines could suf­fer in the short-term, such in­vest­ments will pay off down the road — an ap­proach they should have ad­op­ted dec­ades ago.

De­troit will nev­er again be able to sur­vive as just a man­u­fac­tur­ing hub. The glob­al mar­ket­place is fast and un­for­giv­ing, and urb­an eco­nom­ies can only thrive when un­der­girded by di­verse sec­tors. In this re­gard, the city could learn from the auto­makers by em­bra­cing in­nov­a­tion and more-ef­fi­cient busi­ness prac­tices. After hit­ting rock-bot­tom five years ago, De­troit is fi­nally be­gin­ning to branch out. Its fin­an­cial dis­trict is sud­denly boom­ing. Its tech in­dustry is quietly bud­ding. And its net­work of star­tups is ex­pand­ing daily, as young en­tre­pren­eurs flock to a city of­fer­ing rich his­tory and cheap real es­tate.

Still, around here, everything starts and ends with the auto­mobile. Cars are what built De­troit, al­low­ing work­ers with ba­sic edu­ca­tions to earn a de­cent liv­ing and join the middle class. Cars are what doomed De­troit, al­low­ing cit­izens to es­cape cramped urb­an cor­ridors for quiet neigh­bor­hoods. And cars are what can re­build De­troit, giv­ing the city and its sub­urbs a core in­dustry to an­chor a grow­ing and di­verse eco­nomy.

The car com­pan­ies laid the bank­ruptcy blue­print for De­troit by prac­ti­cing com­pla­cency and fisc­al in­com­pet­ence. Today, by em­bra­cing a new era in­nov­a­tion and fisc­al ef­fi­ciency, the do­mest­ic auto­makers have provided De­troit with a roadmap to re­sur­gence. The city would be well-ad­vised to fol­low it.

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