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Organizers Hope Auto Show Puts Drive Back In Detroit

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By JEFF KAROUB, The Associated Press

Published: January 12, 2008

DETROIT - Glitz, gleam and endless oohs and ahhs are expected from displays at the North American International Auto Show.

Yet it comes to a state whose economy has been generating more groans than glee, with the nation's highest unemployment rate and among the highest rates of home foreclosures - largely due to its dependence on a domestic auto industry that's been cutting jobs and closing plants.

The national economic picture also is showing signs of stalling. The government reported last week that the unemployment rate surged to 5 percent in December, the biggest one-month gain since October 2001. Many of the big chain retail stores also reported Thursday that the holiday shopping season turned out to be even weaker than expected.

The disconnect isn't lost on business and economic leaders and experts. They say the auto show, which opens to the media Sunday and then to the public Jan. 19, affords a chance to celebrate without cheerleading and offers examples of innovation on a global scale at a time Michigan, and perhaps the country, could use more of it.

"The choice is not to hide, take a bunker mentality," said David Sowerby, portfolio manager and chief market analyst for Loomis Sayles & Co. "Recognize that industry needs to get better ... while celebrating what's good in the industry."

Sowerby, hired by the Detroit Area Dealers' Association to conduct an economic impact study, found the show could generate up to $500 million in the local economy, including money made by restaurants, hotels and workers.

More than 1,000 workers have been at Detroit's Cobo Center since October, transforming the convention space into a buzzing business district - if that district consisted solely of shiny, sleek car dealer showrooms with dazzling interactive displays and even a two-story waterfall. Organizers declined to say how much the exhibits cost.
Sowerby said the show also delivers substance by unveiling more than 50 new models. "To me, it doesn't make the show 'too much sizzle.'"

Still, the economic boost comes amid an overall sag. Michigan's unemployment rate was 7.4 percent in November, the latest month for which state figures are available. Michigan was also the top state for home foreclosure starts in the third quarter of 2007, according to the Mortgage Bankers Association.

Unlike other parts of the country, the state's losses come as a result of its declining manufacturing base, stagnant population growth and low demand for housing.

According to the U.S. Commerce Department, motor vehicles were 25 percent of Michigan's gross domestic product in 1965. Forty years later, it's just less than 7 percent.

By contrast, autos were 2.5 percent of the national GDP in 1965 and below 1 percent in 2005.

"We have diversified our economy, but more by subtraction than by addition," said Charles Ballard, an economics professor at Michigan State University. "We're much less diversified than many other states."

Detroit's automakers, General Motors Corp. and Ford Motor Co., have spent the past two years shedding tens of thousands of jobs and restructuring. Chrysler, which Daimler AG sold last year to the private equity firm Cerberus Capital Management, announced up to 25,000 layoffs last year alone.

Now automakers are concerned about the slowing U.S. market just as they are about to reap savings from those job cuts, globalization and a new cost-saving labor contract.

Already GM, Ford and Chrysler have announced production cuts in the first quarter.

Ballard said it's difficult for politicians and residents to comprehend the economic transformation that's taken place, particularly when heavy manufacturing in the 1950s and '60s powered Michigan's economy to phenomenal success.

"It helped to create a set of attitudes that were, if not exactly hostile to innovation and entrepreneurship, it didn't foster" them, Ballard said. "I think we're racing to catch up with the rest of the country."

He said the auto show can be a motivating force if advanced technology, such as the plug-in hybrids and electronic concept vehicles - including three being unveiled this year by Chrysler - could galvanize the industry. That could be a boon for the state, he said.

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