Print Friendly and PDF

Business World Shrugs Off Detroit’s Bankruptcy

From Fox Business

By Jennifer Booton

July 19, 2013

As Detroit becomes the biggest U.S. city to file for bankruptcy, major corporations are unfazed by the Chapter 9 filing, saying the restructuring will not impact operations or investment and will only serve to revive the city.

The three major publicly-traded companies based in Detroit — General Motors (GM), Ally Financial (GMA) and DTE Energy (DTE) — released statements saying there will be no impact on their operations, while venture capitalists say innovation will continue to thrive.

“We had been and will continue to work with the city on previously announced projects,” a DTE Energy spokesperson told FOX Business, pointing particularly to their previously announced Public Lighting Department initiative.

“It’s important to note that this announcement will not have any material impact on our financial condition,” DTE added, adding that the bankruptcy “was not unexpected” and will not alter its service to families and businesses in Michigan.

GM similarly said the bankruptcy will not impact its financial position or operations, and privately-held Detroit-based Quicken Loans said it has no plans to alter expansion plans in the city.

“The companies operating in Detroit are not impacted at all by this,” said Detroit Regional Chamber CEO Sandy Baruah. “The city itself is badly broken and that’s what we’re trying to fix through this bankruptcy process.”

The city has more than $1 billion in liabilities, though Emergency Manager Kevyn Orr has claimed the city actually has $18 billion in liabilities when including municipal debt as well as pension and post-retirement obligations, according to a report by Wells Fargo.

However, private sector investment to the city has thrived over the last few years, with more than $10 billion being invested and some 12,000 jobs added alone by the private sector in Downtown Detroit over the last three to five years.

If anything, Baruah notes, the city’s overhaul will enable a much needed restructuring that will allow the government to support both its citizens and the private sector more, allowing  both businesses and population to grow more rapidly from the local level to the majors like GM.

A boom would be helpful, as Detroit has seen its population drop to 700,000 in 2012 from 1.8 million in 1950, while its unemployment rate tripled to 18.3% from 2000 to 2012.

“Having a booming Detroit is great,” Baruah said. “It helps [companies] attract more talented people” and benefits the local businesses that rely heavily on residents.

Venture Capital & Entrepreneurs

Investment by venture capitalists in innovative Michigan business has been a growing trend over the last few years, according to the Michigan Venture Capital Association. Last year, Michigan’s VCs invested more than $242 million.

“Contrary to the national trend of declining venture capital activity, in Michigan, there was consistent, steady growth in capital investment, venture capital firms and number of investment professionals,” the Michigan Venture Capital Association said in a recent report.

Executives in what Michigan refers to as its “entrepreneurial ecosystem,” say a growing support base of venture capital and entrepreneurs has helped ensure that they are little affected by the bankruptcy.

“There’s a huge ecosystem here of early stage innovation in companies coming up the pipeline,” said Lauren Bigelow, the executive director of the three-year-old program Accelerate Michigan Innovation Competition.

The way the programs are funded, mostly on the private level, will help ensure funding loans from VCs to entrepreneurs won’t be impacted as the city undergoes a court-supervised overhaul.  For the most part, the bankruptcy is expected to seriously impact services provided directly by the city like public transportation, school funding and garbage pick-up.

“The city has been in triage for a long time so a lot of people have stepped up to the plate to sort of fill that gap,” Bigelow said, highlighting in particular the Michigan Economic Development Corp. “It’s actually going to be pretty stable for our neck of the woods.”

Carrie Jones, executive director of Michigan Venture Capital Association, said Michigan, a state built on the entrepreneurialism of the nation’s automotive pioneers, will pick up and push on. She also pointed to the private sector as helping to buoy the city’s innovation, including Detroit Venture Partners.

“We don’t see that changing,” she said. “There will continue to be great entrepreneurs coming up with great businesses for us to invest in and that will continue to be the case.”