Detroit, the little motor city that could?

Detroit has long been considered the US capital of car manufacturing, giving rise to its nickname, Motor City. In the 1950s the city was the fourth largest in the country, but a decline in fortunes and a changing economy has left the city with just half as many people it had in its heyday.

Despite this, Detroit has, since the 19^th century, been the headquarters of The Big Three auto manufacturers, Ford, Chrysler and General Motors and these corporations have always been part of the foundation of Detroit’s local economy.

So when the financial crisis hit the world economy, it hit Detroit’s particularly badly, as declines in car sales led to a resultant decline in jobs and related industries, and by 2010, two years into the global downturn, Detroit’s unemployment had risen to 15%.

In other news, the city’s fortunes didn’t look any better either. A budget deficit of $300 million, which began when the city of Detroit itself saw declining tax revenues due to a population migration to the suburbs, was made worse by the recession. Unemployment exacerbated an already worrisome crime rate and Mayor Kwame Kilpatrick resigned in disgrace during a sex text scandal in 2008.

Things couldn’t get worse for this city of extremes, a city of fame and infamy, loathed by environmentalists and loved by car crazy petrol-heads. And indeed things haven’t gotten worse, for the first time in a long while things are looking up for the little motor city that could.

The world economy is looking set for a rebound. Barclays Bank recently announced their credit crunch was over, unemployment is holding steady for the first time since 2008, the stock market is stumbling less and becoming less sensitive to major shocks (such as the Goldman Sachs fraud scandal or the BP oil disaster) and, most importantly of all for Detroit, Ford has announced a first quarter profit of $2.1 billion and is planning to invest $890 million in four plants across the country.

Although Ford’s expansion plans do not directly involve Detroit, the fact that the auto giant is making a strong profit provides some security to those workers in Detroit who have retained their jobs, which means more cash flow in the local economy.

“When the Big Three are hurting, you cut back,” Rick McDonald, who works as an electrician for Ford told the Associated Press. “Seeing how Ford has turned around, you see most of the Ford employees opening up a little,” but happy days are not necessarily here again, “…with caution,” he adds.

Rick, like many auto manufacturing employees, sees things more pragmatically after the way things tanked in 2008.

“It would be silly to say ‘It's all over and everything is good.’ I don't think we want to go back to the old ways,” he said.

His views are echoed by a local restaurant owner that the AP spoke to. Khalid Anaia owns a small restaurant near the Ford Rouge Plant just outside Detroit. He said the city will only have turned a real corner when The Big Three start employing more people again, which remains unlikely.

Detroit’s problem was that it relied too heavily on manufacturing and heavy industry in general, of which the car companies were a part. Government, manufacturing, construction and transport/utilities industries make up over half of Detroit’s economy.

“We've depended on the auto industry instead of diversifying our economy,” said Leor Barak, a local attorney who AP spoke to. He believes relying for jobs on a handful of major companies is dangerous, as it makes the city more vulnerable to economic shocks, such as downturns in the market.

He points to Mayor Dave Bing as an example of the leadership decisions Detroit “needed to be made 30 years ago”. Bing stepped up after the Kilpatrick debacle and has been encouraging small business, making moves to foster a local economy built on a number of services and industries. It’s difficult work though, and progress has been slow going.

Part of this is spending money without guarantees on returns, such as the use of stimulus money to clear away 6000 abandoned homes in the city and clean up neglected neighborhoods in the hope that small businesses will either set up shop in Detroit or relocate to within its boundaries.

The major point is that confidence is growing, and this lays the groundwork for more economic activity, the mayor has stressed to Detroit news media.

Meanwhile, for those 15% of people unemployed in Detroit, the fact that the Nasdaq is up, or Ford is making a profit, makes little difference to them, they’re still not getting a paycheck at the end of this month.