Detroit auto show may inspire down industry

updated 4:41 p.m. ET Jan. 11, 2008

DETROIT - 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."

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