O'Keefe in the News

Big 3: Detroit bankruptcy no issue

Big 3: Detroit bankruptcy no issue

July 26, 2013

As published in The News-Herald

AUBURN HILLS — The Big Three automakers, including Auburn Hills-based Chrysler Group, say Detroit’s Chapter 9 bankruptcy filing will not affect their business.

All three businesses released statements showing their support for the cash-strapped city.

“Chrysler Group believes in the city of Detroit and its people,” Chrysler Group announced. “We not only continue to invest in the city and its residents by adding to our presence in Detroit, we also are committed to playing a positive role in its revitalization.”

Chrysler employs 10,172 people in Oakland County. It also operates an engine plant in Trenton.

Dearborn-based Ford Motor Co, which has 175,000 employees worldwide including 20,000 in Michigan, made a similar comment.

“We believe a strong Detroit is critical for a strong Michigan and our industry,” said Jay Cooney, a Ford spokesman. “The city has a difficult job ahead, and we are optimistic that governmental leaders will be successful in strengthening the community.”

General Motors Corp., the only one based in Detroit, employs 2,996 people at the Renaissance Center downtown and 1,225 in Wayne County.

“GM has assessed the potential implications of Detroit’s bankruptcy, and we do not anticipate any impact to our daily operations or business outlook,” the company said. “Our first thoughts, however, are with our neighbors throughout the city. GM is proud to call Detroit home and today’s bankruptcy declaration is a day that we and others hoped would not come. We believe, however, that today also can make a clean start for the city. We hope that all parties recognize the sacrifices to follow can help rebuild a stronger Detroit with a level of services and quality of life its citizens deserve.

“A healthy auto industry will play a part in Detroit’s comeback story and GM is doing its part.”

The city’s bankruptcy should not impact sales for the auto industry, predicted George South, a partner in financial restructuring for DLA Piper, a New York City law firm.

“That market is fairly broad-based, nationally and internationally,” he said.

As for tax breaks GM might have received from the city, he said the bankruptcy process might actually increase the amount of help the company receives.

“I could see that that revenue stream certainly won’t be reduced,” said South, whose company is involved in the Chapter 9 bankruptcy of Jefferson County, Ala. “And there could be pressure from creditors to increase that revenue stream.”

If GM received tax breaks from Detroit, it’s unlikely the Chapter 9 bankruptcy will affect them, said Patrick O’Keefe, CEO of O’Keefe Consulting, a Bloomfield Hills-based turnaround consulting firm.

“I don’t think so,” he said. “The reason is, it’s not like they get a refund. (The cities) usually just reduce the property tax. With that being said, that just means they pay less. It’s not like they have anything coming back. It may impact the ability to get future abatements, but I don’t think it will hurt anything existing.”

Contracts can be canceled through bankruptcy proceedings, but he does not know whether tax breaks count as contracts, he added.

As for the local automotive suppliers, Southfield-based Federal-Mogul Corp. expects operations to continue as normal.

“We don’t anticipate any direct impact on Federal-Mogul operations as a result of the bankruptcy,” said Steve Gaut, a company spokesman.

Federal-Mogul, which manufactures automotive components such as engine and brake parts, has approximately 650 employees in Oakland County.

Any damage that has been done to the domestic companies’ images occurred when both Chrysler Group and GM went through their own bankruptcy, said Peter Morici, a professor of business at University of Maryland in College Park.

“I don’t think it’s going to have much impact on them,” he said. “They’re not dependent on the city, per se.”

It’s possible that the auto employees’ union pension funds are vested in city bonds, he added, but he doubted it.

“Some people are trying to blame the bankruptcy in Detroit on the automobile industry’s troubles and woes,” he said. “The fact is the automobile industry has been on the rebound for awhile.”