North American International Auto Show: Economic Impact Analysis and Evaluation

Introduction

The North American International Auto Show (NAIAS) is a yearly auto event in Detroit, Michigan, United States. It has been an ongoing annual event since 1989 and is the only auto show in the US authorized by the “Organisation Internationale des Constructeurs d’Automobiles”. It started in 1907 and was organized by the “Detroit Automobile Dealers Association” (North American International Auto Show, 2019).

I - Economic Factors Analysis

Detroit’s population, now about 700,000, has notably decreased over the past years. In 2015, Detroit was removed from the list of the top 20 US cities by population for the first time since 1850 (Macdonald, 2016). The city’s local crime rates are among the highest in the United States. Additionally, Detroit entered the country’s largest bankruptcy case ever recorded. Although they managed to exit bankruptcy by the end of 2014, crime, poverty, and urban decay remain extensive and ongoing problems. Major task forces, such as the Detroit Blight Removal Project, are working to improve the city’s economic situation. Their mission is “to develop a detailed implementation plan” to remove blighted residential structures and clear vacant lots using an economically friendly approach.

Detroit began as a small, compact manufacturing center and was vital to large manufacturers like GM, Ford, and Chrysler, as well as the general automobile industry (Sugrue, 2004). The rapid growth of the industry in the 20th century significantly impacted the city’s future development. However, the instability of the city led to a tremendous decrease in Detroit’s population after the crisis of the 1950s, as demonstrated in the following figure.

(Figure 1 Adapted from “Daily Detroit”)

As we can see, Detroit’s population peaked in 1950 at 1,849,568 but has since decreased to approximately 700,000 today. This decline has had a significant impact on the automobile industry. While crucial automobile events are still held in the city, 63 of the largest 100 automobile suppliers in North America are headquartered in the state of Michigan. However, fewer people living in the area means less human labor for the economy. Additionally, the rise of competitors from Japan, China, and Europe has negatively impacted America’s auto production.

The industry of the United States did not adapt to the change and hence was not prepared for the competition coming in. Geographic demand reduced a lot due to the unemployment and other economic conflicts going on. The NAIAS event, on the other hand, sustained its demographic demand by turning the “Detroit Show” into the “North American International Auto Show” (NAIAS, 2019). Even though the region had a fall in its economic situation, the event did not let the geographic demand affect its demographic demand. Concerning unemployment, today the rate is at 8% in Detroit. Their peak was at more than 28% in 2009.

(Figure 2 Adapted from “Daily Detroit”)

Manufacturing jobs in Detroit decreased massively from 296,000 in 1950 to only 27,000 in the year 2011. (Plumer, 2013) This was due to the bankruptcy case happening during that year. Two of the big three companies had to change their manufacturing factories to the suburbs of Detroit for tax purposes (Plumer, 2013). In a city with a high unemployment rate, many people may be without jobs, which can limit their ability to attend social events or spend money on entertainment.

As shown in Figure 3 below, Detroit’s GDP remained relatively stable from 2001 until recent years. However, in 2009, the city experienced a decline in GDP, dropping to 186 billion USD, due to a sharp rise in unemployment. Today, Detroit’s GDP stands at approximately 260 billion USD. Despite this significant growth, the city faced a severe financial crisis, declaring bankruptcy in July 2013 with a debt of approximately 18 billion USD. The figure also illustrates GDP trends over recent years.

(Figure 2 Adapted from “Fred”)

As previously mentioned in the report, Detroit was a key production and manufacturing hub for the North American automobile industry. Figure 3 clearly illustrates that both production and consumer expenditure declined in the year following the bankruptcy. Considering the economic changes, unemployment and GDP—two key indicators—experienced significant fluctuations, with both showing a sharp decline after 2008. There are several reasons for this impact: competition and especially instability in the city, which leads to higher unemployment. Additionally, fewer events and a bad economic reputation will stop attracting visitors from abroad.

II - Economic Impact

The main driving force for event tourism is the economic benefits that come with it. The impact can be divided into two main categories: direct and indirect. Before analysing the impacts, it is important to state that the organization that manages the venue and event is privately held and therefore the Chapter 9 bankruptcy filed by Detroit City had no effect on the event. The Cobo Hall, which recently sold its naming rights to TCF, stated that 80% of the visitors that visit the exhibition center are because of the Auto Show. We can deduce that the event is the main reason why the center is still running although the event is only 13 days long. Direct employment is evident not only in the event preparations but also in the permanent jobs created by the Hall, as the Auto Show is considered its lifeline. The sponsors of the event do not have a direct impact on the economy of the destination, but they do have an indirect one and that is keeping the show alive. Why is it that important? The North American Auto Show is said to bring in more than USD 476 Million to the local economy with 783,397 visitors in 2006 (Sowerby, 2006). We cannot rely on the Sowerby Report since it overstates visitor spending. The economic impact is measured by the money newly injected into the market by visitors and external individuals who visit a city to attend the event (Crompton, 2006). Residents would only be recycling money that already exists in the market. It has been proved that 70% of visitors are local and 30% are outsiders; therefore, 227,793 visitors come from outside of metro Detroit. Since some of these non-local visitors would be in the driving range, thus 50% are going to spend 0.75 days and 50% will spend 1.5 days. The total visitors’ days equal 256,267. On another hand, there are 6,647 media staff and 17,400 industry leaders with an average stay of 3.5 days. The total media and industry days are 84,165. According to Anderson Economic Group, the average visitor spends 93 USD on accommodation, 25 USD on transportation and parking, 45 USD on food & beverage, and 30 USD on other activities. This brings the total expenditure per day per visitor to 193 USD. Therefore, we can deduce that the total expenditure of overnight attendees, day visitors, media, and industry leaders stands at 57,759,023 USD. In the Sowerby report, the total expenditure per person per day was 325 USD, thus overstated by 132 USD. Concerning the capture rate, a percentage of 70% has been recommended for an urban economy such as Detroit by Dr. Styrnes, Professor Emeritus at Michigan State University. Capture rates are crucial in this study because if visitors purchase goods that are manufactured outside the community, then their cost immediately leaks out from the local economy. The direct impact of the NAIAS is then 40,431,316. The economic multiplier used, 1.9, is also recommended by experts for urban economies the size of Detroit. We use a multiplier because the direct spending by visitors leads to stimulation in economic activity as well as creates businesses, income, employment, or government revenue. According to Crompton (2001), this idea can be visualized with a drop of water into the pond and the succession of ripples that follow This leaves us with an indirect impact of 36,388,184 USD. The total economic impact of non-local visitors is 76,819,500 USD. According to NYIAS, the economic impact of the producer and exhibitors was 100 million USD in 2006. Considering that both auto shows are the same size and importance, this impact would be used as well for NAIAS since there are no official numbers regarding this matter. The total economic impact of NAIAS on metro Detroit in 2006 was 176,819,500 USD. This impact is shared between 3 different counties in metro Detroit. 60% of the economic impact affects Wayne County, 30% Oakland County, and 10% Macomb County. This is based on several regional variables such as hotel availability, urban entertainment options, and major highways or distances. According to the 3 country offices, the Cobo Hall, which is still under operation thanks to the NAIAS employed 16,619 people from these counties in 2005.

The Auto Show has a positive impact on the economy of the city. Aside from that, it also exposes the city to individuals from all over the United States and from abroad. Although the number of launches and attendees has been decreasing in recent years, the NAIAS is still the biggest auto show in North America. Therefore, the show somehow helps the city keep its reputation as the auto capital of North America even though this name is vanishing year after year. In 2020, the show will be moved from winter to summer. The organizers of the event hope that this change will attract more visitors (better weather) and launches (outdoors), and they also hope to take the show to the streets of Detroit instead of keeping it in the exhibition center and thus involving more businesses. In that case, Detroit will be promoted as a tourist destination and not only as a host city for the event and visitors will see the true image of Detroit.

III - Demographic Demand

The North American International Auto Show (NAIAS) attracts a strong and diverse demographic, targeting industry fans and professionals. The event draws various attendees, including journalists, industry consumers, automakers, sponsors, universities, educational institutions, and government leaders (NAIAS, 2019). In 2018, the event saw approximately 756,397 attendees and had an estimated $480 million economic impact on the Detroit region (Crain’s Detroit Business, 2018). However, attendance at the latest event significantly declined compared to previous years. In 2019, major luxury brands decided to skip the show, opting to participate in more convenient and competitive events that aligned better with their product timing and market strategies (Vellequette, 2018). This led to a decrease of 35,000 attendees in 2019 compared to the previous year (Buckson, 2019). Consequently, this drop resulted in lower spending power and an estimated economic impact of $430 million (NAIAS, 2019).

For 2020, NAIAS anticipates better performance by strategically moving the event’s date to early June. Organizers plan to expand the venue by adding outdoor and dynamic exhibitions (NAIAS, 2019). This change is expected to attract more fans, consumers, and industry experts, providing them with a new and unique product experience. The organizers anticipate higher attendance demand, leading to a more significant economic impact and increased spending power from the attendees.

IV - Destination Management

The event does not have a specific Destination Management Organization (DMO) involved in its realization. Instead, the event manages its customers and visitors independently, without external DMO support. They possess all the necessary tools and data to handle what a DMO typically would. However, external DMOs such as Visit Detroit and Pure Michigan still contribute with logistics and information independently from NAIAS (VisitDetroit.com, 2019). The event receives support from various governmental organizations, with PlanetM – Michigan Economic Development Corporation being one of the premier sponsors. Michigan is a leading region in the automotive and transportation industry. PlanetM, which comprises mobility organizations, educational institutions, governmental agencies, and others, partners to help the state develop advanced mobility technologies (PlanetM, 2019). PlanetM is instrumental in bringing significant government leaders and representatives to the event. This involvement provides recognition, prestige, and government support, offering special benefits to the event. Additionally, the corporation and government representatives view NAIAS as a platform to initiate new projects for the state’s mobility, collaborating with AutoMobili-D and NAIAS exhibitors. The Chairman of NAIAS has stated that the event serves as a stage for companies to showcase and debut new technology in mobility transportation for the future. This creates an ideal environment for mobility innovators to collaborate with auto brands and experts, furthering the prosperity of Michigan in this sector (PlanetM, 2019).

V - Non-Economic Impact

The NAIAS hosts the Charity Preview on the same date as their events. This charity gala, organized by NAIAS, supports various charitable organizations in the city and region of Michigan. A percentage of the revenue collected from ticket sales is distributed to eight different beneficiary organizations. According to the North American Auto Show (2019), this special gala spotlights Detroit, earning recognition as the biggest annual single-night fundraiser in the world. Consequently, NAIAS has a strong positive social impact on the region through its contributions to the community.

However, Daniel Weber, in his article “Understanding Charity Fundraising Events,” stated that fundraising events such as auctions, galas, dinners, and lunches are the least effective methods to raise money. He analyzed different fundraising events and concluded that traditional and specified charity events are only effective when the money spent on them cannot be allocated to more productive events that could bring in more revenue through new methodologies. Traditional fundraising events have more variable costs, affecting the overall net funds directed to charity. Other events, which attract more attendees and have fixed costs, can help optimize net fundraising. Additionally, the complexity of awareness and understanding of charity events can impact their popularity if there is no motivation or support for the cause. With other types of events, there is more room for price differentiation and the possibility to extract higher revenue from each supporter.

If NAIAS adopts different and more effective strategies for their charity events, they could raise more funds to help these charities or expand their support to include additional organizations. This would enhance the positive social impact they have on the community and the region. Furthermore, such events could generate more positive PR and popularity, attracting a larger audience to all their events.

Conclusion

The North American International Auto Show (NAIAS) serves as a prime example of how large-scale events can significantly impact a city’s economy, particularly in the case of Detroit. Despite the city’s economic struggles, including population decline, high unemployment, and the effects of bankruptcy, the auto show has continued to be a financial and reputational pillar for the region. By attracting hundreds of thousands of visitors annually, the event injects millions of dollars into the local economy through direct and indirect spending on accommodation, transportation, food, and entertainment. Beyond financial gains, NAIAS plays a pivotal role in preserving Detroit’s legacy as an automotive hub, reinforcing its status as a key player in the industry. It also fosters business development, innovation, and networking opportunities for industry professionals, while its charitable initiatives provide social benefits to the local community.

This case study highlights the broader significance of major events for cities worldwide. Events like NAIAS are not just industry gatherings but economic catalysts that drive tourism, generate employment, and contribute to urban revitalization. As cities compete for global attention and investment, strategic event planning and destination management can transform struggling urban centers into thriving economic landscapes.

As we reflect on the economic impact of such events, an intriguing question remains: How can cities future-proof their signature events to remain competitive in an evolving economic and technological landscape?