For Detroit, Not Just Another Bankruptcy

The bankruptcy of General Motors is a huge economic blow to a region that has already endured much pain

By Ben Steverman

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A giant billboard on I-94 outside Detroit blares "AFFORDABLE BANKRUPTCY." Clearly, this is a city accustomed to the "B" word. In a state where bankruptcy filings jumped 71% from 2006 to 2008, what's one more?

Unfortunately, the bankruptcy of General Motors (GM) stings in a particularly acute manner, Detroit area residents say. In many ways the pain is worse than after the bankruptcies of rival Chrysler or the 137,000 other businesses and individuals that filed in Michigan in the last three years. Detroit revolves around the 100-year-old automaker, headquartered in the massive seven-tower Renaissance Center on the city's downtown riverfront. Stroll along a random street in Detroit or its sprawling suburbs and it's rare to meet someone without a close friend or family member connected to the auto business. General Motors employs 243,000 workers, down from 325,000 four years ago. It also covers benefits for about 377,000 retirees.

'There's a tremendous amount of fear,' says Lawrence Gustin, a General Motors retiree who worriesthat he'll lose his pension. David Kippen lives less than a mile from the GM plant in Warren, Mich. So far two neighbors on his middle-class suburban cul-de-sac have lost their homes. "People are just trying to hang on and ride this out," he says. "I'm just happy to have a job," adds Kippen, who works at Ford (F), which so far hasn't needed government help.

"I see the struggle," says Detroit resident Keith Warren. The 40-year-old restaurant manager says many of his older relatives are auto retirees worried about their benefits and insurance. "It's going to affect everybody real bad," he says. "It hasn't really sunk in." He worries that a spike in crime will be one effect of the automakers' problems. "You haven't seen nothing yet," Warren warns.

cratered market for high-end homes and suits

No part of the region is insulated from the industry's problems. The multimillion-dollar homes in upscale suburb Birmingham are home to many top GM, Ford, and Chrysler executives. Michael Cotter, a real estate broker at SKBK Sotheby's International Realty and a Birmingham native, says typically about 6 out of every 10 of his high-end buyers have ties to the auto industry. "It's clear that the business foundation of this community is in jeopardy," Cotter says, noting that home values have dropped by a third. While about half his business used to consist of buyers being transferred to Detroit by the big automakers or auto suppliers, that has stopped entirely. Now, he says, a considerable part of his business is homes facing the threat of foreclosure.

Top auto executives dominate the clientele at Claymore Shop, a men's clothing store in Birmingham. However, after the automakers went to Washington pleading for bailout funds late last year, the buying of new suits stopped abruptly at what would ordinarily be the store's busiest time of the year, Claymore Vice-President Allen Skiba says. "It was very frightening," he says. Merchandise bought for next season had to be put on clearance to pay the bills. Skiba acknowledges that it's not healthy to depend so heavily on one industry. Many others in Detroit readily agree.

In March, metropolitan Detroit's unemployment rate was, at 14%, the highest in the nation. And absent a recovery for the auto industry, there are few alternatives for the region's job seekers. Detroit resident Julia Fox hopes Michigan can recruit more employers in fields like health care or technology.

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