Boom and Bust Towns
by John Agno
Published on this site: October 27th, 2005 - See
more articles from this month
There have always been cyclical boom and bust towns, like
Houston and Calgary; booming when oil is in demand and busting
when over capacity and low prices reign.
But there are some boom and bust towns that take a decade
or two to recover from the excesses of doing too much of the
same thing. In modern times, Seattle and Detroit come to mind.
Back in the early 1970s, when Bill Gates was in junior high
school, Seattle's main employer was the Boeing Company. Boeing
had lost the super military transport contract to Lockheed,
the supersonic transport development had ended and commercial
carriers were waiting for the jumbo 747 to be built. Unemployment
became extremely high in this one-industry town and banks
were pleading with people to stay in their houses when they
couldn't make their mortgage payments.
In late 1972 when I left Seattle, there was a billboard at
the edge of town asking the last person leaving to "turn
off the lights." It would be a couple of decades before Gates and Company transformed Seattle into an information
technology center; ending sole dependence on Boeing to supply
the area's jobs.
Here in the Metro Detroit Area where 1 in 5 of the country's
engineers live, the automotive industry is just starting to
burst. Over production capacity, the global economy, high gasoline costs and a product line of
large SUVs have combined to put General Motors (GM) and Ford
(along with their supply chains) into a negative cash flow
spiral.
Industry observers have seen things going downhill at General
Motors since the late 1970s; ever since the accountants were
put in charge of operations, hired economists to run marketing
and merged the styling department into the design department.
Even today, it is difficult to distinguish a Buick from a
Pontiac from an Oldsmobile.
If there weren't business cycles, GM management may have
gotten away with running plants at 80% capacity to cover an
extremely high overhead of legacy costs (mostly retiree health care and other pension
benefits) while avoiding the consequences of poorly negotiated
union contracts (where employees are paid even when production
ceases). But the days of milk and honey, when consumers willingly
bought gas-guzzling SUVs at deeply discounted prices with
0% interest, are over and the consumer is being squeezed between
inflationary gasoline prices, increasing interest rates and
stagnant wages.
The General Motors turnaround is not just about the economic
survival of GM's 324,000 worldwide employees. This is about
a region of our country working through a structural shift
to a global economy experienced by all of us who supply, buy,
use or invest in General Motors' products. Fifty years ago,
the CEO of General Motors said, "What's good for General
Motors is good for the USA." The same is true today.
Like Seattle, expect a decade or two for an economic turnaround
to happen in Detroit based on the future entrepreneurship
of a few junior high school students of today. That is why
educating children well can have a positive economic impact
on future generations.
John G. Agno, certified executive & business
coach Signature, Inc., PO Box 2086, Ann Arbor, MI 48106 Telephone:
734.426.2000 (US Eastern Time Zone) Email: mailto:[email protected]
The most critical knowledge is self-knowledge. http://www.MentoringandCoaching.com
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