New Geography

Tag: Detroit

  • The Successful, the Stable, and the Struggling Midwest Cities

    The Midwest has a deserved reputation as a place that has largely failed to adapt to the globalized world. For example, no Midwestern city would qualify as a boomtown but still there remain a diversity of outcomes in how the region’s cities have dealt with their shared heritage and challenges. Some places are faring surprisingly well, outpacing even the national average in many measures, while others bring up the bottom of the league tables in multiple civics measures.

    Let us examine the health of various cities, using population growth as a heuristic proxy for overall civic health. Looking at population change from 2000 to 2008, we will classify a city as “successful” if its metro area population growth exceeded the national average growth rate of 8% during that period, as “stable” if it had a population growth rate between 3% and 8%, and as “struggling” if its growth was less than 3%. Let us also put Chicago into its own category of “global city”. It is simply one of a kind in the Midwest, a colossus of nearly 10 million people, and not easily measured against the other cities. Indeed, it is really three cities in one, a prosperous urban core, an archipelago of successful upscale suburbs and edge based growth to the west and north, with a sea of deteriorating city neighborhoods and stagnant to declining suburbs surrounding them. On our scale, Chicago would be “stable” – its inner core has grown but the city overall has lost population, while the outer ring has grown strongly. As a region, it has grown somewhat below the national average.

    Here are the results of our tiering, including all cities in the Midwest* with metro areas exceeding 500,000 in population:

    Global City
    Chicago (5.2%)

    Successful Cities
    Des Moines (15.6%)
    Indianapolis (12.5%)
    Madison (11.9%)
    Columbus (9.9%)
    Kansas City (9.0%)
    Minneapolis-St. Paul (8.8%)

    Stable Cities
    Cincinnati (7.2%)
    Grand Rapids (4.9%)
    St. Louis (4.4%)
    Milwaukee (3.2%)

    Struggling Cities
    Akron (0.5%)
    Detroit (-0.6%)
    Dayton (-1.4%)
    Toledo (-1.5%)
    Cleveland (-2.8%)
    Youngstown (-6.1%)

    These tiers, based only on a single criterion and arbitrary boundaries, nevertheless basically conform to how these cities are performing both economically and in terms of perceptions.

    A few interesting things emerge:

    1. There are a surprisingly large number of Midwestern cities that are growing faster than the US average population. This indicates pockets of strength, in its larger metros at least, seldom associated with the Midwest.
    2. The clear dominance of the successful list by state capitals. This is so pronounced that I have put forth what I call the “Urbanophile Conjecture”, which is that if you want to be a successful Midwestern city, it helps to be a state capital with a metro area population of over 500,000. The only successful city on the list that is not a state capital is Kansas City.
    3. The 500,000 barrier seems to be important as well. The state capitals below that threshold – Lansing, Springfield, and Jefferson City – would not qualify as successful on this list. Note too that the presence or absence of the major state university does not appear to be a decisive factor. Des Moines and Indianapolis are not home to their states’ flagship universities. The home of the academic powerhouse that is the University of Michigan is the Ann Arbor metro area, which was not included in this list because its population is only about 350,000. Notwithstanding, its growth rate would have put it into the stable category.
    4. In a region in which there is such divergence between the performance of cities, a diversity of city specific policies are required. There is no one size fits all for the Midwest. There may indeed be a base of pan-Midwest policies worth pursuing – improvements in education, attractiveness to migrants, better conditions for innovative entrepreneurship, etc – but successful approaches will be those most tailored to uniquely local conditions. For example, a state capital or University town may have different needs than a place that has neither.

    Some suggested areas to investigate by city tier are:

    • Chicago. How can it ease the gap between the thriving global city of Chicago – largely located around the Loop as well as the northern and western suburbs – and the parts of the region that are falling behind, largely the western city neighborhoods and southern edge of metropolis? How do you do this without sacrificing its overall competitiveness? Can the policies appropriate to each be reconciled?
    • Successful Cities. Their policy focus should be on maintaining favorable demographic and economic conditions, and dealing with decaying areas of their urban cores and the potential for decay in some inner ring suburbs. Should the civic aspiration be desirous of it, tuning the engine to attempt to shift the growth rate into high gear to target a profile closer to the Sunbelt boomtowns would be a further focus area. Each city would need to examine which specific policy levers it could pull to attempt to do this. Clearly modernizing and expanding infrastructure to keep up with growth in these places and maintain their high quality of life is a clear imperative.
    • Stable Cities. Their challenge is to bring growth rates up to average or above average levels. It would be worthwhile for them to study the successful areas, and ask what policies and approaches might be adopted. Kansas City offers the best encouragement here. It has managed to maintain a strong growth rate despite not being a state capital and being part of a bi-state metro region. Kansas City features lows costs, high quality of life, a relatively stable housing marketing, and a pro-business culture. It is clearly a standout and worthy of further study for that reason. It may hold the key for moving the stable cities up into the successful tier. Geographically, it is notable that Kansas City is a border state on the far edge of the Midwest, and could arguably be called a Great Plains city. Is that a factor? Some type of peer city comparison with the successful cities, and especially Kansas City, might be warranted here.
    • Struggling Cities. Unfortunately, there isn’t a magic bullet to solve the long festering problems in these places. All of them were heavily industrialized and have borne the brunt of globalization, particularly in manufacturing. This is especially the case in cities linked to the domestic automobile industry, which is clearly in a state of crisis. Until the automobile industry completes its restructuring, and out migration right sizes some of these areas, there does not seem to be a clear path to restart growth. Youngstown, which brings up the bottom of our league table, perhaps offers the best road forward. It is trying to right-size itself to a permanently smaller, but more sustainable, future population based on an aggressive controlled shrinkage plan that has received extensive national notice. This type of plan is likely something all of these cities need to be actively considering as the large fixed costs support a population base that no longer exists will become increasingly unaffordable as the population further shrinks. These cities likely also will need special state and federal help to back this shrinkage plan.

    * The Midwest is defined as Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin.

    Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

  • Who will win the Car-wars?

    General Motors, the venerable American auto manufacturer is sitting on the cliff’s edge in North America with a recent 3-month loss of $6 billion. However, GM watched its sales in China skyrocket 50% for the month of April, 2009. Ironically, Toyota, the company many Americans now cheer for, has posted a $7.7 billion loss for the first quarter.

    This now proves, without a doubt, that the auto industry – not just in the US – is going through a massive crisis. But it’s clear that American manufacturing has reached a critical, historical turning point. What was once good for General Motors is no longer good for the rest of the nation. The days are gone where an automobile must be designed in the Detroit region and manufactured in the Great Lakes. We have seen a shift in trade and production location from the north to the south. However, geographic arguments are only a small part of the overall challenge to the industry, especially in North America.

    When the dust settles, what will the American auto industry look like?
    Regardless of what some may say, there is no such thing as an “American” vehicle anymore. We are fast shifting into a global economy that requires the sharing and collaboration of multinational resources from across the globe. Consumers demand quality products at very affordable costs. Corporations have no choice but to comply with consumer demand even if it means off-shoring production and even trimming quality in order to save money. In many ways, this is the Wal-Martization of consumer goods.

    The 21st-century automotive industry will be geographically spread throughout North America. Modern technology allows engineers to work from just about any location regardless of population, climate or infrastructure. However, many engineering outfits have found that locating brainpower in dynamic places improves quality and innovation. A dynamic place is a place where the educated and skilled want to work. These includes places like southern California (where most of the design studios are located), Ann Arbor, Austin, and others.

    In the 1980s the Midwest watched the southern states gear up and recruit non-Detroit manufacturers, in large part due to the lack of unions in the land of Dixie. We have seen the southern United States explode in production and manufacturing capability. The two main reasons for this were lack of unions in the South as well as tax-payer funded incentives. However, the idea of receiving incentives from the public coffer can backfire.

    Just about every state offers some form of tax breaks or incentives to corporations looking to construct new facilities. Every large corporation now looks to the state where they can get the most incentives. Everything else, such as skilled workforce, distribution, infrastructure – that all comes secondary. In many ways, this is just an example of robbing Peter to pay Paul. And it doesn’t work. You cannot simply take tax dollars from one area of the state and pour them into another region with the long-shot hope that an industry will grow in that certain region. This is exactly what Tennessee is doing.

    However, the southern states have struggled and will continue to struggle to attract brainpower and engineering talent. What the American public doesn’t realize is that there is a lot more to the creation of a vehicle unit than mere assembly. Besides production, there is fabrication, engineering, design, testing, marketing, legal, and distribution. Even today, much of the world’s automotive intelligence and engineering is located in Southeast Michigan. This fact irks southern powerbrokers who have been so successful at bringing grunt work to their states.

    We will continue to see massive amounts of automotive-related manufacturing relocate to Mexico due to the extremely low cost of production. Many of the Japanese and German manufacturers are already starting to notice the negative consequences of setting up production facilities in the United States. Nissan, Toyota and Honda have all initiated cuts and hiring freezes in their American manufacturing facilities. These companies have also initiated major contact employee programs rather than hire full-time fully-hired help.

    So what happens now in the old auto belt? Certainly, Ohio as well as Michigan must figure out how they can re-deploy their engineering talent. Each seems to graduate a huge number of students year after year but this tends to benefit other places. States such as Wyoming, Arizona, Washington, and others have held job fairs in Michigan in order to gain talent. If there are no jobs in Michigan, why do they keep graduating so many students?

    Even without George Bush and the GOP in power, Texas seems also to be a big beneficiary of this brain drain. But for how much longer can this continue? Remember Texas went bust in the early 1980s with low energy prices. It could happen again.

    Another natural winner in the car-wars could be the southern states, but only once they consolidate their efforts to bring knowledge and engineering to the South. It is much easier to offer incentives for a production facility than to woo an engineering lab.

    Critically, there still seems to be a lack of emphasis on higher education in the south. Even the best universities in the South cannot fully compete with the universities in the Midwest from a technical standpoint. Institutions such as Michigan, Wisconsin, University of Chicago, Michigan State and Indiana are still levels above the universities found in Kentucky, Tennessee and Georgia. The Midwestern schools built their solid knowledge and research background over a period of decades. This cannot easily be duplicated.

    To be sure, the auto-dominated economies of Michigan and Ohio will be shrinking in the future. These states are shedding their manufacturing sectors while reinforcing their knowledge-based sectors. Over time they may find it much easier to morph into a knowledge-based economy by using previous know-how than to build a knowledge economy from scratch. Michigan, for example, may have been hit hard by this global schism in manufacturing, yet it has been left with the know-how and knowledge left over from industry in the form of a strong university system. In contrast, nowhere in the south can we find that.

    In conclusion, some individual Midwestern cities may come out of this crisis better than many expect. Younger workers in the future will look at specific towns such as Madison and Ann Arbor, which offer an excellent quality of life, rather than head off to the sunbelt. This may be particularly true as they enter their 30s and look for a good place to raise their children, hopefully close to grandparents. The Midwest may be down, but not all of it is out – far from it.

    Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

    After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.

  • Here in the Real World They’re Shutting Detroit Down

    Once upon a time, not so long ago, in a city at the heart of the American continent, General Motors produced cars, like Pontiac’s “Little GTO,” celebrated in Beach Boys songs that captured the thrill of driving Detroit’s latest creations. Today, as GM struggles to appease the government’s auditors just to stay alive, Kris Kristofferson, with a little help from Mickey Rourke, curses the financial wizards from Wall Street that are “Shutting Detroit Down” while “livin’ it up in that New York town.”

    Never has the inherent tension between the investor class and the country’s manufacturing sector been more pronounced or the stakes in this particular poker game higher for the future of America. Chrysler may be forced into bankruptcy first, but it’s GM’s downfall that represents the true mid-American earthquake.

    Back in the late 1950s, General Motors so dominated the American automobile market that its corporate goals were focused on achieving a 60% market share. The hubris of its executives led them to decide to pick up more and more costs for medical insurance, pensions and retiree benefits, beginning GM’s slide down a slippery slope of poor financial performance

    This posed a huge but not initially recognized risk to GM. By taking on these obligations that didn’t show up as a cost or balance-sheet liability until the government changed its accounting rules in 1992 and required companies to show the cost of “other post-employment benefits” (OPEB) on their books, General Motors lit a ticking time bomb that has now exploded in its face. In 1972, as GM came the closest it would ever come to achieving its sixty-percent market share goal, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to “30 and out” early retirement that granted workers full pensions after 30 years on the job, regardless of age. Its world then began to come apart.

    In 1973, OPEC’s embargo tripled the price of oil. GM failed to respond quickly enough to the consumer’s sudden demand for fuel-efficient cars. At the same time, the Japanese with their then superior, lean manufacturing techniques stepped into the vacuum, gaining a foothold in the North American car market that they have continued to expand. Ironically, thirty years later the very same inability to shift product offerings during a spike in oil prices precipitated GM’s current difficulties.

    GM’s reluctance to go green is often cited by its new government owners as the reason it’s in so much trouble now, but the crux of GM’s problems really go back to those heady days of market domination and financial profligacy.

    In the 1960s GM’s annual operating margin (profits divided by revenues) averaged 8.7%. The turmoil of the seventies and the pressure from Japanese competition drove those average margins down to 5.5%. Margins fell by about half to an average of 3% in the 1980s, and about half again to 1.3% in the 1990s (not counting the $20 billion hit GM took when the new accounting rules for OPEB took effect.) Finally, in this decade the slide has actually taken the company into an average of negative margins. Now only the government’s suggested radical restructuring seems to offer a way to stop the bleeding.

    It is estimated that the cost of OPEB, essentially GM’s retiree pension and health care programs, have cost the company about $7 billion each year since 1993 and are probably around $10 billion per year now. The bargain auto company management made back in the 60s with labor to provide generous off the balance sheet benefits has now become an albatross that threatens the manufacturing jobs for the Big Three’s own current workers and suppliers across the Midwest. It’s the kind of problem only government can solve.

    But the Obama Administration’s early efforts to do so have been far from promising. First it selected Steve Rattner as its “car czar”, a politically well-connected private equity investor and turnaround artist from “that New York town,” someone with no significant automobile industry experience. In addition, the government’s demands that GM dismantle more brands and shut down more dealerships suggests the process may get a lot uglier by the May 31 decision deadline.

    Luckily the United Auto Workers remain on watch to try to ensure that whatever concessions are demanded of GM’s current and retired employees reflect an equitable shared sacrifice with the company’s bondholders and investors. The kind of GM that emerges from these negotiations will have a huge impact on these workers and on the many industrial towns that depend on the car business for their basic existence.

    Ultimately, the decision on how best to “rescue” GM may turn out to be the most difficult call President Obama will make in his first year in office. He will be pulled by pressures from the green gentry left to force GM’s future products to conform to a pre-determined environmental agenda. He also will face predictable Republican calls to let the market work its will, even if it means the end of the company.

    President Obama will need the wisdom of Solomon to recognize that today’s workers no more deserve to be punished for the mistakes of prior management than CIA agents do for carrying out the orders of their equally arrogant Republican counselors during George W. Bush’s administration. To paraphrase the President’s words, it’s “time to move on” and offer GM the support it needs to “Catch a Wave” and start producing more “Good Vibrations” for America’s hard pressed, but still very critical manufacturing sector.

    Morley Winograd and Michael D. Hais are fellows of the New Democrat Network and the New Policy Institute and co-authors of Millennial Makeover: MySpace, YouTube, and the Future of American Politics (Rutgers University Press: 2008), named one of the 10 favorite books by the New York Times in 2008.

  • The Worst Cities for Job Growth

    One of the saddest tasks in the annual survey of the best places to do business I conduct with Pepperdine University’s Michael Shires is examining the cities at the bottom of the list. Yet even in these nether regions there exists considerable diversity: Some places are likely to come back soon, while others have little immediate hope of moving up. (Please also see “Best Cities For Job Growth” for further analysis.)

    The study is based on job growth in 336 regions – called Metropolitan Statistical Areas by the Bureau of Labor Statistics, which provided the data – across the U.S. Our analysis looked not only at job growth in the last year but also at how employment figures have changed since 1996. This is because we are wary of overemphasizing recent data and strive to give a more complete picture of the potential a region has for job-seekers. (For the complete methodology, click here.)

    First let’s deal with the perennial losers, the sad sacks of the American economy. Mostly cities in the nation’s industrial heartland, these places have ranked toward the bottom of our list for much of the past five years. Eleven of the bottom 16 regions on our list are in two states, Ohio and Michigan. In fact, the Wolverine State alone accounts for the bottom four cities: Jackson, Detroit, Saginaw and Flint.

    Unfortunately, there’s not much in the way of short-term – or perhaps even medium- or long-term – hope for a strong rebound in those places. President Obama seems determined to give the automakers, for whom Michigan is home base, far rougher treatment than what he meted out to ailing companies in the financial sector.

    In addition, new environmental regulations may not help auto production, since it necessitates some carbon-spewing and therefore perhaps unacceptable levels of greenhouse gas emission.

    However, not all of Michigan’s problems stem from Washington or the marketplace. Many of the locations at the bottom of the list remain inhospitable to business. To be sure, housing is cheap – in Detroit, property values are fast plummeting toward zero – but running a business can be surprisingly expensive in these hard-pressed places.

    In fact, according to a recent survey by the Tax Foundation, Ohio has an average tax burden roughly similar to New York, California, Massachusetts and Connecticut. But while the others are comparatively high-income states, Ohio residents no longer enjoy that level of affluence.

    Can these places come back? It is un-American to abandon hope, but there needs to be a radical shift in strategy to focus on creating new middle-class jobs. Some Midwestern cities, like Kalamazoo and Indianapolis, have made some successful efforts to diversify their economies, encouraging start-ups and trying to be business-friendly.

    But those are exceptions. Cleveland, one of our worst big cities, could spark a renaissance by revamping its port and nearby industrial hinterland. Once the world economy improves, it could re-emerge – building on the existing knowledge and skills of its production- and design-savvy population – as a hub for manufacturing and exports.

    But right now, Cleveland does not seem to be pursuing such opportunities. As Purdue’s Ed Morrison has pointed out, local leaders there seem to “confuse real estate development with economic development.”

    So Cleveland will focus on inanities such as convention business and tourism, believing we all fantasize about a week enjoying the sights along Lake Erie. Yet even high-profile buildings like the Rock and Roll Hall of Fame and Museum, completed in 1986, have not transformed a gritty old industrial town into a beacon for the hip and cool.

    Old industrial cities like Cleveland are better off focusing on their locational advantages – access to roads, train lines and water routes – while offering a safe, inexpensive and friendly venue for ambitious young families, immigrants and entrepreneurs.

    Meanwhile, cities with formerly robust economies – like Reno, Nev., Las Vegas, Orlando, Fla., Tampa, Fla., Fort Lauderdale, Fla., West Palm Beach, Fla., Jacksonville, Fla., and Phoenix – are more likely to rebound. These areas topped our list for much of the 2000s; their success was driven first by surging population and job growth and later by escalating housing prices.

    But the collapse of the housing bubble and a drop in large-scale migration from other regions has weakened, often dramatically, these perennial successes. “We could rely on 1,000 people a week moving into the area,” notes one longtime official in central Florida. “These people needed services, houses and bought stuff. Now the growth is a 10th of that.”

    Instead of waiting for the real estate bubble to return, these areas should choose to focus on boosting employment in fields like medical services, business services and light manufacturing. In much of Florida and Nevada, there’s also a need to shift away from a reliance on tourism, an industry that pays poorly on average and is always subject to changes in consumer tastes.

    We can even be cautiously optimistic about some of these former superstars. After all, observes Phoenix-based economist Elliot Pollack, the existing reasons for moving to Arizona, Nevada or Florida – warm weather, relatively low taxes and generally pro-business governments – have not disappeared. “There’s no change in the fundamentals,” he argues. “It’s a transition. It’s ugly, and there’s pain, but it’s still a cycle that will turn.”

    Once the economy stabilizes, Pollack says he expects the flow of people and companies from the Northeast and California to Phoenix and other former hot spots will resume, once again lured by inexpensive real estate, better conditions for business and a generally more up-to-date infrastructure.

    The Problem with California
    So what about California? The economic well-being of many metropolitan areas in the Golden State has been sinking precipitously since 2006. This year, three California regions – Oakland, Sacramento and San Bernardino-Riverside – have sunk down into the bottom 10 on the large cities list. That’s a phenomenon we’ve never seen before – and never expected to see.

    Like other Sun Belt communities, California suffered disproportionately from the housing bubble’s bust, which has devastated both employment in construction-related industries as well as much of the finance sector. But some, like economist Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University, where I teach, think a real estate turnaround may be imminent.

    Among the first to predict the potential for a real estate bubble back in 2005, these days Adibi is more upbeat, pointing to rising sales of single-family homes, particularly at the lower end of the market. California’s inventory of unsold homes is now down to about six months’ worth, a figure well below the national average of 9.6 months.

    It seems not everyone is ready to abandon the Golden State – but still, recovery in California may prove weaker than in surrounding states. One forecaster, Bill Watkins, even predicts unemployment could reach 15% next year, up from about 11% today. California, most likely, will see only an anemic recovery in 2010 even if growth picks up elsewhere.

    Much of the problem lies with the state’s notoriously inept government. The enormous budget deficit will almost certainly lead to tax increases, which will fall mostly on the state’s vaunted high-income entrepreneurial residents. Stimulus funds won’t do much good either, Adibi notes, since “the state is grabbing all of the federal stimulus money” to keep itself afloat.

    A draconian regulatory environment also could dim California’s prospects for growth. Despite double-digit unemployment, the state seems determined not only to raise taxes but also to tighten its regulatory stranglehold.

    This is a stark contrast to what happened in the 1990s during the last deep recession. At that time, leaders from both political parties pulled together to reform the state’s regulatory and tax environment. Almost everyone recognized the need to improve the economic climate.

    But an even deeper recession, it seems, hardly troubles today’s dominant players – public employees, environmental activists and gentry liberals who largely live along the coast. The state has recently passed a draconian Assembly bill aimed to offset global warming by capping greenhouse gas emissions – a measure that seems designed to discourage productive industry.

    “This is becoming a horrible place to produce anything,” says Watkins, who is executive director of the Economic Forecast Project at the University of California, Santa Barbara.

    California’s lawyers, though, might stay busy. Attorney General Jerry Brown has threatened to sue anyone who grows their business in unapproved, environment-threatening ways. To be sure, this promise may have relatively little impact on the more affluent, aging coastal communities – but it could wreak havoc on younger, less tony areas in the state’s interior. Many of the local economies there still rely on resource-dependent industries like oil, manufacturing and agriculture.

    It’s sad because California has the capacity to recover more quickly than the rest of the country if the state moderates its spending and stops regulating itself into oblivion. This current round of legislation is so dangerous precisely because it could eviscerate the heart of the economy by slowing down entrepreneurial growth, the state’s greatest asset.

    Even in hard times, there are people with innovative ideas trying to bring them to market – and not just in Hollywood- and Silicon Valley-based industries but in a broad range of fields, from garments to agriculture, aerospace and processed foods. The desire to increase regulation reflects a peculiar narcissism and arrogance of the state’s ruling elites, who believe the genius of San Francisco’s venture capitalists and Los Angeles’ image-makers alone are enough to spark a powerful recovery.

    This is delusional. True, California still has a lead in everything from farm products to films to high-tech manufacturers. But it has been slowly losing ground – to both other states and overseas competitors. CEOs and top management might stay in the Golden State, but they increasingly send outside its borders all jobs that don’t require access to the local market, genius scientists or talented entertainers.

    “There’s a feeling in California that we will come back, no matter what, because we are California,” Watkins says. “The leadership is swallowing Panglossian Kool-aid. Some very smart people, a beautiful climate and nice beaches is not enough to guarantee a strong recovery.”

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • Chrysler: Detroit Loses Its Muscle

    With the clock finally running out for Chrysler, I was reminded of a theme that has run through most of my corporate work, namely that corporate culture is the element of any organization most resistant to change. As I have read (and written) many times, senior management and new management schemes come and go, but the prevalent attitude among the permanent work force is “this too shall pass.” The senior managers move on, and the culture reverts. It takes a “burning platform” to effect real change.

    When the corporate culture is aided and abetted by the national culture, as with the auto industry, the day of reckoning can be staved off indefinitely. Every time a structural threat to business as usual has arisen, the fix was in: Gas crisis? Whatever you do, don’t impose new fuel economy standards, and keep gas taxes low while you wait for oil prices to come back down again. Foreign competition? Import quotas. The political culture of Washington, regardless of who controlled the White House or Congress, was inseparable from the corporate culture of Detroit.

    This is unsurprising, since the car is so much a part of American culture. The romance of the car never dies, it just morphs into something else. What saved Chrysler when Lee Iacocca ran it? The minivan. Iacocca put a box on top of a passenger car frame just as baby boomers started their families. The ‘sixties VW bus, the counterculture’s vehicle of choice for magical mystery tours, was reincarnated for family life as the Dodge Caravan. New wealth in the ‘90s brought back the production muscle car, like a recessive gene that suddenly becomes manifest. Of course it never really went away.

    Woodstock has come and gone, but each summer suburban Detroit plays host to its own gathering of the tribes in a rite called American Iron. Loving owners and keepers of vintage GTOs, 442s (I confess, I talked my father into buying one of these when I was in high school, and he promptly sold it when he had to refill the gas tank about as often as Richard Nixon had to shave), and Corvettes park their cars on specific streets throughout the city, assigned according to make and model, where they throw open their hoods to reveal to their automotive kin lovingly restored and chromed vintage 7 liter engines. On schedule, the gentlemen will start their engines, shaking windows and rattling walls for miles around.

    I had one brief brush with Chrysler and Big 3 culture in the early 1990s when a PR firm hired me to fly to Detroit and write up a case study for its client, the consulting arm of accountants KPMG. KPMG was marketing a discipline it called Business Process Reengineering. Chrysler had applied this rigorous methodology to something they called the Wire-Housing Case. A wire housing is one of those brightly colored plastic sleeves with holes through which are threaded an assortment of wires, themselves wrapped in brightly colored plastic for easy color-coded connection to the appropriate circuitry.

    As I recall the numbers, each Chrysler vehicle contained seven wire housings, each of which was customized to particular electrical components of each model. Some would be used for only a couple of wires, and some many more. Each model had its own set of housings with its own specs written by dedicated teams of engineers, and produced by an extended family of suppliers.

    The KPMG BPR team had re-jiggered the design process to reduce the number of housings required for each vehicle from seven to only five, and in doing so realize savings to the company in the millions of dollars. Very impressive. The morning’s discussion was filled with the enormous gains that could accrue to the company if only it attacked each engineering problem with comparable rigor-for-hire courtesy of the firm’s consultants. When I asked the obvious questions, how long did it take to implement the change and how much money did they save in practice, the consultant and the accountant exchanged a look.

    In fact, they said, the change had never been implemented. Further questions elicited an impression that the automotive industry functioned internally with its own version of interest-group politics. Each system had its own web of constituencies—design teams, suppliers, brand managers, and so forth—and each thread needed to be appeased. There was no such thing as the greater good, any more than there is with health care reform, the F-22 fighter plane or, to use an example local to me, congestion pricing of traffic in New York City.

    The same tendency was on display more recently, and on a grander scale, after Chrysler was acquired by Daimler-Benz. The sages of Stuttgart had the bright idea that the company could save billions by mounting the American models on the frames and chassis of the Mercedes, and thus cut out redundant designers, engineers, and suppliers.

    This time, the Daimler engineers went into open revolt. Put those American pigs’ ears on our silk purses? Not on your life. And so another grand effort to rationalize the auto industry went by the boards. Daimler essentially sold the company to Cerberus Capital for parts.

    In the years since that visit to Detroit—I can easily place it in time because I also stopped in on an aunt in a nearby suburb who was glued to the O.J. Simpson trial—I have encountered a number of other consultants and their schemes to bring the automotive supply chain to heel. The companies would consolidate their supplier networks, sourcing more parts from fewer suppliers who would achieve economies of scale and provide lower unit costs in return for bigger orders. The suppliers, who simultaneously worked with the competition as well, would take over more of the basic engineering and design, usually with talent offloaded from the Big 3. Personnel and systems for both would be integrated into one another. Unlike the wire harness case, these changes were implemented. It’s not as though the Big Three have been doing nothing all these years, and still it’s not enough.

    Now Chrysler is being run by Bob Nardelli, once an also-ran at GE in the race to succeed Jack Welch, and then the overpaid, underachieving CEO of Home Depot. The New York Times March 16th profile of him is an oddly touching piece. Like Donald Rumsfeld and Ernest Hemingway, Nardelli works at his desk all day on his feet. He is pictured as a man on a mission, comparable to Iaccoca, who wants to rescue the whole cow, albeit a leaner version, not chops and steaks as had been expected when he took over. “It’s not about Bob… If I didn’t believe in [the rescue plan] I wouldn’t have put my name on it,” he told the Times. He has already cut 32,000 jobs, but even if it were possible to fix the wire harnesses or improve the fleet average all at once, he couldn’t sell the product, not in this market. On Monday, the Administration voted no confidence. Barring an 11th hour reprieve from Fiat, this is a death sentence.

    My aunt lives on the street that briefly each summer becomes known as Mustang Alley. She is anguished by the fate of her community, her immediate family, her friends and her business, all of which are suffering. Watching what is happening to New York as the banking crisis unfolds, I am just beginning to understand know how she feels. Her son-in-law is an engineer who worked for a supplier to the auto industry. On Sunday, he moved south to work for a company that builds windmills.

    Henry Ehrlich has written speeches as a freelancer for both the new, white-knight CEO of Fannie Mae and the former, disgraced CEO of Freddie Mac. He is author of Writing Effective Speeches and The Wiley Book of Business Quotations.

  • How To Save The Industrial Heartland

    You would think an economic development official in Michigan these days would be contemplating either early retirement or seppuku. Yet the feisty Ron Kitchens, who runs Southwest Michigan First out of Kalamazoo, sounds almost giddy with the future prospects for his region.

    How can that be? Where most of America sees a dysfunctional state tied down by a dismal industry, Kitchens points to the growth of jobs in his region in a host of fields, from business services to engineering and medical manufacturing. Indeed, as most Michigan communities have lost jobs this decade, the Kalamazoo region, with roughly 300,000 residents, has posted modest but consistent gains.

    Of course, Kalamazoo, which is home to several auto suppliers, has not been immune to the national downdraft that has slowed job growth. But unlike the state – which he describes as “a hospice for the auto industry” – Kalamazooans are already looking at expanding other emerging industries, including advanced machining, food processing, medical equipment, bioscience and engineering business services. Unemployment, although above the national average, is more than two points below the horrendous 9.3% statewide average.

    As Kitchens notes, this relative success came through often painstaking and laborious work, a marked departure from the “magic bullet” approach to economic recovery that often dominates Michigan and other rustbelt states. In the past, Michigan Gov. Jennifer Granholm has touted ideas about developing “cool cities” to keep young people from bolting to more robust locales and, more recently, on the promise of so-called “green jobs” tied to sustainable energy.

    “People don’t want to talk about ‘blocking and tackling,’” Kitchens suggests. “You keep your head down and keep pushing. It’s not sexy but it works over the longer term.”

    For his part, Kitchens never much embraced the idea of coolness – a “cool Kalamazoo” effort even received $100,000 from Gov. Granholm as part of her strategy of promoting “creative urban development” as a way to keep talent in the state.

    Of course, this gambit failed miserably almost everywhere, even before the recent economic meltdown. Nearly one in three residents, according to a July 2006 Detroit News poll, believes Michigan is “a dying state.” Two in five of the state’s residents under 35 said they were seriously considering leaving for other locales.

    Kitchens does not express much faith either in Granholm’s latest gambit, developing Michigan into a green energy superpower. After all, states like Texas and California have a wide lead in these technologies and other areas, notably the Great Plains, possess a lot more wind and biofuel potential. And in terms of low-mileage “green” vehicles, the Big Three lag way behind not only the Japanese but even some European competitors.

    So instead of believing in reincarnation or finding some miraculous cure, Kitchens believes places must rely on exploiting their historic advantages. In the case of Michigan, those are assets like a powerful engineering tradition and a hard-working and skilled workforce that can be harnessed in fields outside the auto industry. In addition, the area enjoys a cost of living significantly below the national average and far less than those in the coastal states.

    “There’s no easy way to get out of the trouble the region is in,” Kitchens suggests. “You can’t make it by trying to be ‘cool places’ or be the green capital. Instead we have to focus on who we are, a place that has a great tradition of advanced engineering, and take advantage of this.”

    So far this approach has paid off, leading to the creation of some 8,000 new jobs over the past three years. The region has focused both on bringing in new companies as well as helping existing ones expand. Perhaps most importantly, it has also raised a $50 million venture capital fund from local investors to help launch fledgling entrepreneurs.

    The region also boasts an extensive set of business incubators, which seek to leverage the engineering skill of those just out of school or those who have left bigger companies.

    The Kalamazoo experience shows one way out for not only Michigan but also other struggling Midwestern industrial hubs. Another promising example can be seen in Cleveland’s recently developed “District of Design,” which seeks to capitalize on the regions historic strengths in specialty manufacturing. It is all about taking advantage of the embedded DNA that exists in these once wondrously productive places.

    This approach can even revive the residues of the automobile industry. There may be widespread and deserved contempt for the top management of firms like General Motors, but industry veterans repeatedly point out that the region – most particularly the area around Detroit – retains an enormous reservoir of engineering talent, which could provide the linchpin for regional recovery.

    One recent sign validating this was the opening of a new $200 million Toyota research and development center in suburban Detroit. The key reason for making the investment, noted Japanese Consul-General Tamotsu Shinotsuka, was Michigan’s “abundant human resources.” If you are looking for “resources” who know the business of building cars and engines, locating in Michigan has certain logic.

    Of course, this talent pool long has been available to the Big Three. However, as retired automotive engineer Amy Fritz has suggested, they have been ill-used by top management. American engineers, the British-born and educated Fritz suggests, are not inherently less talented than their Asian or European counterparts. They tend be more innovative but their creativity is often stifled by the short-term oriented management priorities of their bosses.

    “With or without a bailout, the Big Three as we have known them will not be the same,” writes Fritz. “One or two could disappear. Others will no doubt shrink. However, the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.”

    Indeed, even in a future with a shrunken Big Three – and perhaps the extinction of at least one of them – the industrial heartland does not have to die. Nor does it have to become a permanent “hospice” for failed once-great companies. The way to a long-term prosperous future cannot be built by depending on the administrations of Washington or the political clout of the United Auto Workers.

    Instead, Michigan, and much of the industrial heartland, should build a strategy that taps into culture that once made it the envy of the manufacturing world. These people are the key to any recovery, the ones who can both transform fading companies or start new ones. As the late Soichiro Honda once told me, “What’s important is not gold or diamonds, but people.”

    This is the basic lesson of business that the current leaders of the Big Three, most Michigan politicians and perhaps too many on Capitol Hill have forgotten, or perhaps never learned. The industrial heartland may be down but as long as the talent and will is there, it is far from out.

    If you do not believe it, take a little trip up to Kalamazoo, which may be quietly showing how to take the Great Lakes toward a new and brighter future.

    This article originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History and is finishing a book on the American future.

  • How About a Rural Stimulus?

    In Pennsylvania, public and private funds mainly are directed into areas where people live and where people vote. As a result urban Pennsylvania has significant advantages over rural communities in securing public funds and private investment.

    Although rural Pennsylvania comprises a significant percentage of Pennsylvania’s geography it contains a very low percentage of the overall population and its political clout is dwindling. According to Trends in Rural Pennsylvania March/April 2003 overview of the state’s population, urban counties outnumber the population of rural by a ratio of more than 3 to 1.

    Politically rural and small town Pennsylvania once wielded considerable power. The “T” which ran up the center of Pennsylvania and east to west across the northern tier of the state was key to Republican victories statewide. In recent elections, it has been the southeastern region that has dominated politics. It has reached the point where it can be safely stated that no candidate can win statewide in Pennsylvania without carrying at least one of the five southeastern counties.

    All this puts rural Pennsylvania at a distinct disadvantage, particularly in terms of basic infrastructure. Rural Pennsylvania has 57,065 miles of highway compared to 62,577 in urban counties. Local governments receive only about 10 percent of state revenues from the Motor License Fund and the rest is funded by local taxes.

    In rural Pennsylvania, because miles of roadway responsibility are funded by a smaller tax base per mile, the choice is between higher taxes or ignoring the problem. More and more, residents in small, rural communities are driving on outdated highways and over creaky bridges. In many ways, highway infrastructure is moving backwards in time as bridges close or become weight restricted isolating rural communities.

    Mass transit is another issue in the divide. Pennsylvania has 46 fixed transit systems. Twenty-four serve small urban areas and another twenty service rural communities. This said the two systems that serve the cities of Philadelphia and Pittsburgh, SEPTA and PAAT, receive roughly 90 percent of all transit monies in the state.

    Transit receives about $900 in annual state subsidies. These funds come from a wide-variety of sources and are distributed under a myriad of conditions most of which the rural systems cannot meet. The result is the budgets of rural systems must rely more on passenger receipts and local subsidies than the much larger systems.

    In 2007, as part of an effort to find more funds for roads, bridges and transit, Act 44 was passed. Under this legislation Interstate 80 would be tolled. This superhighway runs through rural Pennsylvania. In blunt terms, the politics played out that rural Pennsylvania was being tolled to fund transit in Philadelphia. The only reason I-80 has not been tolled yet has been because the U.S. Department of Transportation rejected Pennsylvania’s proposal.

    There are other dramatic differences between the two Pennsylvanias in terms of basis infrastructure. Census data show that 36 percent of people in rural Pennsylvania get their drinking water from wells or some other sources. There are 5,697 active drinking water systems in rural Pennsylvania of which 70 percent are owned by investors or individuals according to n Trends in Rural Pennsylvania May/June 2004. Most of the sewer and other basic water systems are antiquated. The American Society of Civil Engineers’ that rural Pennsylvania needs $5.26 billion invested over the next 20 years in drinking water infrastructure and more than $6 billion over the same period to update sewage.

    Yet when Pennsylvania speaks about the upcoming stimulus, the primary voices are urban, epitomized by Governor Ed Rendell, a former Mayor of Philadelphia and fervent urbanist. We can expect that he will be working hard for more stimulus in the big cities, including for such things as the $800 million expansion of the Pennsylvania Convention Center which is now under way.(link to piece on this) Once again demographics and politics could be working against rural and small town communities where projects are on a much smaller scale, but equally important to the welfare of areas of rural Pennsylvania.

    Like many similar places around the country, rural Pennsylvania has many assets that would benefit from new infrastructure. It is an area of tremendous natural beauty and bountiful recreational opportunities. Most of these areas have good school systems and are safe areas to live. They could contribute to the nation’s economic recovery and provide an alternative for many urban residents who want improved quality of life or are thinking about retiring to an area that is less expensive. The problem is we have to get our own state officials, and the Obama administration to start paying attention.

    Dennis M. Powell is president and CEO of Massey Powell an issues management consulting company located in Plymouth Meeting, PA.

  • Former Insider on the Auto Bailout: Never Underestimate Brainpower in Detroit

    In all the many (how many) years I worked as an engineer in and around the auto industry, I got to compare conditions in Europe, Japan and America. Yet in many ways the American situation was perhaps the most tragic – the most potential, most eagerly squandered. It’s not Americans who are flawed, but the business model imposed from the top.

    For example, I do not believe American engineers are inferior to those working elsewhere. It’s just the way their inputs are handled. Toyota and Honda have long-term viable plans that forecast many years down the road. This gives engineers a clear direction.

    On the other hand, Detroit’s automakers, as well as some European ones, tend to look at short-term gains in order to satisfy shareholders. GM’s big problems were due to planning short-term while sacrificing the farm down the road.

    GM became too big. They had too many brands and too many models. Alfred P. Sloan created all these brands in order to counter Henry Ford, but also to provide various products for people at all economic levels. These internal GM brands were to compete against one another as well as outside companies. What Sloan did not realize is how this internal competition would impact the engineers who develop products and the marketing staff who have to sell them.

    Of course some of the problem had to do with the power and influence many of GM’s shareholders had over the board as well as the CEO. These shareholders wanted their cut and they wanted things done their way. For years, it all came down to satisfying the shareholders at the expense of GM’s long-term reputation. To this day, I know people who will not buy a GM product simply because they had a poorly made Pontiac back in 1983.

    Keep in mind, buying a car is a HUGE purchase for just about anyone. This cannot be compared to purchasing a ticket on a bankrupt airliner or buying a golf club from a defunct golf manufacturer. Americans today have long memories when it comes to vehicle purchases. Yet, these are the same Americans who demand instant gratification and who trample people at stores on Black Friday in order to save an extra $12.00 on a Chinese-made sweater.

    But my biggest complaint has to do with the wasting of great talent. There is a popular myth that American engineers are lazier or more stupid than their Asian and European counterparts. I highly disagree with this notion. There may well be different cultural values, but that does not define a worker’s skill set or determination. American engineers are simply more independent in their thinking than their Japanese and European counterparts. Independently-thinking renegades will create nothing but extra trouble for a platform design team.

    This is system that American engineers and designers are placed into once they graduate from college. It’s a cultural “machine” if you will. In Japan, Toyota’s engineers become “one” with the company and they simply work as one machine. There is no “I” in Toyota’s system – or in Japan’s industrial marketplace for that matter. Unfortunately, at GM people appeared to be hell-bent on receiving singular credit for their accomplishments.

    Please understand that the Japanese people are not a diverse bunch. They are known in the automotive industry for improving upon established ideas, designs and systems. The Japanese, however, are not known to create something from the ground up like their American counterparts. American engineers take more risks, since they want to be rewarded. The Japanese simply create and work for the common good of their employer.

    Toyota
    Toyota is a company that is known for its stubborn planning and ways. They take their time and do things right the first time. This is the Toyota way – most of the time.

    But this is not always the case. Toyota got derailed with their Avalon model. This car has been nothing but trouble from the drawing board to the production line. It is a piece of garbage.

    Why is it so bad? Maybe it is because this time they followed the flawed American model. Toyota rushed it because it saw the potential for a quick profit. They did not take their time to think things through. They simply used the American business model for a short-term gain and it failed them.

    In contrast, GM took its time to develop the new Malibu, and Ford used over 1100 engineers to develop the new F150. The Malibu is better than anything Toyota has right now. How do I know? I drive a Camry and I compared it to the Malibu.

    Interestingly enough, GM Vice Chairman Bob Lutz had personal input into the Malibu’s development. That is the MAJOR divergence from traditional platform development in the past. Engineers and designers received personal hands-on feedback from a car-guy at the top, not some bean counter. I am sure they felt invigorated to hear his thoughts from him rather than receiving them in a fluff letter typed by a secretary.

    Back to Michigan?
    Up until the late 90s, many in Michigan simply did not value a college education. Many were simply cushioned by the fact that they could graduate high school and get a job on the assembly line. I fear that this attitude towards college will grow in the southern states such as Mississippi and Alabama. Many down there are starting to have the “I’ll be fine” attitude that many in Michigan once had.

    But the future in Michigan may be brighter than many suppose. Southeast Michigan will remain a research and development powerhouse well into the future. Many of Detroit’s auto engineers and related companies can easily adapt (technically speaking) to alternative technologies such as wind, solar, and new materials. Never underestimate the amount of brainpower in Detroit. Prior to my stint in Detroit, I was under the impression that every Big Three employee was a lazy slouch. My ignorant attitude was squashed pretty damn quickly once I started working with them.

    So here’s a bright point for the future. You will see more technical industries branching off from the auto industry. Companies like Dow are already taking advantage of Metro Detroit’s diverse and increasingly well-educated Arab population. I see a future in Michigan revolving around chemicals, green energy, transportation and international trade in general.

    But the car industry won’t go away either. Toyota, for example, decided to keep its R&D operation in Michigan rather than relocate to Alabama. There was simply no incentive for Toyota to migrate its brainpower to the South. Right now – although this may change – the auto industry in the south is incomplete since they lack the planning and design processes needed.

    With or without a bailout, the Big Three as we have known them will not be the same. One or two could disappear. Others will no doubt shrink. But the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.

    Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

    After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.