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Small business hit by the automobile crisis domino effect

Text by Ségolène ALLEMANDOU , special correpsondent in Detroit, Michigan

Latest update : 2008-12-10

The crisis in the automobile sector, the economic lifeblood of Michigan, has had repercussions for small business. Hairdressers, restaurants and doctor’s surgeries fear for their future.




The waiting room of Najwa Shaja’s dentistry is deserted. Shaja runs two clinics close to Oak Walk, in the suburbs of Detroit, situated several kilometres from the factories of General Motors and Chrysler. The story is the same: since the start of the year, she has lost 30% of her customers in both clinics.



Close to Detroit, in Wayne – the location of two Ford factories – the manager at the hairdressing salon of Jamie Wyse has seen the clientele disappear before her eyes. “Even the mayor said to us the other day that his budget has shrunk and the firefighters, police and postal workers are under threat,” she said.



Kristin Seefeldt, of the University of Michigan’s National Poverty Centre, spoke of a domino effect. "Michigan’s economy is more in trouble than that of the rest of the US because it has a heavy reliance on the automobile industry," she said. According to economists, 81,000 jobs were shed this year in Michigan, all sectors taken into account.




Two million people under the poverty threshold



“The problem, if the crisis continues, is that the employees of small business will either be laid off or see their wages cut,” Seefeldt continued. “Many people could then fall below the poverty line."



Today the state of Michigan already counts two million people as having fallen below the threshold.



For her part, Najwa Shaja worries for those in need of health care. "People who have lost their jobs no longer seek health care when they don’t have enough money," she said.



In downtown Detroit, economic conditions are not enticing. Thus, while the motor show in Geneva next March is full, the Detroit show in January has seen entrants drop off one by one: Ferrari, Rolls-Royce, Land Rover, Nissan, Infiniti, Mitsubishi and Suzuki.



The car industry, as well as being the symbol of Detroit, was also vital for the hotel and catering sectors. Restaurants do not hide the fact that if the Big Three were to close, their businesses would have no chance of survival.



‘If the Big Three close, it’s the death of Wayne



“If the Big Three collapse, the city [of Wayne, 20,000 inhabitants] would be nothing,” predicts the manager at Jamie Wyse. “And meanwhile, the CEOs go to Washington [in November, to ask for financial aid] via private jet. They’ve got stocks, they’ve got money. Who is going to be hurting? Us little folk!"



According to the non-profit Center for Automotive Research, if the Big Three of Detroit are allowed to fail, three million jobs around the country will be lost. Economists at the University of Michigan estimate that worse is to come for the state. According to their estimates, 108,000 jobs will disappear in 2009 and 24,000 in 2010, across all sectors of the economy. The year 2011 could see a modest rise, they say.



‘The state has been slow to diversify its economy’



Michigan, which according to the American Community Survey lost 200,000 jobs over the past decade, has only recently grasped the urgency of switching to other sectors. "The state, which has a manufacturing base, has been slow to diversify its economy," says Kristin Seefeldt.



Thus, as the automobile industry sheds jobs, other sectors have created them. In the last five years, 298 of 1060 industries in Michigan have opened new avenues for employment – mostly in education, health and hospitality. These new jobs do not always offer salaries as attractive as those of the automobile sector.


“I’d like to think that Michigan will recover, thanks to new industries such as green technologies. The governor [Jennifer Granholm] wants to play a role in that,” said Kristin Seefeldt.

Date created : 2008-12-10