Image: Detroit auto show
Carlos Osorio  /  AP
The domestic auto industry has every reason to be down — it's taken a beating from the sluggish economy. But the North American International Auto Show, which opens to the media on Sunday, will let it focus on innovation while boosting the economy of Detroit, the heart of the industry.
updated 1/11/2008 4:41:51 PM ET 2008-01-11T21:41:51

There is glitz, gleam and endless oohs and ahhs expected from the miles of metal on display 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. And many of the big chain retail stores reported Thursday that the holiday shopping season turned out to be even weaker than expected, raising more worries about consumer spending in the months ahead.

The disconnect isn't lost on business and economic leaders and experts. But they say the auto show, which opens to the media on Sunday and then to the public Jan. 19, affords a chance to celebrate without cheer-leading and offers examples of innovation on a global scale in 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 was hired by the Detroit Area Dealers' Association, the auto show's organizer, to conduct an economic impact study. He found that it could generate up to $500 million in the local economy, including money made by local restaurants, hotels and workers.

More than 1,000 workers have been at downtown 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, but it appears to be at least on par with the reported $200 million spent last year.

Sowerby said the show also delivers substance by unveiling more than 50 new models among the roughly 700 vehicles on display. "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.

And 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 under 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., Ford Motor Co. — have spent the past two years shedding tens of thousands of jobs and restructuring. Chrysler LLC — which Daimler AG sold last year to the private equity firm Cerberus Capital Management LP — 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 in anticipation of slowing demand.

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. Those attitudes linger, he said.

"It helped to create a set of attitudes that were, if not exactly hostile to innovation and entrepreneurship, it didn't foster (them), said Ballard. "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.

Carl Galeana, the auto show's senior co-chairman and longtime local auto dealer, said the show has changed and grown with the times. It started in 1907 as a local show that cost 50 cents to attend and this year is marking its 20th year as an international event that draws more than 6,700 journalists from 42 countries.

For instance, Toyota's presence at the show has grown with the company, which last week deposed Ford as the No. 2 auto-seller in the U.S. in 2007. Toyota announced it sold 9.37 million vehicles worldwide in 2007, possibly enough to put it ahead of GM in the race for the world's biggest automaker.

"Certainly, we're Big Three, we're in Detroit," Galeana said amid the din from the show floor on Thursday, as workers made final preparations before the show opens. "But we're not homers. ... We have to cater to the international automotive business."

He said it was disappointing to lose Porsche AG, which announced in June it would skip the show as part of a larger effort to scale back appearances at shows where the opportunity for building customers has fallen.

But other automakers such as Mitsubishi have left and returned, and new ones enter, such as luxury California carmaker Fisker Automotive Inc., which is introducing itself and its plug-in premium sports car in Detroit.

Joseph Serra, the show's other co-chairman, said the difficulties among Detroit's automakers and the state's struggling economy make him feel better that the automakers put the time and money they do into the show to keep it globally relevant.

"The manufacturers aren't sitting still," he said. "This just shows it."

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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