Michigan prepares for next financial challenge

For many Detroiters, sighs of relief Friday on hearing of the federal auto loans quickly gave way to an agonized realization of just how painful the restructuring ahead will be.

Having avoided a chaotic bankruptcy, the Detroit Three and, by extension, the broader Michigan community must now carry out deep new cuts in the economic fiber of the state.

“There’s going to be fewer factories, fewer salaried and hourly workers, lower compensation, fewer brands, fewer models, fewer dealers,” Dana Johnson, senior economist with Dallas-based Comerica Inc., said of the near-term outlook. “Everything is going to continue to be rapidly downsized, just not in as chaotic a process if they had not gotten the financing.”

Given the importance of the auto industry to Michigan, the restructuring inevitably will bleed over into a broader cultural shift in how Michiganders see themselves and their economic life, said Doug Rothwell, president of the corporate leadership group Detroit Renaissance.

“The culture is the thing we’ve got to deal with the most, and that’s the toughest to deal with,” Rothwell said. He cited attitudes toward education, race and geographic boundaries among things that influence Michigan’s economic outlook — “all the stuff that’s tied us up in knots for years.”

“That’s the stuff we’ve got to work through and get through if we’re going to be competitive in the future,” he said.

Certainly employees of the Detroit Three felt the anxiety as much as the relief Friday at avoiding Chapter 11 bankruptcy.

Bryan Mahlmeister, a marketing research manager for General Motors Corp., said Friday that he and his fellow workers have lots of questions about how the restructuring will take place.

“You just can’t make all these changes and cuts to all these programs and get rid of brands without eliminating more people,” he said. “There’s going to be a lot of angst in the first quarter just to see how things go.”

More declines predicted

Indeed, economist Johnson forecasts a further decline in Michigan’s labor force in 2009 as the auto restructuring and national recession bite deep. He projects a loss of another 30,000 jobs in the automotive industry next year and 60,000 nonautomotive jobs — “another year of recession.”

The relief felt over the federal auto loans, therefore, must be tempered by the unpleasant reality of what those loans mean. “There was never a happy outcome,” Johnson said. “There was just a less-bad outcome.”

Broadly speaking, Michigan’s economic and cultural life has been defined for decades by a beneficence bestowed by GM, Ford Motor Co., Chrysler and their suppliers. That corporate largesse included everything from company-wide shutdowns during the Christmas holidays to superlative blue-collar wages and benefits and bountiful support to local charities.

That culture legacy has been under strain for years as Detroit Three market shares contracted year by year.

Though more diversified than a generation ago, Michigan’s auto legacy still weighs on the labor market. The state has seen eight consecutive years of job loss and over the past year has led or been near the top among states in unemployment, which hit 9.6% last month.

Visible cracks in metro Detroit’s self-image showed up in decreased giving to the annual United Way campaign, the dwindling of automotive payrolls, and, as recently as last week, the canceling of the 2009 Grand Prix auto races on Belle Isle for insufficient sponsorships.

Though wounded, the Detroit Three continue to influence all aspects of local life and will for decades to come.

At Andiamo restaurant in the Renaissance Center, Mike Nowinski, the operating partner, said he had been watching CNN daily in hopes the auto companies would get the federal money needed to survive.

“GM is our lifeblood here and also for the country, I think. If this bridge did not come through, this country would be in big trouble,” he said Friday, shortly after President George W. Bush announced the federal loans.

A new definition

Inevitably, though, Detroit and Michigan may come to define themselves less by three giant corporations and more by middle-market firms, as most other states do, Rothwell said.

After all, nonautomotive firms like software giant Compuware Corp., mortgage company Quicken Loans, and the pizza-sports-entertainment empire Ilitch Holdings have emerged as new corporate leaders in recent years.

“Clearly the corporate culture and the makeup and structure of the corporate community is changing before our eyes right now,” Rothwell said.

And many efforts are afoot to add well-paying research jobs to the state economy, even as Michigan strives to remain the nation’s automotive brain center not only for the domestic automakers but also for companies such as Toyota and Nissan, which have technical centers there. For example, the University of Michigan announced last week it would buy the facilities Pfizer has vacated in Ann Arbor and would work to add 2,000 research jobs over the next decade.

But just how much Detroit and Michigan must change remains a subject of sharp debate. Johnson scoffed at the notion that Michigan needs to model itself after, say, Alabama, a mostly nonunion, low-tax, lower-wage state distrustful of government.

“Some adjustments in attitudes required? Yeah,” Johnson said. “But a wholesale remaking of the business culture in Michigan? I don’t think so.”

Rothwell, too, suggested a different model than Alabama for Michigan to emulate: North Carolina. The mid-Atlantic state has lost a lot of its previous industry but has built a progressive reputation as a haven for high technology.

“It’s a reasonable, attainable goal for Michigan,” Rothwell said. “It’s probably going to take us a decade or more to get there. We probably started late on this path. But nevertheless, there are a lot of initiatives in place that are moving us in that direction.”

Johnson agreed.

“I think Michigan will figure out a way to do what Pittsburgh did, what New England did,” he said. “Both of those areas lost key industries earlier on than Michigan. But they found a way to come back, and Michigan will, too.”
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Michigan prepares for next financial challenge
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