The government should restructure American auto industry as it did the Penn Central

November 17th, 2008 at 12:59am Chuck Sweeny

The American auto industry can’t be allowed to go out of business, but only because the US would lose  roughly 13 million jobs when you factor in the car companies, the dealerships, the suppliers and the other industries that serve all of those companies.

That doesn’t mean we should issue the car makers a $25 billion blank check. On the contrary, there are several models we could look at, including President - elect Obama’s suggestion of a bride loan made with conditions that include restructuring of the domestic auto industry to make it an efficient entity that produces 21st century vehicles, not 1950s cars with 2009 bodies.

Another model, and one I like, is what happened when the Penn Central Railroad went bankrupt in the 1970s. This company was a tragedy from the start, a mismatch merger of clashing corporate cultures between the New York Central and the Pennsylvania railroads.

The government took over the bankrupt Penn Central, whose lines were and are essential to the economy of the northeastern  states. It created a corporation called Consolidated Rail (CONRAIL) which included Penn Central lines and those of several other northeastern railroads.

Long story short: CONRAIL was a smashing success, its diesel engines boasting the slogan “CONRAIL QUALITY,” bragging rights that by all accounts were well deserved.

The government put it up for sale in 1999; Norfolk Southern and CSX bought it for $10.3 billion. Norfolk Southern took  58 percent and CSX took 42 percent, according to a New York Times article from 1999.

By the way, that $10.3 billion from 1999 would be worth from $13 billion to $15 billion today, depending on which method you use to calculate the inflation rate.

The government’s handling of the Penn Central disaster proved to be an intelligent use of federal resources. Taxpayers got their money back and more, and they got a more efficient railroad out of the whole takeover.

We could do it again, using the CONRAIL model for the Detroit auto industry.

AS to all you uber-capitalists out there who think that the unfettered free market is god: Your god is dead. The market is like fire. It can heat your house or burn it down. That’s why we need smoke detectors, sprinkler systems and a good fire department.

Entry Filed under: Penn Central