Detroit and the Recession: An Inside Look

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The recession has his everyone in this country in one way or another. We all know someone that has lost his/her job or is going through tough times financially because of the current credit crisis. But Detroit has been hit hard like no other place in the country. The automotive industry, which has been identified for so long with the city, is falling apart and so are the thousands of jobs so many people relied on for sustenance.

At least that’s what the media says.

I happen to know some people that actually live on the outskirts of Detroit and I wanted to get their perspective on what the city is going through and how they see the future playing out.

First up, we have “Chris.” Chris is in his late 30s, is married with three young girls, and works as an accountant. As an aside, he also plays ice hockey and he will lay you out if you get in his way—I’ve seen it happen.

What changes have you noticed (good or bad) around the Detroit area over the past few months as the economy has worsened?

I honestly haven’t seen much that’s good. I see a lot of “for sale” signs on homes and a lot of “for lease” signs on commercial buildings. I see “sketchy” businesses that one might typically see in depressed areas. Businesses such as pawn shops, pay day loans rent to own, credit repair, short term auto insurance, etc. And they’re popping-up in areas that have historically been considered affluent. I see the closing of high end restaurants as well.

Do you have friends or acquaintances that have been impacted? If so, how are they dealing with it? Are any of them leaving Detroit? Are you seeing any specific industries being impacted more than others?

It has certainly become more common to hear of friends/acquaintances that have lost their jobs or taken buy-outs. I’ve heard some, but not too much, about people leaving the state to take new jobs or to expand their business due to lack of work. The majority of people that lost their jobs that I know still want to make a go of it in Michigan and are still receiving or living off severance payments or buy-out money. But at some point, nobody wants to be the last one here to turn out the lights.

Obviously the automotive industry is getting killed. But it’s not limited to GM, Chrysler, and Ford and their tier 1, 2, and 3 suppliers. It also extends to service industries that cater to the automotive industry such as advertising, professional services business/management consulting, hospitality, and the like. And it obviously trickles down to consumer-related businesses as well such as home builders, and restaurants.

You once mentioned that if things continued to get bad, you would want to get a gun. Were you serious? Are things really going to get that bad?

It probably won’t get that bad, but better safe than sorry. Just kidding—my wife would never allow a gun in our house. But we are thinking of investing in more home security. The pessimist side of me pictures many foreclosed and abandoned homes in our subdivision. I picture squatters or homeless people taking refuge in those houses. I see lots of people with very little to lose. And I want to make sure that my family is safe.

As a father of three, has the situation in Detroit made you nervous about the stability of your family? Have you ever considered leaving?

Not only do I love Michigan and what it has to offer in terms of the natural landscape (lakes, woods, etc.) and the changing of the seasons, but I also like the down-to-earth Midwestern mentality. We are also extremely fortunate to have immediate family within just a few miles of our home. I cannot picture us leaving our family behind (but I’ve been told that they’d just follow us if we left [he's joking here too everyone]). That said, I want my kids to have the best opportunities and I want to live wherever they decide to ultimately raise their families. I wouldn’t be against leaving if we could go somewhere that has a brighter outlook assuming all family went with and assuming we’d still enjoy all four seasons (i.e. not Arizona).

You once mentioned to me when you were shopping for your new car that you knew you wanted to buy American. It stuck in my head quite a bit because I feel like most people these days want a deal regardless of where a car is made. I have a feeling that when things get better, this kind of patriotism will be more and more common. What’s your take on that? Should people buy American today when the car companies may not be around in a few years?

I have always been patriotic but I am also a  believer in capitalism and free markets. I wouldn’t buy American if the quality was significantly worse than foreign manufacturers as that would perpetuate the problem and I’d get a bad deal. But since I live in a state that is dominated by the domestic manufacturers and I believe the quality gap is no longer significant, so I will continue to buy American. As it relates to the risk of bankruptcy and consequently the risk of the automakers not being around to honor warranties, I guess I’m willing to take that risk; for now.

US car makers: should they get bailed out or not? Do they deserve all this help when they got into this mess themselves in the first place?

This is a sore subject for me.  The scrutiny that GM and Chrysler are receiving from the politicians is disproportionate relative to the bailout money received when compared to the size of bailouts provided to other industries (banks and insurance companies) and the scrutiny (or lack thereof) that they receive. I think the politicians are doing this as somewhat of a charade so they can appear hard-nosed against an industry that they think they understand as having a somewhat contained impact if it were to fail. The auto industry helped build America and the middle class.

In hindsight, sure the auto industry was not as cost conscious as it should have been when times were good and competition low, but the government may have even contributed to the problem somewhat as it supported legislation to bolster the unions. It’s the legacy costs associated with the unions that make it difficult for the domestic automakers to compete. There’s so much hypocrisy in this. What about the lucrative benefits and perks that the politicians receive (e.g. defined benefit plans, great health care coverage, etc.)? How can they point fingers at the auto execs for use of private jets when Nancy Pelosi uses one each weekend to fly home at tax payers’ expense? Again, ridiculous.

Let’s play worst-case scenario: you’ve lost your job and are having trouble finding another. What would you do first: get a job in a totally unrelated field or leave Detroit?

I could not make enough money to support my family in the manner we are accustomed if I were to change to a totally unrelated field. I’m fortunate to have skills that are transferable across industries though so hopefully this won’t be an issue. The company I work for now is not part of the automotive industry. But if push came to shove and Michigan became completely unviable, I would obviously then be forced to leave the metro Detroit area.

You’ll notice a lot of questions deal with leaving Detroit. I’m an optimist and think that Detroit will eventually come out on the other side if certain things go their way. What do you think is in store for Detroit? What do you think needs to happen for the city to make a comeback?

I definitely think you have to separate the discussion of the city of Detroit’s future from the suburbs and rest of Michigan. Personally, I’m not optimistic about the city of Detroit itself. I think the damage to Detroit has been done and I have very little confidence in city government and its citizens in being able to improve things. The unemployment rate in Detroit is now almost 25%.

On the other hand, there are other parts of Michigan (e.g. Detroit’s suburbs, Ann Arbor, Grand Rapids, etc.) that have a lot to offer (e.g. great universities, a growing health care industry, natural resources, tourism, strong leadership, etc.) that will contribute to the rest of Michigan’s ultimate success. In fact, while I don’t’ believe things have bottomed-out yet, I think there will be some real opportunities in Michigan (outside of Detroit).

Thanks to Chris for sharing his thoughts!

Next up I’ll be posting thoughts from another friend: a newly-minted dad in his early thirties who works as a lawyer. See part II here.

Image by djtansey

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