Was Conrail A Government Bail Out?

With all the talk of government bail outs, how was Conrail formed and wondering if there where any conditions if it became solvent?

I recommend you start by reading all of this:
http://en.wikipedia.org/wiki/Conrail

Thanks for the reply and thead ecouter, never thought the formation of Conrail was that complicated but it seem to work

I would recommend reading Rush Loving's book as well. I think the term Bail Out is misleading because it doesn't have an exact definition. I'm not making commentary on the pros/cons of the Conrail legislation, TARP, or automakers situation, just stating that the talking heads on TV should use more precise terminology.

But in a word, yes, it was a bailout and a bailout done right. Probably one of the best bailouts this side of Chrysler's 1981 bailout. The result was a healthy company and a very positive return on investment to the taxpayers.

I suppose we can consider Conrail a bailout, but it is very different from the propsed bailout of the "big three" automobile companies. Conrail, (and to an even greater extent, Amtrak), was formed at a time when it appeared highly likely that without this intervention, rail service, as we knew it, would totally disappear. Whether or not this would have actually happened can, I suppose, be debated, but that was the premise upon which the creation of Conrail(and Amtrak) was based. The current "bailout" is not made under any "threat" that no more automobiles will be manufactured-- the "threat" is simply that they won't be manufactured by US owned companies if the big three collapse. Autmobiles would still be manufactured-- it would just be foreign and foreign owned companies that would build them. Now this is not to minimize the adverse effect of such a collapse on the unionized U.S. auto workers, the companies that supply component parts to these organizations, or to the economy as a whole, but-- autos would still be manufactured. Additionally, most of the private railroads that existed at the time Conrail was created, particularly in the Northeast, ceased to exist as they were at that time as a result of Conrail-- as was intended. The automobile bailout is intended to preserve the existence of the "big three" in susbtantially the form in which they exist today-- a major difference in purpose.

Conrail was far different than the proposed (by automakers) "bailout"

If the same thing was done in 1976, it would be like throwing money at Penn Central and letting the same old tired old hacks at the top continue "business as usual"

Conrail could and should be the model. In 1976, how many of us thought Northeast railroading was ever going to be profitable?

...Ken

All the people I know and talk with some (lawyers and railway personnel) say yes CONRAIL was a gov. bail out. Then what about the Staggers act, wasn't that during the 1980's didn't President Ronald Reagan sign that bill/act into law ? Second How did that affect CR and their competition? I am curious about the Staggers act ..

Tom

Staggers Act:
http://en.wikipedia.org/wiki/Staggers_Rail_Act

Conrail was a government takeover of the rail assets of companies that in some cases had declared bankruptcy many years previously. The railroads failed more as a result of over regulation than because of union employee issues.

The Conrail situation was far, far different from today's bailouts for other reasons.

Freight rail transport is an industrial service, not a consumer good. There was and is a market for this service; in fact there is no logistical way trucks could take the place of rail shipment for bulk commodities. Rail bankruptcies in the Northeast was due to unworkable regulatory structure; not for lack of need or demand.

First, the companies needed to be reorganized; and were. This because the then-current management pool had become populated by HACKS; real talent had left long before.

Even at the time, legislators hadn't recognized the need for deregulation. After five years of no real progress with Conrail, Staggers addressed the need - and with management change, Conrail became profitable.

But this differs from banks and auto companies, in that rail transport is an industrial need; cuts across industries; and also provides a vital need for public utilities. Automobile manufacturers are selling a product to the public.

One can argue pro and con about a bailout for that industry using many of the same issues - but there are important structural differences between the industries.

Conrail was a government takeover of the rail assets of companies that in some cases had declared bankruptcy many years previously. The railroads failed more as a result of over regulation than because of union employee issues.

I would say Conrail was much less than the "bailout" or partial government takeover we are seeing today, it was more of a government assisted "boost back on your feet". Conrail only used 2.2 Billion dollars in about 6 years as now in our "Bailout" we are on the hook for over 3000 times that amount (7 trillion) in about 3 months! The government never really took over the railroads like they did with banks and want to with the automakers. Wasn't over regulation why the great depression went on for so long? Maybe that is why when the gov't introduced the Staggers Act (deregulation) it HELPED Conrail so much along with other railroads.

But this differs from banks and auto companies, in that rail transport is an industrial need; cuts across industries; and also provides a vital need for public utilities. Automobile manufacturers are selling a product to the public.

IMO -The railroads suffered from over regulation (govt), so do the automakers (unions). The only difference is that the automakers put themselves into this position by accepting union agreements. The banks were also "forced" into this position by the Govt but also helped along by each banks employees greed. The banks were encouraged to make A+ loans to people who could NOT afford an A+ loan. On the same note the automakers also do not make products that meet their consumers demand, wants or needs. The railroads needed to be saved to save the North East economy similar to the automakers need to be helped to save the economy via jobs. This should not exclude a bankruptcy much like the railroads had went bankrupt.

Ryan

Every time someone says "automakers also do not make products that meet their consumers demand" or words to that effect it makes me want to scream. It's only the last few years that Toyota has been able to compete with General Motors to be the number one automaker in the world. GM, Ford and Chrysler have sold millions of cars in the last few years. The Chrysler minivan is so well designed and in demand that Volkswagen paid them for the rights to sell a rebadged version as a VW product. To say that the US automakers make things people don't want, is at best uninformed and at worst, a total load. Or, liberalspeak from people who think GM should only be building eco-friendly roller skates with lawnmower engines instead of pickup trucks - even though the trucks are what was selling and selling well, until gas topped $3 or so a gallon.

In fact all auto companies have seen slow sales between the summer spike in gas prices and the credit crisis, it's just that union contracts and consolidation have left GM in a poor position to contend with the loss in sales, and the same for Ford to a lesser degree. Chrysler is another story, because of their previous ownership by Damlier (Mercedes), but the end result is they're in the worst position of all.

The northeastern railroads were able to go into bankruptcy and liquidate their rail assets to a government holding company - Conrail - for which they eventually got paid. The result is Penn Central continues to exist after a couple of name changes, while most of the others eventually ceased business after disposing of the assets not turned over to the government. The auto companies need to perform a similar action to get out from under their union issues - if they could pocket the $2000 or so difference it costs per car because of all those union related costs, they would probably at least be able to hold their own in a slow market.

But it's just like the EL unions when half of the EL was offered to Chessie and they wouldn't accept the conditions - the choice is a job at reduced pay and benefits, or no job - take your pick - what happened to all those EL guys? Conrail laid a lot of people off the instant they were able to. The auto unions seem to think they don't have to give up anything. Well, okay, fine, but if GM goes into bankruptcy, what happens to your job then? It's foolish, shortsighted thinking.

I do not exactly agree with the example of the EL employees. Yes parts were abandoned on 1 April 1976, but so were parts of the other lines too. The point is that the senior men were able to keep their pay scales, but may have had to transfer to other locations. The junior guys got screwed, but that is seniority. The senior men are the ones who put in the long years on the spare board, in order to hold good jobs. I used to work on a class one in a largely agricultural area. If someone complained about his seniority, he was told, "You should have come off the farm sooner."
Some of the guys had other options. Here on the D&H, we have many men from the EL, LV, RDG, and PRR. We needed these guys because of the forced expansion. These men were already qualified on the territory.
One engineer, just senior to me was a trackman for PC/CR. He said that he kept getting cut off, so he had the option to go to Metro North. He finally quit them, and went to transportation on the D&H. Like his case, the newly formed commuter agencies needed help too.
Back to the parallel with the auto makers. They need a reorganization too. I agree that GM, Ford, and Chrysler have made cars to fill the market's needs. If someone wants, and can afford a SUV, then make them SUVs. I agree with the last post about all the hippies who want lawn mower engine skateboards. I drive a big Chevy K2500HD pickup. I need it for my property. I often haul top soil, paving stone, lumber, etc. (I also have a 2 mile commute,so the mileage does not hurt too bad, at 15mpg.) One day I was filling up my 30 gallon tank. Next to me was an ex hipppie filling up his Prius, while looking at me with disdain. He also made some comment, but I told him that it was my choice, and I am happy with it. Who cares. I can afford this truck, it fits my needs, and I can't carry 2 yards of dirt in a Prius.
My only gripe is that the US manufacturers seem to not engineer the cars that well, compared to the Japanese. I have had my share of nickel and dime repairs. Some of these, GM knows about, but does not spent to fix. This is why they are in trouble. If Toyota or Nissan made a 3/4, or 1 ton truck, I would consider it.
It took Conrail, even though some of the tactics were questionable (like abandoning lines so that some other carrier could not get them) to streamline the railroads.They instituted new ways. I think that something has to be done to make the big 3 to make honest products. Maybe letting them go bust might be the kick they need, inorder to see that they need to change their business practices.

The point is had the EL guys gone to Chessie, a lot more of them could have kept their jobs because the traffic levels would have stayed up and more of the track would have remained in existence. It only took Conrail about 10 years to turn the EL into a ghost of the railroad it was with but a handful of trains per day and it took New York State action to prevent them from outright abandoning more of it.

It also would have had ramifications on Conrail allowing more ex-PC, LV guys to be retained and shifted some of Conrail's traffic patterns around.

Which makes it a good example of short-sighted thinking on the part of a union. Just what about Chessie's terms was so bad it was better to let Conrail abandon the jobs away?

I still maintain my point, why settle for less? Like I said, the railroad is all about seniority. Why should someone who has been working for 30 years have to give up his pay for someone "just off the farm"? Right now things are slow, on all the lines. I had a young brakeman tell me that I should lay off, so he could work. I had to go through hard times too. I feel sorry for him, but this is how it works!
This is no different. The senior guys from LV, RDG, CNJ, EL, and PC were all able to hang on somewhere. When the cuts come, the junior men always get cut. Parts of the EL would have been cut anyway. Why would Chessie want the EL across Ohio and Indiana, when the B&O and C&O had good lines there already. They would have funneled traffic from the east end onto the B&O, just like CSX did with the Conrail split.
I think everyone saw Uncle Sam coming, with deep pockets. This is why no one wanted to give in. I don't know what the differences wereat that time between the EL contract, and that of the contract that Chessie wanted to institute. Just keep in mind that the southern lines typically paid less, due to the lower cost of living, in the south.