Detroit Bankruptcy Won’t Stall Auto Makers’ Revival, Experts Say

Industry-watchers say there will be a minority who “will buy a Toyota or Honda because Detroit is bankrupt,” but the resurgence of GM, Ford and Chrysler won’t be slowed.

Aaron Foley, Associate Editor

July 23, 2013

5 Min Read
Analysts donrsquot expect public perception of Detroit Three to take a negative turn because of cityrsquos financial woes
Analysts don’t expect public perception of Detroit Three to take a negative turn because of city’s financial woes.

Detroit became the largest U.S. city in history to file for a municipal bankruptcy last week, but the automotive industry that drives the region sees little cause for alarm concerning its own prospects.

Yet rumor and innuendo persist.

It was just four years ago when Chrysler and General Motors dominated headlines with their Chapter 11 bankruptcies and subsequent federal loans. The industry now is in resurgence, but finds itself interlinked with the long-term survival of the city.

Media reports on Detroit’s Chapter 9 bankruptcy, which was triggered by billions of dollars in pension obligations to retirees, point to the auto makers and their role in the region’s decades-long decline.

GM and Chrysler are the sole auto makers producing within in the city of Detroit, whose plants account for a slim 2.2% of North American light-vehicle production through the first six months of 2013, WardsAuto data shows.

Chrysler’s Jefferson North complex builds the Jeep Grand Cherokee and Dodge Durango SUVs, while its Conner Avenue facility makes the SRT Viper sports car.  GM’s Detroit-Hamtramck assembly plant, which occupies portions of both the cities of Detroit and Hamtramck, makes the Chevrolet Volt, Opel Ampera and Cadillac ELR extended-range electric vehicles, as well as the Chevy Impala large car and Malibu midsize car.

GM, Chrysler and Ford have issued separate statements confirming they stand behind the city as it navigates a predicted 12-18 month bankruptcy proceeding. And while all sympathize with Detroit’s woes, none believes it will affect their operations or stall the industry’s revival.

GM, the only one of the Detroit Three headquartered within the city limits, says it does not anticipate any impact on daily operations or its business outlook.

“Our first thoughts, however, are with our neighbors throughout the city,” the auto maker says in prepared remarks. “GM is proud to call Detroit home and (the) bankruptcy declaration is a day that we and others hoped would not come.

“We hope that all parties recognize the sacrifices to follow can help rebuild a stronger Detroit with a level of services and quality of life its citizens deserve. A healthy auto industry will play a part in Detroit's comeback story and GM is doing its part.”

Ford’s reaction is brief but positive: “We believe a strong Detroit is critical for a strong Michigan and our industry. The city has a difficult job ahead, and we are optimistic that governmental leaders will be successful in strengthening the community.”

Chrysler, which has underscored its own comeback with its “Imported From Detroit” marketing theme, first used during the 2011 Super Bowl, says it has no plans to change the popular tagline.

“We not only continue to invest in the city and its residents by adding our presence in Detroit, we also are committed to playing a positive role in its revitalization” says the Fiat-owned auto maker.

Analysts and industry watchers say they don’t expect the public’s perception of the Detroit Three to take a negative turn because of Detroit’s bankruptcy, and that customers will continue to purchase the auto makers’ vehicles. However, they warn some people will continue to link Detroit’s problems with past OEM failures.

Even though you hope things are separated and people know all the facts, I think you can safely say somewhere somebody out there associates Detroit going bankrupt with American autos and will maybe think twice about buying a vehicle,” David Regan, an instructor of advertising at Michigan State University, tells WardsAuto.

“It’s ridiculous because (the Detroit Three) are turning in big numbers every quarter, but the short-sighted person could say they will buy a Toyota or Honda because Detroit is bankrupt.”

But while Chrysler’s sales are not at risk, Regan questions the relevance surrounding the “Imported From Detroit” campaign. “No doubt Chrysler has lost a tiny bit of cachet in that line meant to capture attitude,” he says. “I think the attitude is still there, but bankruptcy affects that line just a bit.

“My bet is Chrysler will run out the year with that tagline and then perhaps come in with something different. They have to go out and do some focus test groups and interviews, and after that if the feedback shows (the tagline) has been tarnished or weakened, they would have to consider not using that line anymore.

“Things change and you have to react, no matter how much you have invested,” Regan adds.

So far, Chrysler has not heard any concerns from its dealer network about the Detroit bankruptcy and discussion among individual dealers has been nil, a Chrysler spokesman tells WardsAuto.

Bill Golling, a Detroit-area native and president of Golling Chrysler-Dodge-Jeep-Ram, says linking the city’s bankruptcy to those of the auto makers would be “apples and oranges. Look at the jobs that are added at the plants, look at the new product…Can anybody sit down and say it wasn’t successful?” he tells WardsAuto.

Customer’s perception might even improve in the wake of the city’s troubles, Golling adds. “I would think if someone could, wouldn’t they want to help the city? The Detroit Three are supporting everything they can.”

Tom Libby, a senior forecasting analyst with R.L. Polk, says the Chrysler and GM bankruptcies are four years old now and no longer have the same impact; product offerings have improved since then and Detroit’s financial problems won’t impede foot traffic at dealers elsewhere.

“Most people are informed enough to be aware that there is a city here,” Libby says. “The two companies, along with Ford, have made so much progress. They’ve improved enough so that I don’t think customers will be confused like that.”

A Detroit bankruptcy also doesn’t mean the North American International Auto Show, held at the riverfront’s Cobo Center in January, will be stopped either. The exhibition center is managed by a regional authority that does not rely on funding from the city.

“The city bankruptcy will have no effect on the show’s ability to provide the venue that world auto makers have come to expect, and the event that each year brings more than $350 million in economic impact to the Southeastern Michigan region,” says Rod Alberts, executive director-NAIAS.

– with Byron Pope and James Amend

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About the Author(s)

Aaron Foley

Associate Editor, WardsAuto

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