Bloomberg News

Michigan Economy Heals Itself With Automobile Sales, New Hiring

November 28, 2011

Nov. 22 (Bloomberg) -- Michigan’s sink-or-swim automotive economy is swimming again and taking Toby McGowan with it.

McGowan makes $15.78 an hour as one of 280 production workers hired in the past two months at General Motors Co.’s Lake Orion assembly plant as the state’s carmakers increase sales and add personnel. He lost his last job at a print shop thanks to slow business.

“I had to cut out Internet, text messaging, cable TV,” said McGowan, 33, a single father who lives in Ortonville with his 4-year-old son. “Those aren’t necessary. I can put food on the table, keep a roof over our heads. I wouldn’t call it the most comfortable life, but it’s comfortable for me.”

Michigan lost 860,000 jobs from 2000 to 2009, almost half in the final two years. One of every five residents receives Medicaid assistance, and Detroit is in peril of state takeover. Since 2008, however, its economy fared better than that of any other state, except for oil-booming North Dakota, according to the Bloomberg Economic Evaluation of States. The index calculates growth by examining job creation, personal income, tax revenue, housing prices, mortgage delinquencies and the stock performance of state-based companies.

Republican Governor Rick Snyder, 53, said in an interview in Ann Arbor that the index confirms that “we are the value place to be.”

Snyder, who cut $1.5 billion in spending, said finances are more stable and a slimmed-down auto industry can better withstand downturns.

“We’ve gone through tough times, high unemployment,” Snyder said. “We have a lot of talent ready to work and we have a great work ethic in this state. We have low-cost housing because of depressed property values.”

Hinging on Building

The question is whether the surge, enabled by the Obama administration’s auto-industry bailout, will return Michigan to its prerecession state.

“We have an economy that cannot grow unless manufacturing is healthy,” said Kristin Dziczek, director of the labor and industry group for the Center for Automotive Research in Ann Arbor.

Dearborn’s Ford Motor Co. reported a third-quarter profit of $1.65 billion Oct. 26. The next day, Chrysler Group LLC, the Auburn Hills carmaker majority owned by Fiat SpA, raised its forecast for its first annual profit to $600 million.

GM’s U.S. sales climbed 15 percent this year through October from the same period a year earlier, according to Autodata Corp. Deliveries rose 11 percent at Ford and 23 percent at Chrysler, the Woodcliff Lake, New Jersey, researcher reported.

Newer and Cheaper

GM, Ford and Chrysler will hire or retain 42,300 employees nationwide over four years thanks in part to a new United Auto Workers contract that continues to pay rookies such as McGowan less than the $28 per hour that senior workers make, according to the Center for Automotive Research. Also, those higher-paid employees receive no raises under the four-year contract.

Such hiring helped Michigan’s October unemployment rate drop to 10.6 percent from 11.1 percent in September, according to the Bureau of Labor Statistics. That’s one percentage point lower than a year ago, though higher than the 9 percent national rate.

Jeffrey Hickmott, 26, graduated with a mechanical engineering degree from the University of Michigan-Dearborn in 2009. He’s still hunting for a job and lives with his parents in Taylor, a Detroit suburb.

Tough Search

“It’s better than a year ago,” Hickmott said in a telephone interview. “Last year I had two interviews. This year I’ve had 20 or 30 contacts over the phone. They said they were impressed, but they wanted someone with more experience.”

His prospects may improve: A University of Michigan report last week predicted 0.8 percent job growth in the state next year and 1.4 percent in 2013.

Michigan’s rebound from the 18-month recession that ended in June 2009 gives it a higher BEES ranking -- in part because it fell so far. Compared with a decade ago, the state’s economic health has fallen 25.4 percent, ninth-worst among states.

During 2010 and the first quarter of 2011, though, Michigan’s economic health improved by 8.8 percent, second to North Dakota.

The state still suffers from free-falling property values, which have starved its municipalities of property-tax revenue. Statewide real and personal property values declined about 20 percent from 2007 to 2011, according to the state Treasury Department.

Detroit in Danger

Oakland County, with Michigan’s second-highest median household income of $62,626 in 2009, lost almost one-third of its overall property value in that time, according to Robert Daddow, deputy county executive.

Last week, Detroit Mayor Dave Bing said the city faces a $45 million shortfall by June, on top of a $155 million long- term deficit, and he said he would eliminate 1,000 city jobs in February. He warned that without union concessions, the city may face state takeover.

Snyder said economic growth needs a stable political and tax environment. The state this year cut business taxes by $1.7 billion and balanced its budget without temporary fixes.

In July, Fitch Ratings revised Michigan’s credit outlook to positive from stable, citing a balanced budget and improved economy. Moody’s rates Michigan’s general-obligation bonds Aa2, third highest, and both Fitch and Standard & Poor’s rate the state AA-, fourth highest.

‘Ready to Explode’

Doug Rothwell, president and chief executive of Business Leaders for Michigan, which includes 80 executives of the state’s largest companies, said most are more optimistic about Michigan’s economy than they are about the U.S. as a whole. Rothwell said there is pent-up demand for cars and services.

“The economy is ready to explode,” he said.

Doug Gaylor, 53, a New York-based municipal fixed-income portfolio manager for Principal Global Investors LLC, said he’s delayed replacing his 2001 Oldsmobile Silhouette minivan, which has 133,000 miles. He said he’ll look to buy a U.S. car first, when the next minivan repair costs too much.

Gaylor, who once oversaw a Michigan bond portfolio, said he’s impressed by the state’s handling of its finances and its positioning for more high-tech jobs in the future.

“They did a really good job of addressing problems in a timely manner, more than other states did,” he said in an interview in New York.

--With assistance from Craig Trudell in Southfield, Michigan. Editors: Stephen Merelman, Mark Schoifet

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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