They have large government pension liabilities; same thing GM is dealing with. Detroit’s population has dropped 50% over the last decade yet those who are getting pension checks are still climbing. More money being drawn with significantly less people contributing to the plan. It’s a formula for disaster that even a 4th grader would understand.
It’s a union market. Companies aren’t inclined to move into a market where labor costs are high. Manufacturers don’t want the risk of experiencing a shutdown by union employees. The bottom line is manufacturers move out of union states to right to work states like South Carolina (Boeing).
They have average salaries and benefits that are substantially better in the public sector than the private sector. The best jobs were at GM and in local government. This is called being upside down because the private sector generates jobs plus they provide real tax revenues. Public employees pay taxes that come back to them to sponsor part of their salary and benefits while taxes paid by the private sector actually
contribute to the budget; it goes in and doesn’t go back to the employee. With this in mind, private sector jobs were going away fast while most of the public sector held onto their jobs because trying to fire a public employee is like pulling teeth. So real tax revenues dropped significantly while the costs remained pretty much the same. It has taken Detroit to go broke for them to cut government jobs. They should’ve cut these jobs years ago.
They didn’t make cuts necessary to balance their budget and instead looked for new creditors each year so they wouldn’t have to make unpopular choices. Politicians get away with this where it wouldn’t fly in the private sector. As it is now, Detroit’s creditors will get around ten cents on the dollar but it’s their fault for investing in Detroit. From what I hear our Federal Government is mulling over a bailout which would once again delay the inevitable and tax payers would end up with ten cents on the dollar or worse.
The city’s livelihood is highly leveraged by very few industries. Losing one can send a city into a downward spiral that is difficult to stop. This has been the case since the beginning of our nation (i.e. mining towns, mill towns, steel towns, etc.).
They allowed their city to deteriorate. Driving around a dilapidated city makes people want to move out not in. Detroit has run ads for years trying to entice companies and people to move there but it doesn’t take long upon flying into Detroit to realize how depressing it is and unsafe for that matter. Running ads were a waste. Their focus should’ve been on making their city something worth advertising/marketing.
They’ve allowed debt per person to go from $11,000 just a few years ago to over $25,000 now. One of the things I find scary is that debt per person in the U.S. is $53,000 and growing because unlike Detroit, borrowed money is still coming in. Not a good sign for sustainability of our economy. When will we crash like Detroit? When will other countries start thinking we’re no longer a good bet.
There are of course other reasons Detroit failed. I dealt with a lot of brand managers over the years for a variety of products (i.e. Clorox, Dole, Florida’s Natural, McCormick, Scott’s, etc.). City councils and mayors could learn a lot from them. Each city is a brand and every brand has an image. Let’s face it Ashville, Boise, Charleston, Charlotte, Dallas, Las Vegas, New York City, San Francisco, Seattle, etc., are all different brands that bring in different industries and people. They have unique reputations.
Detroit tried to hold on to a brand image that no longer had a market to appreciate it. They should’ve reinvented themselves years ago. A couple of acres downtown has beautiful new buildings including some condos on the waterfront that are gorgeous. They have great ball fields downtown that are near the water. They have a nice zoo. If someone were blindfolded at the airport and brought downtown to stay on the water…they’d think Detroit was wonderful. The problem is they could go for a very short drive and it would go from a nice neighborhood to one that looks like it had been bombed.
There’s no overcoming this anytime soon or possibly not at all. I’d hate to be in charge of turning it around. Although there are a lot of factors as to what brought Detroit down I think there that got the spiral started. In the private sector we’re not allowed to make many mistakes because the market will quickly make us get our house in order or go out of business. Detroit continued to be propped up by borrowed cash not
worrying about making the changes necessary to keep the city in business. an overused phrase but applicable…they kept kicking the can down the road.
Lastly, I think unions and their unwillingness to sacrifice anything to save the city led to Detroit’s bankruptcy. Workers in Greece did the same thing then when France bailed the country out they had their benefits and pensions cut dramatically. Of course these workers were livid but the fact is they should’ve worked within their own country to remain solvent. Now it’s the same thing in Detroit, they should’ve worked with city council and the mayor to work out a deal that would keep the city running for the long haul. They didn’t want to voluntarily give anything up now they don’t have a choice.
I wish Detroit the best and I’m usually very optimistic about life in general but in my opinion they’re down and out. There are way too many negatives to overcome and they’ve been going on for way too long. Detroit is an iconic city which makes this such a terrible tragedy.