GM: The Neverending Bailout

Washington will almost certainly cave into GM's extortion. They always have and always will.

So, how was the trolley ride to work today? Were you able to get a seat, or did you have to hang onto a strap?

What, there are no trolleys where you live? Instead, you spent an hour and a half grinding through gridlock in your car? Yeah, me too.

That's because there are virtually no trolley lines left. Seems that someone bought them up and scrapped them all. Now who would do such a thing?

Actually, General Motors (GM) would, which has a great deal to do with why I am inclined to consign the bankrupt beggars to rot in corporate hell.

Trolley Dodging

Dial your "Way Back Machine" to 1937: Trolley lines happily and efficiently serve most every major metropolis. Heck, my own hometown baseball team, the Brooklyn Dodgers, draws its name from agile street crossers trying to avoid death by tram.

Suddenly, an odd company named National City Lines (NCL) pops up out of nowhere like an evil mushroom. Operated by five brothers named Fitzgerald, these nigh-illiterate Minnesota bus drivers have somehow gotten a hold of millions of dollars and are buying up every trolley company they can get their greasy hands on.

Eventually their network of shell companies and subsidiaries owns transit companies in some 40 cities. So what do they do with these fast, clean, effective, cheap "light rail" operations? They tear up the tracks, sell the cars for scrap, and replace them all with slow-moving, smoke-belching, rubber-tired buses. And then they raise all the fares.

Birth of an Eventually Bankrupt Nation

So you know what folks did? They bought cars. Lots and lots of cars, which require lots and lots of concrete roads, and lots and lots of gas stations and lots and lots of garages to put them in, and two-income families to pay for it all.

In other words: modern, gridlocked, unhappy, bankrupt America.

As I said earlier, who would want to do such a thing?

GM would, along with Mack Truck, Phillips Petroleum, a.k.a. ConocoPhillips (COP), Standard Oil, a.k.a. Exxon Mobil (XOM), and Firestone Tires, now Japan's Bridgestone-Firestone (BRDCY.PK) after the whole melting tires/SUVs blowing up/people getting injured debacle.

You Can't Make Up Stuff Like This

No, this is not some fevered anti-industrialist dream. In 1946, the FBI caught wind of the whole sordid affair, and in '47, the bunch of them were caught and hauled into federal court on charges of criminal conspiracy.

Here's what the G-men uncovered: The four corporate giants paid millions (in current dollars, billions) for NCL preferred stock. NCL used the cash to buy and destroy trolley lines, and replace them with buses sporting GM chassis, Mack engines, and Firestone tires, to be fueled by Esso Diesel.

And the best part? Trolleys running on smooth steel rails last decades, while these new buses were guaranteed to shake themselves apart in a few years. Now that's an eternal stream of income if there ever was one.

It's also sorta, kinda, you know, "illegal?" So on April 1, 1949, the judge handed out a verdict: Mack, Firestone and GM would each pay $5,000. Esso only owed a grand. And each Fitzgerald brother was forced to pony up a dollar. And allowed (one might say even encouraged) to continue buying and closing trolley lines. After all, what's good for General Motors… is certainly good enough for the likes of us.

Buy the Cars… Don't Buy the Cars… It Matters Not, Because We Still Foot the Bill

Now we get back into our time machine and journey back to the present: After decades of filling the highways with god-awful cars that seldom outlast their payments, Americans are done with GM. Just don't want one this year, thank you very much.

GM's outraged reaction: If you won't buy our cars, fine! Just give us $50 billion in cash (for now; we will probably ask for a lot more again in a few weeks). If you do that, we will still close down plants and fire a boatload of workers.

But if you don't, we will declare bankruptcy, which would cost you $100 billion up front, and God only knows what else, when we start firing millions of workers and shutting down supply lines to every other manufacturer.

Oh, and those billions you already lent us? Fergedaboudit! Our buddies with bonds are waaay ahead of you in line. Wanna argue about it? Take us to court ('cause we looove the courts)!

Once a Thug, Always a Thug

My emotional response is that this is blackmail, plain and simple, and I am, as I said earlier, inclined to let the crooks rot.

However, I suspect that, just as they did in 1949, GM will once again get a free pass to continue making our lives miserable. Oh, they will be "restructured," with "brands" that were once independent operations, but haven't had any real meaning in decades, finally fading into the night.

But in the end, we will comply with their blackmail, and write this check, and the next one. And the next one.

Disclosure: no postions

Comments

[drone:]

GM will take this bailout money and use it to produce overpriced Chevy Volts. These Volts will be financed by bailed out banks lending our money back to us, with an interest rate and fees attached. The American way.

Feb 20 09:05 AM

[Leeloo:]

Interesting history lesson, but your example of corporate misbehavior is about sixty years old. I doubt that any of those responsible for that episode are still running the show at the companies you mentioned.

What about the more recent examples of outright fraud, incompetence and greed among the investment banks and Wall Street that built the derivatives time bomb that is now destroying the financial systems of the global economy, and thus the broader economies of the world? This is much more relevant to the problems of the here and now. And the guilty here are largely still in power and being handsomely rewarded.

I hold greater contempt for the latter bunch of criminals than I do for some long-gone corporate leaders of a bygone era. Still, I would string the whole lot of them up with piano wire just the same, but that's just my way of responding to the crooks.

Feb 20 12:18 PM

[pedrom:]

Men that don't study history are destined to repeat it. (I'm not sure who first said some version of this.)

Your article is an excellent and timely history lesson.

Feb 20 01:15 PM

[Steve in TN:]

From Leeloo:
"...examples of outright fraud, incompetence and greed among the investment banks and Wall Street..."

Don't forget to include some of our senators and congressmen who okayed millions of households who couldn't afford to own a home generous loans they couldn't pay back and no one responsible for those loans. Those are the real villains in this economic tragedy.

Feb 20 03:54 PM

[Miken:]

Where do they find these wacko's? He wants to talk about stuff from 70 years ago...this is news we need?

By the way, he didn't tell the rest of the story:

"In 1949, the defendants were acquitted on the first count of conspiring to monopolize transportation services, but were found guilty on the second count of conspiring to monopolize the provision of parts and supplies to their subsidiary companies. The companies were each fined $5,000, and the directors were each fined one dollar. The verdicts were upheld on appeal in 1951." They were NOT guilty of the monopoly charges because bus transportation WAS CHEAPER THAN THE MAINTENANCE OF A TROLLEY SYSTEM!!!

These people also thought there was more to the story:

"Another element of the conspiracy theory is the effect of the construction of the Interstate Highway System, which began its initial construction in California after the large-scale dismantling of that state's trolley network." So, I guess we have to dismantle the interstate system too.

By the way, these quotes are from Wikipedia, en.wikipedia.org/wiki/....

It turns out that what they were guilty of is using their own parts instead of competitively bidding to use competitors parts....the horror of it all.

Mr. Lass, you are a joke.

Feb 20 04:11 PM

[babyray:]

GM isnt making my life Miserable but the Wall Street Bankers that got us into this mess are. Please somebody stop trying to compare the loans for the auto companies that are only 4% of what was givin just givin to Wall Street. I hope GM survives. I believe more in the ethical behavior of the blue collar worker that built this country with their hands than these Madoff types.

Feb 20 06:23 PM

[Leftfield:]

So, the highway system and all the infrastructure and scattered auto-dependent development since WWII is cheaper than the trolleys? Common sense says, obviously, no.

Now we're paying for light rail etc. at $1k/toilet seat government rates to rebuild what we had.

The same amoral corporate culture pervades G.M. and most corporations now, regardless of who runs them this year. And, G.M. has gotten into bank bailout funds via GMAC like other large corporations with financing arms. They are part of Wall St. too.

When I make more than G.M. and government workers, even during failure, I may forget their many sins and consider helping them.

Feb 21 09:04 AM

[Mister Jimmy:]

Who gives a crap what this Geraldo look-alike has to say. Editorial writer for a bunch of no-name financial pump-and-dump rags? Another Seeking Alpha poser that played into the current financial train wreck and one that likely never worked a real job in his life.

Feb 21 09:06 AM

[car_guy:]

"You Can't Make Up Stuff Like This"

Apparently you can and still be published on Seeking Alpha. Adam Lass is like most contributors to this site in that he sees no reason to actually do any research, vague recollections and creative writing are just fine.

The court never found any of these companies guilty of a grand conspiracy to replace the trolley cars with buses. Instead they found them guilty of exchanging investment capital for exclusive purchase contracts for buses, parts, etc. This was deemed a violation of anti-trust. Here is the actual court transcript:
www.altlaw.org/v1/case...

Here is an interesting article by Time magazine from 1944 on the LA trolleys. Seems they were not the clean effiecent machines described above. Time used the following description:
"The Fitzgeralds usually revive run-down transportation systems by scrapping car tracks, replacing trolleys with busses. This will be a welcome move in Los Angeles, which has the greatest accumulation of antiquated rolling stock on the Pacific Coast. Some of the 1,140 cars were running in 1910. But even the old cars are needed today. Any modernization must await war's end."
Here is the full article:
www.time.com/time/maga...

Lastly, doesn't Brooklyn have a subway system? Isn't that an electric rail system?

Feb 21 08:14 PM

[303820:]

Europe has the best train system money can buy most of it electric cables....however people want cars...cars ...cars!

Feb 21 11:03 PM

[Mad Hedge F...:]

I’ll tell you what GM’s problem is. My dad was a religious lifetime GM customer, buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California had forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, “I didn’t fight the Japs for four years so I could buy their cars.” (He was a Marine). GM’s problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese, and Indian vehicles. It is no coincidence that GM’s problems really accelerated with the passing of the “greatest generation.”

Feb 23 07:29 AM

[Mad Hedge F...:]

General Motors (GM) announced a Q4 loss, and a 6.2 billion cash burn, leaving them with a scant $14 billion left. The company will have to file for bankruptcy when this figure drops below $10 billion, or in about two months. Last year GM lost $84.7 million a day! Apparently when people are afraid of losing their job and their house and are maxed out on their credit cards, they don’t run out and buy a new car. At least some fiscal responsibility is returning. Unsurprisingly, CEO rick Wagoner was back on capitol hill today panhandling for more money. The death watch has started.

Feb 26 09:29 AM

[Jason Rines...:]

Are you insane? Anybody who attempts to educate in a sound, rationale manner stating facts has my respect. You get a -10,000,000 vote for ungentlemen like conduct.


On Feb 21 09:06 AM Mister Jimmy wrote:

> Who gives a crap what this Geraldo look-alike has to say. Editorial
> writer for a bunch of no-name financial pump-and-dump rags? Another
> Seeking Alpha poser that played into the current financial train
> wreck and one that likely never worked a real job in his life.

Mar 06 03:44 PM