In the last days you might have heard the name of the city in the news. Detroit is filing for bankruptcy protection. This issue is not new, the city has been decaying for ages, in a couple of older entries we explained the situation, and this bankruptcy scenario had already been proposed around February, although it was not official until July.
Detroit is not the first city to declare bankrupt, since 2011, 7 other cities have done it before (although Detroit is the biggest so far), and there are also other cities that are about to feel the same situation.
In Detroit, there are certain aspects that sum together to make this happen. I want to show a couple of statistics that help understand this issue.
- In 1950, Detroit was the 5th population in the United States, with 1.8 million people. Now, the population has decreased down to 700k. Part of the reason is the outsourcing of the auto companies to produce in cheaper countries like Mexico.
- The unemployment has raised in the city from 7.3% in 2000 to 18.6% this year. A big crash happened in 2008, where GM and Chrysler entered financial problems and started firing employees.
- Urban decay: There is 78,000 abandoned houses in the city, as well as 66,000 vacant lots. The houses are on sale, and really cheap, but nobody would buy them, since the surroundings are just no safe to live in. People set some of these houses on fire, it has become very popular. And there are no measures for that.
- Public services like hospitals and firework do not have financial help, the consequence is that only 33% of the total ambulances actually work, the rest need replacement / repair. On the same page, 60% of the streetlights don't work.
- The police department does not protect the city. On average, the response time of the police to arrive when they are called is 58 minutes. The country average is 11 minutes.
- In addition to the previous point, criminals in Detroit are seldom prosecuted. In fact, only 8.7% of the files actually get solved. The rest remain open!
Well, I think these facts show a reality that Detroit in facing right now. The case for bankruptcy declaration will not be closed until December, that means they have until then to think of ideas out of the hole. It has been suggested to sell some of the city valuable properties, for instance the objects of the Detroit Institute of Arts, which could mean around 2.5 billion dollars to the city, as well as historical cars, and animals from the zoo. But they still have to pay more than 180 billion dollars to 100 000 creditors.
And why is this specifically happening in Detroit, the city where all 3 American car manufacturers have their headquarters? I would imagine that such a city would be one of the most profitable in the country. Looking for an answer for this question, I found an interesting article that joins these two facts together, you can find it in this link. And the conclusion is that, in fact, it was the American cars which bankrupted Detroit. The main argument that they give is that, in the past, Detroit had his profit in the automobile manufacturing. That was the special characteristic from Detroit, the reason why so many people moved here, etc. However, nowadays everyone can do good cars, not only for the three big American companies, but also for every other Asian and European company. This leaves the three companies from Detroit with no thing special to offer, not to say innovative. Moreover, American cars are known for having high consumptions, and although the fuel price is still lower than in other countries, the population target for these cars is decreasing, why buy a car that consumes more if another one doesn't? These two facts leave the city with nothing special to offer. Furthermore, the car specialization that once took place, it is now very difficult to change; should all car companies (and suppliers from these companies, i.e. Bosch) now focus on something else? It is not that easy. If there's still a chance to sell cars, nobody is willing to invest in other products.
After reading the article it is no wonder that the city falls a couple of years later than the bankruptcy call of GM and Chrysler.
Can you imagine this happening in Europe? It is very hard. If this were to happen, the first thing Europe would do is let the countries with most debt fall: Greece, Spain, Italy... I was very surprised to read this article in the Financial Times, that promotes accepting bankruptcy when a company or city feels in the need, and somehow puts that as advantage of USA over Europe. Surprisingly, bankruptcy is seen as a fresh start that happens after taking a risk and failing. So, their view is that USA permits more risk-taking, because they're not going to lose everything if they fail. On the other hand, Europe taints the word bankruptcy with negative effects like untrustworthy. Although I do not agree 100% what is said in the article, it is very interesting to see how the European situation is seen from the American press.
I hope I didn't do this entry too boring, but we really are facing this news first hand and would like to share our thoughts with our dear followers :) For the non interested, I'm sure you will enjoy more new entries to come.
Lots of love,
Lita&Andres
On Saturday afternoon we had the chance to see live one of the events that makes this city the Motor Town: the Woodward Dream Cruise. It is the world's largest one-day automotive event, in which cars drive or park along the Woodward Avenue. It started in 1848, and since it has always been a huge event. Nowadays it has been unofficially expanded to a whole week. 
