Hope and Cash, Investment and Policy: Jeep and the Future of Detroit
I just finished complaining in an earlier blog that the media wasn’t telling enough manufacturing and supply chain stories when Bill Vlasic proved me wrong with his piece on Chryslers’ Jefferson North Assembly Plant in Detroit: Last Car Plant Brings Detroit Hope and Cash.
Only two days later, the City of Detroit filed for the nation’s largest ever municipal bankruptcy. “Hope and cash” suddenly sounded like too little too late. It’s not. In fact, the story suggests what it takes to make recovery work.
We can all picture a Jeep. But Vlasic’s piece gives the new Jeep Grand Cherokee a powerful backstory:
“There is a section of Detroit’s east side that sums up the city’s decline, a grim landscape of boarded-up stores, abandoned homes and empty lots that stretch all the way to the river.
And in the middle of it stands one of the most modern and successful auto plants in the world.”
The article paints a picture of today’s high-quality, high-tech manufacturing that can’t be underscored enough: making 300,000 vehicles a year with $2B a year in profit, the unionized Detroit facility is “on par with the most efficient luxury car plants in Germany and the best factories operated by Japanese automakers in the southern United States.” It’s a positive story for the auto industry and for Detroit: jobs at the plant have more than tripled, from 1,300 to 4,600, a third of employees live in the city, and its property taxes send $12 million a year to the city coffers.
Calling it the “last car plant” in Detroit is a bit misleading, however. Not only is GM’s Hamtramck facility arguably within the city limits, as are two engine plants, but from an industrial perspective, Chrysler’s plant is hardly alone. It is part of a huge cluster of automotive parts and assembly facilities in the greater Detroit area that still make up a significant share of US manufacturing output. If we’re going to bridge the gap between the auto industry’s recovery and Detroit’s, it would be more helpful to think of Jefferson North as a leader in a new generation.
Three lessons emerge from Chrysler’s story.
First, the recovery of this network of manufacturing is thanks in part to the auto rescue, but that was only a foundation. Additional policies helped ensure investments weren’t made in business as usual, but into an industry that would be consistently innovative and globally competitive over decades.
Strong and smartly structured fuel economy and greenhouse gas standards provided long term certainty for public and private investment. Modern energy, efficiency and pollution standards were then coupled with economic initiatives like the Advanced Technology Vehicle Manufacturing Loan Program and other public/private partnerships that encouraged firms to build and retool facilities—to reinvest in the valuable human and physical capital in our hardest hit communities—in order to build the next generation of technology in America. You can hear what workers at the Jefferson North plant have to say themselves about what this focus on the future means to them in video interviews done last year by DrivingGrowth.org:
Charting a long term path forward for a city is not easy, but Detroit has many avenues for competitive advantage and growth in addition to the recovering auto industry. I agree with Steven Rattner and others’ recent arguments that there is good reason for a significant public/private investment in Detroit the city. Sufficient investment, coupled with strong policy, planning, and innovation for the long term, works.
Second, Vlasic brings up the somewhat contentious two-tier wage rates now in effect at most auto assembly plants. But the takeaway here should not be primarily about cost (labor cost is a shrinking part of increasingly capital intensive high value manufacturing in any case), but about equitable process to share pain and gain.
As we think about the way forward for the city—and just about anywhere else where leaders are weighing claims to scarce resources—it’s worth recalling that the two-tier wages were part of a broad wage, employment and pension agreement put into effect in 2007, before the auto bankruptcies, in a proactive move by the UAW and the Big Three automakers. That agreement could not have happened without a willingness—and the organized ability of all key stakeholders—to engage in tough negotiation and compromise on a solution that balanced the interests of labor, management, past, current and future workers. With this context, it’s even easier to see how the young employee Vlasic interviews could see his job, and the likelihood of an upward career path at Jefferson North, as “one of the best decisions I ever made in my life.”
Third, there haven’t been any other assembly facilities within the city limits for decades. The city has been rightly seen as a symbol of broader deindustrializaton. Further, like many other cities, Detroit saw its tax base gutted by individual and corporate flight to the suburbs, racism, and state policies that pitted cities against suburbs and rural areas. National policies and trends—that neglected manufacturing and encouraged investment in financial products and short term returns at the expense of long term investment in communities, infrastructure, and the middle class—didn’t help.
The good news is that this trajectory may finally be turning around—though, so far, not fast enough to make Detroit’s revenues and expenses add up.
And here’s where the tough but successful personal and business choices that Vlasic describes are not just feel good stories, but indicators of an important business and cultural change. If America’s industrial cities are going to return to being engines of local and regional growth, we need to continue down this path of productive investment and new thinking about individual and corporate responsibilities and opportunities. Across the auto sector, the confluence of policy drivers and corporate commitment over the past several years led to tens of billions in private investment and a return to work for nearly 200,000 auto industry employees. Chrysler released a partial list of its recent investments to counter false election season claims about Jeep moving to China. These lists give a sense of what reinvestment in our manufacturing base looks like. Investment in other technology and infrastructure could follow this path.
Young people are returning to Detroit, and its tradition of scrappy small businesses continues—from neighborhood bakeries to high tech. Jack White recently paid the Masonic Temple concert hall’s back taxes. The suburbs voted for a millage to help fund the Detroit Institute of Art. Meanwhile, big businesses are beginning to expand downtown. Whole Foods opened where traditional grocery stores fled long ago. General Motors kept its headquarters and thousands of staff downtown—and is hiring. Chrysler recently added downtown office space and restart of the Conner Ave Viper plant to its investments at Jefferson North and Mack Engine. None of this should minimize the tremendous challenges residents and city still face—where residents have been living in and stepping up to cope with a dire situation for years. It’s time to build on this resilience to address problems that are not unique to Detroit.
There’s been a lot of talk about Detroit’s bankruptcy setting a precedent for other cities, public pensions, or the municipal bond market. Let’s build on what can learn from Jefferson North and the people of Detroit, and make Detroit an example of how we remake America to work for everyone. As Chrysler’s tagline for the Jeep Grand Cherokee said, and a twitter commenter this week recalled: The Things We Make, Make Us.
Zoe Lipman is a consultant in advanced energy technology policy and market development. Previously, she spent ten years at the National Wildlife Federation, where she led NWF’s work on fuel economy and advanced vehicles, and earlier, their Midwest climate policy. Prior to joining NWF, Zoe worked in management consulting and as a trade union official.
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