Like the rest of southeast Michigan, the University is already taking a financial hit from the troubles of the Detroit automakers. If any one of the Detroit Three fail, that hit could get much more painful.
With substantial annual research funding contributions from General Motors Corp., Ford Motor Co., Chrysler LLC, and sizeable donations from University alumni that are now Detroit Three employees, the future of the University’s finances are linked to the economic fate of the struggling automakers.
Ford, the healthiest of the Detroit Three, has donated more than $12.8 million over the past five years and been one of the University’s largest financial contributors, according to Jefferson Porter, the University’s associate vice president for donor relations.
Once major benefactors, the Detroit Three have begun to downsize their roles as some of the University’s largest financial players. Ford gave $4.4 million in 2005, GM gave almost $2.5 million in 2007 and Chrysler gave $476,000 in 2008. But all three companies gave about $275,000 each this fiscal year.
According to Porter, the decline in funding from Ford, GM and Chrysler has led the University to rely more heavily on individual donors rather than a continued dependence on the faltering automakers.
“If you dialed back 15 or 20 years then you’d see that the Big Three were clearly the dominant contributors to the University in terms of charitable giving,” Porter said. “But that mix has changed pretty fundamentally in the last decade and a half or so.”
Trimmed back and reshaped, University stock holdings in the Detroit Three have declined along with the companies’ donations in recent years.
From 2002 to 2007, the University’s endowment investment in GM plummeted. In 2002, it held 106,600 shares of GM stock, valued at $53.45 a share. Five years later, University holdings in Detroit’s largest automaker dropped to 18,500 shares at $37.80 each in 2007.
As of Tuesday’s closing bell, shares of the struggling automaker were trading at $3.56 each.
The University’s endowment investment in Chrysler, now the only privately-owned company of the Detroit trio, hit a five-year high in 2007 — both in the number of shares owned and the total value of the investment — with 42,750 shares worth over $3.9 million. In 2003, 22,200 shares of Chrysler worth $769,000 were part of the University’s overall endowment investment mix.
Between 1998 and 2007, Chrysler was part of DaimlerChrysler, a publicly traded company formed after Daimler-Benz, a German firm, merged with Chrysler.
Despite a history of contributions to the University, including the donation of land for the UM Dearborn campus in 1957, no endowment funds have been invested in Ford since at least 2002.
Though endowment investments vary dramatically among Detroit’s automakers, University spokeswoman Kelly Cunningham declined to comment on any individual endowment holdings or strategies. Cunningham said, though, that steps had already been taken to protect the University’s endowment in advance of the financial crises that have unfolded in recent months.
“Because of the U-M’s prudent, self-imposed spending rule, we expect a solid, stable, payout from the endowment now and into the foreseeable future,” Cunningham said in an e-mail interview.
While close to half of the University’s endowment is invested in places that make it hard to value every month, the other half is invested in stocks, bonds and cash. That part of the fund – worth almost $4 billion – took an 11.9 percent hit between the beginning of July and the end of September.
In 2007, the University saw a 25.6-percent return on the endowment, increasing its value from $5.7 billion to $7.1 billion, making it the third largest endowment among public universities and the ninth largest endowment in the nation. At the end of fiscal year 2008, the endowment was worth $7.6 billion.
But the University’s investment in Chrysler and GM is minor compared to its stake in companies like Apple, Inc., Bank of America and Exxon Mobil. The University’s investments in each of these firms exceeded $8 million in 2007.
Even though the University’s investment in the automakers isn’t substantial, all of the state’s major research universities could take a financial hit in terms of research funding if the Detroit Three slip into bankruptcy or liquidation, said David Cole, chairman of the Center for Automotive Research.
“The impact of a major failure would have devastating economic effects,” Cole said. “It would take us from a serious windstorm to an absolute hurricane, and that would have an impact on universities around the state.”
According to Bruce Belzowski, associate director of the Automotive Analysis Division at the Transportation Research Institute, the potential fallout from Ford, GM and Chrysler means that aside from financial investments, the automakers more than three million employees and the thousands of companies that do business with them, could lose their jobs if the companies shut down.
“There’s a lot of pain that ends up flowing through the system when you go through this type of situation,” Belzowski said. “It’s not as clean cut as people make it sound.”