Detroit Bankruptcy: Home Of General Motors, Chrysler, Ford ‘Teetering On The Edge’ Of Financial Crisis

Jan 29, 2013 04:53 PM EST | Matt Mercuro

A new report released by Reuters this week claims that Detroit, known for being the home of General Motors and Chrysler is on the verge of filing for bankruptcy.

"Detroit is teetering on the verge of bankruptcy after the City Council has failed to make the necessary cuts to deal with having a smaller population," said Rick Jones, chairman of the Republican majority caucus in the state Senate.

Jones, who is not in favor of the bankruptcy, stated he would like to see an emergency manager put in charge to fix the city's issues. If that didn't work, then there would be a case for "finding a way to shrink the Detroit municipal area" he said.

Detroit's decline has been a long process that started decades ago according to the report. Their tax revenue and population have both dropped yearly, and labor costs have remained way too high. The city's budget issues have become so bad, that in a "matter of weeks or months" they may finally have to finally final for bankruptcy.

If things come to that, it would be the largest-ever Chapter 9 municipal bankruptcy filing in the history of the United States according to Reuters

"It is going to require the players - the City Council, the mayor, the state - to be on the same page. If you go into bankruptcy with a lot of conflict and dissent, it's going to cost more," said Eric Scorsone, a Michigan State University economist.

Max Newman, a bankruptcy attorney in Michigan, stated that a Chapter 9 bankruptcy could help "throw out" the cities collective bargaining agreement with unions.

Costs would have to be paid somehow, which could become an issue in itself since Detroit simply can't just increase taxes to reduce the cumulative budget deficit. The deficient has grown to $326.6 million according to a report completed towards the end of 2012 according to Reuters.

The automakers have had little to say about the crisis according to Reuters. Since most of their operations in Michigan are now outside of Detroit, top executives have all but refused to talk about the possibility of a city bankruptcy.

"I don't want to get into the politics," said GM CEO Dan Akerson at the auto show, while Chrysler CEO Sergio Marchionne stated: "I don't see what the consequences would be for us."

Detroit's population is now just barely over 700,000, down approximately 30 percent since 1990. The city still has to provide services for an area that is larger than San Francisco and Manhattan.

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