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- About BDP Comments
Michigan’s economy benefited from a surge throughout the auto industry in September, according to a monthly economic report from Comerica Bank.
The bank’s Michigan Economic Activity Index ticked up one point to a level of 88. U.S. auto sales increased to 13.6 million units in November year to date, emboldening hopes of continued improvement. But Comerica’s chief economist, Robert Dye, cautioned against taking too optimistic a position.
“The climb out of the depths of the recession still looks very uneven, though, as hard hit areas within Michigan are stuck with very high unemployment rates,” he said.
Michigan’s unemployment rate fell to 10.6 percent in October, the first time it’s fallen under 11 percent since June. But Dye said the fall has as much to do with job growth as it does a decline in the labor force.
“Housing markets in Michigan and elsewhere are still a drag to economic growth and will likely be soft through 2012,” he said.
The Michigan Economic Activity Index weighs nine indicators that reflect construction, manufacturing and service activity, as well as job growth and consumer spending.
Pete Bigelow · Midwest Memo: Michigan Mining Company Lays Off 600, Chinese Students Wisconsin Bound, Iconic Cleveland Building Sold
December 5th, 2011
Three stories making news across the Midwest today:
1. Mining company lays off 600 workers. A mining company in Michigan’s Upper Peninsula will temporarily shut down part of its operations and lay off approximately 600 employees. Cliffs Natural Resources, which operates the Empire Mine in Marquette County, said production is expected to drop from 4.6 million tons in 2011 to 2.7 million tons in 2012, according to the Marquette Mining Journal. The drop comes because steel producer ArcelorMittal will take a blast furnace down for maintenance in the second quarter. A company spokesperson said the layoffs will last “several months” until the furnace goes online again.
2. Historic Cleveland property has new owner. One of Cleveland’s historic downtown landmarks was purchased today by a Canadian hotel and resort company during a foreclosure auction. Skyline International Development Inc. was the sole bidder for the Arcade, and purchased it for $7.7 million – the minimum bid, according to The Plain Dealer. The current site was renovated a decade ago for $60 million, but went into foreclosure in April 2009 when its Chicago-based owner defaulted on a $33.3 million mortgage. An attorney for the new owners said this is Skyline’s first U.S. real estate holding, but did not comment on the firm’s plans for the Arcade. With the property selling for the minimum, its creditors, including Bank of America, the city of Cleveland and Cuyahoga County, will not recoup any of their investments.
3. Chinese students Milwaukee bound. Hundreds of Chinese students could attend the University of Wisconsin-Milwaukee in coming years thanks to a recruiting agreement the school’s chancellor signed today in Beijing. An agreement with a Chinese education network will boost the university’s international profile and help lure Chinese companies to Milwaukee, according to the Milwaukee Journal Sentinel. It would also boost the school’s out-of-state tuition coffers. China is the city’s third-largest trading partner, according to the newspaper. The agreement runs for five years. “You could think of myriad ways these students could connect to help Milwaukee employers in China,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce.
In 1969, the Cuyahoga River was so overrun with oil and industrial pollutants that a spark from a passing rail car ignited a blaze across the water’s surface. Firefighters extinguished the flames in less than two hours, but the image cemented in dubious city lore. Critics called Cleveland the “Mistake On The Lake.”
Things have only gotten worse from there.
For decades, city leaders have watched the city’s industrial base vanish, the population plummet and poverty grow. In recent years, they have sought to reinvent Cleveland according to 21st century urban principles, envisioning a city built on health care, higher education, entertainment and mass transportation.
Now they have a tangible foundation. The New York Times profiles a massive reclamation project throughout the city that has ignited job growth and stoked talk of a small-scale comeback: In Cleveland, the downtown has shifted uptown.
Within a square mile of the city’s University Circle are: Case Western Reserve, Cleveland Institute of Art, Cleveland Institute of Music, University Hospitals, Cleveland Clinic, Cleveland Orchestra, Museum of Art and Museum of Natural History.
Millions have been spent on building and renovating those civic institutions, and they’ve formed “a distinct economic microclimate that has fostered the highest growth in job numbers, income and residents,” in a city that lost 81,000 residents from 2000 to 2010, according to The Times.
An urban planner from the University Circle Inc., which helped plot the area’s development along Euclid Avenue, tells the newspaper 5,000 jobs have been added in the uptown area since 2005, and that 50,000 work there overall.
Amid an overall population loss of 17 percent in the past decade, the number of residents in the uptown area grew by 11 percent.
Micki Maynard · Starting Over? Need Advice Getting Through The Recession? Get Midwest Money Help From CNN’s Ali Velshi and Christine Romans
December 2nd, 2011
The recession has played havoc with personal finances all over the Midwest, whether you’re starting from scratch, or trying to stretch your budget to get through these hard times. It can be hard to get good advice on what to do.
Rest easy. We’re offering some Midwest Money help. Two of the country’s leading experts on personal finance issues — CNN’s Ali Velshi and Christine Romans– are teaming up with Changing Gears to provide some answers.
Each week, Ali and Christine tackle pressing financial dilemmas on their CNN program, Your Money, and they’ve compiled their tips in the new book, How to Speak Money: The Language and the Knowledge That You Need Now.
Here’s your chance for Midwest Money advice. Send us anything that’s on your mind, from retirement, to job hunting, to your mortgage and more.
We’ll pose your questions to Ali and Christine, and publish their answers every day during the week of Dec. 19. And, if they pick a question that you sent in, you’ll get an autographed copy of their new book
Post your questions here.
December 1st, 2011
All across the Midwest, cities and suburbs are tackling the problem of Empty Places. Throughout November, Changing Gears took a look at some of the challenges and solutions involved in transforming property from the past.
In Flint, Mich., Kate Davidson found there may be no better example of how the industrial Midwest is changing than the site of the old Fisher Body Plant No. 1. It’s one of the factories that was occupied by sit-down strikers in the 1930s. The plant made tanks during World War II. It was later closed, gutted and reborn as a GM design center. But GM abandoned the site after bankruptcy and the new occupants don’t make cars. They sell very expensive prescription drugs.
In suburban Chicago, Tony Arnold reported that as companies adjust to economic conditions, many in the region have been re-evaluating the basics – including where they’re located. Cities and states bend over backwards to create jobs, and they’re left with some big challenges when a company decides it no longer wants its headquarters there.
For many people, the most threatening emptiness isn’t a shuttered factory. It’s the abandoned property next door. But in Detroit, some residents are using that emptiness to quietly reshape their neighborhoods. They’re annexing vacant lots around them, buying them when they can or just putting up a fence. They’re not squatters, says Davidson, they’re blotters.
There are vacant factories all over the Midwest. But where some people see blight, others see opportunity. One example: a former Chicago meatpacking plant has been transformed into a vertical farm, as Niala Boodhoo discovered.
Barry Van Dyke and his two siblings told us their story of turning Jack’s Liquor Store in Grand Rapids, Mich., into a brewery. As he said to Sarah Alvarez, “Over the last three or four years there has been a huge boom of people re-occupying buildings and putting work into them. It’s great to be a part of that in Grand Rapids. I think the general public sees that, and they are just bending over backwards to be supportive.”
But there’s plenty more work to be done across the Midwest. In fact, there are 3,000 empty buildings alone in Northwest Indiana. Take a look at the work that’s going on there.
Any thoughts on our Empty Places series? Let us know if you’re working to transform an abandoned place in our region.
December 1st, 2011
LIVONIA, Mich. – When Chrysler CEO Sergio Marchionne made his disdain for a two-tier wage system known at the conclusion of UAW contract negotiations in October, his comments weren’t so much parting shots as they were a preview of coming attractions.
The viability of the two-tier wage structure will be a defining issue of the next round of labor negotiations.
“What has to be decided in 2015 is, ‘Where are you going with the second tier,” said Art Schwartz, president of Labor & Economics Associates and a former lead labor negotiator for General Motors. “Where’s this going to lead eventually? That’s the big issue.”
Several analysts at a conference hosted Tuesday by the Center for Automotive Research predicted caps on the number of second-tier employees will gradually be raised, and that an intermediate wage rate between the two rates could be negotiated.
Under the current agreement, second-tier workers make about half the hourly rate as their legacy counterparts. At General Motors, for example, new hires start at rates as low as $14.78 while veterans make $28.49 per hour. Yet they do the same work and meet the same productivity standards.
That’s the rub, said Sean McAlinden, CAR’s chief economist.
“It’s a mess,” he said. “It’s one of the reasons Marchionne wants to get away from that. I don’t think it’s a permanent solution.”
As a temporary one, it has been effective in controlling labor costs. In 2007, General Motors total hourly cost per worker was $78. In 2011, the cost dropped to $56. Hourly costs for two-tiers are substantially lower. Across the Big Three, their total hourly labor cost is $33.70 in 2011 and expected to rise to $39.70 by 2015. Retirement and health care costs account for other differences.
Two-tiers first appeared in contracts between the UAW and Big Three in 2003, and evolved as one way for the automakers to remain competitive with competition. In the 2007 negotiations, they were expanded and then entrenched during the federal bailout of the auto industry in 2009.
Experts say the lower overall labor costs will help the domestic automakers compete with foreign automakers that operate North American plants. Toyota’s overall hourly labor cost is $55 and Honda’s is $50, according to CAR research. Workers at Toyota’s new plant in Mississippi start at $15, although hourly wage rates for veteran workers at their assembly plants in the Southern United States are approximately $24 to $26 per hour.
That’s where the targets will start in 2015 negotiations, possibly for an intermediate tier.
“To be perfectly frank, we’re not setting the pattern for international auto makers,” McAlinden said. “They’re setting the pattern for us. That will make our companies’ labor contracts look much more like the transplants.”
He anticipates the Big Three will seek hikes in the entry-level percentages of their workforces, if not removal of the caps all together. Currently, the limits are 17 percent at GM, 12 percent at Ford and 23 percent at Chrysler.
CAR assistant research director Kristin Dziczek says the caps are irrelevant right now, since entry-level workers are just a fraction of the total.
“For all intents and purposes, the speed limit is 300 miles an hour,” she said of the potential hiring pace of two tiers. “Go as fast as you can. They will be renegotiated in 2015, and second tier will be one of the key issues.”
Perhaps the more thorny aspect of the negotiations will be determining the compensation of traditional employees already making $28 to $29 per hour. By 2015, they will have gone 14 years without a raise, according to CAR. Union leaders may favor a single-tiered wage structure, but any proposal that involves a pay cut for legacy workers is a non-starter.
“The key issue will be how will that gap close,” Schwartz said. “Will it evolve to an intermediate rate with no cap? How do you negotiate between $19 and $29?”
The one thing everyone – from Marchionne to union leaders to analysts – agrees upon is that the two-tier system is a temporary patch, one that could either be mended or further frayed during the next round of negotiations.
November 30th, 2011
For more than 130 years, the economy in Granite City, Ill. has been steel.
In 2008, the 30,000 residents of this small town along the Mississippi River saw what happened when their economic backbone bent. U.S. Steel temporarily shuttered a mill that employed 2,200.
Now, the steel industry is back. The mill has re-opened. Officials say it is “fully staffed” at 2,200 employees and a union representative tells our friends at St. Louis Public Radio that “its future is probably more secure now than it’s been in a long time. And these are good-paying jobs.”
The station profiled Granite City this morning, examining its past, its Great Recession devastation and its rebirth. But Granite City’s story isn’t a simple redemption story. The landscape is more complicated.
Economic hardships remain. Union officials say they are seeing more college graduates apply for jobs at the mill, even as the work lies outside their realms of study. And attempts to diversify the steel-heavy economy are slow going. A central challenge:
“People only see us as a dirty steel town,” one small-business owner tells St. Louis Public Radio. “And we’re much more than that.”
November 30th, 2011
FLINT — There may be no better example of how the industrial Midwest is changing than the site of the old Fisher Body Plant No. 1 in Flint, Michigan. It’s one of the factories sit-down strikers occupied in the 1930s. The plant made tanks during World War II. It was later closed, gutted and reborn as a GM design center. But GM abandoned the site after bankruptcy and the new occupants don’t make cars. They sell very expensive prescription drugs.
There’s one group of experts who can always tell you the history and significance of an old factory. They’re the guys at the bar across the street.
Dan Wright is still a regular at The Caboose Lounge. He worked at Fisher Body No. 1 briefly in the 1970s.
“The bars were always full and restaurants were always full and stores were always full,” he says. “And all these stores, bars and restaurants you go to now, there’s nobody there. And it’s sad that Flint died the way it did.”
Now Michigan’s governor says there’s a financial emergency in Flint, the once prosperous birthplace of GM. In fact, seven thousand people worked at Fisher Body No. 1 when workers sat down in late 1936, demanding recognition for the United Auto Workers.
“We’re actually standing in the area, very close right now, where the 1937 sit down strike was,” says Phil Hagerman, president and CEO of Diplomat Specialty Pharmacy.
Diplomat moved in earlier this year. The company specializes in drugs that target complex medical conditions like cancer, hemophilia, MS and HIV/AIDS. Many produce side effects, so nurses here call patients to make sure they stick to their treatment plans.
“Specialty pharmacy is the fastest growing component in the pharmacy industry,” says Hagerman. “Traditional pharmacy is growing at two to five percent a year. Specialty pharmacy is growing at 15 to 25 percent a year.”
Diplomat hired more than two hundred people this year. Phil Hagerman says the company is on track to top a billion dollars in sales next year.
“We’re distributing as many as two thousand or more prescriptions a day around the country, shipping to every state every day from this building,” he says.
The building highlights the transformation of the industrial Midwest. GM shuttered the sprawling Fisher Body No. 1 plant in the 80s and much of it was demolished. The footprint of the complex shrank dramatically. But the steel and concrete of this building’s main structure were retrofitted into an engineering and design center for GM, housed in the Great Lakes Technology Center.
Diplomat later bought about half the space and it’s still enormous: 550,000 square feet. That’s more than one thousand square feet for each of the 450 employees here. The other half of the complex is now a biomedical campus, run by the company IINN.
“How often do normal business rules allow a company to have a ten year growth footprint?” Diplomat’s Phil Hagerman asks. “It just doesn’t happen. ‘Cause the cost of the building is so great. But because we acquired this from an auction process at a very, very low cost, we have a building that we know we can grow into for about ten years.”
So, that’s one advantage of acquiring property discarded by industrial giants. Advantage #2: 1700 cubicles left behind. Advantage #3: Random industrial signs that read: ‘Caution: Pedestrian traffic. Sound horn’. And advantage #4: The government loves you, especially if you’re a high-tech or medical company. In fact, Diplomat won’t pay property taxes here for almost 15 years, and it got a 62 million dollar tax break from the state. In return, CEO Phil Hagerman says he’ll hire four thousand people in the next two decades.
But thousands of people used to stream across the street to local businesses every week. At The Caboose Lounge, waitress Janet Anderson says the new workers at Diplomat don’t come in yet, but she’s hopeful.
“I do good breakfasts,” she says. “Real good breakfasts you can ask anybody in here.”
And these days, hope itself might be a welcome sign of change in Flint.
(NPR also aired a version of this story nationally. Listen to it here.)
November 29th, 2011
LIVONIA, Mich. – A recovering U.S. auto industry should add more than 150,000 new jobs by 2015, and most of them will be located in hard-hit Michigan.
Analysts from the Center for Automotive Research in Ann Arbor said Tuesday that gains sales and market share, as well as savings reaped from recently concluded UAW contract negotiations, will allow Detroit’s automakers to expand their workforces. The Big Three are projected to add approximately 30,000 new jobs over the next three years.
But that’s a relatively small share of the overall projected industry growth. Suppliers are expected to account for the bulk of the increase across the country. Estimates say the auto industry employs 590,000 today and will employ 756,800 in 2015, a 28.2 percent increase. That year, sales of light vehicles are expected to hit 15.5 million units.
“They’re going to grow,” said Kristin Dziczek, assistant research director at CAR. “They’re going to have to.”
Managing that growth is trickier than it may appear. Automakers are fearful that suppliers have promised more capacity than they can actually deliver as demand grows. Many suppliers have been reluctant to ratchet up operations in case the boom never arrives.
At best, the forecast growth will be uneven.
Dave Andrea, senior vice president of the Original Equipment Suppliers Association, said some of the top suppliers are operating at 90 percent of their manufacturing capacity and cannot add more production without adding workers. Sean McAlinden, chief economist for CAR, said automakers are already seeing shortages in areas such as integrated stamping and casting.
But other suppliers are running closer to 70 percent and see the current market as unsteady.
“This is where the complexity of the industry and working with suppliers is,” he said. “They have so many question marks, that they’re really balancing, particularly through 2011. So we haven’t really had the luxury of a steady climb.”
If and when the job boom materializes, these experts say Michigan will be the major beneficiary.
Nearly all the job growth from the Detroit automakers will take place in the state, which already is home to two-thirds of the three companies’ 171,742 U.S. employees. The Big Three are expected to add 33,000 jobs in the state, according to CAR, and should have a Michigan workforce of 135,000 by the end of 2015.
The new hires are expected to be comprised of hourly and salary workers, while forecasters see a dip of about 4,000 skilled-trade workers ahead.
More broadly, many more of the 150,000 jobs added by suppliers should occur in Michigan, although CAR experts did not pinpoint a specific number. “We’re definitely seeing a concentration in Michigan,” Dziczek said.
The news is good for a state pummeled by the recession. Michigan’s unemployment rate reached 14.1 percent in August 2009.
But the news is also bittersweet. In 1999, the state employed 316,000 in motor vehicle and manufacturing. Now, it’s 73,700.
And the three Detroit automakers employed more than 1 million across the country in their peak year of 1978. Even with the growth projections over the next three years, they’ll employ less than 200,000.
November 29th, 2011
Midwest fliers have plenty of experience with airline bankruptcies — think United, Northwest and Delta. Now comes another one with a direct impact on Chicago.
American Airlines, which has one of its two biggest hubs at O’Hare International Airport, said today it’s seeking Chapter 11 bankruptcy protection. It is the second largest airline bankruptcy case, behind United.
American said it planned to keep its operations at O’Hare, and has no immediate plans to change its schedule.
American, based in Dallas, is the last of the big “legacy carriers” to reorganize, in part because its chief executive, Gerard Arpey, resisted the step. Rather than lead American through a court case, Mr. Arpey retired, and was replaced today by Thomas Horton. The airline said it hoped to emerge from court protection by mid-2013.
American and United have always fought tooth and nail for business at O’Hare, where United holds a 27 percent share of passenger traffic, and American has 24 percent, according to the Bureau of Transportation Statistics.
But United in recent years has gained financial and size advantages over its rival. United sought bankruptcy protection in 2002, after it failed to get federal loan guarantees, and merged with Continental last year. The combined United and Continental are based in Chicago.
Unlike United’s bankruptcy case, which was heard in Chicago, American’s parent, AMR, filed for bankruptcy protection in New York City. The airline is represented by Weil, Gotshal, the law firm that represented General Motors in its bankruptcy case. Significantly, American is not seeking debtor-in-possession financing; it entered bankruptcy with $4.1 billion in cash, enough to keep its operations running.
In announcing the bankruptcy filing, American said passengers would not notice any immediate change in service, and would continue to collect frequent flier miles. (Answers to frequently asked questions can be found here.)
American’s employees, however, are likely to see some major changes, if the bankruptcies at the other major airlines are any guide.
Under bankruptcy protection, companies can seek to void labor contracts, although judges generally require negotiations on any proposed cuts before they take place. They also can ask that pensions be modified or terminated.
American has a complicated relationship with its pilots, who are represented by the Allied Pilots Association (not the Air Line Pilots Association, which represents pilots at many major airlines). Pilots and the airlines have battled for years over work rules governing pilots at the main airline and its American Eagle subsidiary, which American has tried to sell.
In a hotline message, APA president Dave Bates said it was a “somber day” for the airline.
“While today’s news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way,” said Bates, whose union granted concessions in 2003 so the airline could avoid a bankruptcy filing then.
It’s also likely that the cities served by American will see changes in schedules down the road. While American isn’t expected to give ground at O’Hare, it’s common for airlines to eliminate routes, flights and get rid of expensive aircraft while they are under bankruptcy protection.
Fliers in Cincinnati and St. Louis already know first hand what happens when airlines get in trouble. Cincinnati was a hub for Delta before it merged with Northwest in 2008, and has seen flights drop sharply during the past decade. Likewise, St. Louis was a main base of operations for TWA before American bought it in 2001. It has also seen its service dwindle as American cut flights formerly operated by TWA.
(Note: my father worked for the finance staff of American Airlines for 25 years. Read about my life as an airline child in this story for The New York Times.)