When The Nation Gets a Cold, Detroit Gets Pneumonia

The current pandemic is a major blow to the financial bottom line of every local government agency in the USA.

My hometown Detroit, Michigan, emerged from bankruptcy 5 years earlier, and now holds the dubious record of the largest-ever municipal bankruptcy. The terms of the financial oversite of the Motor City have set a trigger for a state takeover if there is a 5% budget deficit.  With the stay-at-home orders and the local casinos closed (casinos pay 17% of municipal revenue), things are not looking good.  

The late former Detroit Mayor Coleman Young said it best. He quipped that,

“When the nation gets a cold, Detroit gets pneumonia.”

Detroit is currently led by a popular two-term mayor, who has managed to save revenue and even built up reserves and surpluses during his tenure. Mayor Mike Duggan knows the challenges are real but so is the partnership with nonprofit private and public entities. The CARES Act only helps to cover the costs associated with the virus.  All the remaining lost revenues have resulted in a monetary shortfall resulting in layoffs and more cost-cutting. 

The mayor said:

“These are painful cuts, If we do not handle it ourselves, the state of Michigan is going to be running the city again.” 

Henry Ford III, the great-great-grandson of Henry Ford, and a Ford Foundation trustee explained:

“If there is going to be some kind of silver lining that comes out of this terrible pandemic, maybe this will be the sort of wake-up call that we need to address a lot of structural and long-seated issues that we have to deal with as a country.  It’s a gruesome thing to think about, but when people start dying at accelerated rates, that causes people to pay closer attention, as sad as that is.”

The former mayor of Detroit was Kwame Kilpatrick, who was sentenced to 28 years in federal prison, after being found guilty of 24 federal felony counts. This disgraced politician was found guilty of corruption, racketeering, extortion, and fraud. This week’s reports are that he will be released after serving 7 years because the prison where he is serving has a high percentage of COVID-19 cases. If released, he will stay with his mother, and be monitored electronically.

In 2010, Michigan voters amended the state constitution to prevent public officials from holding office for 20 years if convicted of felonies. Known as the “Kilpatrick Amendment”, this ironically prevents Kwame from seeking re-election for at least 20 years. 

Woodward Dream Cruise

In a previous article, I wrote about this annual Detroit Summer classic, that includes 30,000 plus vehicles cruising Woodward Avenue. This “lost year”, the “Woodward Dream Cruise”, will lose the support of the 9 suburban communities that encompass the route. They have decided not to host the event. The sidewalks will be empty, and no concerts, no Mustang Alley, and no organized displays.  However, no one can really stop drivers from cruising along a public street, and I am sure they will be out in full force.

Hertz Goes Chapter 11

Hertz Corporation, started in Chicago with a fleet of 12 Ford Model-T cars, as a pioneer in the rental car business. After 102 years, this iconic company with its yellow logo, has filed for Chapter 11 Reorganization.  The company has businesses all over world:  Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen.

In a written statement regarding the bankruptcy, the CEO Paul Stone explained: 

 “The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings. Hertz took immediate action to prioritize the health and safety of employees and customers, eliminating all non-essential spending and preserving liquidity. The financial reorganization will provide Hertz a path toward more a more robust financial structure.”

Want to Buy a Used Z06 Corvette?

Hertz is selling some of its 650- horsepower, 2019 Z06 Corvettes. These are low mileage sports cars painted in bright yellow with black stripes. They are selling for $20,000 below book value.

Detroit corvette

A 2020 Chevrolet Camaro ZL1 Coupe, with 750-horsepower, and specially tuned by Hendrick Motorsports is also for sale by Hertz.  These are the specialty cars that are entering the used car market. Hertz has an inventory of over 560,000 vehicles, and like the airlines will need to downsize their fleet considerably. This bankruptcy could flood the used car market with more than 200,000 cars at a time when the used car lots are already full, and market demand is down.  It might be a good time to buy a used car. 

Bottom Line

If you have been lucky enough to stay healthy and had preserved your own liquidity, you can do well in picking up some wonderful values and novelty items that were previously beyond your reach.

If your business is in demand due to Covid-19 you are truly lucky and need to expand cautiously.  

However, if you are like most Detroiters and Americans and live paycheck to paycheck or maybe have a small amount of emergency funds, you need to think outside the box. 

Seek out creative ways to make a living if you are furloughed. The pandemic has created several employment opportunities.

Ride the wavethings will come back, differently – but they will come back.