Detroit City: The Road to Bankruptcy

Case Details Case Introduction 1 Case Introduction 2 Case Excerpts

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The Decline

The second half of the 20th century saw the decline of Detroit – a decline that was as drastic as the city's rise in the first half of the century. A few observers mark July 1967, when the city experienced ugly race riots, as the beginning of the decline of Detroit. However, most people agree that the decline of Detroit had begun much earlier and that the riot was only a visible sign of the deterioration.....

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Over-Reliance Onthe Auto Industry

In the early part of the 20th century, the auto industry dominated the city's economy. The growth and expansion of Ford Motor Co., General Motors, and Chrysler — together referred to as the ‘Big Three' — helped the city flourish. The subsidiary and ancillary industry grew around the auto plants of the ‘Big Three'. However, after the energy crisis of the 1970s , more and more Americans started buying Japanese cars, which were seen as being more fuel-efficient and reliable. This change in buying habits dealt a big blow to the American auto giants. The three companies reacted by closing down old factories in the Detroit area. As a result, the number of auto workers in Detroit fell sharply....

Racial Tension/ "WHITE FLIGHT"

Some observers were of the view that racial tension between blacks and whites was the primary cause for the city's descent into financial ruin. In the first half of the 20th century, when the city attracted workers in their thousands, African Americans faced discrimination in the job and the housing market. The better paid jobs were usually taken by the whites. Also, blacks were discouraged from buying homes in white neighborhoods and this gave rise to social inequalities. Later, in the 1960s, in the name of urban renewal, black neighborhoods such as Paradise Valley and Black Bottom were destroyed....

Poor Governce

While on the one hand, the city's finances were affected as tax payers moved out, on the other, crime and corruption made life difficult for those who chose to remain in Detroit. Starting in the 1970s, Detroit consistently appeared at the top of lists of cities ranked on the basis of serious crime. The national media began to refer to the city as the “Murder Capital of the US”.....

Local Government Initiatives"

Even as the city's population shrank, the local administration began to take initiatives to revive the downtown area. In the 1970s and 1980s, Mayor Coleman Young (Young) led a few major development projects with private sector partners as well as the federal government. Some of the projects included the Renaissance Center , Detroit People Mover , the Millender Center , Philip A.Hart Plaza , and Joe Louis Arena ....

Other Initiatives Since 2010

In 2010, Bing announced the Detroit Works Project. This initiative had five objectives – neighbourhood investment, infrastructure improvements, public safety, economic growth, and public land use. In 2011, this project was divided into Short Term Works and Long Term Planning. As part of Short Term Works, the city administration identified six “Demonstration Areas” where city services were realigned and investments leveraged. The Long Term Planning part involved preparing Detroit Future City , a comprehensive map to revive the city....

The Road To Bankruptcy

In December 2011, Michigan State began a preliminary review of Detroit's finances in view of the impending cash crunch. This review indicated that the city had a major financial problem with liabilities of around $12 billion and an annual budget of only $3.1 billion. Soon after, the state enacted a new law that allowed it to appoint an emergency financial manager to take care of the financial aspects of running fiscally strapped local governments and to intervene when necessary. Also, the state announced on December 21, 2011, that it would initiate a formal review of Detroit's balance sheet. However, the new law was rejected by the Detroit City Council....

The Road Ahead

The bankruptcy filing left some analysts wondering if it tourism and investment in the city would be impacted. Detroit attracted around 20 million tourists every year. However, there were others who were more optimistic. “Private investment in the city is at an all-time high, and while the bankruptcy process will be painful in the short run, officials know that the key to a successful city are the assets that draw visitors and residents,” said Renee Monforton, communications director at the Detroit Metro Convention and Visitors Bureau, a privately funded organization....


Exhibit I: Important Metrics Concerning Detroit over the Decades
Exhibit II: Detroit Urban Area Population over the Decades
Exhibit III: Population Change and GDP Change in a Few U.S. Cities between 2007 and 2011
Exhibit IV: Detroit's Revenues and Expenses between 2008 and 2012