For one of my MBA classes, I had to pick and discuss an article relating to globalization and/or the world economy. So, I picked on entitled "Down and out in Bloomfield Hills". It was actually on the cover of the Wall St. Journal this week. Here is what I wrote. Keep in mind that I had to put a bit of a "pro globalization" spin on it, which makes it a little harsher towards the working men and women of the UAW that are probably going to be royally screwed:

Discussion of “Down and Out in Bloomfield Hills” and “Delphi’s Deep Cuts Heighten Detroit’s Crisis”, WSJ April 1,2006

This article is a poignant discussion of the issues facing the Detroit area in light of ongoing downsizing at Ford and General Motors. The Detroit area has been going through some very difficult changes over the past few years as profits at Ford and GM have dried up. One could easily argue that the Detroit area would be better off without foreign competition. First let’s take a look at what happened to the Detroit automakers.
The US auto industry, with the exception of the Volkswagen Beetle, was primarily a domestic industry until the mid 1970’s. At that time, Detroit was making gas guzzling vehicles that were of poor build quality. Japanese companies such as Toyota, Datsun (now Nissan), and Honda showed up with fuel efficient high quality vehicles. Since then, Detroit has watched its market share erode.
Fast forward to the present. Truck and SUV sales, the last bastion of strength for Ford and GM, are drying up in light of high fuel costs, and the companies were not prepared with compelling fuel-efficient alternatives. As a result, profits are in a tailspin. Since the Detroit economy is heavily based on the automotive industry, from executives in Bloomfield Hills to factory workers in Taylor, everyone is hurting. People who don’t even work in automotive are having financial troubles, especially in service industries such as personal care and in restaurants. Michigan has lost 21,000 jobs since November alone. Delphi Corporation, a Tier 1 automotive supplier, has filed for bankruptcy, and in attempting to renegotiate union contracts, the resulting strikes could also bring its biggest customer, General Motors, into bankruptcy.
The pain felt in Michigan could have been avoided had the Japanese automakers never come to the US. Michigan’s economy would clearly be better off had everything remained status quo. Ford and GM would not be closing plants and reducing office staffs. Million dollar homes in Bloomfield Hills would not be on the market for over a year, and my house in Dearborn would not be going down in value. The foreclosure rate in the Detroit area is higher than any major metro area in the country.
Fortunately for US consumers, we do live in a global economy. Had the Detroit automakers continued in an isolated economy, they would have continued to make vehicles of questionable quality and low value to the consumer. The onslaught of Japanese competition drove improvements in quality across the board, and the price of vehicles relative to inflation, has actually gone down in recent years. As other international companies, such as Hyundai, enter the market, US consumers will benefit even more.
The people losing out in the globalization of the US automotive market are the unionized workers in the US. These are people who, with little education, have jobs that pay them $27/hour. Having grown up in Livonia, which houses many UAW employees, I know that these are people that tend to spend all of their money and save very little. They went to work at age 20 and were paid handsomely for rather simple tasks. They counted on GM or Ford to always be there for their pension and medical benefits.
As Detroit struggles, southern states, where the international car companies have built plants, are reaping the benefits of economic growth. Indeed, Toyota just built a plant near San Antonio, TX, while Ford and GM have announced closure of over 10 plants in the next few years. In China, automotive suppliers are now setting up shop to supply car companies globally. Workers in China will now benefit from higher wages and steady jobs, unfortunately, at the expense of workers at US companies like Delphi.
The current situation in Detroit is a great example of how Globalization and the World Economy will cause some short-term pain in certain regions, but will overall benefit the world. Ford and General Motors will either cease to exist as we know them, or they will emerge as stronger competitors. Consumers in the US have benefited from foreign competition, and workers in other regions of the world are benefiting from newfound jobs.