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A Review of America’s Track Record on Nationalizing Brands
In the recent CARES Act, the aviation industry was given a bailout for its recent economic woes stemming from the COVID-19 epidemic. This has led to another round of arguments being brought forward about preferring nationalizing carriers to avoid these issues going forward and potentially creating a more enjoyable airline experience like what can be found in the Middle East and Europe.
This story is not new and has been referenced before following the downturn in traffic post-September 11 and during the recession of 2008. So instead of campaigning if nationalization is the right decision for the airline industry in the United States, let us look at the more recent history of the nationalized logistics-related firms and brands in the U.S., their stories and how they have turned out in the end.
The most notable and commonly referenced example of America nationalizing a brand is that of Amtrak. The passenger train service was formed under government control in 1971 as a way of providing stable passenger services to America as private firms were dropping from the scene. Prior to the start of Amtrak, the government had taken moves to try and keep passenger service going with freight companies via subsidies. But the increasing use of cars and planes, as well as the poor financial state of the railroad industry in the 1960s saw companies continue to cut services.
Watching as other nations were investing heavily in rail infrastructure, Presidents Lyndon B. Johnson and Richard Nixon would both sign the High-Speed Ground Transportation Act of 1965 and Rail Passenger Service Act of 1970, the latter of which officially formed Amtrak. The High-Speed Ground Transportation Act would push for high-speed rail similar to Japan’s Shinkansen trains which would partially be realized in Amtrak’s Northeast Corridor, which Amtrak would first use for the Metroliner fleet in the 1970s through the 1990s and would, later on, become America’s only high-speed train, the Acela Express.
Amtrak would assume control of almost all former passenger train services and would start operations using cars from the retired private operated line’s fleets. Nixon was originally assuming that the idea of Amtrak would be a short-lived financial failure and that after a few years Congress would resort to dissolving the carrier, but instead, Congress took the opposite route. They would instead pass forward numerous amounts of funding to allow Amtrak to repair and replace old sections of track, overhaul stations and build a fleet that would suit its customers’ needs.
Furthermore, Amtrak would strengthen its position following the Railroad Revitalization and Regulatory Reform Act of 1976, which saw Penn Central’s Northeast Corridor transfer into Amtrak control. This section of track between Massachusetts and Pennsylvania has been and continues to be Amtrak’s most used and most profitable route.
Outside of the Northeast, Amtrak was struggling to find success. The company was operating a mix of long haul lines based mostly from Chicago and inter-state lines, all of which were subsidized by both the federal government and the states themselves to promote train travel.
However, failure continued to follow the passenger trains of America. Ridership would balloon from the original 16.6 million its inaugural year to over 21 million a year by 1980 before plateauing for the next two decades. The US government wanted Amtrak to be self-sustainable, but underfunding and a continuous lack of profitability led the carrier to need a $2.3 billion bailout during the Taxpayer Relief Act of 1997.
It was during the 1990s that Amtrak once again made massive payments into its rail operations. The company would buy its now well knowing high-speed trainsets called the Acela Express and would go on to overhaul the diesel fleet with the onboarding of the GE Genesis train engine.
In hopes of turning the tide towards profitability, Amtrak’s then CEO George Warrington would pursue cargo operations to supplement its passenger services. This decision had detrimental effects on Amtrak. First, it involved more investment in cargo operations as the company would add more freight cars to its passenger trains. Furthermore, this annoyed freight operators who gave the nationalized train line space to operate on their lines and now saw Amtrak as a direct competitor who was using their track for profit. Upon replacing Warrington, David L. Gunn would walk back those deals with the last one being removed with the United States Postal Service in 2004.
More recently, former Delta and Northwest CEO Richard Anderson has been at the helm of the rail company and has taken the iron-fisted approach to fishing any sort of profit. He has cut unwanted services, suspended and downsized onboard options and nagged Congress to allow Amtrak to restructure towards profitability. His requests for restructure have been to allow for more localized train lines instead of the current long haul market, creating a more streamlined route map that people would take advantage of in four hours or less markets. Congressmen have balked at the idea, saying that ‘small town USA’ would suffer as a result of Anderson’s plan.
Now with Anderson stepping aside and former Atlas Air CEO William J. Flynn taking control, the future is still uncertain for Amtrak. The company had seen record profits of $3.3 billion but still produced a net loss of $140.9 million. The rail line is in the midst of yet another fleet overhaul, adding Siemens ACS-64s and the Alstrom Avelia Liberty trainsets to replace all Northeast Corridor equipment while Siemens CS-44 Chargers are starting to replace the GE Genesis fleet. Ridership has ballooned to 32.5 million riders a year and the company is still aiming to be self-sustainable in the future, a goal which has not changed since 1971.
Formed nearly simultaneously as Amtrak, Consolidated Rail Corporation was created in 1976 as a massive stabilization to the northeastern corridor. Created with the Regional Rail Reorganization Act of 1974 and the Railroad Revitalization and Regulatory Reform Act of 1976, Conrail would assume the role of operator of seven major bankrupt northeast railroads that the United States government saw a profitable. The most noteworthy was that of Penn Central, who operated vital connections throughout Pennsylvania and New York.
For freight lines during this time, high regulations and the rise of alternative transportation methods such as trucking, shipping and flying goods was becoming more prominent. This meant that although Penn Central maintained the key Pennsylvania Railroad linkage between the Rust Belt and the Eastern Seaboard, it failed to turn a profit following a sloppy merger between New York Central. New Haven Railroad and the Pennsylvania Railroad in 1968. At its lowest, Penn Central lost roughly $1 million a day and would file bankruptcy in 1971, three years after the merger.
To contradict Penn Central failures, the United States government assumed the company’s assets and set to work creating a profitable rail company for the companies who relied on rail for their products. Similarly to Amtrak, the idea behind Conrail was to heavily invest in the outdated and diverse system of rail signals and operation standards that lay in the northeast as a result of mergers from previous systems. Congress in the late 1970s would invest billions into Conrail to streamline infrastructure and fleet revitalization projects. However, by 1980 the rail line was still as unprofitable as it had been a decade earlier.
During this time, owning Conrail allowed the United States government to clearly see why so many carriers were faltering in the current market. The Carter administration would help stabilize the industry with the Staggers Rail Act in 1980, which transferred the right to determine rates from the Interstate Commerce Commission to the companies themselves. The act also allowed companies to sign contracts without ICC review and removed industry-wide rate increases.
After the Staggers Act and some internal restructuring at Conrail, the company managed to start to find solid footing. It would take a few more years of stability but by the mid-1980s Conrail was finally in the green. To prove this, then CEO L. Stanley Crane delivered a $200 million check from Conrail to President Ronald Reagan in 1986 as a sign of the company’s turnaround.
Now profitable, Conrail was a vital asset and worth its weight to investors. A debate amongst Conrail executives and the Reagan administration proved to be a fierce one as the Conrail executives wanted to go at it alone in the private market while the current president valued a direct sale of competitor Norfolk Southern as a lucrative deal.
In the end, the government entity would be allowed to go at it alone, with the United States’ government putting up its 85 percent stake in Conrail for sale via the Conrail Privatization Act of 1986. The deal for the carrier would be a windfall of cash for Congress, bringing in $1.6 billion in the sale.
After going private, Conrail continued to profitably lumber along for the next decade before looking to merge with another rail operator. Conrail originally approached fellow competitor CSX Transportation for a merger, which caught the eye of Norfolk Southern. By 1997, a three-way deal would be reached with the smaller Conrail being bought and split between both companies. Norfolk Southern would take over the 58 percent of Conrail and CSX would take 42 percent but both companies would have equal voting power over future Conrail decisions. Conrail’s fleet and rail network would also be split between the two.
Conrail still exists but not in a visible form. Following the split by CSX and Norforlk Southern, Conrail still maintains some trackage rights in Detroit, Philadelphia and New Jersey and receives royalties from its two owners as part of the new company, now called Conrail Shared Assets Operations. Reporting as CRCX on the tracks, Conrail does not own any engines or rolling stock right now but does receive smaller EMD SD40-2 and EMD GP40-2 engines from its parent companies, some of which previously wore Conrail blue in the 1970s, 1980s and 1990s.
General Motors and the 2009 Auto Bailout
During the financial recession of 2009, the auto industry took a serious hit as manufacturers were coping with the decline in demand for new model cars and nobody was hit harder than General Motors of Detroit. The auto manufacturer had accrued over $94 billion worth of debt and was struggling to stay afloat alongside competitor Chrysler.
General Motors was struggling worldwide and domestically had been vulnerable to its competitors. The company had seen competitors slowly eat away at its market share and in response was forced to close brands like Oldsmobile in response to the downturn. By 2008, the car company’s year over year sales had fallen by 33 percent.
Both Chrysler and General Motors would appeal to then President Barack Obama for funding to keep workers employed and keep the firms afloat. Politics played a key role in both companies restructuring plans, with Chrysler and General Motors driven into Chapter 11 bankruptcy in 2009 before receiving government aid. Chrysler would take a much smaller stake from the government compared to GM due to the company receiving interest from Italian car-maker Fiat during its time in bankruptcy.
However, GM would receive over a 60 percent stake from the federal government and an injection of cash close to $49.5 billion to help the car company. During bankruptcy and under government watch, GM would slash bloated areas of the company, including selling off and suspending brands like Saturn, Hummer and Pontiac. The company would also cut costs by selling the Saab division, closing 900 dealerships and 13 factories and cutting over 20,000 jobs.
However, the government aid and Chapter 11 bankruptcy helped the company severely reduce their internal issues. By the time GM emerged from bankruptcy they had reduced their debt by over 80 percent and the thinner, leaner car company was ready rebound alongside the economy.
The 60 percent stake was slowly removed over time as the company was once again profitable and the U.S. Treasury Department claimed it had achieved its goal despite losing $10 billion in the restructuring. A study by the Center for Automotive Research said that the GM bailout had saved 1.2 million jobs despite the generic taxpayer footing the bill for GM’s woes.
In a statement following the sale of the last shares, U.S. Treasury Spokesman Adam Hodge said, “the goal of the Treasury’s investment into GM was never to make a profit, but to help save the American auto industry and by any measure that effort was successful.”
In the years following bankruptcy General Motors saw over five percent growth domestically in five of its first six years after bankruptcy. This increase peaked domestically at 3 million cars a year in 2015, which mirrors the same production values that the firm was building the year before its bankruptcy.
The company has still evolved its brands since returning to the public market, mostly in consolidating makes and models. 2019 saw Chevrolet butcher its plethora of different sedans as the market prioritized larger SUVs, trucks and minivans. The company has also continued to cut makers, with European builders Vauxhall and Opel being sold in 2017 and Australian producer Holden closing up shop at the end of 2020.
Well, there you have it. Three brands in two different industries have seen nationalization over the last few decades. Time and the voices of those in the country will tell if the U.S. aviation industry will need a nationalized carrier. But perhaps its best we wait until we are on the other side of the current epidemic to see what the best plan of action is. In the meantime, stay safe, stay inside and I will see you all in the skies again at some point, whether they are nationalized or not.
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