32 years ago Conrail was created in reinvigorate the rail sector in the Eastern United States…as some will recall…most eastern carriers were bankrupt or on the verge of bankruptcy, with Penn Central being the largest bankruptcy in history up to that time.
Maybe a similar solution can work for the automotive sector…(or any other sector for that matter)…Instead of looking at a bailout package…let them go bankrupt and then reorganize with government assistance if necessary.
Given the dire condition of eastern railroads in the 60s and early 70s compared to what we have today…Conrail was certainly a success.
What would have been the outcome had Penn Central, Erie Lackawanna, Lehigh Valley, Jersey Central, Philadelphia and Reading been offered bailouts instead of allowing bankruptcy and subsequent reorganization through Conrail?
the main reason and possably the only reason why conrail made it as well as the rail industry as a whole had alot to do with the The Staggers Rail Act of 1980…which deregulated the industry makeing it easier to abandon and or spin off branch lines that wherent turning a profit and where large red ink spots on the overall books…just to name one benifit of the act for the carriers…
i personaly think that if not for the government wishing to save some of the rail industry in the 70s after the collapse of PC and other north eastern roads that where folded into conrail… and then finding out how hard it was for railroads to do biz and make money with the regulations that the ICC places on the carriers… the stagger act would have never been writen and the rail industry as a whole would be in a very differnt place today…if it even exsisted at all…
so to awnser your question about what if they government just cut bail out checks to the PC as well as other roads… the results would have been that they would have used the money…still lost money…and came back to the government with there hat in there hand asking for more money yet agin… the government can shovel all the money it could print to the PC as well as the others…but until the regulations that where putting the carriers into the finantal poor house where changed it wouldnt have made a differnce… which happend in 1980 after the govenment got into the frieght rail biz by forming conrail…and seeing first hand by haveing a stake in a major carrier how the current reguations where strangling the rail industry…
as far as the auto industry…since i dont know what type of regulations other then saftey mandates and gas mileage mandates they have to follow… i dont know what to tell you there…
Conrail was not as successfull as it has been made out to be. CR’s public relations hucksters apparently got folks to buy an empty premise. CSX and NS are now struggling with some of the skeletons in CR’s closet.
Please, do tell; I would love to hear about the skeletons.
This is a great post, as I was thinking about this the other day. I often wonder what would have happened if we had just allowed the bankruptcy to run its course. I would love to hear learned opinions as to this. But, I suspect that much of the track would still be there and operational today.
I have some sympathy for the U.S. auto industry and think those who denounce it for its flaws are somewhat short sighted and lacking in understanding.
The legacy of U.S. car companies in terms of pensions and contracts is just an absolute albatros around their neck. NPR reported that GM starts out $1500 in the hole for every car it builds for pension benefits as compared to Toyota. That is one heck of a disadvantage. Throw in the more-difficult to deal with union issues, I find it hard to criticize.
One wonders what would happen to these disadvantages in a bankruptcy.
I have less sympathy for the auto industry given that these generous labor agreements came about through negotiations…at $73.00 an hour plus bennies it sure looks as if management gave away the store. I don’t blame the unions…their job is to get the best deal they can get for their membership. It is up to managment to look out for the company and shareholder interests. They didn’t do that, and they have been behind the eight ball on marketing and building products that are in tune with consumer demand. In a nutshell, they are failing now because of weak managment at the top. Should we bail them out…i.e. should Fred the sawmill worker or Jane the cashier who make $15.00 an hour pay for this? I don’t think so. Other avenues need to be explored.
Now…to Conrail. I agree it was a different time…a different industry…and different circumstances. However,the magnitude of the problem these eastern railroads faced back 30+ years ago is on par with what the auto sector is facing today. So we may have a “template” on how to go about resolving the current automotive debacle by considering a “Conrail-like” solution. It may be worth looking at it…throwing money at the automotive sector may not help and may indeed simply prolong its inevitable demise. However creditor protection through bankruptcy, some infusion of capital along with management expertise from outside may save the day as it did for the eastern railroads some 30 years ago.
I can’t help but noticing that no one in the auto industry (management, labor, unions, corporate officers) offers any ideas about how to fix their industry, nor is anyone talking about giving some concessions to try to save themselves. If the ship you’re on is sinking, it’s in everyone’s best interest to grab a bucket and start bailing; if that doesn’t work, it’s time to jump, lest you be dragged down along with the ship.
Management is at fault and should not be given money without change in management. I propose something different. Government should by the state0of-the-art General Motors Proving Ground and Ford’s similar but smaller facility. The usuable modern Ford testing equipment should then be combined with GM’s, and the present GM facility should become a national research and testing facility for use by all USA automakers, with the Ford physical plant either sold or used for military-defence-security purposes. Management of the GM facility should be under one of the better engineering universities, possibly a Michigan University.
In 1999, the GM stockholders report stated that they had determned how to get people to spend more time in cars, and that was to “make the car the rival of the home as a communications and entertainment center/” Apparently nobody thought of the impact of such an idea on highway safety. Then as mitigation, “Audio Pilot” was tryed on some Cadillac models as an option. Radio and stereo sound varied as with noise level. The stupid idea was to put the noise sensing microphones outside the car, avoiding feedback and complications with the program meterial. But there is very little correlation between exterior and interior automobile noise because of opening and closing windows, engine vibration noise, and tire-road contact vibration noise. Volvo did it right with the sensing microphones inside.
However, I’m not convinced that the auto makers and Penn Central/Conrail are at all comparable cases. In the railroad case you had a unique asset, a specific physical plant, that could not be replicated if it disappeared. On the other hand, the auto makers are anything but unique as the healthy portion of the US auto industry demonstrates on a continuing basis.
Yes…many important differences…however the Conrail solution may provide some guidance i.e. serve as a template…maybe an alternative to a bailout. Let them go bankrupt and then reorganize with government assistence if necessary. A simple bailout without bankruptcy protection from creditors who are themselves struggling sounds like a recipe for failure to me. Bankruptcy protection will give them time to restructure and may also buy some time to explore alternatives.
The news media, about half the population, and the entire pop culture hate the U.S. auto companies almost as much as they hate cigarette companies. So it is intriguing that government is even entertaining the idea of a bailout. It is like watching somebody giving a drowning person a lecture about the danger of deep water before tossing a life preserver. But there is an innocent hostage in this standoff, and that is the pension plans of retired workers as well as the fate of the workers who would lose their jobs if the auto companies go under. So there will be a bailout in some fashion. It is politically irresistible.
It is also irresistible to seize the opportunity to put the government into the car making business and make the cars that they sneer at the car companies for not making. Previously, there was no way to force the car companies to make cars that consumers did not want other than to define those cars in terms of mandated fuel consumption rates.
But with government in the driver’s seat, the automotive vision will quickly morph into the image of smart cars. And if people don’t want to b
I am not sure everyone feels that way; in fact, I am sure that everyone does not feel that way. The salaries and benefits of some of these workers truly make me stop and wonder why the heck I went to law school. There are some websites around that allege GM employees make $74 per hour–these websites are misleading, as they neglect to say that is on double time.
Nonetheless, their salaries are fairly enviable. The most consistent number I have heard is $80,000 per year, plus great benefits with an average work week of 46 hours. Throw in the pensions that cost GM $1500 a car and on
I’m not sure if salaries were really an issue with Penn Central; however, I recall reading that labor costs were considered high due to the number of people required on trains etc. Back in the 60’s and early 70s the railroads were still trying to rationalize their labor requirements in keeping with dieselization and other technological advances.
I am not sure everyone feels that way; in fact, I am sure that everyone does not feel that way. The salaries and benefits of some of these workers truly make me stop and wonder why the heck I went to law school. There are some websites around that allege GM employees make $74 per hour–these websites are misleading, as they neglect to say that is on double time.
Nonetheless, their salaries are fairly enviable. The most consistent number I have heard is $80,000 per year, plus great benefits with an average work week of 46 hours. Throw in the