Detroit: 'Motor City' becomes largest city in US history to file for bankruptcy

City is crippled by debts of up to $20bn following decades of decline in the automotive industry

Detroit, once a shining symbol of industrial America and the automotive capital of the world, has become the largest city in US history to file for bankruptcy.

Kevyn Orr, the lawyer appointed to oversee the city’s finances in March, sought the approval of a federal judge to place the city in bankruptcy protection after failing to strike agreements with creditors, including Detroit’s large public sector pension funds, over plans to restructure up to $20bn in long term debts.

The city has been declining for decades as car factories moved out of municipal limits and the population collapsed from a high point of nearly 2 million in 1950 to around 700,000 today. To compound the problems presented by a shrinking tax base, Detroit has been blighted by years of financial mismanagement.

Long known as the ‘Motor City’, today Detroit is home to only two car factories. While one of those facilities, the Jefferson North assembly plant run by Chrysler, is booming and has been stepping up shifts for its workers, the other, run by General Motors, sits partly in the next-door city of Hamtramck.

It is a different world from 1950, when there were around 300,000 manufacturing jobs in Detroit. In 2011, the figure had declined to under 30,000, according to figures from Bloomberg.

While the exact figure of how much Detroit owes its creditors is disputed - estimates have varied from $18.5bn to as much as $20bn - one thing is for certain: the city is entering uncharted territory. Until last night, the title of America’s largest municipal bankruptcy belonged to Jefferson County in Alabama. It’s debts when it filed for bankruptcy: around $4bn.

Last night’s filing was approved by the Michigan Governor, Rick Snyder. “The fiscal realities confronting Detroit have been ignored for too long. I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future,” he said. “This is a difficult step, but the only viable option to address a problem that has been six decades in the making.”

Mr Orr was appointed by Mr Snyder, who had charged him with restructuring the debts to put the city on a more sustainable footing. Formerly a partner at the Jones Day law firm, he came to public prominence as the lawyer who helped restructure Chrysler when the carmarker was forced to seek bankruptcy protection in 2009.