Waiting on a Recovery

R.J. King
Editor, DBusiness

It may be a blip on the screen, or the harbinger of a modest recovery, but the most recent data for metro Detroit shows a slight rise in office and industrial leasing.

No one’s jumping up and down, but it’s better than the alternative.

What’s driving activity? People are more confident than a year ago — or even last summer — and that’s led to rising vehicle orders. But there’s a twist. Those OEMs with the capital reserves and foresight to meld comfort, technology, and conservatism are reaping even greater rewards than those caught up in the financial crisis.

But in two years’ time, don’t look for anyone on the sidelines. Still unknown is whether future supply will be in sync with demand. If not, look for incentives. Given 2012 will be an election year, rising stress levels will challenge consumer confidence and, by extension, consumption.

But there’s a silver lining. David Cole, executive director of the Center for Automotive Research in Ann Arbor, says greater efficiency, downsizing, and the loss of major legacy costs on the balance sheet of General Motors represents a gain of $4,000 to $6,000 per vehicle. Ford, whose fiscal vision and product renaissance wasn’t enough to drive down legacy costs as much as its crosstown rivals, will achieve up to $4,000 in per vehicle savings. As for Chrysler, Cole is holding his assessment until new products arrive.

Automakers that can hold their own and deftly juggle capital, product, and supply levels will be better equipped to weather future financial downturns. That’s good news for Detroit and good news for Michigan.

Given that capital draws capital, the domestic auto market’s new cost structure will stoke a slow, but steady recovery of real-estate prices (read low single digits). Auto production is up almost 70 percent from a year ago, which is driving industrial — and to an extent — office leasing, says John Boyd, executive vice president and principal of Signature Associates, a full-service commercial real-estate firm in Southfield.

On the housing front, supply levels are still high, but the slowdown in residential activity has allowed communities such as Birmingham the time to research the latest urban development trends. New or revised codes are being passed, as well, says H. William Freeman, a partner with Freeman Cotton & Gleeson, a law firm in Bloomfield Hills that specializes in real estate and finance. “The banking industry has stabilized,” he says, “and it’s that stability that will restore confidence. That’s when the real recovery begins.”

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