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STRATEGY

Cities and Oil Prices: The Winners and The Losers

For most places, it’s hard to tell what the long-term effect of the high cost of energy might be. But there are some fairly safe bets.

Two kinds of areas tend to perform best in a harsh energy environment.One is the energy-producing cities, whose place at the top of this list, should come as no surprise. Another, though it may take a bit longer to emerge, may be those cities that are sites for production of fuel-efficient vehicles. These tend to be located in parts of the country -- Texas, the Southeast, and the Great Plains -- that have lower energy costs and more favorable business climates.

The Winners:

1. Houston

This is one town where $150 a barrel gasoline is viewed more as an opportunity than as an atrocity. Not that Houstonians don't drive. Like other Texans, they tend toward the profligate in energy use. But prices are not terribly high by national standards and, more to the point, energy is producing lots of high-wage jobs here for both blue- and white-collar workers. As headquarters to 16 large energy firms -- far more than New York, Dallas, and Los Angeles combined -- Houston, which ranks No. 4 on our list of the best large cities for doing business, provides an irresistible lure to hundreds of smaller firms specializing in everything from shipping and distribution of energy, to trading, exploration and geological modeling.

2. Midland-Odessa, Texas

Houston is no longer the oil production center it once was, but the twin cities of Midland (No. 1 on our Best Cities list overall and among small cities) and Odessa (No. 4 on the list of small cities) certainly are. The two cities, only 20 miles apart in the energy rich Permian Basin, experienced hard times when energy prices dropped. Office buildings went empty, and people fled. But now the big problem is finding enough labor to keep the rigs going. Boomtimes are back -- and only a dramatic change in the energy markets will slow them down.

3. Bismarck, N.D.

No. 30 on our small cities list, Bismarck may be in the early stages of a big-time expansion. It's the closest "big" city to the rapidly developing Bakken range --- rich with oil and shale deposits -- and already enjoys the advantages of being a state capital that boasts a $1 billion surplus. North Dakota's biofuels, wind, and coal industries also make the city a natural focal point for Great Plains energy. As in Midland-Odessa, the biggest constraint may well prove to be the availability of labor.

4. The Mid-South Autobelt

The shift to smaller cars may seem dismal in Detroit, but it's pure joy to much of the Mid-South. Foreign companies specializing in energy efficient vehicles -- Volkswagen, Kia, Honda, Nissan -- are concentrated in a belt running from Nashville (No. 18 on the large cities list) and Chattanooga (No. 59 on medium list) in Tennessee to Huntsville (No. 5 on the midsize cities list) in Alabama. Local universities in the area are also getting into the act, with several entering  an automotive research alliance.

Our list of losers is all too familiar. Basically, these are areas dominated by America's weak automakers and are particularly wedded to the SUVs and trucks that are losing market share at an astonishing rate. Most fall in states that are strong union bastions, have relatively high energy prices, and get much of their energy from coal, a fuel that's even less popular with environmentalists than oil is.

The Losers:

1. Detroit

The center of the American auto industry ranks dead last, No. 66, on our big cities list. The Motor City's legacy as headquarters town for the former Big Three is now its biggest headache. It's not just factory workers being hurt here; Detroit is where much of the technical, manufacturing, and design talent base of the U.S. auto industry resides. It's also where ad agencies, law firms, and other high-end business service providers to the industry cluster. All have taken big hits over the last few years, which has led to increased out-migration, high rates of foreclosure, and a deteriorating fiscal situation.

2. Flint, Mich.

No. 171 on the small cities list, just two from the bottom, Flint seems to make more and more of what Americans don't want. In 2006, it made more than 170,000 pickup trucks; it's doubtful it will see that level of production for a long time to come. And this is a place that was hurting even before gas prices went up. More than 40 percent of all manufacturing jobs disappeared between 2002 and 2007.

3. Ft.Wayne, Ind.

Compared to Flint or Detroit, Ft. Wayne (No. 85 on the midsize cities list) is not doing too badly. Between 2002 and 2007, manufacturing employment dropped only 2.5 percent. The big problem is the future of the industrial sector. Ft. Wayne made 200,000 pickup trucks in 2006. It's hard to see many of these jobs surviving if energy prices stay high.

4. Janesville, Wis.

No. 92 on the small list, a plant in Janesville manufactures GMC Yukon, the Yukon XL, the Chevy Tahoe, and  the Suburban -- all gas-guzzling behemoths. Although more than 200,000 SUVs were produced at this plant in 2006, it will close by the end of 2010. The largest private employer in Janesville is Mercy Health Systems. Being in Wisconsin helps, however -- the state is in better shape than Midwest neighbors such as Michigan and Ohio.

Joel Kotkin is a presidential fellow at Chapman University and executive editor of Newgeography.com


Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy

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