DETROIT—Southeast Michigan has enjoyed a strong recovery from the Great Recession, fueled by record auto sales. But more and more, disruption is looming, from self-driving cars to a new president with new and uncertain policies that promise big changes to a critical building block of the local economy.
Still, the biggest economic indicator for the success of Southeast Michigan rests at the dealership, and they are expected to lose some steam in 2017.
To what extent remains the unknown. Most experts are predicting a down year in 2017, but only slightly off record sales of 17.5 million in 2015 and the projected 17.4 million in 2016.
Other keys factors are in play, including what policies Donald Trump pursues when he is inaugurated as the country's 45th president on Jan. 20. Also unclear is how big a share the region will win of the tech boom from the push toward autonomous and connected cars and the industries born from them, such as car-sharing.
Still, basic auto sales are an economic barometer that affects Southeast Michigan first, then the rest of the country.
"We've hit the auto sales peak, and that's a warning sign for Southeast Michigan," said Don Grimes, economist and senior research specialist at the University of Michigan. "We're predicting a (sales) decline, and that will likely lead to a decline in auto manufacturing employment in the state. Michigan leads behavior, so the rest of the country should be watching carefully."
But consumer sentiment has risen since the November presidential election and is near the 2015 high, which was the highest recording since 2004, according to UM's monthly consumer confidence survey.
"The surge was largely due to consumers' initial reactions to Trump's surprise victory," the survey's chief economist, Richard Curtin, said in the report. "When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys."
Charles Ballard, economist at Michigan State University, said local consumers are relishing in the longest economic expansion in recent history, but there's an inevitable collapse lurking in the shadows.
"I don't see any sign of an imminent slowdown, and with a little luck, we will continue with a growing economy in 2017," Ballard said in an email. "However, the further out we go, the more I worry. For one thing, economic expansions eventually come to an end. This one has been going on for seven and a half years now, and no expansion in history has lasted more than 10 years."
Trump's campaign stump speeches have also called for a reduction of the corporate tax rate to 15 percent from 35 percent, which he believes will spur reinvestment and boost gross domestic product to upwards of 4 percent from the 1.5 percent figure that's been stagnant in recent years.
The president-elect has also promised to revamp the Obama administration's contentious Affordable Care Act, which has raised costs for employers and workers yet helped provide health insurance to millions of previously uninsured Americans. Trump's plan remains unclear, and whether a new policy will lead to reduced heath care costs is anyone's guess.
Trump's take on free trade has also caused apprehension among the local business community. He spent much of his campaign railing against the North American Free Trade Agreement and proposes to alter it. The proposal for a 35 percent tariff on local automakers that import cars from Mexico remains a very real threat. Experts predict this would have disastrous effects on the auto industry, which imports more than 2 million cars from Mexico annually. If such a tariff happens, it's predicted U.S. consumers would pay significantly more for a new car.
Grimes, however, said the rising strength of the dollar may insulate consumers from protectionist policies that raise costs.
"Driven by a gap in the interest rates, the dollar should continue to strengthen," Grimes said. "With inflation remaining low, this will benefit consumers looking to buy products and may help car sales."
But this will also inhibit Trump's plans to create a bottleneck for imports, Grimes said. The Mexican peso is down 12 percent since the election, making it even cheaper to do business in Mexico.
"Currency is far more important than tariffs," Grimes said. "I do not believe Trump is going to change the status of U.S. manufacturers using Mexico as a base."
Michigan manufacturing employment is expected to fall in 2017, even though the overall unemployment rate is expected to remain stable at 4.6 percent, a November study predicts. Manufacturing is expected to purge 10,000 jobs in 2017 and 2018, offset by the addition of 21,900 jobs in construction, according to the study. The drop in manufacturing jobs stems from stagnant sales.
Another factor is the overtime pay mandate, which was pushed by the Obama administration but stalled by a federal court as it reviews details of a lawsuit from 21 states, including Michigan.
The Department of Labor advocated for the new overtime rule requiring employers to pay overtime to salaried workers earning less than $47,500 a year, doubling the current standard of $23,660 set in 2004. The ruling is expected to have the biggest impact on small business, locally and nationally.
Across the country, rural economies will continue to suffer as urbanization grows, including in the city of Detroit, Grimes said.
"Cities like Detroit, Grand Rapids and Ann Arbor have made a major move to the knowledge economy and become more attractive places for young college-educated people to live and work," Grimes said. "That bodes well for the future of the state."
Detroit saw a boon of investment in recent years, mostly due to deals made by real estate mogul Dan Gilbert, but also from the automotive industry.
Lear Corp. opened its Detroit Innovation and Design Center in October. Rival Adient Ltd. followed suit by announcing it would spend $75 million to buy and renovate the Marquette Building for its new world headquarters. Real estate in the city of Detroit is a hot commodity, and other auto companies may seize the trend of urbanization and move managerial and research operations to the city.
Suppliers appear focused on creating plants in Detroit as well. Urbana, Ill.-based Flex-N-Gate Corp. announced it would invest $95 million to open a plant in the I-94 Industrial Park. Others are expected to follow. Lear Corp. wants to open a plant in the city, provided it can create a new wage tier with the UAW.
The auto industry also invested heavily in mobility, including ride-sharing and connected and autonomous vehicle technology in 2016. General Motors Co. acquired California startup Cruise Automation for $1 billion, invested $500 million in Lyft and launched its own car-sharing service called Maven. Ford Motor Co. created a subsidiary based on mobility and partnered with Uber. Fiat Chrysler Automobiles NV formed a relationship with Google for automated minivans. The city of Detroit hired a new mobility chief in December. More investment is expected, which should result in more jobs.
But it's possible economic turmoil in China and Europe can offset local growth, Ballard said. Maybe not in 2017, but in the coming years.
"There is ... uncertainty about Europe, which may unravel even further in 2017, and China, which has a real estate and finance bubble that could do a lot of damage if it bursts. I still find myself pretty optimistic about 2017, but when we get to 2018 and beyond, I have more and more concerns."