Fiat Seeks Chrysler Buyout: What Does This Mean for Detroit?

unemployment

Decades of “job flight” have left Detroit’s economy and residents financially devastated.
Image: Shutterstock

When the recession hit, big motor companies like General Motors, Ford, and Chrysler were hit hard by rising costs and declining revenue. In 2009, both Chrysler and GM had to be bailed out by the government. Chrysler might have still gone under if not for the United Auto Workers’ acceptance of the sale of 58.5% of the company to Italian carmaker company, Fiat.

Fast forward four years later and Detroit is in the midst of bankruptcy, the automakers are coming back strong, and Fiat is seeking the purchase of the remaining 41.5% of Chrysler. If successful in making the purchase, Fiat head Sergio Marchionne will be able to successfully create the world’s 7th largest car manufacturer. Vice Chairman Ron Bloom of Lazard investment firm, who negotiated the 2009 deal and is currently advising Detroit retirees in the midst of the country’s largest-ever municipal bankruptcy, is heading the negotiations for this newest development.

But Detroit, once legitimately known as the Motor City, isn’t so grand these days. It’s running on a deficit of about $1 million per day, and though the city’s three big motor companies (GM, Chrysler, Ford) have made several large donations in the midst of their renewed success, it won’t be enough to reverse the city’s fate. Even if the Fiat buyout is successful, unless it brings jobs to the city, it probably won’t help Detroit any more or less than the current automakers are.

“Detroit’s fate is the result of decades of job flight,” said Thomas J. Sugrue, professor of the University of Pennsylvania and author of The Origins of the Urban Crisis. “The auto industry has been decentralizing since the 1950s, first to the suburbs, then to small-town Midwest and Sunbelt, and later elsewhere in America and overseas. The city of Detroit is now only symbolically the Motor City.”

Indeed, whereas in the 1960s there were an estimated 300,000 jobs created by the automakers and automaker suppliers, there are now fewer than 10,000 workers in Detroit employed by GM and Chrysler combined—with most not even living in the city.

As Detroit wades through this crisis, residents can only hope that things will turn around soon. Until then, they will continue to rely on the automakers for support and charity. GM supports summer jobs programs for youth and also donates generously to the city’s public schools. Community centers have been put back on their feet from cash donations. Police cars and ambulances are being donated to replace old ones. City events are being sponsored by the companies.

If Fiat is successful in its buyout of Chrysler, will it continue to support the city in such a way? The possibility is certainly there, but in the end, Detroit really needs one thing before it will be able to dig itself out of its current hole—jobs. Charity helps, but not enough.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: