You expect snow in Detroit in winter, and this time there was plenty. I waded through drifts, sweeping mounds of it off my car, and gunning the engine in slush to get the wheels going again. Detroit and Wayne County, which encompasses the city and many of its biggest suburbs, is out of money, so the ploughing and salting of roads here is as patchy as it is in England – although blizzards in south-eastern Michigan are hardly once-in-18-years events.

Weekends are particularly bad. Side streets are not cleared at all, giving downtown driving a Mad Max quality. One sleety evening on the border of Detroit proper and Dearborn, my rented Ford Focus skidded on black ice and hit a concrete roadside barrier. A 911 call to get help driving home (my car was fine, but I had lost my glasses) provided a sobering lesson in Detroit’s fragmented polity: after being shunted between emergency services in the two municipalities, both of which were inundated with similar requests, I gave up and drove myself back down Ford Road – very slowly, squinting.

I had come to Detroit for the auto show. I stayed on for seven weeks, at first living in a condo near the Ford Motor Company’s suburban “Glass House” headquarters, where the telephone rang repeatedly with robo-calls from a bill-collection agency chasing a previous tenant. Then came a downtown loft – set in an almost cinematically American landscape of half-deserted art deco towers, steam rising from manholes and a daytime population split between office workers and vagrants.

In January, Detroit saw its municipal bonds downgraded to junk status by Standard & Poor’s and Moody’s, both of which expressed doubts about the city’s ability to close a $300m budget deficit. In early February, Kwame Kilpatrick, the former “hip-hop mayor” (so dubbed by comedian Chris Rock after Kilpatrick entered office aged 31, with a diamond earring and endorsements from a number of rappers) was released from jail after serving a 120-day sentence for perjury and assault. He flew to Texas for a job interview, and soon afterwards, the city held a primary poll for an election to replace Ken Cockrel, his caretaker successor. Meanwhile, federal investigators were probing a “pay-to-play” sleaze scandal involving the alleged bribery of other city officials by a company called Synagro, relating to a $1.2bn sewage sludge disposal contract, and a corpse was found in an abandoned Detroit warehouse, encased face down in ice, legs protruding like popsicle sticks. It turned out several men had been playing hockey around the body. In a city where the headlines pretty much write themselves, the story ran under the words “Frozen in indifference.”

The story seemed an apt metaphor for a city enduring the collapse of its century-old car industry, only to be met with a public reaction in other parts of the US best described as a collective shrug. In late January, Chrysler, whose year-on-year sales plunged by 55 per cent in January, began re-opening its north American car plants after a near-two-month shutdown, then promptly said it was closing at least three of them again. This came shortly after the company, alongside General Motors, formally became a ward of the state, collecting its $4bn share of the $17.4bn emergency federal bridging loans approved for the two ailing companies in December. When GM’s dismal 2008 sales figures came in, the company finally fell behind Japanese rival Toyota in the long-watched race to become the world’s top-selling carmaker – although there were no victory parties in Tokyo as GM’s nemesis said it was heading for its first full-year loss since 1950.

For decades, scribes from America’s coasts and beyond have been parachuting into Detroit to marvel at its horrors. The city never fails to deliver colourful copy: the urban decay, the $1 houses that still go unsold, the tragicomic city politics. Jerry Herron, a writer and scholar at Detroit’s Wayne State University, likens journalists’ morbid delight at Detroit to that of Victorian travellers reaching Pompeii. “City of the dead, city of the dead,” Thackeray wrote. The words might as well apply here.

Detroit may be the archetypal down-and-out rust-belt city, but to call it “dying” masks a more complex reality. Greater Detroit still has three to four million residents, a world-class university next door in Ann Arbor and the bone structure of a great city, as a car-industry consultant with the ear of a poet put it over lunch one day. Why, then, the relentless focus on its failings? Nearly everyone you meet is either weary or angry at seeing their home town made the butt of jokes on late-night television and the subject of anguished political commentary. But no one denies that the region’s property market is abysmal, its finances a mess and its industrial base shrinking at an alarming rate.

Instead, Michiganders, despite being self-deprecating to a fault, make a point their countrymen won’t want to hear: Detroit is no longer the nation’s worst-case scenario, but on its leading edge, the proverbial canary in the coal mine. “It’s like the rest of the country is getting to where Detroit has been,” said Peter De Lorenzo, who writes the acerbic and very funny Autoextremist.com blog. That means that smug mock-horror is no longer the appropriate reaction to the frozen corpse. Instead, get ready for a shock of recognition.

Over drinks at a nearly empty upscale restaurant in the northern suburb of Birmingham, De Lorenzo was, like other Detroiters, still smarting from the treatment meted out to the bosses of GM, Chrysler and Ford in Washington in December. With their sales collapsing and their cash reserves running low, they had gone to beg Congress for emergency bridging loans in the waning days of George W. Bush’s administration. Wall Street had been handed a $700bn blank cheque to bankroll troubled assets just a few weeks previously – after a minor, ineffectual strop by libertarian legislators and with few questions asked.

But when Detroit’s corporate bosses arrived in the capital, politicians, perhaps now realising their error, peppered them with pointed questions that verged, many felt, on abuse. In the end, Washington approved a much smaller bail-out – barely half the $34bn Detroit wanted – and hedged with conditions, such as bringing labour costs down to those of Japanese competitors. No one thought this was Detroit’s finest hour, including De Lorenzo. His blog is scathing about the erstwhile Big Three’s many failings. (He describes Chrysler, owned by the New York buyout group Cerberus, as a “dead company walking”.)

And, like other Detroiters, he was scornful when our talk turned to the auto bosses’ first December jaunt to Capitol Hill. They flew in on three separate corporate jets, setting a new standard in the annals of tin-eared corporate diplomacy. While the chief executives fumbled their big moment, more than three million jobs across America are at risk at car plants and automotive suppliers. Indeed, suppliers, now veering towards collapse after the winter shutdown of most US car plants, are lobbying Washington for their own $25.5bn bail-out.

For their second foray to DC, Detroit’s chief executives duly drove, in hybrid cars, to answer legislators’ often poorly informed questions meekly. They promised to take $1 salaries as the price of federal aid. “If Lee Iacocca had been there in his prime, he would have been pounding on his desk,” De Lorenzo said, referring to the legendary head of Chrysler in the 1980s.

Detroiters have some justification in saying their city’s industry is dimly understood in Washington. In December, GM, Ford and Chrysler were attacked from both sides. California eco-Democrats (“Dianne and Barbara” in the arch shorthand of one Michigan industry consultant) castigated them for forcing gas-guzzling pick-ups and SUVs on supposedly unwilling Americans – patent nonsense in a country where low petrol taxes meant, at least until oil prices spiked, they couldn’t roll F-150 trucks or Jeep Grand Cherokee SUVs off their assembly lines fast enough. On the other hand, Republicans from southern states home to non-union Japanese plants slammed Detroit carmakers for their bloated wage bills. Their depiction of an industry that had done nothing to help itself was accurate, but at least 10 years out of date.

Moreover, many Michiganders – whose parents had been able to send them to college thanks to the middle-class salaries of assembly-line work – felt the Republicans had made United Auto Workers members into hate figures on a par with the “welfare queens” conjured up by Reagan-era Republicans. National newspaper and television reports mostly followed rightwing Washington’s cartoonishly simple version of what ails the American auto industry. “Labour is totally under attack,” said Mike Smith, director of the Walter P. Reuther Library at Wayne State University. “And who is it under attack from? The supposedly leftwing media.”

Smith, a former mechanic and self-described “working stiff” turned librarian, is clearly an interested party, but he may have a point. In January, Ford followed GM and Chrysler in eliminating one of the UAW’s most jealously guarded perks, the “jobs bank”, which allows workers whose services are not needed to receive pay by doing course work, community service or – in some cases – just showing up and watching TV. I duly recorded this in a story for this newspaper, and found myself silently cheering the move, one of the conditions of the bail-out. Then I tuned into the news on Detroit’s local Channel 4 station, and listened to an auto-worker pointing out that many people at his shuttered plant were paying their grocery bills and mortgages from their jobs bank money, and did not know how they would replace the income.

This man was hardly the militant unionist of Washington’s imagination, or mine. The numbers tell an even more compelling story: the UAW and the Detroit carmakers are in rare unity in pointing out that wages account for only about 10 per cent of the companies’ total costs. Their inability to compete rests on a number of factors other than wages, including consumers’ unwillingness to credit GM or Ford with making cars these days as good as, or even better than, Toyota’s or Honda’s, according to rankings from Consumer Reports magazine and JD Power’s Initial Quality Studies.

If Detroit’s designers and engineers are doing an objectively better job, the fault may lie with their marketing and public relations chiefs. Or perhaps too many Americans have bad memories of clunky old cars. In one of the most vivid illustrations of the so-called quality gap bedevilling Detroit, the Pontiac Vibe and Toyota Matrix small cars are made on the same assembly line, at a GM-Toyota joint venture plant in California, but the latter model sells for at least $1,200 more than the former.

But this problem pales next to what is arguably the industry’s biggest burden: America’s lack of universal healthcare. GM has more than twice as many retirees on its books than it does active workers. Healthcare costs alone account for a gap of $1,500 between the price of a Detroit vehicle and a Japanese one, and are the main reason Detroit cannot compete with the Japanese on lower-margin small cars. In 2007, the UAW signed away many of its remaining perks in a contract negotiation with the Big Three, agreeing to pay new hires lower wages of as little as $14 an hour and to assume management of retirees’ healthcare in exchange for lump-sum payouts from the carmakers.

Analysts said that the concessions would have made GM, Ford and Chrysler competitive by 2010. But then petrol prices spiked, Wall Street staggered, world car markets collapsed, and now all bets are off. Detroit’s crisis, in other words, is the result of both bad choices and worse luck. With or without bail-out aid, the carmakers are shedding tens of thousands of jobs, and heading toward failure. Detroit is bracing itself.

This winter, in addition to trekking to Washington and back, the bosses at Chrysler, Ford and GM were slashing their sponsorship of cultural institutions built up in the city’s golden age, including its symphony orchestra and the Detroit Institute of the Arts, home to Diego Rivera’s extraordinary murals of auto-workers, commissioned by Edsel Ford and painted in the 1930s. In fact, the car companies, accustomed to boom and bust, haven’t funded large endowments since the days of Henry Ford; the DIA’s, with America’s fifth-largest art collection, is less than $100m – one-sixth to one-eighth the size of the sums bestowed upon similar museums such as the Art Institute of Chicago or the Museum of Fine Arts in Houston. In February, the DIA laid off about 20 per cent of its staff.

High culture aside, charities and institutions such as the Mosaic Youth Theatre, a beacon for poor, inner-city teens, are also worried about their budgets. The city’s two newspapers, The Detroit News and the Detroit Free Press, are clinging together for survival under a joint operating agreement that allows them to skirt antitrust law and pool costs on areas such as printing and back-office functions. From this month, they are cutting home delivery – standard for newspapers in the US – to just three days a week.

Detroiters also speak of a fraying of the city’s social fabric. For much of the 20th century, the car industry was a ticket to the middle class for poor whites from Appalachia and blacks from the deep south, lured north by Henry Ford’s famous $5-a-day jobs. Public sector unions, in turn, negotiated benefits modelled on the UAW’s – which are now straining city and state budgets. For some, social mobility is now in reverse. In Detroit’s predominantly black North End, there are blocks of ramshackle houses, many up for auction after being abandoned by owners no longer able to meet higher payments on their adjustable-rate mortgages. Again, this is the stuff of Detroit dispatches of past; the difference is that this neighbourhood always had middle-class residents alongside its poor majority. All are now bearing the brunt of the sub-prime crisis and its ripple effect on jobs, the economy and confidence.

Much has been written about “white flight” from inner Detroit, a city whose population peaked at two million in the 1950s but now stands at about 900,000. But now middle-class blacks are leaving, too. “Over the last year, the number of people who have left the state seeking better opportunities has risen significantly,” said Edgar Vann, bishop of the neighbourhood’s Second Ebenezer Church. “The city of Detroit carries a stigma.” In an inner city bereft of major businesses or cultural organisations, institutions like Vann’s megachurch are the backbones of the community; the church has its own development arm. “Once people start making $30,000 a year, they tend to leave the city because of their kids’ safety and the schools – which are synonymous,” said Vann. Detroit’s fecklessly managed public schools lack textbooks and, in some cases, light bulbs and toilet paper.

One evening, I drove to Hamtramck, a traditionally Polish-American, working-class municipality to meet Karen Majewski, its mayor. The city is surrounded by Detroit proper and shares with it a GM car plant and the headquarters of American Axle, the parts supplier now reeling from a collapse of orders from GM. Majewski, an archivist of Polish books, makes about $7,000 a year as mayor, hearing disputes about stolen tyres or noisy neighbours in her spare time. Forbes magazine had the previous week named Hamtramck one of “America’s 10 fastest-dying cities”, alongside Cleveland, Ohio; Buffalo, New York; and Detroit itself.

Majewski called the piece “mean-spirited and hurtful”, adding: “If you want to harm a city, this is the way to do it.” She described a different place to me – a community of close-set houses with a kind of “funkiness and a grounding”, as she put it. “We’re not too full of ourselves here.” The town has become less Polish over the years, attracting immigrants from as far afield as Bangladesh and Yemen (Detroit has the largest urban concentration of Arabs outside the Middle East). It even had its own mini-property bubble in the 1990s, triggered in part by artsy urbanites seeking lower rents.

Now Hamtramck is seeing repossessions balloon, and its anchor stores replaced by dollar shops. As GM and Chrysler neared bankruptcy last year, Majewski joined about 30 other officials from towns with car plants on a trip to Washington. She was not prepared for her encounters with Congress. “It was galling in some cases to get really dissed,” she said. “We all took it personally – as though we don’t count and somehow we’re all at fault. A lot of people in Hamtramck think it’s really a class thing: ‘we haven’t changed with the times, we want entitlements, we drink beer’.”

Hamtramck is now “holding its breath”, she says, waiting for GM to make a decision on producing the Volt, the plug-in electric car it may make at the plant there from 2010 – assuming it survives. “Without sounding too Pollyanna-ish, unless GM collapses, we’re OK,” Majewski said.

“Collapse” is a relative notion for an industry that has been losing jobs for years – and not really even a new idea. Deindustrialisation and the loss of decent-paying employment are longstanding, atavistic fears in Detroit. “Will the last person to leave Detroit please turn out the lights?” went the joke from the 1980s, when Iacocca was turning around a spluttering Chrysler and US-based Japanese plants were capturing market share from the Americans in earnest.

Urban renewal is also an old trope in a city where the 1950s “Renaissance Center”, meant to be a symbol of a revived downtown, is full of empty offices. GM would like to sell the building as the company downsizes.

Before the current recession and collapse began, Detroit was already diversifying into industries such as gambling, which brought some new jobs, while arguably incurring new social costs. The opulent MGM Grand casino hotel, opened in 2007, has a good Wolfgang Puck restaurant – but the dining room sits alongside a vast, depressing, carpeted expanse of slot machines and poker tables full of mostly working-class Michiganders. And even gaming is now in downturn: the Greektown Casino filed for bankruptcy protection last year.

In her state of the state address in early February, Michigan’s Democratic governor Jennifer Granholm said the future lay in “green” industries such as lithium-ion battery plants for cars such as the Volt, or turbines to harness the wind off the Great Lakes. She also announced the opening of two new film studios. Thanks to big tax incentives, Michigan’s burgeoning industry has drawn recent productions such as Clint Eastwood’s Gran Torino, filmed in gritty Highland Park, north of Detroit.

Detroiters are fiercely protective of their city’s reputation, but sober about its near-term prospects. Many were dismissive of the notion that Michigan could dream its way into a greener future, or replace the tens of thousands of jobs lost in carmaking with jobs in film. “It’s very hard to make the case that this is a great place to invest – based on what?” said Daniel Howes, a Detroit News columnist. “You have a governor who has looked under the hood, realised what a disaster this is, and started polishing the wheels and the trunk. Sure, it’s fantastic that productions like Gran Torino film locally, but you know what? They leave.”

As Ford has cut tens of thousands of jobs, Dearborn – where Howes and I met – has racked up one of America’s highest foreclosure rates. Wary of becoming a slum, the city has bought up some of these homes and demolished them, and now plans to develop houses on larger lots. The foresight of the mayor, John B. O’Reilly, is commendable, even if the net effect is that Dearborn is due to become less urban. The same thing is happening in the inner city, where houses are vanishing after being abandoned, then stripped of appliances and other fittings, then squatted, then burned to the ground by people making fires to keep warm.

In February, desperate for good-news stories, I called Patrick Crouch, who heads the Earthworks Urban Farm garden programme, an inner-city project attached to the Capuchin order’s soup kitchen. Crouch sighed loudly into the phone. “Are you going to write another of those stories?” he asked. The project he heads is a popular stop on the route of journalists keen to note the irony of a city with so much unused land that it can afford to grow vegetables downtown. After a long and pointed discussion about the urban geography of the Midwest – there is a lot of space in its cities, even those less troubled than Detroit – he grudgingly agreed to meet me.

The garden, in addition to supplying the soup kitchen, serves as a gathering point and source of information on good nutrition in a community where many subsist on high-calorie, unwholesome foods. Some local families are supplementing their small incomes by growing vegetables and selling them on. Crouch says that talking to clients of the soup kitchen also keeps him abreast of another form of barter now flourishing: trade in scrap metal. The men lining up for food can tell you, for example, how the price of copper is doing.

An environmentalist and avowed sceptic about world trade, Crouch had the same surprisingly sunny view of the world as some others in Detroit. “Assuming there is a post-petroleum economy, I see Michigan as poised to be in a good place,” he said. With the Great Lakes nearby, the area “doesn’t have to worry about depleted aquifers”.

In an earlier time, I might have lost patience with these eco-centric, anti-globalisation arguments. This winter, in Detroit, they sounded right. At a time when jobs and whole industries are collapsing, growing your own food seems reasonable. I promised to come back to see the garden’s programme for local children, now getting back in swing as the snow begins to clear. I haven’t yet made it back. Maybe in the spring.

John Reed is the FT’s motor industry correspondent

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