How the US government bailed out the railroads…and made a profit

washingtonmonthly.com

13 points·sethg··4 comments

And while railroads had begun to lose their luster, they were still carrying more tonnage than ever before in their history

The railroads had business at their door but were unable to run an efficient operation. By contrast, the auto industry has seen demand drop from 15M cars/year to under 10.

Also, the railroads were tied down to losing operations by government regulation. The auto industry doesn't have this problem yet, but mandatory CAFE regulations could have a similar effect.

The government can help auto industries by lending them money as a debtor in possession for a bankruptcy. If GM entered bankruptcy without government backing, no one would lend them money to restructure further and they would be forced to liquidate.

I am from Detroit and have seen how the UAW and the Big Three single-handedly created the middle class. But having worked in the Rouge Plant for a summer, I agree that people don't deserve to be middle-class for unskilled labor. The only way to break this view may be a bankruptcy.

Even when demand was high, GM was unable to run a profitable business. Same can be said for Chrysler and to a much lesser extent Ford.

The economy tanking was more or less the straw that broke GM's back completely.

Counterpoint:

http://news.ycombinator.com/item?id=373740

I think there is a lot to be said for both sides. The one thing we don't want is a situation where we keep giving money to management that is unable or unwilling to become profitable. Nationalization and bankruptcy are both proven options, but the sort of bailout currently in mode is not.

great article, made some very good points about the efficiencies of railroads vs. trucks.

Reply on news.ycombinator.com