Detroit: A Legend's Downfall

Last week Detroit, ”World Automotive Capital,” the center of the American auto industry and home to hundreds of factories connected to automobiles and related industries, declared bankruptcy.

Let’s reminisce about Detroit a little bit. During the years when brands that symbolized America, such as Buick, GMC, Cadillac, Dodge, Jeep, Chrysler, Ford and Lincoln were dominant in the market, Detroit was a center of attention. In addition to the giant producers, there were factories both large and small that produced all types of parts for automobiles, down to the smallest part used in a car. Businesses were being set up with a small amount of capital, and a lot of money was being earned. The 1950s were Detroit’s years.

Detroit’s star began to fade when Japanese cars entered the American market. No matter how much Hollywood, at the behest of the American auto industry, portrayed Japanese-made products as shoddy, Honda and Toyota caught on with American consumers. The American industry, which unwillingly entered this competition, began to sound the alarm at the end of the 1980s. By the 2000s it was fighting for its life. Detroit threw in the towel after Chinese firms appeared on the scene and applied the last blow to the auto parts industry. The combination of large firms announcing bankruptcy, small firms closing and the effects of technology on production, all brought about poverty. A very quick decline occurred. The Detroit government lost more than half its tax income, and the system froze up.

These days Detroit looks like a movie set. Street lights are not working; the public transportation system is not running. The salaries of people working in the public sector, police included, are not being paid. As a result of the growing crime rate, unemployment and poverty, the city is emptying out. A city that once had a population of 1.8 million is now home to 700,000. People are leaving the city and not looking back. Houses are practically being given away.

However, there is an interesting situation going on. While everyone is escaping from Detroit, Chinese firms have been opening offices and points of contact there. Last year China filled Detroit’s emptiness by exporting $13 billion worth of automobile parts to the U.S. Many of the parts on the new Cadillac are Chinese products. Even if the Chinese cannot get their own cars to catch on in the American market, with this strategy, they are influencing American automobiles. In order to stay alive, the American automobile industry is saying goodbye to Detroit and starting to partner with China, while a city that owes its entire existence to cars is closing up shop. That is the story of Detroit’s bankruptcy in short.

However, these days, while the American economy is in the process of righting itself, Detroit’s bankruptcy should not confuse people. Detroit’s bankruptcy can be explained by the city tying itself completely to a single sector. Detroit stands out as a victim of bad management. To draw negative conclusions about the U.S. economy based on what is happening in Detroit would be incorrect. Local politicians, who were unable to predict developments in the automobile industry, can be seen as responsible for the bankruptcy. The U.S. economy gets its power from its ability to adapt to new conditions quickly. Detroit is an exception, and exceptions do not ruin mainstream principles. If Detroit goes bankrupt, America will continue on its path with the survivors.