Tag Archives: Auto manufacturing migration

Innovation Built Detroit

oldsmobile-pirate-2Innovation created the car. The car built Detroit. Between 1895 and 1900 when 69 auto companies were started, none were in Detroit. By 1909, 270 auto manufacturers competed in the auto industry, which is really wild. Yet, still only 41 of those were in Detroit in 1909. How then did Detroit come to dominate the auto industry?

Detroit did have some natural benefits of transportation routes and of being close to iron, fuel, wood, and other northern industrial cities. And, Ford and Olds were truly genius innovators. But as or more importantly, Detroit generated a critical mass of innovators. A total of 141 auto companies spun off from parents in Detroit when their founders thought they had better mousetraps.

By 1915, the top selling autos came from Detroit and hundreds of suppliers relocated to Detroit to meet the needs of the largest selling auto manufacturers. This close proximity of cross innovation accelerated Detroit’s growth, and isolated manufacturers could not keep up with the pace of Detroit’s collective innovation.

Eli Whitney’s two innovations changed the world. His first was the assembly line. In 1914, his assembly line became the cotton gin of the north as Ford adapted it to cars and they began flying out the factory doors, driving down costs and price.

By 1929, with over 21 million cars in America, the more continually innovative companies like Ford had absorbed most of the spin off companies, and the Big Three in the Detroit region produced 80% of the cars in America. Detroit owned the market.

With such a prolific production of cars, other industries across America grew rapidly in response. Metal industries, rubber, fuel and fueling stations, highways, the tourist industry, hotels, road construction, and even real estate and construction grew as the car led to an urbanization of America. The Auto industry transformed America.

To fund this transformation, the financial industry also had explosive growth, spiking in the 1920s. The majority of Americans could not afford cars, radios, and homes on America’s average income, so just as we saw a financing bubble in 2008, extraordinary credit was extended in the 1920s, spurring more growth and more consumer debt until it reached its breaking point.

As a result of such credit-driven spending on cars, radios and homes, millionaires were created. By 1929, the top 0.1% of America owned 42% of America’s wealth. By 1929, Ford was one of the richest men in America with an annual income of $14 million compared to his well-paid workers making $750. By 1929, America had expended its credit economy, the bubble popped and the Great Depression hit.

Car production dropped in half, and industries supporting cars fell precipitously. Reduced output brought wage cuts and layoffs in the auto industry, further exacerbating the depression. Reacting to the income disparity that occurred before the depression and sympathetic to the plight of affected workers, Social Democrats passed the Wagner Act of 1935 supporting unions. Immediately upon passage, strikes changed the face of Detroit.

Now, combining a growing, pent up demand for autos after WWII, the need for additional production capacity, the need for land in a landlocked Detroit, continuing innovation leading to new manufacturing techniques, a desire to move away from the increased risk and cost of Detroit’s unions and to create parallel operations to reduce union power, and the change from people to automation driven by excessive labor costs, the auto industry began its migration away from Detroit.

In the next decade, the Big Three built 25 plants, all of which were at least 15 miles out from the city of Detroit. In the following decade with the advent of new highways and FHA housing available mainly to whites, whites migrated out of the city and took small businesses with them. Between 1947 and 1963, 134,000 manufacturing jobs left Detroit, enough for a third of the working population.

In same time period, auto manufacturing in the state of Michigan would drop from 58% of the total to 40%. During the exodus of auto manufacturing and the beginnings of white flight, the U.S. Department of Defense piled on with the decision to diversify armament production away from Detroit.

Within this timeline of the rise and the beginning of the fall, innovation was a key factor that led to accelerated production, which paid for the 300 people per day moving to Detroit. The influx of a million and a half people, paid for by the car, brought in the taxes and built the infrastructure of Detroit that allowed Detroit to annex lands to grow from 39 square miles to 109.

What was left when the majority of companies and people left the city were citizens that stayed, a government that cared to help them, some good assets, some obsolete ones, a considerable amount of empty buildings, a lot of brownfield sites, and a need for a viable plan to use what assets and strengths that were left to turn the city around.

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