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Why Business Is Cheering Detroit’s Bankruptcy

From Forbes 

By Joann Muller 

July 18, 2013 


Nobody wants to undergo surgery. But if you need it, there’s no point putting it off. All you want is to get through it quickly and be healthy afterwards.

That pretty much sums up the view of Detroit business leaders after the city’s historic bankruptcy filing Thursday afternoon, according to Sandy Baruah, president of the Detroit Regional Chamber of Commerce.

“While nobody welcomes the concept of bankruptcy, it is necessary to solve the long-term structural financial challenges of this historic city,” he said, adding that it sets the stage for future growth. “The private sector is thriving and businesses continue to invest in Detroit. Addressing Detroit’s financial instability is the final barrier to robust growth.”

Dan Gilbert, founder and chairman of Rock Ventures/Quicken Loans, which has invested heavily in downtown Detroit, said it’s a difficult but necessary step. “Bankruptcy will be painful for many individuals and organizations but together we will get through it and come out stronger on the other side. We simply do not have a choice.” But he said bankruptcy hasn’t soured his desire to invest in the city. “We are all in. We are more committed than ever to Detroit and the opportunities downtown. Detroit’s best days are ahead.”

Emergency Manager Kevyn Orr said city departments will remain open, services will continue and paychecks will be paid during bankruptcy, which he said he hoped would be wrapped up in late summer or early fall of 2014.

The filing won’t have any effect on existing businesses, whether General Motors GM +1.32% or the local dry cleaner, said Baruah.  “The dysfunction and delivery of city services that exists today will be the same that exists tomorrow.” When it comes to attracting new businesses to the city, however, he said the bankruptcy filing can only help.

“The incredible investment that has occurred in the city recently — $10 billion in five years — has all been ‘friends and family’ money,” he said, referring to spending by Detroit companies like Quicken Loans, Blue Cross/Blue Shield of Michigan and General Motors to boost their presence. What Detroit has been lacking is capital investment from other parts of the country. “No one will want to invest in a city with grave fiscal and structural problems.”

While some business leaders fretted at a chamber board meeting Wednesday about the public relations hit Detroit would take for filing the largest municipal bankruptcy in history, they need only look at General Motors’ recovery after its 2009 bankruptcy to know that such issues are fleeting. “We’ve been buying cars from bankrupt automakers and flying on bankrupt airlines for years,” said Baruah.

“Many forecast the end for GM and Chrysler when they declared bankruptcy just a short few years ago,” said Gilbert. “Today, GM and Chrysler are thriving. Detroit will thrive again as well and sooner than most think. Just as the auto companies reinvented the way they do business so will the city of Detroit. Once our financial challenges are behind us the city, region and state will have a clean slate to operate with a philosophy and strategy that works for its citizens, businesses and the entire community.”