DETROIT (AP) — It's a 21st century paradox: Detroit enters 2014 in bankruptcy, the largest public case in U.S. history and facing $18 billion or more in debt. Yet the Motor City's resurgent auto industry is strong enough to host a show that by one estimate will generate nearly $400 million for the area's economy.
The industrial city is looking to climb out from under decades of financial decline as its longtime industry revs ahead four years after two of its major players, General Motors and Chrysler, emerged from bankruptcies of their own. The comeback can be measured in the North American International Auto Show's economic impact, which is projected to increase 8 percent over last year's event, says David Sowerby, a portfolio manager and chief market analyst for Loomis Sayles & Co., who authored a study of the show's effect on the regional economy.
Sowerby says several factors favor increased spending tied to this show.
"Economic activity is strong, the industry itself is stronger, there's a modest increase in new models and if you talk to hotel or lodging industry, the number of conferences is growing as is business activity and travel."
To be sure, business at area hotels for the show is strong: Downtown hotels reported Friday that occupancy is at 85 percent during the press days Monday and Tuesday and about 70 percent from Jan. 18 through Jan 26, when the show is open to the public. Local restaurants and bars should be packed with an estimated 5,000 journalists and 800,000 visitors expected at the show. Overall, the show provides a pick-me-up for the area, illustrated by amped-up coverage from local television stations and highway billboards welcoming visitors and industry types.
All three Detroit automakers have made billions in the recovery following the Great Recession. Ford expects to post an $8.5 billion profit before taxes for 2013, while GM made $4.8 billion pretax through the first nine months. Chrysler, the smallest and least-profitable of the three, made $1.4 billion pretax through September. All have rolled out strong new cars and trucks to catch the rise in auto sales from a low of 10.4 million in 2009 to 15.6 million last year.
The automakers' show displays and parties were more Spartan affairs in the dark days of 2010. This year, exhibits in particular are as lavish as ever, with two-story buildings inside the Cobo Center.
Sowerby, who crunches the numbers for the show organizer, the Detroit Auto Dealers Association, estimates the event's economic impact at as much as $390 million to the Detroit area, which also includes some thriving suburbs and its Canadian neighbor across the river, Windsor, Ontario.
By comparison, a study performed by an outside research firm for the Detroit Metro Convention & Visitors Bureau in 2006 put the impact of that year's Super Bowl XL at about $275 million, including pass-along, or spinoff spending by the merchants and others.
Sowerby says it's clear why the auto show, which this year will have more than 500 vehicles on display and more than 50 new model introductions, has a greater economic impact. The Super Bowl represents about a week of events and "overhyped parties" leading up to and including the game itself, whereas the auto show represents several weeks that includes construction of exhibits, press previews, the eight-day public show itself and the teardown.
Sowerby says it's difficult to tease out the specific benefits to the city of Detroit itself beyond the boost to its downtown elevated rail system and businesses, such as hotels, bars and restaurants, and the prestige of a marquee event at a city-owned convention facility. There's no local sales tax, nor does Detroit levy one on hotels or motels.
Officials say the city doesn't bear additional costs for public safety, since show officials handle their own security. Likewise, Sowerby believes that the host city's major-league financial woes won't hamper the show.
"I don't think that the bankruptcy factored into it," he says. "Is it going to deter somebody's desire to attend the auto this year? ... The extent that Detroit rises to the occasion (says) that bankruptcy doesn't mean 'closed to business.'"