In One Chart, Here's Why Detroit Failed

detroit michigan skylineGeneral Motors Corp.’s world headquarters is seen along the Detroit River in Detroit, Michigan.

Detroit recently filed for chapter 9 bankruptcy, the largest municipal bankruptcy in U.S. history.

But it was a long time coming, and it had everything to do with the once glorious U.S. auto industry.

“Detroit, otherwise known as Motor City or Motown, was the centre of the auto industry, making it a booming and prosperous city in the middle of last century,” wrote Bank of America Merrill Lynch’s Michelle Meyer. “The tide began to turn in the late 1970s/early 1980s when US automakers began to lose market share to Japanese ones. The Big Three — GM, Chrysler and Ford — were slower to adapt to technological changes and respond to demand for smaller and fuel-efficient vehicles.”

As the auto industry struggled, unemployment rose, people fled the city, and the economy shrunk while municipal spending remained high.

Meyer’s report included a 45-year chart of U.S. motor vehicle sales as a share of GDP to illustrate how the industry lagged the U.S. economy.

“In the early 1980s the Big Three made up about 75% of total US auto sales, compared to just 45% of sales today,” said Meyer. “And accordingly motor vehicle output has declined from 4.5% of GDP in the late 1960s to only 2.8% today.”

auto sales

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