American Leyland Birthwatch 5: Plans, Trains and Automobiles

The New York Times has an interesting piece today comparing automotive rescue plans to earlier government intervention in the railroads. As apt a comparison as it might be, the piece ultimately advocates exploring an option for the auto rescue based on Conrail, the government-owned rail holding company created in 1976. If the American Leyland model worked for trains it might just work for autos, right? “The ideological debate already in progress,” says Wharton prof Peter Cappelli, “is whether government should actually direct the auto companies, stepping into management, or passively give them more loans, and then get out of the way.” Hows that for a choice?

Since the two options have been chosen, the Conrail experience shows how the former option could work. After all, congressional activism in railroad restructuring created Conrail out of several failing railroads in 1976, cut its employment in half and returned it to profitability by 1981. Conrail was then taken private and persists to this day as CSX, stubbornly preventing Acura from selling its Civic rebadge in the US.

Success? Possibly. But the infrastructure-heavy nature of the railroad business makes it far more similar to traditionally-regulated businesses like energy and landline telecom than durable goods manufacturing. Competition is far more vibrant in the auto industry than in train transport, meaning that rationalization or “right sizing” alone can “fix” railways but for automakers the right business structure is only half the battle.

Actually building products that consumers respect and desire is something that government can’t conjure up with either blank checks or active nationalization. But since those are apparently the only options on the table, it’s time to flip a coin.