Warren Buffett called Detroit land an asset of “huge potential”. That could only be true if the city’s finances were repaired enough so that tax revenue would outrun city expenses. For the time being, as Detroit suffers through the largest municipal bankruptcy in American history, the industry which built it continues the renaissance which began as the recession ended. The proof of that recovery has been reinforced by the financial results of GM (NYSE: GM), Ford (NYSE: F), and Chrysler this year.
The comparison between the success of the car industry and implosion of Detroit’s finances has been made often before, but the contrast has grown more extreme in 2013.
GM, the largest of the three U.S. car companies, still enjoys its position as the leader of sales among all manufacturers who market vehicles in America. During the first ten months of the year, GM sold 2,343,861 vehicles up 8.3%. Its share of the U.S. market is 18%. Ford’s sales rose 12.2% to 2,078,939 for the same period, which keeps it just ahead of Toyota (NYSE: TM). Ford’s market share is 16% to Toyota’s 14.4%. And, the most improbably resurgence is Chrysler’s. Its sales rose 8.7% during the first ten months of the year to 1,497,086.
According to the No. 3 U.S. car firm: “Chrysler Group LLC net income for the third quarter of 2013 was $464 million, an increase of 22 percent from $381 million a year ago”. Ford’s numbers are equally strong–”net income of $1.3 billion, or 31 cents per share, down $359 million, or 10 cents per share, compared with a year ago due to pre-tax special item charges of $498 million”. Still impressive given where the company was just five years ago. And, in the last quarter, GM, although hobbled by results in Europe, reported that third quarter net income to common stockholders was “$0.7 billion or $0.45 per fully diluted share, down from $1.5 billion or $0.89 per fully diluted share a year ago. Improvement in operating performance during the quarter was more than offset by a net loss from special items and incremental tax expense.”
As for the city itself, emergency manager Ken Orr reported that for the third quarter, Detroit had only $211.6 million in the bank, an amount which will be swamped by the needs to pay city expenses as Orr fights to void union contracts, sell assets, and perhaps stop civil services to large geographic portions of the city.
GM is the only one of the Big Three with its headquarters still in Detroit. That barely matters since none of the three firms employees any meaningful number of people in a city which was once dominated by their factories.