Page last updated at 16:42 GMT, Sunday, 10 January 2010

Electric investment key to Detroit's revival

By Jorn Madslien
Business reporter, BBC News

Cobo Center
The Cobo Center will be spruced up to the tune of $288m

The Cobo Center which hosts the annual Detroit motor show is in dire need of investment.

The ageing building on the bank of the Detroit river is losing ground to rival venues in other US cities, so a plan to inject $288m (£180m) to spruce up the place was recently given the go-ahead by the city council.

Deciding to spend money on a convention centre that depends so heavily on the revival of the automotive industry was obviously a tough call, given that two of the US car companies that used to be known as the Big Three filed for - then emerged from - bankruptcy last year.

"In 2009, the unimaginable happened with the bankruptcies of General Motors (GM) and Chrysler," Michigan Governor Jennifer Granholm said in her year-end radio address.

"The subsequent restructuring of the auto industry has made one thing crystal clear; the old Michigan economy is gone and it's not coming back."

Investment needed

With the 2010 Detroit motor show starting at the Cobe Center on Monday, the three US carmakers are still in business, though Ford is deemed to be in much better shape than the other two.

Michigan Governor Jennifer Granholm with the Chevrolet Volt
Governor Granholm is fighting hard for Motor City's survival

The "Blue Oval" gained market share in the US last year for the first time since 1995.

In December, Ford sales rose 33% from the same month a year earlier, compared with a 4% fall in Chrysler sales and a 5.7% decline in GM sales.

But surviving is not enough in an industry so focused on innovation. All three companies are in even greater need of investment than the Cobo centre itself to ensure their future competitiveness and thus survival.

Money remains tight, however, in the wake of a crushing global credit crunch, as illustrated by Chrysler's feeble arrival at this year's show.

Chrysler sold no more than 931,000 cars and trucks in 2009, its lowest sales since 1962, and with no new models to show off, the company - which is now controlled by the Italian carmaker Fiat - is not making much of a splash this year.

Electric future

But one bit of news is expected from the Chrysler/Fiat alliance: the unveiling of an electric version of the Fiat 500.

Chrysler car shipment
Chrysler sales have fallen to levels not seen since 1962

In fact, a slew of electric concepts are being displayed this year, including plug-in versions of the BMW 1-series and Volvo's C30.

In a peculiar way, such cars may well point to a brighter future, where the home of the "gas guzzler" is saved by massive investment in electric motoring.

On Friday, Ms Granholm joined executives from GM at the opening of the company's automotive lithium-ion battery factory in Brownstown Township.

And early last month, she helped GM announce a $336m investment in a production line at the Detroit Hamtramck Assembly Plant for its new Chevrolet Volt extended range petrol-electric car.

Analysts see this as a sign of hope for Detroit.

"This is truly the start of the electrification of the American auto industry, and should finally put to rest any claims that GM is not serious about building the Volt or electrifying its line-up," according to Aaron Bragman, automotive analyst with IHS Global Insight.

"Given the investment GM is making in the technology, it seems only logical that many variants will be produced from the plant."

Struggling state

The hope is that Detroit can reinvent itself as a modern automotive centre and thus halt the industry's long-lasting decline.

GM's workforce in Michigan has shrunk to a tenth of what it was in 1979, with Ford and Chrysler suffering similar fates. Their downfalls have sent Detroit into a downward spiral that has left it a cash-strapped city in a crisis-hit state.

This year, Michigan's unemployment rate is set to reach 15.8%, a 40-year high, after some 283,000 jobs were lost in 2009. That too was a record. Never before have that many jobs been lost in a single year.

Since 2000, about one in five jobs in the state have been lost and average wages have fallen by about a tenth to 11% below the US average.

Michigan, with its $2.8bn budget deficit, escaped its single-state recession status last year, but only because the rest of the US had followed it into the abyss. And there is every chance it will be the last state to bounce back.

Chief executives of companies in Michigan expect the state's economy to stay the same or get worse in the near term, while most of them believed the overall US economy would stay the same or improve, according to a recent survey.

Clearly, reversing the trend will be tough, though a good dose of investment in tomorrow's automotive technologies - as well as in the Cobo centre - will obviously help.

And it seems likely the money may well be forthcoming.

President Barack Obama's administration has already set aside billions of dollars to help the automotive companies build fuel-efficient cars and the battery industry is being showered with grants.

Major efforts are underway to bring about an automotive revival here, so it is clearly too early to write off Detroit.

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