A gov't corp. losing a million dollars a day? It's no joke.

April 1, 2006 8:31 AM

What would you think if the U.S. government decided to take six failing private companies, combine their assets into one government-operated company, and subsidized it through losses of a million dollars per day? It's something that might not happen today, but on this day in 1976, Conrail (the Consolidated Rail Corporation), took over operations for six railroads in the northeast, putting an end to the fruitless mergers and often-massive bankruptcies that had become common. [more inside]
posted by Godbert (12 comments total)

By the 1970s, the major railroads in the northeast (the Central Railroad of New Jersey, Erie Lackawanna, Lehigh & Hudson River, Lehigh Valley, Penn Central, and Reading) were in bad shape. All were in bankruptcy, as a result of increasing competition from trucking services. Federal regulation forced the railroads to continue operating lines which were bleeding money from the companies.

By 1973, Congress decided to do more than just cut the railroads another break. The Regional Rail Reorganization Act (signed by Nixon in early 1974), provided money to the railroads to keep them operating for the time being, but it also called for a plan to merge them into a government corporation.

This plan was unveiled in 1975, and Congress approved it in 1976 with the Railroad Revitalization and Regulatory Reform Act. The act eased some of the rules for abandoning unprofitable lines, and also laid the foundation for Conrail. The government would create and fund a Consolidated Rail Corporation which would take over the operations of all six railroads.

Once the idea for Conrail was approved, plenty of activity went on behind the scenes in preparation for the takeover. March 31, 1976 was the last day those six railroads operated, and marked the end of a railroading era. Conrail started operations on April 1, 1976, but you would hardly have noticed: they were still running the same trains, in their original railroad's paint schemes, on the same lines. It would be a few years before the whole fleet was painted that once-ubiquitous Conrail Blue.

The first several years were tough; it has been estimated that Conrail was losing up to $1 million 'per day' in the late 1970s. In response, Congress passed the Staggers Act [PDF] in 1980, making it even easier for railroads to abandon unprofitable lines.

By 1981, Conrail was turning a profit. By 1987, the company was doing so well that it had become a target for private investors. The government sold its ownership interest in the then-largest IPO, bringing in nearly $2 billion. The company continued to grow, and in 1997 two its competitors, CSX and Norfolk Souther, launched a bid to take over the company, eventually splitting Conrail between them in 1999.
posted by Godbert at 8:32 AM on April 1, 2006

Please note that all this took place under the Nixon administration -- the administration that enacted enormous parts of the liberal agenda of the 1960s, from women's rights legislation, to nationalizing the railroads, to ending the draft, giving the vote to 18 year olds -- not to mention wage and price controls to meet a percieved crises. We cannot get away from the fact that -- as much as we all hated the guy for sounding like our dads, and walking around like he had a pole up his rear end -- he was the most successfully socialistic president since FDR.

Then there's nationalized passenger rail system, Amtrak (originally RailPax, if I recall correctly), whose early days in the 1970s were a real adventure in railroading -- with whole trains knocked together out of delightfully heterogeneous rolling stock -- a bit of the 20th Century Limited here, a dining car from the "Golden Spike" era there, a Pullman with Glenn Miller's glasses right where he lost them when they fell under the mattress. Not to mention the cheerfully obsequious African American porters -- God bless 'em.
posted by Faze at 9:00 AM on April 1, 2006

Yeah, seriously. A government enterprise turning a profit? You had me right up until that.
posted by mr_crash_davis at 9:20 AM on April 1, 2006

Wow, it's almost hard to remember when government actually acted to help the country. That damn socialist Nixon! Nice post, thanks Godbert. My grandfather worked his whole career on the Delaware, Lackawanna and Western which later became the Erie Lackawanna. He was a conductor so the trains he worked on didn't go to Conrail and are now part of Jersey Transit.
posted by octothorpe at 9:24 AM on April 1, 2006

If Nixon was our most socialist Republican, what does that make Clinton--our most conservative Democrat?
posted by mecran01 at 9:34 AM on April 1, 2006

It's nice to see a company website without Flash, javascript, etc.
posted by mrbill at 12:10 PM on April 1, 2006

mecran01 -- Nixon wasn't our most socialist Republican, he was our most socialist President since Roosevelt, Republican or Democrat. Nobody else comes close. And yes, Clinton enacted more of the conservative agenda -- reducing the size of government, "don't ask don't tell" for gays in the military, and lost of other stuff -- than any Republican. Compared to a major league right-wing socialist like Bush, Clinton was Ayn Rand.

Man what a thread to "derail!"
posted by Faze at 1:15 PM on April 1, 2006

When you look at the system map, you see they really had very little choice. Erie Lackawanna and Penn Central were the backbone of the Rust Belt rail system. The suckage of the 1970s economy didn't give them time to fail one at a time -- they had all been on life support for years as it was, and this was a clear example of where antiquated rules -- essentially federally-mandated job protection -- were crippling an industry.


Not only did Conrail eventually make its way back to profitability, many states invested in and even ran railroads during this period, taking over trackage that was being abandoned by mainlines that wanted to concentrate on long-haul revenue service, leaving local businesses high and dry. Many of these state-run railroads turned out to be successes in their own right. My town was once an intersection between the Chicago & North Western and the Milwaukee Road, but both are gone now, replaced by the Wisconsin & Southern -- which actually owns railroads in Canada and New Zealand, if I remember correctly.

And now my brother works for Canadian Pacific -- in Chicago (that's really a NAFTA outcome, though).
posted by dhartung at 2:45 PM on April 1, 2006

Too bad the government doesn't do for railroads what it does for highways. They should take over responsibility of the entire track system as it does the roads. Let the actual business of running trains to private enterprise. I think that would be a blueprint for making the entire rail system healthier and more robust. Unfortunately after the bust of many railroads in the 70s, vital rail corridors have disappeared and been sold off for development.
posted by JJ86 at 3:45 PM on April 1, 2006

Actually, dhartung, the Milwaukee Road merged with SOO line back in the mid-eighties. The SOO would eventually be bought (or merge) with the Canadian Pacific. The CNW was gobbled up by the Union Pacific back in the early 90's. As for the WSOR, I think you mean the Wisconsin Central when it comes to interest in rairoads in New Zealand. It is too bad the Canadian National (CN) bought the WC a couple of years ago.

As for you JJ86, the Class I railroads are doing extremely well right now (due in large part to imported goods from Asia). The short-lines that were once sold off have and are quickly being bought by railroad conglomeratres like Railamerica, Omnitrax, and Genesse & Wyoming.
posted by repoman at 4:44 PM on April 1, 2006

he was the most successfully socialistic president since FDR

What about LBJ and the Great Society?

And is this such a huge event? Nixon buys and consolidates the railroads, then they're sold off. Government makes a profit and the railroads are a footnote for travel. Compared to Europe and Japan, we have abandoned our rail systems.
posted by destro at 2:36 PM on April 2, 2006

Today, freight rail isn't doing too bad. It isn't quite as big as it used to be but UP in particular seems to be expanding. They aren't expanding as much as truck transport though. And the expansion of trucks is doing a bad thing to our highways.

Passenger rail on the other hand is in a sorry state except for the big metropoli. The point I was trying to make previously was aimed more at passenger rail, but the freight railroads basically own all of the track so there would need to be a major change to make passenger rail more viable and competetive with other modes of transport. In my area, much of the major interurban passenger lines that were killed off by interstate highways in the 50s have been eaten by development. It would be next to impossible to rebuild that rail system.

I would like to see the likes of Amtrak privatized, but without a decent track network and passenger-rail friendly track lines, it is a losing proposition. Government funded infrastructure is the only way to make it work. Then it would be easy to have many competing rail-transit companies to share one track.
posted by JJ86 at 3:33 PM on April 2, 2006