Motor City Runs Out of Gas

And here it is, the news we’ve all been expecting: The Motor City has finally sputtered to a halt.

On Thursday July 18, 2013, the once-great city of Detroit filed for Chapter 9 bankruptcy protection with over $18 billion in debt weighing down on it. After unsuccessful negotiations between the Detroit Emergency Manager Kevyn Orr and the city’s bondholders, unions and other creditors, Michigan Governor Rick Snyder was left with no choice but to approve of the bankruptcy filing, making Detroit the largest city in US history to ever go bust.

Governor Snyder explained that Detroit’s “financial emergency” was a result of over 60 years of steady decline:

The fiscal realities confronting Detroit have been ignored for too long. I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future. This is a difficult step, but the only viable option to address a problem that has been six decades in the making.

So what exactly happened over last six decades? How could a city go from being a nation’s booming auto industry capital to having its general obligation debt rated as “junk status?” While a number of factors, such as corrupt governance and resource mismanagement, had a hand in the city’s demise, the United Auto Workers union’s role is hard to ignore.

When the UAW was formed in 1935 it wasted no time and immediately began to organize all the major auto companies. As the union grew in size, so did its power and influence. Companies were forced to concede to all the UAW’s demands (otherwise risking work stoppages and other disruptions), securing contracts that drove up firms’ costs to unsustainable levels.

The results? Major plants, such as Packard, were forced to shut down. General Motors was driven to bankruptcy in 2009. Jobs were slashed left and right to cut back on expenses. Meanwhile, foreign-owned auto plants began opening up in the less union-friendly Southern states, making it difficult for the unionized Northern plants to compete and worsening the problem.

As Detroit’s backbone industry deteriorated, people fled from the Motor City—since 1950 Detroit’s population declined from 1.85 million to just over 700,000 in 2012, leaving the city with a minuscule tax-base. This mass exodus has left behind over 33,000 empty houses and 91,000 vacant residential lots, adding onto the city’s burden. And now Detroit has a 10 percent unemployment rate—higher than that of the national average.

Let this serve as a warning to other cities. Work Place Choice’s “Save Chattanooga” campaign has cautioned the public all along about the detrimental effects that UAW organization at the Volkswagen plant in Chattanooga, Tennessee could have on the town and on the state as a whole. As a part of our educational campaign, last month the WPC labor team set up a billboard in Chattanooga reading “Auto unions ATE Detroit,” accompanied by a photo of the abandoned Packard plant. And now that Detroit has filed for bankruptcy, the city has become an even more powerful symbol of the UAW’s destructive powers.

The stakes are high: Detroit’s businesses will struggle even more, workers will face greater uncertainty, retirees’ pensions will be affected, more and more people will leave the city behind.

Is this sad news? Yes. Is it surprising? No.