DETROIT — It’s a 21st century paradox: Detroit enters 2014 in bankruptcy, the largest public case in U.S. history and facing $18 billion or more in debt.
Yet the Motor City’s resurgent auto industry is strong enough to host a show that by one estimate will generate nearly $400 million for the area’s economy.
The industrial city is looking to climb out from under decades of financial decline as its longtime industry revs ahead four years after two of its major players, General Motors and Chrysler, emerged from bankruptcies of their own.
The comeback can be measured in the North American International Auto Show’s economic impact, which is projected to increase 8 per cent over last year’s event, says David Sowerby, a portfolio manager and chief market analyst for Loomis Sayles & Co., who authored a study of the show’s effect on the regional economy.
Sowerby says several factors favour increased spending tied to this show.
“Economic activity is strong, the industry itself is stronger, there’s a modest increase in new models and if you talk to hotel or lodging industry, the number of conferences is growing as is business activity and travel.”
To be sure, business at area hotels for the show is strong: Downtown hotels reported Friday that occupancy is at 85 per cent during the press days Monday and Tuesday and about 70 per cent from Jan. 18 through Jan 26, when the show is open to the public.
Local restaurants and bars should be packed with an estimated 5,000 journalists and 800,000 visitors expected at the show.
Overall, the show provides a pick-me-up for the area, illustrated by amped-up coverage from local television stations and highway billboards welcoming visitors and industry types.
All three Detroit automakers have made billions in the recovery following the Great Recession.
Ford expects to post an $8.5 billion profit before taxes for 2013, while GM made $4.8 billion pretax through the first nine months. Chrysler, the smallest and least-profitable of the three, made $1.4 billion pretax through September.
All have rolled out strong new cars and trucks to catch the rise in auto sales from a low of 10.4 million in 2009 to 15.6 million last year.
The automakers’ show displays and parties were more Spartan affairs in the dark days of 2010.
This year, exhibits in particular are as lavish as ever, with two-story buildings inside the Cobo Center.
Sowerby, who crunches the numbers for the show organizer, the Detroit Auto Dealers Association, estimates the event’s economic impact at as much as $390 million to the Detroit area, which also includes some thriving suburbs and its Canadian neighbour across the river, Windsor, Ontario.
By comparison, a study performed by an outside research firm for the Detroit Metro Convention & Visitors Bureau in 2006 put the impact of that year’s Super Bowl XL at about $275 million, including pass-along, or spinoff spending by the merchants and others.
Sowerby says it’s clear why the auto show, which this year will have more than 500 vehicles on display and more than 50 new model introductions, has a greater economic impact.
The Super Bowl represents about a week of events and “overhyped parties” leading up to and including the game itself, whereas the auto show represents several weeks that includes construction of exhibits, press previews, the eight-day public show itself and the teardown.
Sowerby says it’s difficult to tease out the specific benefits to the city of Detroit itself beyond the boost to its downtown elevated rail system and businesses, such as hotels, bars and restaurants, and the prestige of a marquee event at a city-owned convention facility. There’s no local sales tax, nor does Detroit levy one on hotels or motels.
Officials say the city doesn’t bear additional costs for public safety, since show officials handle their own security. Likewise, Sowerby believes that the host city’s major-league financial woes won’t hamper the show.
“I don’t think that the bankruptcy factored into it,” he says. “Is it going to deter somebody’s desire to attend the auto this year? … The extent that Detroit rises to the occasion (says) that bankruptcy doesn’t mean ’closed to business.”’
Still, the throng of global journalists can’t help but venture beyond Detroit’s relatively booming downtown and chronicle the abandonment and blight that lurks on many city streets and former factory sites. The backdrop of bankruptcy can play a role in how the city is portrayed to the world, even if most of those images predate the city’s bankruptcy filing in July.
Detroit dodged one hit to its economy and reputation: A big snowstorm and subsequent blast of Arctic air that bought area travel to a near halt luckily blew in a week before the auto show. The weather should be relatively balmy next week. The auto show in 1999 was marred by a heavy snow that clogged roads and nearly paralyzed the Detroit area at ShowTime, prompting heavy criticism of the city for not being prepared.
“It was horrible,” Sowerby says, adding he recalls telling media outlets at the time, “I’m downtown at the event and I’m watching dollars get sucked out of the city.”
New Detroit Mayor Mike Duggan hopes to see currency flowing the other way this year. He expects the journalists and public to see a Detroit trying to get back on its feet. The white mayor elected in a city that’s 80 per cent black is managing expectations for a mess he just inherited, but plans to tackle with skills honed as a hospital executive and former prosecutor.
“The real Detroit has a long way to go. There’s no doubt there are a lot of great things happening, but we have not translated the success that people will see here into services for people living in the neighbourhood. And that’s my job,” he says. “But that doesn’t stop everybody from enjoying the good things that are happening, like the auto show.”
Michigan economist Patrick Anderson predicts the bankruptcy won’t upstage the auto show, and might prove to be a positive development from a visitor’s perspective. City restructuring plans also include planned investments in some basic services, including blight removal, updating information technology and other “quality of life” improvements. Before the bankruptcy, a regional authority that manages Cobo for the city launched a major upgrade and expansion of the venue in large part to keep the auto show from bolting.
“I think they may actually see more streetlights working, a better Cobo Center than they’ve ever seen, and more optimism about Detroit than they’ve seen in decades,” he says. “That, combined with the rejuvenating prospects of Ford and GM, is going to make this a very interesting auto show for the international press.”
Even more than a mile down the river from Cobo Center, Andrews on the Corner owner Tom Woolsey says he gets extra business during the auto show. He’s noticed a “remarkable” turnaround at his restaurant-bar since about mid-2012, as automakers have recovered, events have grown along a more pedestrian-friendly riverfront and people even started moving downtown.
“The economy isn’t what they expected it to be but it’s up and moving in the right direction,” says Woolsey, whose grandfather opened Andrews in 1918. “The city, I think, is going to do much better now that it’s hit bottom.”
Anderson says an annual event like the auto show will play an important role in reviving Detroit.
“In order to build a world-class economic city, you need to have reasons for people to come every year. The auto show is a world-class reason to come to Detroit every year,” he says.
“Given my choice, I’d much rather have that auto show every year than a Super Bowl every decade.”