Los Angeles is the Next Detroit
“The diner owner thought he wasn’t in the auto business. But he was. He just didn’t know it.”
— Jason Vines, former executive of Ford and Chrysler
50 years ago, Detroit was the fourth largest city in America. Thousands flocked to the Motor City to cash in on the growing automotive industry. Detroit boasted a population of nearly two million residents who enjoyed the highest median income as well as the highest rate of home ownership of any US city.
The city of Detroit today is a vast expanse of abandoned houses and vacant lots. The unemployment rate hovers at 28%, with the real rate closer to 50%. In the span of just eight years, from 2000 to 2008, metropolitan Detroit lost 150,000 jobs as a direct result of downsizing in the auto industry, and 75,000 homes went into foreclosure in 2008 alone. The loss of jobs and income led to a depopulation unparalleled in history, except in times of war or natural disaster.
But there was no war.
There was no natural disaster.
So what happened?
It is impossible to examine the staggering decline of Detroit without reflecting on the downturn of the American automotive industry — the city itself is a direct product and casualty of the Big Three’s hubris and severe market miscalculation.
A product and a casualty
In 1955, the Big Three — General Motors, Chrysler, and Ford — dominated the automotive world. Globally, four out of every five cars were made in the US, half of them by GM. GM was the largest private employer in the world, second only to the government of the Soviet Union in sheer number of workers employed.
Instead of spurring innovation, the great success that the Big Three enjoyed bred complacency. GM stayed on top for decades because no other auto manufacturer was equipped with the knowhow or capital to run a global automotive business — but the foreign competition adapted.
While the Big Three hung their hats on producing larger, heavier models, foreign automakers responded with smaller, more efficient vehicles with technological advances such as rack-and-pinion steering and disc brakes. The assembly line production system that had bred astronomical growth proved toxic to innovation. It was simply too expensive to introduce a fundamentally different model to the marketplace.
Rather than respond to the increased environmental awareness among consumers, the Big Three attempted to blindside the international competition with Sport Utility Vehicles (SUVs). It worked for a little while — SUV sales soared from one to four million and comprised 60% of the Big Three’s overall sales and nearly all of their profits. All three companies played the same game and their fortunes were temporarily uplifted.
The market upturn proved to be a false dawn. The combination of a permanent shift in environmental awareness and rising oil prices caused a shift in consumer demand — a demand that the Big Three couldn’t meet. The full embrace of SUV production and abandonment of small cars was a costly mistake that could not be remedied fast enough to compete with foreign automakers.
The result was a drastic decrease in production and ultimate bankruptcy filings by both GM and Chrylser in 2009. The government-mandated restructuring had serious ramifications for auto-related employment dependent on plant production and resulted in a staggering 70% drop since 1989.
Automakers aren’t the only ones affected by the globalization of an industry, but they are an example of what happens when globalization and cultural shifts are ignored with an “If it ain’t broke…” mentality. The bigger issue is the dependence of a city on an industry with that mentality. The Big Three received government bailouts and the city of Detroit did not. The city’s mayor is now going so far as to challenge the most recent census numbers — if the population is truly as low as reported, the city will lose even more much-needed federal funding.
The system of studios
There are parallels to another storied American industry entrenched in the growth and success of a city: the film industry and Los Angeles.
Moviemakers made the journey from New York and New Jersey to Los Angeles beginning in the early 1900s. The year-round favorable weather, natural sunlight and varied landscape proved technically beneficial to shooting. By 1915, the majority of motion pictures were made in Los Angeles. By 1920, Los Angeles had become the world famous center for American films and Hollywood had become a metonym for the film industry as a whole. With the slow demise of the silent film era, Hollywood entered its Golden Age in 1928 with five major studios at the helm — 20th Century Fox, Warner Bros, MGM, Paramount and RKO — or, as they were known, the Big Five.
Hollywood has always been dependent on two pillars: production and distribution. By adhering to a strict studio system, the Big Five kept thousands of people — actors, producers, directors, writers, stuntmen, and technicians — on salary, thus controlling production. On the distribution front, the Big Five owned all of the movie theaters in the country, essentially giving the studios a stranglehold on funneling content on a national scale.
In 1949, everything changed. A landmark federal antitrust action effectively ended the Golden Age. The Big Five, with their hold on talent and theaters, were found to be in violation of the Sherman Antitrust Act and were forced to relinquish control.
At the same time, the proliferation of televisions in the home proved instrumental in diversifying American entertainment. The increased presence of the small screen in the American home led to an added effort on the part of the studios to amplify budgets and produce epic spectaculars to drive Americans into theaters.
Many anticipated 1949’s landmark case as the “breakup of the majors”, but that did not prove entirely true. Some of the Big Five folded, but what has risen from the ashes is the New Hollywood in the form of the Big Six: 20th Century Fox, Warner Bros, Paramount, Universal, Columbia and Disney.
The pillar of production has permanently changed, but the distribution system has not. Though less lucrative because of the presence of middlemen in the form of licensees and distributors, the studios are still instrumental in bringing any content to theaters nationwide. The studios no longer directly own the talent, but instead produce films and/or acquire finished products from independent producers and handle marketing and distribution. Marketing departments within studios gained prominence and power in deciding which projects are worthy of being pushed through to distribution companies and theaters. For productions, film budgets have only increased, and, naturally, with an increased budget comes an increased desire to recoup at the box office. This financial driver shapes the product that makes it into theaters.
With the distribution system unchanged, the production system has undergone drastic change. Production, though still primarily in Los Angeles, occurs all over the country and world, thanks to state- and country-level tax breaks and increased local auxiliary support. A lighting or prop house can run successfully in New Orleans or Raleigh, and the necessity to transplant to Los Angeles is less and less necessary. Additionally, production methods are becoming cheaper and easier to use — the bar for creating content has been severely lowered as accessibility to editing and production tools has increased. Jus as easy as self-production is the ability to self-distribute. If Americans aren’t interested in seeing the same big-budget epics being brought to theaters, they will seek entertainment elsewhere. The archaic distribution system is being circumvented and Hollywood is resting on its laurels.
“…institutions can seldom deduce, on their own, that change is needed. If they do, they never muster the courage to act on that change.”
— Bob Lutz, former senior-level management of GM, Chrysler and Ford.
With the emphasis on bigger, faster, better blockbusters, creativity is often relegated to the independent filmmakers. One out of every five major movie releases this year will be a sequel, a sign that “Hollywood is dipping into the well of past glory now more than ever,” according to Brandon Grey of Box Office Mojo. “It’s truly unfortunate that the story is held in such little regard.” With decreased margins, Hollywood is banking on franchises that have already proven their worth in theaters. Essentially, Hollywood is giving theater-goers the SUV treatment to drive ticket prices: regurgitated content — now in 3D! — rather than innovative and creative content. The system that led to their success simply doesn’t allow for experimentation — it’s too expensive.
As the Big Six follow in the Big Three’s footsteps, Los Angeles would be wise to eye its options to avoid devastation. If history is any indication, when a city that was built by, and synonymous with, an industry, a threat to the industry is a threat to the city. When the studios are forced into self-preservation mode, the ultimate casualty will not solely be the employees of the studios, but the surrounding businesses whose livelihoods are dependent on a thriving city population.
Special Thanks: Diane Becker, Caley Cantrell, Craig McCarthy, Justina Mintz, William Schneider, and Ralph Woolsey
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