Use Conrail as auto industry guide

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Use Conrail as auto industry guide

BY JAMES A. DUNN and ANTHONY PERL • February 16, 2009

DETROIT FREE PRESS

America's experience with Conrail offers valuable lessons to the Obama administration as it seeks to save Detroit's automakers. Conrail represents government's greatest success in rescuing a failing industry, restoring it and then returning it to profitability and private ownership.

During the 1970s, America's railroads were heading in the same direction General Motors, Chrysler and Ford are today. In its heyday, the Pennsylvania Railroad had been the equivalent of GM and was once known as "the standard railroad of the world."

But after merging with the New York Central, the new Penn Central collapsed into what was then America's largest corporate bankruptcy. Its failure threatened not just thousands of railroad jobs, but also jobs in many other industries that relied on rail transportation. The railroad sector was simply carrying too much baggage -- a century of accumulated outdated regulations, inefficient work rules and unprofitable business practices. It became clear to the Republican presidents of the time (Richard Nixon and Gerald Ford) and the Democratic-controlled Congress that a new business model and regulatory framework were needed.

In 1973, Congress passed legislation creating two new railroad entities. The first, the United States Railway Association (USRA), was an independent federal agency charged with reorganizing the bankrupt Northeast and Midwest railroads, including valuing and transferring their assets. The second, the Consolidated Rail Corp. (Conrail), a public corporation, would take over the assets and personnel of the bankrupt properties. Following the USRA's lead, Conrail was to implement a workable new business plan for American railroading. In 1976, Congress completed its work, passing sweeping legislation that realigned rail industry regulations with contemporary economic reality.

Conrail thrived by focusing on what the rail mode could do best: moving long freight trains over longer distances. Unprofitable passenger trains were offloaded to local agencies offering commuter transit and to Amtrak on long-distance routes, or abandoned. Local freight delivery was ceded to short-line railroads and truckers, pruning thousands of miles of branch line tracks from Conrail's network. And labor productivity was improved by buying out workers with up to seven years of severance pay.

Conrail attained profitability in 1981 and was privatized in an initial public offering of $1.9 billion in 1986. In 1999, Conrail was acquired and divided by two private freight railroads, the CSX Corp. and Norfolk Southern. Today CSX and Norfolk Southern have a combined market capitalization of more than $25 billion. By contrast, GM and Chrysler shares are worth under $7 billion. That's bottom-line proof of what the right kind of government revitalization efforts can achieve.

What lessons does Conrail hold for today's automotive crisis? First, as Presidents Ford and Nixon recognized, some problems are too big to be addressed only by a special adviser. Appointing a "car czar" will not be enough to carry through the transformation needed. Such far-reaching change calls for an institution with a serious budget, a substantial staff and, most important, the power to be the auto industry's banker, broker and perhaps even its bankruptcy trustee -- in other words, an automotive USRA.

Without a strong institutional actor, there is a danger that Washington's stakeholder-driven response will simply aim at protecting jobs and the automakers' obsolete business model. Left on their own, the companies, unions and hard-hit communities will see the road back to profitability paved with a surge of SUV sales and a plan to transfer their workers' health care and pension costs onto the government.

The current crisis is an opportunity to transform America's automotive industry from a moribund 1950s- style behemoth into a 21st-Century world leader, advancing climate policy, energy security, urban revitalization and safer personal mobility.

JAMES A. DUNN is a political science and public policy professor at Rutgers University, in New Jersey. He is the author of "Driving Forces: The Automobile, Its Enemies and the Politics of Mobility." ANTHONY PERL is a political science and urban studies professor at Simon Fraser University in Vancouver, Canada. He wrote "New Departures: Rethinking Rail Passenger Policy for the Twenty-First Century." Write to them in care of the Free Press Editorial Page, 615 W. Lafayette, Detroit, MI 48226 or at oped@freepress.com.

[geeps]

Yeah, I agree. Some times their are industries that the nation cant afford to loose, and needs to be reformed.

[Charles W]

You know, I've seen various issues of Trains Magazine from the early days of Con-Rail, and especially before this Con-Rail was fully formed, back in the day of PC black. One thing I picked up from those magazines, and JP Morgan's editorials, was that there was a lot of doubt, uncertainty and speculation as to whether or not Con-Rail would work. Even though Conrail was enormously successful (eventually), a lot of people still lost their jobs on Con-Rail day and in the time following the first day (and in the days leading up to CR day).

One of the biggest differences between today and 1976 when CR was born, is how easy it is to reach the masses in this day and age. You can bet that the foreign automakers can't wait for the Big 3 American companies to go under, for market share alone, if nothing else. You can also bet that the UAW will fight any plan that would reduce the workforce tooth and nail. If such a CR-istic plan were to be formed and implemented to attempt to save the auto industry in America (well, owned by American-based companies any way), between all of the interests that a failed Big 3 would benefit, there could be so much negative advertising, that the mudslinging (both on the part of foreign interests as well as various domestic factions both for and against) would be worse than what we see during the average political election year.

I would think that the fact that it is so easy to communicate with others these days could actually work against anyone who might actually try to put together a similar bailout plan for the Big 3.

[RRTTF]

Was Conrail truly successful? If one looks at what existed when there was a Pennsylvania Railroad and new York Central Railroad, and what there was AFTER Conrail, where is the "success"?


Look at the pieces of Conrail that are left. A mere skeleton.

[Doktor No]

WHERE WAS THE SUCCESS OF CONRAIL? I'd say the price per share paid to the stockholders back in the NS/CSX merger would make it a ROUSING SUCCESS!
Now if your looking at trackage that didn't support itself let alone support a train...that was abandoned then you have a point, albeit a dull point. Sure there ae no PC engines in Owosso nor in Mackinaw City nor Sturgis but Conrail made tens of millions and turned what was left of the trackage into a vibrant business. Their business plan held together the trackage that could pay for itself AND make a profit and serve the customers and keep most of the jobs.
I think they did rather well!

[RailsandTrucks]

Doc brings up some great points on the sucess of conrail and why it was considered such. I'd say even more important then the result for the shareholders was the way conrail was able to grow its business and make profitable what it did have.

However, it was not easy and it took some strong wills going up against some equally strong wills to get it to work. Conrail faced ALOT of challenges and it took skill , influence, and some good luck to get it all to work right. The book "The men who loved trains" by Rush loving is probably the best book out there on the subject-and one of, if not THE best book on railroading that I've ever read- though being an "outsider" (I.e non-employee or former employee-though I'm hopeful to join the ranks one day (graduating college here in just a few months)) I'd be interested to hear what folks like Doc have to say on that book.

Back on subject though, I think we can use conrail as a baromter of the auto industry in another way too. If conrail's (and I mean the current, shortline conrail) business is up in the metro detroit area then obviously so is the auto industry. So high activity at Sterling, livernois, Mack, Mound, North,River Rouge and wayne would obviously mean good, or at least better, things are upon us.

The overall comparison though seems to be pretty good and though its true, many did loose their jobs and many towns did loose trackage- much more would have been lost had the government not done anything-and this is coming from a guy who's not much of a believer in having the government being that active. With the right mix of ideas and willpower, I think something similar could be done... is it likely? the skeptic in me says no way (especially, as charles mentioned, with the media and information age nowadays), the optimist says yes, but realistically, only time will tell. We should all be hopeful though, no matter who you voted for, you should hope for the success of whoever is in charge, because thier success will mean the country's success.

[mikekmac]

I second the recommendation for THE MEN WHO LOVED TRAINS. I learned more about how railroads work--and don't work--as businesses from it than I have from all other sources combined. I thought it did a particularly good job of illuminating the importance that individuals--their personalities, strengths, weaknesses--played in the course of events.

Idle rails are to railroading as idle plants are to manufacturing--they both represent excess capacity. tearing the rails up and the plants down is often shortsighted.

It makes about as much sense, really, as tearing up the road between Anytown and Nowhereville because there isn't enough traffic.

I don't think we could ever get there from here, but I think a more rational system would parallel how we handle roads: public rails, private trains.