“I think what surprised me most about the markets is how quickly they recovered and how quickly people forgot what happened.” — Steve Eisman, Financial Post of Canada, Sept. 14, 2018
Eisman is credited with being one of the few who saw the 2008 meltdown coming and made a fortune betting on it, but his recent quote is not entirely accurate. True, in America’s larger and most successful metro areas the financial meltdown and its subsequent panic are a long distant memory. Then again, that was true in DFW within 18 months of Lehman Brothers’ failure in September of 2008;during a Texas Automobile Dealers convention here in Fort Worth, Classic Chevrolet owner Tom Durant informed me that in March of 2010 his dealership had set an all-time record.
Granted, Tom is considered one of the country’s great dealers and more than that, one of its great optimists. Over the past 10 years Tom, Carl Sewell, John Eagle, Randy Hiley and his sons, Charlie Gilchrist and his son Stephen, Will and Corrie Churchill, and John David Moritz — who are all sponsors of my radio show — and many other great dealers have expanded the number of dealerships they own, substantially. Furthermore, that truth shows something that isn’t getting a lot of press; that’s the fact that, since the Financial Meltdown of 2008, well respected individual dealers are acquiring new or existing dealerships in large numbers.That’s the reverse of 20 years ago, when the national chains suggested that they were the future of automotive retailing.
Have We Forgotten?
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Warnings that things were going wrong were in plain sight long before the crash came. Most forget Jim Cramer’s famous on-air meltdown in August of 2007, when he screamed that nobody was paying attention to how bad things really were. One bank in Germany had already failed and the article mentioned they were heavily involved in American mortgages. Yet everyone made fun of Cramer’s manic warning and no one noticed that mortgage tranches were having a hard time finding buyers near the end. Instead, from August of 2007, the official start date of that recession, to July of 2008 the price of oil jumped from under $70 a barrel to $147 at peak. Tragically, many reported that as proof that the world economy was still on fire.
It wasn’t, of course; that was just the result of a speculative mania for oil contracts, which would fuel five of my Star-Telegramcolumns in early 2008 and six columns in BusinessWeek online. The one thing I couldn’t see at the time, other than oil tanker shipment reports, was that demand for oil and refined fuels worldwide was falling like a rock, starting in August of 2007. The International Energy Agency did not release those charts until Septemberof 2008,months after the price of oil started collapsingtowards $33 a barrel.
We who live in one of the most dynamic metropolitan areas in America, however, have forgotten all of that. We’ve compartmentalized the fear of that era and with Texas-sized optimism moved forward. But many were in denial about how bad things really were in that period. More than a few wrote me furious emails about Congress moving to bail out Detroit to the tune of over $80 billion; I simply responded that if they had not done that, we would not be in the middle of a Great Recession, but living through the next Great Depression.
I also pointed out that $5 billion of the bailout went to save America’s parts suppliers; had that not happened, within a few years many automobiles would have been sitting broken in your front yard and with no parts to fix them anywhere. Ask any car dealer about how, for a while, they often couldn’t get some parts to fix vehicles because a particular supplier had gone out of business; it took time for the remaining suppliers to put those parts back into production.
Nobody Took Credit for this Economy
MarketWatch, an online part of the Wall Street Journal, did a story in November of 2015 showing that half of all of America’s Gross Domestic Product was now centered in five distinct regions of the country:New York, Chicago, Miami, Dallas-Houston and Los Angeles-San Francisco. Imagine that, the entire rest of the country gets the other half of our Gross Domestic Product. There lies the story that we don’t see about how the recovery is working for everyone else.
A week ago PBS’ Frontline, in conjunction with ProPublica, did a documentary on Dayton, Ohio, a city in which 30 percent of citizens now live in poverty. Once the invention capital of America, it’s where the Wright Brothers designed and built the world’s first airplane.It was home to National Cash Register, one of whose employees, Charles Kettering, gave us the world’s first self starter for an automobile. Another employee was the gentleman to whom Kettering gave the first ride in a car with a self starter, Thomas Watson, who would go on to create IBM. Kettering’s company would be purchased by General Motors, and he would end up with more patents for new inventions and chemicals than anyonein America.
Dayton once had a denser concentration of GM workers than any city other than Detroit. But the GM Moraine assembly plant closed with the financial meltdown and was later purchased by a Chinese manufacturer of glass. People were happy for the work, but they missed their GM pay, $30 an hour or more; now it was down in the low teens. But that’s the fate of so many northern cities that were once great.They’ve faded away as large-scale consumer manufacturing has been forced to become more efficient to reduce costs as a bulwark against economic downturns.
As it turns out, Cleveland, Ohio, is considered to be the most distressed city in America, with 90.3 percent of its citizens living in Distressed ZIP Codes. Detroit, Toledo and Milwaukee are also among the Top Ten most distressed cities in America.
Michigan in Recovery
That takes us back to the state where the American auto industry was born. Crain’s Detroit Business ran an accounting of Michigan’s economic circumstances in the decade since the Financial Meltdown. For perspective, in 1999 the median income in that state hit an all-time high of over $66,000, but over the next few years had been in a state of collapse. Even now Michigan has a median income nearly $9,000 less than it was in the late Nineties. And one would think this was a negative story, but no; Michigan’s GDP is up 21 percent from the bottom of the meltdown, thoughbetter times don’t seem to be reaching the average person in that state as quickly.
Home ownership there peaked in 2006 at 77.4 percent and last year gained only a tenth of one percent, up to 72.9 percent ownership. Finally, Michigan’s labor force participation rate was nearly 2 points higher than the nation’s in 2000, but today is lower than the national average, somewhere around 62 percent. Michigan alone lost 800,000 jobs with the 2008 crisis.
These days, of course, we regularly read and see the devastation of the once proud city of Detroit, which was a major manufacturing center long before the auto industry came along. Yet,though Flint has been in the news because its water supply has been poisonous for some time, it’s also Michael Moore’s hometown. And 30 years ago Michael Moore debuted his first major documentary, Roger and Me, discussing the serious crisis there that General Motors’ downsizing caused.
Flint hit its population peak in 1960 at nearly 200,000, but by the time Moore’s documentary aired 38,000 had already moved away. Within a few years the sign over the main drag into town that read, “Welcome to Buick City,” was taken down; and today Flint is under 100,000 population.Another 63,000 citizens have given up on the city over the past 30 years.
Meanwhile, Buick City is now in Shanghai, China, where this past fourth of July GM claimed it had sold 858,344 Buicks …. in just the second quarter of this year.
The world did change over the decade since the Financial Meltdown and in very predictable ways. The best got better, as witnessed by the continuing growth of the most successful areas of America, including our own Metroplex. It can also be seen in the rapid expansion of the best dealers in acquiring more dealerships.
But the Meltdown also put failing cities and regions of the country under even more pressure. Today we see that in northern cities that depended so much on large scale consumer manufacturing, yet that out-migration has been taking place as long as the Baby Boomers have been alive. Detroit hit its peak population in 1950 and it’s been downsizing ever since. But this shift in our economic condition is no different from the change from water power to coal, and on to oil. Or from being the last generation of blacksmiths once the Ford Model T came to market.
We should just be happy that we see the success of our country from our Texas vantage point.It’s a great deal different from the murkierview in Dayton.
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: email@example.com