uAMERICAN GROUND TRANSPORT
A Proposal for Restructuring the Automobile, Truck, Bus & Rail Industries
Bradford C. Snell
From the Original 1974 U.S. Government Report
The following sections ARE included in this document:
Introduction and Summary of Findings
I. Evaluating Competition
II. Competition in Ground Transportation
Economic Analysis of the Automobile, Truck, Bus and Rail Industries
The following sections ARE NOT (yet) included in this document:
III. Restructuring Ground Transportation
A First Approximation
This is a study of the social consequences of monopoly. It shows that excessive economic concentration can restructure society for corporate ends. As an illustration, it focuses on three powerful automobile companies which eliminated competition among themselves, secured control over rival bus and rail industries, and then maximized profits by substituting cars and trucks for trains, streetcars, subways and buses. In short, it describes how General Motors, Ford and Chrysler reshaped American ground transportation to serve corporate wants instead of social needs.
This is not a study of malevolent or rapacious executives. Rather, it maintains that as a result of their monopolistic structure the Big Three automakers have acted in a manner detrimental to the public interest. More specifically, it demonstrates General Motors to be a sovereign economic state, whose common control of auto, truck, bus and locomotive production was a major factor in the displacement of rail and bus transportation by cars and trucks. It notes, moreover, that these displaced methods of travel were energy-conserving, dependable, economical, safe and environmentally compatible. In sum, this study strongly suggests that a monopoly in ground vehicle production has led inexorably to a breakdown in this Nation’s ground transportation.
We are witnessing today the collapse of a society based on the automobile. Unlike every other industrialized country, we have come to rely exclusively on large, gas-guzzling cars and trucks for the movement of passengers and freight. In the process, we have consumed much of the Nation’s supply of oil, fouled our urban air with poisonous exhausts and turned our cities into highways and parking lots. Now we are confronted with an energy crisis that threatens to paralyze motor vehicle travel and reduce us to a level of mobility common only to less advanced countries.
The roots of our transportation malaise are several. This study purports neither to define nor to resolve all of them. They include, for example, a government bias in favor of highways rather than rail transit, an industry failure to produce transport vehicles consistent with energy resources and environmental constraints, and a consumer dependence on private automobiles to the exclusion of public transport. This study will argue, however, that to a considerable extent these are but outgrowths of a more fundamental problem: the economic and political control by three powerful automobile firms of all forms of ground travel. By proposing to reorganize these firms into smaller, more competitive units, it does not pretend to offer a blueprint for better transportation. Rather, it seeks to eliminate an otherwise insuperable obstacle to that end.
Part I briefly sets forth the relevant economic criteria for evaluating both competition in the motor vehicle industry and interindustry competition between motor vehicles and other forms of ground transport. It provides a basis for arguing that the breakdown of auto, truck, bus, and rail transportation was an inevitable result of monopoly structure. Although highly analytical in nature, it is essential to an understanding of the structural reorganization of General Motors, Ford, and Chrysler proposed in Part III.
Part II describes the social consequences of shared monopoly in the auto industry. It notes, for example, that due to excessive concentration the Big Three auto firms have lost the ability to anticipate and adapt to change. Insulated from the discipline of competitive market forces, they have invested billions of dollars in the production of vehicles from a superseded technological age. To protect these huge sunk investments, they persist in building big, inefficient gasoline-consuming cars at a time when petroleum shortages have largely eliminated the demand for them. The implications for workers, dealers, shareholders, consumers and the economy in general are staggering: massive unemployment, growing inventories of unsold vehicles, plunging stocks, unfilled small car demand, and ominous signs of an auto-induced recession.
Part II also lays bare the social consequences of General Motors’ domination of competing methods of travel. At the outset, it establishes that GM has both the power and the economic incentive to maximize profits by suppressing rail and bus transportation. The economics are obvious: one bus can eliminate 35 automobiles; one streetcar, subway or rail transit vehicle can supplant 50 passenger cars; one train can displace 1,000 cars or a fleet of 150 cargo-laden trucks. The result was inevitable: a drive by GM to sell cars and trucks by displacing rail and bus systems. This section describes that process. It discloses, for example, GM’s role in the destruction of more than 100 electric surface rail systems in 45 cities including New York, Philadelphia, Baltimore, St. Louis, Oakland, Salt Lake City and Los Angeles. More specifically, it describes the devastating impact of this widescale operation on the quality of life in America’s cities.
Nowhere was the ruin from GM’s motorization program more apparent than in southern California (see pp. 31-35). Thirty-five years ago Los Angeles was a beautiful city of lush palm trees, fragrant orange groves and ocean-clean air. It was served then b the world’s largest electric railway network. It the late 1930’s General Motors and allied highway interests acquired the local transit companies, scrapped their pollution-free electric trains, tore down their power transmission lines, ripped up their tracks, and placed GM buses on already congested Los Angeles streets. The noisy, foul-smelling buses turned earlier patrons of the high-speed rail system away from public transit and, in effect, sold millions of private automobiles. Largely as a result, this city is today an ecological wasteland: the palm trees are dying of petrochemical smog; the orange groves have been paved over by 300 miles of freeways; the air is a septic tank into which 4 million cars, half of them built by General Motors, pump 13,000 tons of pollutants daily. Furthermore, a shortage of motor vehicle fuel and an absence of adequate public transport now threatens to disrupt the entire auto-dependent region.
Part II also suggests that General Motors’ common control of auto, truck, and locomotive production may have contributed to the decline of America’s railroads. Beginning in the mid-1930’s, this firm used its leverage as the Nation’s largest shipper of freight to coerce railroads into scrapping their equipment, including pollution-free electric locomotives, in favor of more expensive, less durable, and less efficient GM diesel units. As a consequence, dieselization seriously impaired the ability of railroads to compete with the cars and trucks GM was fundamentally interested in selling.
In this regard, GM’s dieselization of the New Haven Railroad is illustrative (see pp. 38-43). During 50 years of electrified operation, this road had never failed to show an operating profit. In 1955, the year before GM dieselized its operation, the New Haven earned $5.7 million carrying 45 million passengers and 814,000 carloads of freight. Then, in 1956, GM persuaded it to tear down its electric lines and scrap its powerful, high-speed electric locomotives. By 1959, 3 years after dieselization, it lost $9.2 million hauling 10 million fewer passengers and 130,000 fewer carloads of freight. In 1961, it was declared bankrupt; by 1968, when it was acquired by the Penn Central, it had accumulated a capital deficit of nearly $300 million.
In sum, GM’s dieselization program may have eliminated a technological alternative, electric trains, which could have helped the railroads compete more effectively for passengers and freight with highway transport. Today, when virtually every other industrialized nation has electrified its railroads, America and what is left of America’s railroads are locked in to GM diesel locomotives.
The motorization of Los Angeles and dieselization of the New Haven are two of the most appalling episodes in the history of American transportation. These and other shocking incidents, however, were the inevitable outgrowth of concentrated economic power. Whether General Motors’ executives actually intended to construct a society wholly dependent on motor vehicles is unlikely and, in any case, irrelevant. That such a society developed in part as a result of that firm’s control of competing forms of ground transportation is both relevant and apparent.
Part III presents a proposal designed to restore competition in the motor vehicle industry. In brief, it recommends reorganization of the automobile and truck industries into smaller, more competitive units. More specifically, it assumes the wisdom of the decentralized method of operations adopted by the automakers. Motor vehicle assembly, engine production, body stamping and dozens of other major automotive functions are currently undertaken in hundreds of physically distinct plants located throughout the country. This proposal would not interfere with this arrangement. It would, however, suggest a change in ownership: Each group of plants now separate in law as well. Reorganization along these general lines, it concludes, would allow for a greater degree of competition and technological flexibility at every level of motor vehicle production. In short, a competitively structured industry would be better able to anticipate and adapt to a changing world.
Part III presents a second proposal designed to promote a more balanced system of ground transportation. It suggests that reorganization of General Motors’ bus and rail locomotive divisions into independent corporations would enable them to operate free from the conflict of interest inherent in their ownership by the world’s largest manufacturer of cars and trucks.
The study concludes with a discussion of feasibility and a review of alternative means of implementation. It suggests, for instance, that reorganization into smaller, independently competing units is feasible for at least two reasons: America’s ground vehicle industries performed better when they were independent and less concentrated; and the more advanced transport industries of Europe and Japan are largely organized in this fashion. With respect to implementation, it resolves that Congress rather than the courts is the most likely and appropriate body to restructure these industries for the good of society.
Industrial competition is the unequivocal premise of our free enterprise system.1 In order properly to evaluate the nature of competition in our motor vehicle industries, we must first review their structure, conduct, and performance.2 The competitiveness of an industry’s structure depends upon concentration (the number of firms and their individual shares of industry sales), vertical integration (the extent to which a firm performs two or more successive functions which could be performed efficiently by independent entities), barriers to entry (obstacles that impose on newcomers higher costs per unit than those encountered by established firms), and multinationalization (the ownerships of facilities in two or more countries).3 The competitiveness of an industry’s performance depends upon the extent to which its conduct contributes to progressiveness (the number and importance of actual innovations as compared with what optimally could have been developed), to efficiency (the reduction of costs and prices to absolute minima), and to a range of public policy objectives including national security, full employment, and a favorable balance of international trade.5
An industry’s behavior and performance are ultimately determined by its structure. An anticompetitively structured industry precludes the longrun survival of effectively competitive behavior and performance.6 In fact, empirical studies demonstrate that high market concentration, extensive vertical integration, formidable barriers to entry, and broad multinationalization (structural factors) engender price fixing, product imitation, technological collusion, and other forms of concerted and interdependent behavior (conduct), which lead, in turn, to monopoly overcharges, retarded rates of innovation, an inability to compete on the world market, and a failure to contribute to important national goals (performance features).7
More specifically, an impressive amount of economic data supports the judgment that concentration of more than 50 percent of an industry’s sales in four or fewer firms gives rise to conduct and performance which approximate that of a monopolist or well-disciplined cartel.8 This degree of concentration destroys the incentive for independent firm decisions on price and product innovation, and encourages instead the emergence of “shared monopoly interdependence,” a recognition that the profits of each firm are dependent on the decisions of each of the others.9 As a result, these few firms collectively avoid price, product, and technology competition in favor of “joint-profit maximization: Prices are set above competitive levels, product designs are imitated, technology is suppressed, imports are disregarded and exports are forfeited, often in a collusive fashion.”10 In effect, the industry is collectively monopolized.”11
Vertical integration by firms sharing monopoly power is a second anticompetitive structural factor. It excludes competitors, inflates production costs, and diminishes rates of technological innovation. Its pernicious effect on nonintegrated competitors can be readily demonstrated. It enables firms sharing monopoly power at one level of production to exclude rivals by extending their market control backward and forward into successive stages of manufacturing and distribution.12 Integration “upstream” or backward into components production forecloses markets to independent suppliers and deprives nonintegrated rivals of independent sources of supplies.13 Integration “downstream” or forward into distribution forecloses markets to independent wholesale and retail outlets, and deprives nonintegrated rivals of access to independent distributors.14
Vertical integration by dominant firms may also inflate costs and stifle innovation. The combination in one firm of activities previously performed by independent entities eliminates price and technological competition in each of the integrated activities. More specifically, due to its high fixed investment in existing plant and equipment, a vertically integrated firm is inherently reluctant to buy outside anything which it already makes internally, even if outside cost is less.15 Likewise, integration encourages firms to disregard technological innovations whose introduction might render existing plants obsolete and prior investments worthless. In this way, an entire industry can become cost inflated, and locked in to the state of technology which prevailed at the time vertical integration was initially undertaken.16
Barriers to entry comprise a third anticompetitive structural factor. Dominant firms in a shared monopoly can set higher than competitive prices and reap monopoly profits only if they are able to deter aggressive firms whose entry would push prices back to a competitive level.17 The effectiveness of these barriers is reflected generally by the persistence of high concentration levels.18
More precise measurements of entry barriers, however, have been developed. Empirical investigations of a number of concentrated industries reveal that vertical integration, high promotional expenditures (for example, advertising and annual model changes) and enormous capital requirements are powerful deterrents to new entry.19 If an industry is surrounded by an one of these barriers, the possibility of new entry is substantially reduced. If it is protected by all three, entry is “effectively blockaded.”20 By preserving shared monopolies from the deconcentration which would result if new firms were able to enter and to survive, barriers of such magnitude contribute to anti-competitive conduct and unsatisfactory performance. Multinationalization is an additional structural feature which, when undertaken by powerful, concentrated industries, precludes competitive conduct and performance. Multinational expansion by firms in competitive industries can provide a wide range of social and economic benefits for both home and host countries. For example, it may facilitate the interchange of advances in technology and reduce cross-cultural suspicions which generate hostilities. Multinational expansion by firms in concentrated industries, however, may provide an opposite set of significant disadvantages. By acquiring foreign competitors and by constructing factories abroad, a concentrated industry can maximize global profits without the necessity of competing with imports at home or of promoting exports abroad.21 Extensive foreign investments, in turn, transform powerful, concentrated industries into supranational economic states, which pursue global corporate objectives regardless of the political, social, and economic consequences for particular countries.22 More specifically, concentrated multinational industries can encroach upon national sovereignty by undermining the ability of nation-states to pursue their national and international objectives. As a result, concentrated multinational industries perform unsatisfactorily in terms of their contribution to the economic and political interests of a home country in such critical areas as national security, full employment, and a favorable balance of trade.23
Accordingly, a great number of economists and jurists now urge dissolution of leading firms in vertically integrated industries with four-firm concentration ratios of 50 percent or more, with barriers which all but foreclose new entry, and with extensive multinational entanglements.24 They contend that deconcentrated industries would behave more competitively in making price, product, and technology decisions and would perform more satisfactorily by providing the country with lower prices, expanded exports, higher employment, and an accelerated rate of technological innovation. In short, they argue that a larger number of competitors at every level of industrial production would provide a greater degree of competition.
Competition occurs among industries producing rival products, as well as among firms producing like products. Metal cans manufactured by one industry, for example, compete with glass bottles produced by another.25 The aluminum, steel and fiberglass industries compete with one another in the manufacture of building materials.26 Likewise, the two industries which manufacture automobiles and trucks compete with those which produce buses, trains, subway cars, and rapid transit vehicles. General Motors, for example, is fully aware of the impact of interindustry competition on its sales of automobiles:
The demand for automobile transportation is only part of the total demand for transportation services. Travelers can choose to use private cars, taxis, buses, rail transit or planes. Each transportation mode offers a variety of services at different prices. Each competes directly for the patronage of the customer for many of the transportation services he needs. To this extent, the various modes are truly alternatives.27
In order to evaluate “interindustry” competition between motor vehicles (auto and truck) and other forms of ground transport, we must review the overall structure, conduct, and performance of the multi-industry group which encompasses them.28 The competitiveness of an industry group’s structure depends upon interindustry diversification (the extent to which a single firm operates in two or more competing industries).30 The competitiveness of the group’s conduct depends upon how member industries promote their conflicting economic interests (price and technological competition or economic and political suppression of rivals), and with what purpose or effect (enhanced interindustry rivalry or the elimination of competing alternatives).31 The competitiveness of a group’s performance depends upon the extent to which its conduct contributes to aggregate efficiency, to progressiveness, and to a “balanced” production of competing consumer goods and services.32
The behavior and performance of a multi-industry group such as ground transport are ultimately determined by its structure. Anti-competitively structured industry groups preclude the long-run survival of effectively competitive conduct and performance. In fact, extensive diversification and asymmetry (structural factors) have been found to generate economic suppression and political restraint of competing industries (conduct) which lead in turn to artificially inflated prices, retarded innovation and a contraction in the number of consumer alternatives (performance).
More precisely, diversification may result in economic suppression of all but one of several competing industrial products. In Continental Can (1964), for instance, the Supreme Court expressed concern that an interindustry merger of competing metal and glass manufacturers would lead necessarily to a relaxation in the development and output of glass containers.33 There the Government argued that in 1956 Continental Can, the Nation’s second largest can producer, had acquired Hazel-Atlas, the third largest maker of reusable glass bottles, in order to augment Continental’s sale of metal containers.34 In fact, Continental had been engaged in a commercial war against glass bottles since the mid-1930’s.35 At that time, its marketing experts had estimated that in the beer industry alone a substitution of metal cans for glass bottles would transform a $3 million container business into a $90 million one. This estimate was based on a fundamental dissimilarity in the reuse of these competing containers: One reusable glass bottle displaced the sale of approximately 25 nonreusable metal cans. As one journal noted with respect to the beer industry: “That paradox rests on the fact that every beer can is a newly bought can, while the standard beer bottle returns to the brewer for refilling about 25 times before somebody drops and breaks it * * * or permanently sidetracks it in some uncombed dump.”36
Merger with Hazel-Atlas, therefore, could have enabled Continental to maximize overall sales and profits by restricting the technological development and output of glass bottles.37 In upholding the Government’s argument, the Court noted that “Continental acquired by the merger the power to guide the development of Hazel-Atlas consistently with Continental’s interest in metal containers.”38 In striking down the merger, it concluded that “the acquisition of Hazel-Atlas by a company engaged in such intense efforts to effect a diversion of business from glass to metal” would tend “substantially to lessen * * * interindustry competition” between glass and metal containers in violation of the antimerger provisions of the Clayton Antitrust Act.39
Likewise, Congress has acted to preclude diversification among rival industries. In transportation, for example, it has on several occasions explicitly prohibited common ownership of competing modes of transport. Provisions to this effect were enacted in the Panama Canal Act of 1912 (prohibiting common control of railroads and water carriers), and section 408 of the Civil Aeronautics Act of 1938 (prohibiting common control of surface and air transportation). In the Transportation Act of 1940, Congress again affirmed its policy with respect to the separation of competing forms of transportation by reenacting the provisions of the Panama Canal Act and of section 213 of the Motor Carrier Act.40 In passing these laws, Congress intended, in the words of the Interstate Commerce Commission, “to protect each mode of transportation from the suppression or strangulation thereof which might follow if control thereof were allowed to fall into the hands of a competing transportation agency.”41
Congress feared, therefore, that the conflict of interest inherent in common control of competing transport modes might lead to the “suppression or strangulation” of some in favor of others. Initially, it was concerned that the then powerful railroads would restrain other forms of ground travel. As one transportation economist noted:
An actual conflict of interest may appear between railway operation of a carrier and its highway, water or air operations. The investment of the company in railroad transportation facilities is so great that it would be more interested in keeping traffic on its rails and protecting its investments there than in developing a new and competing mode of transport. Railroads in control of a competing mode of transport, therefore, may be inclined to keep rates high for nonrail service, and the service poor, in an effort to hold traffic to the rails. 42
This concern, moreover, was grounded in fact. In implementing the Panama Canal Act, for instance, the ICC found that railroads controlling competing steamship lines had maintained high steamship rates to divert traffic to the rail lines and to eliminate water lines as an alternative mode of freight transport.43
These examples suggest that common ownership may lead to the repression of some industries in favor of others. Powerful firms controlling rival industries determine which will produce and which will perish. As a result, consumers are deprived of economic alternatives. In effect, their sovereignty in the marketplace is displaced by the sovereignty of the multi-industry producer. They are compelled to relinquish the essence of our free enterprise system: the opportunity to choose among the competing products and services of competing industries.
Asymmetry constitutes the second anticompetitive structural criteria. It refers to a marked divergence in the size and concentration of competing industries. This divergence in turn may result in the substitution of interindustry political warfare for price and technological competition. A multi-industry group consisting, for example, of one large, highly concentrated industry and several smaller, less concentrated rivals is imbalanced or “asymmetrical” with respect to political resources. Unless it is smaller than its rivals, the concentrated industry will generally have a larger economic capacity for political influence than its deconcentrated competitors. This follows from the ability of firms in a concentrated industry to pass on the costs of corporate lobbying and related political activities to consumers in the form of higher prices. The power of concentrated industries to levy such costs on consumers amounts, in effect, to a “corporate power to tax.”44
By contrast, competitively structured industries lack the power to finance political activities by taxing consumers. Price levels are beyond the control of industry firms and are determined instead by the interplay of free enterprise market forces.45 As a consequence, such industries are unable to influence Federal, State, and local officials as effectively as their concentrated rivals.
The size of a concentrated industry is also important. It governs the amount of revenue which can be raised for political purposes through price increases. It also affects the impact of political expenditures on Government officials. Other things being equal, the political efforts of an industry with multibillion dollar sales, hundreds of thousands of employees, and plants located throughout the country influence Government policymaking more than those of smaller industries.
The presence of a large and highly concentrated industry in an economic sector consisting of smaller and less concentrated rivals, therefore, may distort the operation of political processes. By virtue of its size and power over prices, a concentrated industry has the economic leverage to induce the adoption by Government of policies which competitively disadvantage weaker rivals. By establishing multimillion dollar corporate lobbies, for example, it can overwhelm the countervailing political efforts of less powerful competing industries.46 In vital multi-industry sectors such as energy, communications, and transportation, asymmetry can seriously threaten the public interest. It can result in the political restraint of small industries which offer superior technological alternatives to the products or services provided by their larger, concentrated rivals. With respect to energy, for example, asymmetry might help explain why small industries offering alternative energy sources such as gasified-coal, fusion and solar power have been consistently unable to secure the Government assistance regularly accorded the larger, concentrated oil industry.47
II. COMPETITION IN GROUND TRANSPORTATION: AN ECONOMIC ANALYSIS OF THE AUTOMOBILE, TRUCK, BUS, AND RAIL INDUSTRIES
Vehicles used for the ground transportation of passengers and freight are manufactured principally in four industries: automobile, truck, bus and rail. This section evaluates these industries in two respects: the nature of competition in motor vehicle (auto and truck) manufacturing and the nature of interindustry competition between motor vehicles and the other two forms of ground transport.
As measured by the structural economic criteria set forth in part I, automobile manufacturing is one of the least competitive industries in the American economy.48 Its structural concentration is unprecedented. One firm, General Motors, alone accounts for 50 percent of industry sales; 97 percent of domestic production is centered in three firms; four firms manufacture virtually all passenger cars produced and sold in this country.49 This degree of concentration is considerably greater than that generally considered inimical to competitive conduct and performance.50 In fact, the added feature of a single dominant firm (GM) increases the likelihood that the industry will behave and perform in a manner not unlike that of a cohesive monopoly.51
The extent of vertical integration in this industry is unparalleled. All four firms are integrated upstream into major components production and downstream into exclusive franchised distribution. All produce their own bodies and most of their stampings. All but American Motors cast their own engine blocks and cylinder heads, manufacture their own automatic transmissions and assemble their own cars.52 All maintain separate nationwide networks of franchised dealers, each of which deals exclusively in one make of automobile.53
Moreover, the condition of entry into automobile production has been described as “effectively blockaded.”54 More specifically, the industry is surrounded by insurmountable barriers: extensive vertical integration, high promotional expenditures, and enormous capital requirements.55 Since 1923, not a single domestic or foreign firm has entered this industry at the production stage and survived; and entry at the marketing stage by imports has been largely restricted to the less profitable specialty and small-car secondary markets.56 In addition, there are some indications that the Federal Government has sought to protect American automakers from competition with imports by imposing “voluntary” automobile quotas on foreign governments and surcharges on foreign-made vehicles.57
Furthermore, the industry is composed exclusively of multinational firms. GM, Ford, and Chrysler operate more than 200 automobile facilities in 44 foreign countries.58 Currently, these three firms account for half of the world’s total production of cars; already they dominate the Canadian, German, British and Australian markets.59 Nearly one-half of Ford’s employees are located overseas; one-third of GM’s are abroad.60 By 1972, Big Three investment in foreign operations amounted to an estimated $4 billion, and projections indicated an accelerated trend toward multinational expansion.61
Given its anticompetitive structure, the automobile industry’s anticompetitive conduct is not unexpected. High concentration, vertical integration, and insuperable barriers to entry have destroyed the incentive for independent decisions on price and technological innovation at all stages of auto production and have encouraged instead the emergence of shared monopoly interdependence, a recognition that the profits of each auto firm are dependent on the decisions of each of the other two.62 General Motors, the industry leader, makes most decisions. The other two firms, which rely on GM for the supply of various components, invariably follow. In the words of former Anti-trust Division Chief Thurman Arnold, Ford and Chrysler have become mere satellites of General Motors.”63 As a result, the automakers collectively eschew price, product, and technological competition in favor of shared monopolization: prices are set above competitive levels, product designs are protectively imitated, and technology is suppressed.
The Big Three interdependently price new cars and parts with the same anticompetitive impact as if they had acted in collusion. For several decades, a pattern of administered price leadership has prevailed, with General Motors as price leader. Without exception, Ford and Chrysler each year adjust their announced prices up or down to agree with those established by GM.64 Moreover, there is recent evidence which suggests that GM and Ford may have actually conspired to fix prices at higher than competitive levels, at least with respect to fleet automobile sales. The 270-page bill of particulars filed by the U.S. Department of Justice on January 2, 1973, in the fleet buyers litigation, contained documented allegations that the chairmen of GM and Ford routinely participated in “summit meetings” whose purpose was to fix prices on automobiles.65 In addition, the Federal Trade Commission charged in 1968 that these firms engage in the fixing of prices on automotive parts which they manufacture exclusively and ship to captive franchised dealers for resale.66
Due to their high degree of interdependence, the Big Three also pursue a policy of protectively imitating each other’s products. All, for example, are equipped with basically the same form of piston-driven engines, transmission, steering, and suspension systems. All, until late 1970 were even the same basic size. The industry’s annual model changes and introduction of “new” model lines, therefore, do not seem to result in a fundamental variation of automobile makes.67
The Big Three’s long-term resistance to building small cars provides a striking instance of protectively imitative conduct. For years, the automakers refused to build smaller vehicles because, as neatly summarized in 1971 by Henry Ford II, “minicars mean mini-profits.”68 Until 1970, not a single firm broke the shared monopoly ranks through innovation into the small car market despite increasing consumer demand and the rising pressure of imports. Since 1949, the United Auto Workers and others had repeatedly urged the industry to produce a small car for domestic sale as well as export.69 At that time, marketing surveys indicated that 6 out of 10 Americans desired smaller automobiles not unlike those manufactured abroad by the Big Three’s foreign subsidiaries.70 Ten years later, when imports had substantially filled this submarket, the Big Three introduced the so-called compacts. But these were not directly competitive in price, size and economy of operation with foreign-made cars, and the imports continued to increase. In addition, the Big Three soon began to make the compacts larger, more complex and more expensive. Not until late 1970 when the pressure from imports became intolerable, did GM and Ford reluctantly introduce genuinely small cars (Vega and Pinto, respectively).71 Examples such as these have led Professor Bain to conclude that in this industry “the highly imitative product policies of rival oligopolists seem to lead to substantial uniformity of available products and to a suppression of the potential variety in products.”72
A shared-monopoly policy of product imitation discouraged the Big Three from introducing small cars earlier. More generally, it has prevented these companies from responding to changes in consumer preferences. According to ex-GM Vice President John Z. DeLorean, the failure to introduce small cars is symptomatic of the degree to which the auto companies are out of touch with the marketplace. “If you wanted to make (the car) two feet shorter, no one would let you, they would be so frightened,” he complained. “There’s no forward response at General Motors to what the public wants today. It’s gotten to be a total insulation from the realities of the world. From the standpoint of America it’s frightening.”73
Likewise, the Big Three independently formulate policies on technology which have the same anticompetitive impact as if they were negotiated in concert. These policies serve one apparent objective: to protect multibillion dollar investments in the integrated production and distribution of conventional oil-powered vehicles. Accordingly, the Big Three have suppressed the introduction of automotive advances which threatened to depreciate the value of existing equipment. Only in response to Government mandate or the pressures of foreign imports have they introduced significant innovations. Safety belts, crash absorption bumpers, and collapsible steering columns, for example, were already standard equipment on foreign cars when largely at the Government’s behest the Big Three began to install them.74 They have also disregarded alternative propulsion developments. Electric and steam cars were first produced by small American firms in the early 1900’s.75 The low-emission stratified charge engine was first developed in the late 1920’s.76 The compact and reliable Wankel rotary engine has been in commercial production in Germany and Japan since the early 1960’s.77 Despite the availability of these and other technological alternatives, the Big Three have collectively persisted in the production of conventionally designed and powered cars. Vertical integration has prevented them from considering any other policy. To produce innovative cars, they would have to scrap billions of dollars’ worth of technologically obsolete equipment.78
There is also some evidence that the automakers may actually conspire to retard technological developments. In the pending motor vehicle pollution control cases, for example, it is alleged that from 1953 until at least 1969, the automobile companies conspired to suppress the technological development of automotive pollution control equipment.79 To date, 35 States and municipalities representing several million citizens have filed antitrust suits seeking both monetary damages and injunctive relief against the continuation of the alleged conspiracy.80
As a result of interdependent and possibly conspiratorial conduct, therefore, this industry’s automotive technology has remained basically unchanged since 1940: automatic transmissions, power brakes, air conditioning and other major innovations were all developed prior to that time.81 Moreover, these and most other innovations were the result of research and development by small auto firms or independent automotive suppliers. Smaller automobile firms were particularly innovative. Duesenberg, for example, pioneered in four-wheel brakes in 1920. Rubber engine mounts, which were an important contribution in reducing noise and vibration, were first introduced in 1922 by Nash. Reo introduced completely automatic transmission in 1934. In 1939 Packard offered the first auto air-conditioning unit. Complete single-unit construction was first undertaken in 1940 by Nash and the Budd Manufacturing Co.82 Independent automotive suppliers have also played a prominent role in developing innovations. Bendix and Kelsey-Hayes, for example, originated power breaking systems; and Bendix and Gemmer controlled the key patents on power steering. Dana developed nonslip differentials. Motorola made the principal breakthrough on a silicon rectifier for alternators; and Electric Autolite and Motorola did much of the advance work on transistorized ignition systems.83 By comparison, the Big Three automakers’ principal innovations in recent years have consisted to a large extent of Government-mandated equipment such as antitheft steering and ignition locks and relatively minor refinements including concealed windshield wipers and radio antennas.84
Given its anticompetitive structure and conduct, this industry’s unsatisfactory performance is inevitable. Indeed, automobile manufacturing is said to exhibit all the indexes of poor market performance: reduced efficiency, retarded progressiveness, an inability to compete on the world market, and a failure to contribute to progress in several areas of public concern.85
Efficiency in terms of market performance is generally measured by comparing actual prices and costs with those that would obtain in a competitively structured market.86 The Big Three’s anticompetitive pricing behavior has increased by billions of dollars the amount consumers must pay to own and operate their cars. According to a recent estimate by the Federal Trade Commission, 9 million purchasers of domestic 1972 automobiles paid $2.1 billion, or more than $230 per car, in shared monopoly overcharges to General Motors, Ford, and Chrysler.87 Moreover, they paid an additional billion dollars in overcharges on replacement parts manufactured by the Big Three’s integrated upstream facilities and distributed downstream by franchised dealers leveraged into using these parts exclusively.88
The Big Three’s product policy of annual model changes has also reduced efficiency by vastly increasing retooling costs, and hence prices. In 1972, consumers paid an estimated $1.6 billion, or $170 per car, to defray the costs of model changes which the Big Three claimed were related to improvements in performance.89 In fact, only a small percentage of model change costs could reasonably be attributed to the cost of non-Government-mandated performance improvements. In 1969, for instance, the U.S. Bureau of Labor Statistics reported a net reduction in performance improvements of $3 per automobile.90 Most of the new models, moreover, were only cosmetically restyled versions of last year’s offerings. Yet buyers were never given a choice between purchasing the same model as last year’s at a lower price and a new model at a higher price.91
Likewise, the Big Three’s reluctance to build and promote the sale of smaller, lightweight cars has resulted in a loss of efficiency in terms of fuel consumption. In 1972, motorists consumed 70 billion gallons of gasoline at a cost of $28 billion. The average car that year obtained 14 miles per gallon. Had the automakers built and actively promoted smaller cars instead, the cost savings to consumers would have been substantial. More specifically, if three-fourths of the Nation’s 1972 auto population had consisted of small cars such as GM’s Vega or Ford’s Pinto, motorists would have conserved 22 billion gallons of gasoline, at a total cost savings that year of nearly $7 billion.92
Progressiveness in terms of market performance is measured by comparing the number and importance of actual innovations with those which optimally could have been developed and introduced.93 The Big Three’s suppression of technological competition has precluded cost savings advances in several areas of public concern including energy, pollution control, automobile durability, and safety. It has been urged, for instance, that energy-conserving, low-emission electric and steam vehicles would help resolve this Nation’s acute petroleum shortage and help reduce the $6.6 billion in damages annually attributable to motor vehicle pollution.94 In addition, there is evidence that electric- and steam-powered cars can now be produced which would cost half as much to own and even less to operate as conventional gasoline automobiles.95 The application of known metallurgical process could permit doubling the life of an automobile for an additional cost of $36 per year, resulting in an annual savings to consumers of more than $2 billion.96 Effective crash-absorption bumpers, roll bars, perimeter fender protection, and other safety features have been developed which would substantially reduce both highway fatalities and the estimated $16.9 billion in economic losses ($8 billion alone in damages to vehicles) annually suffered by victims of motor vehicle accidents.97 Introduction of these innovations, however, would render obsolete much of the Big Three’s multibillion-dollar upstream investments in conventional body and complex internal combustion engine production.98 They would also lower production costs and increase durability, thereby reducing demand, prices and shared monopoly profits on the sale of new cars and replacement parts.99 There are grounds reasonably to suggest, therefore, that the Big Three may have repressed these and other cost-saving innovations.
In addition, the Big Three may collectively employ annual model changes as a surrogate for cost-savings innovations. By introducing a newly styled model each year, they provide consumers with the illusion of progress and yet avoid the necessity of adopting technological improvements which would lower new car purchase prices or maintenance charges. 100 A comparison of their expenditures for style changes and emission control, for example, is illustrative. For the 5-year period 1967-71, the Big Three’s expenditures for emission control amounted to less than 12 percent of their expenditures for annual restyling.101 In short, these companies apparently rely to a greater extent on annual style obsolescence rather than technological innovation as a means of bolstering replacement demand.
Moreover, there is no indication that this industry’s unsatisfactory progressiveness will improve. In response both to market and to Government demands for low-emission engines, for example, the Big Three claim that, except for limited production of some rotary-powered Vegas, they are technologically incapable of developing anything other than catalytic attachments. According to the National Academy of Sciences, however, catalytic converters will cost consumers $16 billion more by the mid-1980’s than the most promising low-emission alternatives.102 In addition, a recent high-level Environmental Protection Agency memorandum has indicated that catalytic converters may pollute the air with more dangerous poisons than they are supposed to eliminate.103
By contrast, two small foreign firms have already achieved major technological breakthroughs in this area. Toyo Kogyo, with its “Mazda” rotary engine and thermal purifying system, has met the original 1975 clean air standard; Honda has developed a stratified-charge engine which has not only met the 1975 standard but will very likely meet the 1976 standard as well.104 It is suspected, therefore, that the Big Three have become locked in to past technologies. Due to their extensive upstream integration into conventional body and engine production, they may have foresaken the economic incentive and possibly the technical ability to innovate.
An industry’s ability to compete on the world market and thereby to export its goods while limiting imports constitutes a third measure of performance.105 The Big Three’s avoidance of price, product, and technological competition has seriously affected their ability to sell American cars abroad. It has also encouraged Americans to buy imported cars. Up until 1968, the United States had always exported more vehicles and parts than it imported.106 But this trend has been reversed. American cars are less able to compete effectively in price, product (especially size), and technology with foreign-made vehicles. Largely as a result, the country last year imported $3.5 billion worth of vehicles and parts more than it exported.107 That amount is more than half of the country’s trade deficit for 1972 and reflects a level of imports which may have cost us hundreds of thousands of jobs in automobile and allied industries.108 “The dollar imbalance is due largely to the failure of the auto companies to make small cars,” ex-GM Vice President John DeLorean has charged. “The increase in the foreign car population is a tremendous erosion of the American economic base. That’s why our industry is not a growth industry anymore.”109
The automakers’ failure to build and to promote the sale of small cars has also contributed substantially to the recent energy-unemployment crisis. Despite warnings for nearly a decade of an impending fuel shortage, the Big Three have continued to encourage the sale of large, high-fuel consumption vehicles. More than 90 percent of their television advertising expenditures for 1972 and the first half of 1973, for example, were allocated to the promotion of standard (large) and intermediate-sized cars.110 Their objective was clear: to maximize profits by stimulating sales of more expensive lines of vehicles as long as was practically possible. The result was equally predictable: Layoffs of more than 170,000 automobile workers during the first part of 1974 because of the energy-related slump in big car sales.111
Finally, an industry’s performance might also be reviewed in terms of its contribution to other areas of public concern such as national security, full employment, and a favorable balance of international trade. Arguably, the automobile industry’s emerging multinational structure inhibits progress in each of these three areas.
More generally, the Big Three automakers’ multinational expansion may conflict with our national security and domestic as well as foreign policy objectives. As owners of facilities in more than 45 different countries, General Motors, Ford, and Chrysler can no longer properly be perceived as American corporations. Rather, they comprise supranational and sovereign economic states, which acknowledge loyalty to no particular country. The automakers readily concede this change in corporate outlook. Henry Ford II, chairman of the Ford Motor Co., for example, has stated: “We don’t think of ourselves as a national company anymore. We are definitely a multinational organization…”112 Likewise, GM’s Chairman Sloan reportedly told a group of stockholders on the eve of Germany’s invasion of Poland in 1939 that his corporation was “too big” to be affected by “petty international squabbles.”113
Upon first examination, this posture would appear to be in the best interests of international peace. Indeed, multinational expansion by nondominant firms in competitive industries facilitates contact and understanding between otherwise hostile countries. The movement abroad by powerful firms which already dominate vital industrial sectors at home, however, can produce the opposite result. It can endanger the national security of the home country and facilitate hostilities between nation-states. At a minimum, it presents the dilemma of conflicting loyalties, which can become particularly acute during periods of international conflict. This is particularly valid in the case of firms which dominate war-related industries in a number of potentially belligerent countries.
The activities of General Motors, Ford, and Chrysler prior to and during World War II, for example, are instructive. At that time, these three firms dominated motor vehicle production in both the United States and Germany. Due to its mass production capabilities, automobile manufacturing is one of the most crucial industries with respect to national defense. As a result, these firms retained the economic and political power to affect the shape of governmental relations both within and between these nations in a manner which maximized corporate global profits. In short, they were private governments unaccountable to the citizens of any country yet possessing tremendous influence over the course of war and peace in the world. The substantial contribution of these firms to the American war effort in terms of tanks, aircraft components, and other military equipment is widely acknowledged. Less well known are the simultaneous contributions of their foreign subsidiaries to the Axis Powers. In sum, they maximized profits by supplying both sides with the materiel needed to conduct the war.
During the 1920’s and 1930’s, the Big Three automakers undertook an extensive program of multinational expansion. In 1929, General Motors acquired Germany’s largest automobile company, Adam Opel, A.G.114 By the mid-1930’s, these three American companies owned automotive subsidiaries throughout Europe and the Far East; many of their largest facilities were located in the politically sensitive nations of Germany, Poland, Rumania, Austria, Hungary, Latvia, and Japan.115 As the Axis Powers overtly prepared for war, General Motors, Ford, and, to a lesser extent, Chrysler, found themselves involved in serious conflicts of interest and national loyalties. Due to their concentrated economic power over motor vehicle production in both Allied and Axis territories, the Big Three inevitably became major factors in the preparations and progress of the war. In Germany, for example, General Motors and Ford became an integral part of the Nazi war efforts. GM’s plants in Germany built thousands of bomber and jet fighter propulsion systems for the Luftwaffe at the same time that its American plants produced aircraft engines for the U.S. Army Air Corps.116
As owner of Germany’s largest automobile factory, General Motors was quite naturally a more important factor in the Axis war effort than either Ford or Chrysler, whose investments were substantially less.117 GM’s participation in Germany’s preparation for war began as early as 1935. That year its Opel subsidiary cooperated with the Reich in locating a new heavy truck facility at Brandenburg, which military officials advised would be less vulnerable to enemy air attack.118 During the succeeding years, GM supplied the Wehrmacht with Opel “Blitz” trucks from the Brandenburg complex. For these and other contributions to wartime preparations, GM’s chief executive for overseas operations in 1938 was awarded the Order of the German Eagle (first class) by Chancellor Adolf Hitler.119
Ford was also active in Nazi Germany’s prewar preparations. In 1938, for instance, it opened a truck assembly plant in Berlin whose “real purpose,” according to U.S. Army Intelligence, was producing “troop transport-type” vehicles for the Wehrmacht.120 That year Ford’s chief executive received the Nazi German Eagle (first class).121
Given the dominant structural positions of GM and Ford in the war economies of both America and Germany, these firms had the power to influence the course of World War II. They could determine, for example, which belligerent would benefit from their latest advances in war-related technology. Refusal to aid in prewar preparations, of course, was unthinkable. It would have resulted in confiscation and irreparable economic harm to GM and Ford stockholders. In any event, due to their concentrated economic power in both economies, they were able to shape the conflict to their own private corporate advantage. Whether in fact their profit-maximization determinations were also in the best interests of international peace, or more specifically, in accord with the national security objectives of the United States at that time, is entirely unclear.
The outbreak of war in September 1939 resulted inevitably in the full conversion by GM and Ford of their Axis plants to the production of military aircraft and trucks. During the last quarter of 1939, for instance, GM converted its 432-acre Opel complex in Russelsheim to warplane production.122 From 1939 through 1945, the GM-owned Russelsheim facility alone assembled 50 percent of all the propulsion systems produced for the JU-88 medium range bomber.123 According to the authoritative work of Wagner and Nowarra, the JU-88 by 1940 “had become the Luftwaffe’s most important bomber, and remained so for the rest of the war.124 The Russelsheim facility also assembled 10 percent of the jet engines for the ME-262, the world’s first operational jet fighter.125 Wagner and Nowarra described this jet plane as perhaps “the most important military aircraft to come out of Germany.”126 With a top speed of 540 miles per hour, it was more than 100 miles per hour faster than the American P-51 Mustang, the fastest pistol-driven allied fighter.127 Not until after World War II were the Allies able to develop pure jet aircraft.128 By producing ME-262 jet engines for the Luftwaffe, therefore, GM’s Russelsheim plant made a significant contribution to the Axis’ technological superiority in the air.
On the ground, GM and Ford subsidiaries built nearly 90 percent of the armored “mule” 3-ton half-trucks and more than 70 percent of the Reich’s medium and heavy-duty trucks. These vehicles, according to American intelligence reports, served as “the backbone of the German Army transportation system.”129 In addition, the factories of Ethyl G.m.b.II., a joint venture of I.G. Farben, General Motors, and Exxon subsidiaries, provided the mechanized German armies with synthetic tetraethyl fuel.130 During 1935-36, at the urgent request of Nazi officials who realized that Germany’s scarce petroleum reserves would not satisfy war demands, GM and Exxon joined with German chemical interests in the erection of the ethyl tetraethyl plants.131 According to captured German records, these facilities contributed substantially to the German war effort: “The fact that since the beginning of the war we could produce lead-tetraethyl is entirely due to the circumstances that shortly before the Americans had presented us with the production plants complete with experimental knowledge.”132 “Without lead-tetraethyl,” the wartime document added, “the present method of warfare would be unthinkable.”133
It was, of course, in the best interests of GM and Ford to cooperate in the Axis war effort. Although GM, for example, was in complete management control of its Russelsheim warplane factory for nearly a full year after Germany’s declaration of war against the United States in December 11, 1941, its refusal to build warplanes at a time of negligible demand for automobiles would have brought about the economic collapse of its Opel plant.134 Moreover, it might have resulted in confiscation of the facility by the German Government. In fact, on November 25, 1942, the Reich did appoint an administrator for the Russelsheim plant, who, although not permitted to interfere with the authority of the GM-appointed board of directors, was instructed to oversee operations. Nevertheless, communications as well as materiel reportedly continued to flow for the duration of the war between GM and Ford plants in Allied countries and those located in Axis territories.135
After the cessation of hostilities, GM and Ford demanded reparations from the U.S. Government for wartime damages sustained by their Axis facilities as a result of Allied bombing. By 1967, GM had collected more than $33 million in reparations and Federal tax benefits for damages to its warplane and motor vehicle properties in formerly Axis territories, including Germany, Austria, Poland, Latvia, and China.136 Likewise, Ford received a little less than $1 million, primarily as a result of damages sustained by its military truck complex at Cologne.137 Since World War II, the rebuilt Russelsheim and Cologne plants have enabled GM and Ford, respectively, to capture more than two-thirds of the German motor vehicle market.138 Meanwhile, GM’s truck plant in Brandenburg, East Germany, and Ford’s facilities in Budapest, Hungary, have more than likely become substantial factors in these Communist economies.
Due to their multinational dominance of motor vehicle production, GM and Ford became principal suppliers for the forces of fascism as well as for the forces of democracy. It may, of course, be argued that participating in both sides of an international conflict, like the common corporate practice of investing in both political parties before an election, is an appropriate corporate activity. Had the Nazis won, General Motors and Ford would have appeared impeccably Nazi; had Hitler lost, these companies were able to reemerge impeccably American. In either case, the viability of these corporations and the interests of their respective stockholders would have been preserved. On the other hand, the inevitable conflict of loyalties and potential for abuse inherent in such a corporation posture would seem to suggest that in the case of powerful concentrated industries engaged in war-convertible production, multinational expansion may adversely affect America’s legitimate interest in national security.
Nevertheless, since World War II the automakers’ trend toward multinational domination has accelerated. GM, Ford, and Chrysler have greatly increased their investments abroad.139 Today, they dominate the Canadian, German, British, and Australian markets.140 Moreover, they operate or intend to construct major facilities in several politically sensitive areas of the world, including the Soviet Union, East Germany, Egypt, Israel, Saudi Arabia, Korea, Chile, Indonesia, Ireland, and South Africa. On at least one occasion, the U.S. Secretary of Defense has stated that these investments could seriously impair national security.141
The automobile industry’s contribution to full employment and a favorable balance of international trade may also have been adversely affected by the Big Three’s multinational operations. Due to their massive postwar construction of automobile plants abroad, they are no more willing to build a small “world car” in America for export than they were to produce a small car here to compete with imports. Instead, they seem to pursue a global marketing strategy which preserves monopoly profits in America and amasses additional profits from sales in foreign markets. More specifically, in America they promote the sale of large and costly cars; abroad, they build smaller and more economical automobiles. The impact of this policy on domestic employment and our trade balance may have been considerable. In 1972, the Big Three’s foreign subsidiaries sold 5 million automobiles produced in nearly 200 factories located in 44 foreign countries.142 Had at least some of these cars been built here instead and exported, they would have generated new jobs in automobile manufacturing, additional jobs in allied industries, and a favorable contribution to our balance of trade.143 There are grounds to question, therefore, whether the automakers’ multinational operations are either in this Nation’s best political or economic interests.
The foregoing analysis strongly suggests that, as currently structured, the automobile industry is incapable of behaving and performing satisfactorily. High concentration and insurmountable barriers to entry enable the Big Three to fix prices, suppress technology, and reap monopoly profits. Vertical integration inflates costs and locks the industry into a superseded technological age. Multinational expansion jeopardizes the Nation’s political and economic well-being. Poor performance is the inevitable consequence: monopoly overcharges, retarded innovation, diminished exports, reduced employment, a potential threat to national security, and a chronic drain on our balance of payments.
As measured by the structural criteria set forth in part I, the truck industry would be expected to behave and perform only slightly better than the automobile industry. Its highly structural concentration approaches that of automobile manufacturing. The same firms which dominate autos also account for the bulk of trucks produced, with the one major addition of International Harvester.144 Eighty-four percent of domestic production is shared by the Big Three’s truck divisions; General Motors is the largest diesel engine manufacturer and, with three smaller nonauto firms, accounts for virtually all the diesel engines installed in U.S. trucks.145 This degree of concentration, although less than that which characterizes auto production, is nevertheless substantially greater than that which is generally considered injurious to competitive conduct and satisfactory performance.146
With the exception of diesel engine production, the extent of this industry’s integration roughly approximates that of automobile manufacturing. As in passenger cars, the Big Three’s truck divisions are integrated upstream into major components production and downstream into exclusive franchised distribution. All three produce their own bodies and gasoline engines, most of their own transmissions, and all assemble their own trucks.147 All maintain nationwide networks of franchised truck dealers, which are often dualed with passenger cars.148 However, of the three automakers, only General Motors manufactures diesel engines for medium and heavy duty trucks.149
Furthermore, the condition of entry into truck production is apparently as blockaded as that of automobile production. More precisely, the industry exhibits, albeit to a lesser degree, the same high barriers to entry which characterize auto manufacturing: Vertical integration in truck body and engine production, relatively high promotional expenditures, and sizable capital requirements for integrated components production and retail distribution.150 Since the 1920’s, not a single domestic or foreign firm has entered truck manufacturing and survived: and entry at the marketing stage by imports has been restricted almost exclusively to the less profitable light utility vehicle submarket.151
Given its anticompetitive structure, the anticompetitive nature of the truck industry’s conduct is anticipated. High concentration, relatively extensive integration, and formidable barriers to entry have eroded the incentive for price and technological competition, and have encouraged instead the emergence of interdependent or shared monopolization: New truck prices are set at higher than competitive levels, product policies are protectively imitated, and technology is suppressed.
The same patterns of interdepdendent and collusive pricing characteristic of the auto industry occur in truck manufacturing. Again, General Motors acts as the industry price leader, with Ford and Chrysler (“Dodge”) adjusting their prices up or down accordingly.152 Moreover, there is some evidence in the fleet buyers’ litigation that the Big Three may have conspired to fix prices on trucks as well as autos.153
The Big Three truck divisions also interdependently avoid product competition by protectively imitating each other’s product policies. This, in turn, leads to uniformity in their product offerings and to suppression of potential variety in their truck performance. All of their light- and medium-weight trucks, for example, are equipped with basically the same form of piston-driven gasoline engines. Heavy duty over-the-road trucks are virtually all powered with diesel engines.154 In addition, the Big Three’s mutual reluctance to produce light utility vehicles (minipickups) provides a classic example of protective product imitation. Despite the influx of minipickup imports during the late 1960’s and early 1970’s, Ford and Chrysler (Dodge) chose not to break the shared-monopoly ranks through innovation into this low-price truck market. Instead, with General Motors, they largely abandoned it to imports. Not until 1971, when the level of Japanese compact pickup imports became a significant factor, particularly in the West and Southwest, did GM decide to market a Japanese-made light utility vehicle (“LUV”). Subsequently, Ford and Chrysler protectively emulated GM by introducing their own Japanese-built minipickups (Courier and Colt, respectively).155
Technological competition in trucks is likewise eschewed by the Big Three. Their collective resistance to innovations in safety and propulsion is illustrative. Advances in truck safety such as seatbelts, seatlocks, and fuel system integrity have been introduced slowly, and largely in response to the extension of Government-mandated safety regulations from autos to trucks.156 Propulsion technology has remained basically unchanged. Extensive upstream integration into conventional gasoline and GM’s enormous investments in diesel engine production have discouraged the Big Three from seriously pursuing the development or purchase of alternative engines. Although they purchase rather than manufacture engines for their heavy duty trucks, Ford and Chrysler protectively imitate GM’s all-diesel policy.157 As a result, piston-driven gasoline and diesel engines have persisted despite the availability of a wide range of quieter, cost-competitive, and lower emission propulsion alternatives (for example, rotary, stratified-charge, gas turbine, electric, and steam turbine).158 Furthermore, the few significant innovations to emerge in other areas of truck development, such as antidisk braking and heavy duty semiautomatic transmissions, have originated either from components suppliers or from the industry’s handful of smaller but technologically more aggressive independent truck producers.159
Given its anticompetitive structure and conduct, this industry’s less-than-satisfactory performance would seem to be a foregone conclusion. Nevertheless, a brief review of some salient shortcomings in its efficiency and progressiveness may be instructive. The Big Three’s anticompetitive pricing, for example, has reduced efficiency by imposing on purchasers of its 1972 trucks monopoly overcharges estimated at more than $600 million.160 Their suppression of technological competition, particularly in alternative propulsion development, has retarded progressiveness in at least two areas of public concern: fuel conservation and pollution control. Their collective disregard of propulsion alternatives to gasoline and diesel-powered trucks, which currently consume 27 billion gallons, or more than one-fourth of all motor vehicle fuel, has contributed substantially to this Nation’s critical petroleum shortage as well as to urban air pollution.161 Moreover, there is some evidence that diesel trucks, which emit 10 times the pollutants of autos, and which account for a substantial proportion of lethal nitrogen oxide-ozone emissions in urban areas, may be more harmful in terms of contributing to emphysema, lung cancer, and other respiratory disorders than even passenger cars.162
On balance, therefore, it would appear that the anticompetitively structured truck industry has behaved and performed scarcely better than the automobile industry, both of which are collectively monopolized by the same three companies.
Evaluated in terms of the two structural criteria set forth in part I, the manufacture of ground transportation equipment is one of this Nation’s least competitive industrial activities. More specifically, interindustry diversification and asymmetry have seriously upset the naturally competitive relationships among industries in this vital sector of the economy.
Ground transport is dominated by a single, diversified firm to an extent possibly without parallel in the American economy. General Motors, the world’s largest producer of cars and trucks, has also achieved monopoly control of buses and locomotives which compete with motor vehicles for passengers and freight. Its dominance of the bus and locomotive industries, moreover, would seem to constitute a classic monopoly. Although GM technically accounts for 75 percent of current city bus production, its only remaining competitor, the Flxible Co., relies on it for diesel propulsion systems, major engine components, technical assistance, and financing.163 In short, Flxible is more a distributor for GM than a viable competitor; virtually its sole function is the assembly of General Motors’ bus parts for sale under the Flxible trade name. Likewise, in the production of intercity buses, its only remaining competitor, Motor Coach Industries, is wholly dependent upon GM for diesel propulsion systems and major mechanical components.164 In addition, General Motors accounts for 100 percent of all passenger and 80 percent of all freight locomotives manufactured in the United States.165 Such concentration in a single firm of control over three rival transportation equipment industries all but precludes the existence of competitive conduct and performance.166
The distribution of economic power in this sector is remarkably asymmetrical. As set forth in part I, economic power is fundamentally a function of concentration and size. In terms of concentration, the ground transport sector is virtually controlled by the Big Three auto companies. General Motors, Ford, and Chrysler account for 97 percent of automobile and 84 percent of truck production; GM alone dominates the bus and rail locomotive industries. Accordingly, the automakers have the power to impose a tax, in the form of a price increase, on purchasers of new cars to underwrite political campaigns against bus and rail systems.
In terms of size, there is an enormous divergence between the competing automotive and nonautomotive industries. Moreover, General Motors’ diversification program has left only a small portion of the bus and rail industries in the hands of independent producers. As measured by aggregate sales, employment, and financial resources, therefore, the independent bus and rail firms are no match for the automakers.167 The Big Three’s aggregate sales of motor vehicles and parts amount to about $52 billion each year, or more than 25 times the combined sales of trains, buses, subway and rapid transit cars by the four largest firms other than GM, which produce bus and rail vehicles: Pullman and Budd (railway freight and passenger cars, subway and rapid transit cars); Rohr (buses and rapid transit cars); General Electric (commuter railcars and locomotives).168 The Big Three automakers employ nearly 1½ million workers, or more than three times as many as their four principal rivals; General Motors alone maintains plants in 19 different States.169 The Big Three also excel in their ability to finance lobbying and related political activities. GM, Ford, and Chrysler annually contribute more than an estimated $14 million to trade associations which lobby for the promotion of automotive transportation. By contrast, their four leading rivals contribute not more than $1 million, or less than one-tenth this amount, to rail transit lobbies.170 The magnitude of their sales, employment, and financial resources, therefore, affords the automakers overwhelming political influence.
It may be argued, moreover, that due to their conflicting interlocks with the motor vehicle manufacturers, these bus and rail firms would be reluctant to set their economic and political resources against them. Eighty percent of Budd’s sales, for example, consist of automotive components purchased by the Big Three; Rohr, which also owns the Flxible Co., is wholly dependent upon GM for major bus components; Pullman derives more income from manufacturing trailers for highway trucks than from selling freight cars to the railroads; and General Electric manufactures a vast range of automotive electrical equipment, including about 80 percent of all automotive lamps.171 In sum, the independent bus and rail equipment manufacturers are probably unable and possibly unwilling to oppose the Big Three automakers effectively in political struggles over transportation policy.
Lacking the competitive structure, the group of industries responsible for providing us with ground transportation equipment fail to behave competitively. Diversification by General Motors into bus and rail production may have contributed to the displacement of these alternatives by automobiles and trucks. In addition, the asymmetrical distribution of economic and political power may have enabled the automakers to divert Government funds from rail transit to highways.
The Big Three automakers’ efforts to restrain nonautomotive forms of passenger and freight transport have been perfectly consistent with profit maximization. One trolley coach or bus can eliminate 35 automobiles; 1 streetcar, subway, or rapid transit vehicle can supplant 50 passenger cars; an interurban railway or railroad train can displace 1,000 cars or a fleet of 150 cargo-laden trucks.172 Given the Big Three automakers’ shared monopoly control of motor vehicle production and GM’s diversified control of nonautomotive transport, it was inevitable that cars and trucks would eventually displace every other competing form of ground transportation.
The demise of nonautomotive transport is a matter of historical record. By 1973 viable alternatives to cars and trucks had all but ceased to exist. No producers of electric streetcars, trolley coaches, or interurban electric trains remained; only two established railcar builders (Pullman and Rohr) were definitely planning to continue production; a single firm (General Electric) still manufactured a handful of electric automotives; and General Motors accounted for virtually all of an ever-shrinking number of diesel buses and locomotives.173
There were, of course, a number of factors involved in this decline. For example, the popularity of motor vehicles, due in large part to their initial flexibility, most certainly affected public demand for competing methods of travel. On the other hand, the demise of bus and rail forms of transport cannot, as some have suggested, be attributed to the public’s desire to travel exclusively by automobile.174 Rather, much of the growth in autos as well as trucks may have proceeded from the decline of rail and bus systems. In short, as alternatives ceased to be viable, automobiles and trucks became indispensable.
The sections which immediately follow relate in considerable detail how General Motors’ diversification into bus and rail production generated conflicts of interest which necessarily contributed to the displacement of alternatives to motor vehicle transportation. A subsequent section will consider how asymmetry in the ground transport sector led to the political restraint of urban rail transit.
Before considering the displacement of bus and rail transportation, however, a distinction between intent and effect should be carefully drawn. This study contends that certain adverse effects flow inevitably from concentrated multi-industry structures regardless of whether these effects were actually intended. Specifically, it argues that structural concentration of auto, truck, bus, and rail production in one firm necessarily resulted in the promotion of motor vehicles and the displacement of competing alternatives. Whether that firm’s executives in the 1920’s actually intended to construct a society wholly dependent on automobiles and trucks is unlikely and, in any case, irrelevant. That such a society developed in part as the result of General Motors’ common control of competing ground transport industries is both relevant and demonstrable.
1. The Substitution of Bus for Rail Passenger Transportation.—By the mid-1920’s, the automobile market had become saturated. Those who desired to own automobiles had already purchased them; most new car sales had to be to old car owners.175 Largely as a result, General Motors diversified into alternative modes of transportation.176 It undertook the production of city and intercity motor buses. It also became involved in the operation of bus and rail passenger services. As a necessary consequence, it was confronted with fundamental conflicts of interest regarding which of these several competing methods it might promote most profitably and effectively. Its natural economic incentives and prior business experience strongly favored the manufacture and sale of cars and trucks rather than bus, and particularly rail, vehicles. In the course of events, it became committed to the displacement of rail transportation by diesel buses and, ultimately, to their displacement by automobiles.
In 1925, General Motors entered bus production by acquiring Yellow Coach, which at that time was the Nation’s largest manufacturer of city and intercity buses.177 One year later, it integrated forward into intercity bus operation by assisting in the formation of the Greyhound Corp., and soon became involved in that company’s attempt to convert passenger rail operations to intercity bus service.178 Beginning in 1932, it undertook the direct operation and conversion of interurban electric railway and local electric streetcar and trolley bus systems to city bus operations.179 By the mid-1950’s, it could lay claim to having played a prominent role in the complete replacement of electric street transportation with diesel buses.180 Due to their high cost of operation and slow speed on congested streets, however, these buses ultimately contributed to the collapse of several hundred public transit systems and to the diversion of hundreds of thousands of patrons to automobiles. In sum, the effect of General Motors’ diversification program was threefold: substitution of buses for passenger trains, streetcars and trolley buses; monopolization of bus production; and diversion of riders to automobiles.
Immediately after acquiring Yellow Coach, General Motors integrated forward into intercity bus operation. In 1926, interests allied with GM organized and then combined with the Greyhound Corp. for the purpose of replacing rail passenger service with a GM-equipped and Greyhound-operated nationwide system of intercity bus transportation.181 By mutual arrangement, Greyhound agreed to purchase virtually all of its buses from GM, which agreed in turn to refrain from selling intercity buses to any of Greyhound’s bus operating competitors.182 In 1928, Greyhound announced its intention of converting commuter rail operations to intercity bus service.183 By 1939, six major railroads had agreed under pressure from Greyhound to replace substantial portions of their commuter rail service with Greyhound bus systems: Pennsylvania RR. (Pennsylvania Greyhound Lines), New York Central RR. (Central Greyhound Lines), Southern Pacific RR. (Pacific Greyhound Lines), New York, New Haven & Hartford RR. (New England Greyhound Lines), Great Northern RR. (Northland Greyhound Lines), and St. Louis Southwestern Railway (Southwestern Greyhound Lines).184 By 1950, Greyhound carried roughly half as many intercity passengers as all the Nation’s railroads combined.185
During this period, General Motors played a prominent role in Greyhound management. In 1929, for example, it was responsible for the formation, direct operation, and financing of Atlantic Greyhound, which later became Greyhound’s southeastern affiliate.186 Three years later, in 1932, when Greyhound was in serious financial trouble, it arranged for a million dollar cash loan.187 In addition, I.B. Babcock, the president of GM’s bus division, served on Greyhound’s board of directors until 1938, when he was replaced by his successor at GM, John A. Ritchie.188 Until 1948, GM was also the largest single shareholder in the Greyhound Corp.189 In short, through its interlocking interests in and promotion of Greyhound, General Motors acquired a not insignificant amount of influence over the shape of this Nation’s intercity passenger transportation. As the largest manufacturer of buses, it inevitably pursued a policy which would divert intercity traffic from rails to the intercity buses which it produced and Greyhound operated. Although this policy was perfectly compatible with GM’s legitimate interest in maximizing returns on its stockholders’ investments, it was not necessarily in the best interest of the riding public. In effect, the public was substantially deprived of access to an alternative form of intercity travel which, regardless of its merits, was apparently curtailed as a result of corporate rather than public determination.
After its successful experience with intercity buses, General Motors diversified into city bus and rail operations. At first, its procedure consisted of directly acquiring and scrapping local electric transit systems in favor of GM buses. In this fashion, it created a market for its city buses. As GM General Counsel Henry Hogan would observe later, the corporation “decided that the only way this new market for (city) buses could be created was for it to finance the conversion from streetcars to buses in some small cities.”190 On June 29, 1932, the GM-bus executive committee formally resolved that “to develop motorized transportation, our company should initiate a program of this nature and authorize the incorporation of a holding company with a capital of $300,000.”191 Thus was formed United Cities Motor Transit (UCMT) as a subsidiary of GM’s bus division.192 Its sole function was to acquire electric streetcar companies, convert them to GM motorbus operation, and then resell the properties to local concerns which agreed to purchase GM bus replacements.193 The electric streetcar lines of Kalamazoo and Saginaw, Mich., and Springfield, Ohio, were UCMT’s first targets. “In such case,” Hogan stated, GM “successfully motorized the city, turned the management over to other interests and liquidated its investment.”194 The program ceased, however, in 1935 when GM was censured by the American Transit Association (ATA) for its self-serving role, as a bus manufacturer, in apparently attempting to motorize Portland’s electric streetcar system.195
As a result of the ATA censure, GM dissolved UCMT and embarked upon a nationwide plan to accomplish the same result indirectly. In 1936 it combined with the Omnibus Corp. in engineering the tremendous conversion of New York City’s electric streetcar system to GM buses.196 At that time, as a result of stock and management interlocks, GM was able to exert substantial influence over Omnibus. John A. Ritchie, for example, served simultaneously as chairman of GM’s bus division and president of Omnibus from 1926 until well after the motorization was completed.197 The massive conversion within a period of only 18 months of the New York system, then the world’s largest streetcar network, has been recognized subsequently as the turning point in the electric railway industry.198
Meanwhile, General Motors had organized another holding company to convert the remainder of the Nation’s electric transportation systems to GM’s buses. In 1936, it caused its officers and employees, I.B. Babcock, E.J. Stone, E.P. Crenshaw, and several Greyhound executives to form National City Lines, Inc. (NCL).199 During the following 14 years General Motors, together with Standard Oil of California, Firestone Tire, and two other suppliers of bus-related products, contributed more than $9 million to this holding company for the purpose of converting electric transit systems in 16 States to GM bus operations.200 The method of operation was basically the same as that which GM employed successfully in its United Cities Motor Transit program: acquisition, motorization, resale. By having NCL resell the properties after conversion was completed, GM and its allied companies were assured that their capital was continually reinvested in the motorization of additional systems. There was, moreover, little possibility of reconversion. To preclude the return of electric vehicles to the dozens of cities it motorized, GM extracted from the local transit companies contracts which prohibited their purchase of “* * * any new equipment using any fuel or means of propulsion other than gas.”201
The National City Lines campaign had a devastating impact on the quality of urban transportation and urban living in America. Nowhere was the ruin more apparent than in the Greater Los Angeles metropolitan area. Thirty-five years ago it was a beautiful region of lush palm trees, fragrant orange groves, and clean, ocean-enriched air. It was served then by the world’s largest interurban electric railway system. The Pacific Electric system branched out from Los Angeles for a radius of more than 75 miles reaching north to San Fernando., eat to San Bernardino, and south to Santa Ana. Its 3,000 quiet, pollution-free, electric trains annually transported 80 million people throughout the sprawling region’s 56 separately incorporated cities. Contrary to popular belief, the Pacific Electric, not the automobile, was responsible for the area’s geographical development. First constructed in 1911, it established traditions of suburban living long before the automobile had arrived.202
In 1938, General Motors and Standard Oil of California organized Pacific City Lines (PCL) as an affiliate of NCL to motorize west coast electric railways. The following year PCL acquired, scrapped, and substituted bus lines for three northern California electric rail systems in Fresno, San Jose, and Stockton. In 1940 GM, Standard Oil, and Firestone “assumed the active management of Pacific (City Lines)” in order to supervise its California operations more directly. That year, PCL began to acquire and scrap portions of the $100 million Pacific Electric system, including rail lines from Los Angeles to Glendale, Burbank, Pasadena, and San Bernardino.203 Subsequently, in December 1944, another NCL affiliate (American City Lines) was financed by GM and Standard Oil to motorize downtown Los Angeles. At the time, the Pacific Electric shared downtown Los Angeles trackage with a local electric streetcar company, the Los Angeles Railway. American City Lines purchased the local system, scrapped its electric transit cars, tore down its power transmission lines, ripped up the tracks, and placed GM diesel buses fueled by Standard Oil on Los Angeles’ crowded streets.204 In sum, GM and its auto-industrial allies severed Los Angeles’ regional rail links and then motorized its downtown heart.205
Motorization drastically altered the quality of life in southern California. Today, Los Angeles is an ecological wasteland: The palm trees are dying from petrochemical smog; the orange groves have been paved over by 300 miles of freeways; the air is a septic tank into which 4 million cars, half of them built by General Motors, pump 13,000 tons of pollutants daily. With the destruction of the efficient Pacific Electric rail system, Los Angeles may have lost its best hope for rapid rail transit and a smog-free metropolitan area. “The Pacific Electric,” wrote UCLA Professor Hilton, “could have comprised the nucleus of a highly efficient rapid transit system, which would have contributed greatly to lessening the tremendous traffic and smog problems that developed from population growth.”206 The substitution of GM diesel buses, which were forced to compete with automobiles for space on congested freeways, apparently benefited GM, Standard Oil, and Firestone, considerably more than the riding public. Hilton added: “the (Pacific Electric) system, with its extensive private right of way, was far superior to a system consisting solely of buses on the crowded streets.”207 As early as 1963, the city already was seeking ways of raising $500 million to rebuild a rail system “to supercede its present inadequate network of bus lines.”208 A decade later, the estimated cost of constructing a 116-mile rail system, less than one-sixth the size of the earlier Pacific Electric, had escalated to more than $6.6 billion.209
By 1949, General Motors had been involved in the replacement of more than 100 electric transit systems with GM buses in 45 cities including New York, Philadelphia, Baltimore, St. Louis, Oakland, Salt Lake City, and Los Angeles. In April of that year, a Chicago Federal jury convicted GM of having criminally conspired with Standard Oil of California, Firestone Tire and others to replace electric transportation with gas- or diesel-powered buses and to monopolize the sale of buses and related products to local transportation companies throughout the country.210 The court imposed a sanction of $5,000 on GM. In addition, the jury convicted H.C. Grossman, who was then treasurer of General Motors. Grossman had played a key role in the motorization campaigns and had served as a director of PCL when that company undertook the dismantlement of the $100 million Pacific Electric system. The court fined Grossman the magnanimous sum of $1.211
Despite its criminal conviction, General Motors continued to acquire and dieselize electric transit properties through September of 1955.212 By then, approximately 88 percent of the nation’s electric streetcar network had been eliminated. In 1936, when GM organized National City Lines, 40,000 streetcars were operating in the United States; at the end of 1955, only 5,000 remained.213 In December of that year, GM bus chief Roger M. Kyes correctly observed: “The motor coach has supplanted the interurban systems and has for all practical purposes eliminated the trolley (streetcar).”214
The effect of General Motors’ diversification into city transportation systems was substantially to curtail yet another alternative to motor vehicle transportation. Electric street railways and electric trolley buses were eliminated without regard to their relative merit as a mode of transport. Their displacement by oil-powered buses maximized the earnings of GM stockholders; but it deprived the riding public of a competing method of travel. Moreover, there is some evidence that in terms of air pollution and energy consumption these electric systems were superior to diesel buses. In any event, GM and its oil and tire coconspirators used National City Lines as a device to force the sale of their products regardless of the public interest. As Professor Smerk, an authority on urban transportation, has written, “Street railways and trolley bus operations, even if better suited to traffic needs and the public interest, were doomed in favor of the vehicles and material produced by the conspirators.”215
General Motors’ substitution of buses for city streetcar lines may also have contributed in an indirect manner to the abandonment of electric railway freight service. During the 1930’s merchants relied extensively on interurban electric railways to deliver local goods and to interchange distant freight shipments with mainline railroads.216 The Pacific Electric, for example, was once the third largest freight railroad in California; it interchanged freight with the Southern Pacific, the Union Pacific and the Santa Fe.217 In urban areas, these railways often ran on local streetcar trackage.218 The conversion of city streetcars to buses, therefore, deprived them of city trackage and hastened their replacement by motor trucks, many of which, incidentally, were produced by GM.
General Motors also stood to profit from its interests in highway freight transport. Until the early 1950’s, it maintained sizable stock interests in two of the Nation’s largest trucking firms, Associated Transport and Consolidated Freightways, which enjoyed the freight traffic diverted from the electric railways.219 By 1951, these two companies had established more than 100 freight terminals in 29 States coast-to-coast and, more than likely, had invested in a substantial number of GM diesel-powered trucks.220
GM’s diversification into bus and rail operations would appear not only to have had the effect of foreclosing transport alternatives regardless of their comparative advantages, but also to have contributed at least in part to urban air pollution problems. There were in fact some early warnings that GM’s replacement of electric-driven vehicles with diesel-powered buses and trucks was increasing air pollution. On January 26, 1954, for instance, E.P. Crenshaw, GM bus general sales manager, sent the following memorandum to F.J. Limback, another GM executive:
There has developed in a number of cities “smog” conditions which has resulted in Anti-Air Pollution committees, who immediately take issue with bus and truck operations, and especially Diesel engine exhaust. In many cases, efforts are being made to stop further substitution of Diesel buses for electric-driven vehicles…221
Three months later, in April 1954, the American Conference of Governmental Industrial Hygienists adopted a limit of 5 parts per million for human exposure to nitrogen oxides.222 Diesel buses, according to another report by two GM engineers, emitted “oxides of nitrogen concentrations over 200 times the recommended” exposure limit.223 Nevertheless, the dieselization program continued. Crenshaw reported to Limback in 1954:
The elimination of street-cars and trolley-buses and their replacement by our large GM 51-passenger Diesel Hydraulic coaches continues steadily…in Denver, Omaha, Kansas City, San Francisco, Los Angeles, New Orleans, Honolulu, Baltimore, Milwaukee, Akron, Youngstown, Columbus, etc.224
2. The Displacement of Bus Transit by Automobiles.—Diversification into bus production and, subsequently, into bus and rail operation, inevitably encouraged General Motors to supplant trains, streetcars and trolley buses with first gasoline and then diesel buses. It also contributed to this firm’s monopolization of city and intercity bus production. The effect of GM’s mutually exclusive dealing arrangement with Greyhound, for example, was to foreclose all other bus manufacturers and bus operating concerns from a substantial segment of the intercity market.225 At least by 1952, both companies had achieved their respective monopolies: GM dominated intercity bus production and Greyhound dominated intercity bus operation.226 By 1973, GM’s only competitor, Motor Coach Industries (established in 1962 by Greyhound as the result of a Government antitrust decree), was wholly dependent on it for major components; and Greyhound’s only operating competitor, Trailways, had been forced to purchase its buses from overseas.227 In the process, a number of innovative bus builders and potential manufacturers, including General Dynamics’ predecessor (Consolidated Vultee) and the Douglas Aircraft Co., had been driven from the industry.228
Likewise, in the city bus market, GM’s exclusive bus replacement contracts with National City Lines, American City Lines, Pacific City Lines, the Omnibus Corporation, Public Transport of New Jersey and practically every other major bus operating company foreclosed competing city bus manufacturers from all but a handful of cities in the country and assured GM monopoly control of this market as well.229 Since 1925 more than 50 firms have withdrawn from city bus manufacturing, including Ford, ACF-Brill, Marmon-Herrington, Mack Trucks, White Motor, International Harvester, Studebaker, Twin Coach, Fifth Avenue Coach, Chrysler (Dodge), and Reo Motors.230 By 1973, only the Flxible Company, which had been established and controlled until 1958 by C.F. Kettering, a GM vice-president, remained as effectively a competitor-assembler of GM city buses.231 One other firm, AM General (American Motors), had announced its intention to assemble GM-powered city buses for delivery in late 1973.232 The ability of this firm, or for that matter Flxible and Motor Coach Industries, to survive beyond 1975, however, was seriously doubted by industry observers. That year a Government antitrust decree compelling GM to supply bus assemblers with diesel engines, transmissions and other major components will expire.233
Monopolization of bus production and the elimination of electric street transportation has brought an end to price and technological competition in these industries. In this regard, several cities led by New York have filed a lawsuit charging that General Motors sets higher-than-competitive prices for its diesel buses and receives millions of dollars annually in monopoly profits. The suit also alleges that GM may be disregarding technological innovations in propulsion, pollution control and coach design, which would help attract patrons out of their automobiles.234
In light of our dwindling petroleum supplies and mounting concerns about air pollution, the decline of technological competition in bus manufacturing is particularly unfortunate. ACF-Brill, Marmon-Herrington, Pullman-Standard, Twin Coach, and St. Louis Car once built electric buses and electric streetcars.235 Other firms manufactured steam-driven buses.236 According to a number of studies, these alternative forms of motive power would be preferable in terms of energy consumption, efficiency, pollution, noise, and durability to the diesel engine.237 Exclusion of these innovative firms, however, and GM’s apparent disinterest in steam- or electric-powered vehicles (whose longer life, fewer parts, and easier repair would drastically reduce replacement sales), have precluded the availability of these technological alternatives today.238 Moreover, domination of domestic bus manufacturing by the world’s largest industrial concern tends to deter entry by smaller, innovative firms. Lear Motors, for example, has developed quiet, low-pollution steam turbine buses; Mercedes-Benz, which sells buses in 160 countries, has produced low-pollution electric buses.239 Neither these nor any other firms, however, have been able to break into the GM-dominated American bus market. Furthermore, GM’s conversion of much of this country’s streetcar and interurban trackage to bus routes has precluded the survival of domestic streetcar builders and deterred entry by foreign railcar manufacturers. As a result, there remain few transit alternatives to GM diesel buses. None of the early White or Doble steam buses are still in operation.240 The last electric streetcars were built in 1953; only one electric bus (built in Canada) has been delivered since 1955.241 In 1973, only five American cities continued to operate electric buses, and eight ran a handful of ancient streetcars. 242
General Motors’ gross revenues are 10 times greater if it sells cars rather than buses.243 In theory, therefore, GM has every economic incentive to discourage bus ridership. In fact, its bus dieselization program may have generated that effect. Engineering studies strongly suggest that conversion from electric transit to diesel buses results in higher operating costs, loss of patronage, and eventual bankruptcy. They demonstrate, for example, that diesel buses have 28 percent shorter economic lives, 40 percent higher operating costs, and 9 percent lower productivity than electric buses.244 They also conclude that the diesel’s foul smoke, ear-splitting noise, and slow acceleration may discourage ridership.245 In short, by increasing the costs, reducing the revenues, and contributing to the collapse of hundreds of transit systems, GM’s dieselization program may have had the long-term effect of selling GM cars.246
Today, automobiles have completely replaced bus transportation in many areas of the country. Since 1952, the year GM achieved monopoly control of bus production, ridership has declined by 3 billion passengers and bus sales have fallen by about 60 percent.247 During that same period, GM automobile sales have risen from 1.7 million to more than 4.8 million units per year.248 By 1972, in a move which possibly signified the passing of bus transportation in this country, General Motors had begun converting its bus plants to motor home production.249
3. The Displacement of Railroad Transportation by Automobiles and Trucks.—As described in the preceding section, General Motors’ diversification into bus transportation contributed to two developments: the displacement of passengers from rail to bus and eventually to automobile travel, and the shift in freight from rail to trucks. GM’s integration into locomotive production was arguably an additional factor in the diversion of rail passengers to automobiles and rail freight to trucks. In 1930, it entered the locomotive industry by acquiring Winton Engine and Electro-Motive. At that time, Winton was the largest manufacturer of heavy diesel engines.250 Electro-Motive, a principal customer of Winton, was the leading firm in the application of diesel engines to railroad motive power.251 By combining these firms, GM became the Nation’s largest manufacturer of train locomotives.252
As the world’s largest manufacturer of cars and trucks, General Motors was inherently ill suited to promote train transportation. Indeed, it had every economic incentive to repress this method of travel. A single GM-powered passenger train could displace as many as 1,000 GM cars; a GM-powered freight train could supplant a fleet of 150 GM trucks. From the standpoint of economics, moreover, GM’s gross revenues were from 25 to 35 times larger if it sold cars and trucks rather than train locomotives.253
In fact, General Motors’ diversification into railroads probably weakened this industry’s ability to compete with motor vehicles. More specifically, GM eliminated technological alternatives in train motive power which were arguably more efficient than the diesel combustion system it promoted. Its production of diesels rather than electric- or steam-driven locomotives, however, was entirely rational in terms of profit maximization. First, dieselization would vastly increase locomotive sales. A diesel locomotive, for example, lasted one-half as long, did one-third the work, and cost three times more than an electric locomotive.254 Second, as compared with railroad electrification, dieselization was substantially less of a threat to car and truck transportation. Diesel trains were sluggish, noisy, and generally less attractive to passengers than rapid, quiet, pollution-free electric trains. In addition, they were less powerful and therefore not as efficient in hauling freight. As the Nation’s largest shipper of freight, GM was able to exert considerable influence over the locomotive purchasing policies of the Nation’s railroads. It used this powerful form of leverage to sell its diesel locomotives. Before long, it had dieselized the entire American railroad industry, and simultaneously had obtained a monopoly in the production of locomotives. As a consequence, alternative forms of motive power, such as electricity, which might have enabled the railroads to compete more effectively with cars and trucks, were disregarded.
General Motors dieselized the Nation’s railroads by using its freight business to coerce them to purchase its diesel locomotives. In 1935, with barely 2.4 percent of industry sales, it embarked upon a dual plan to monopolize locomotive production and to dieselize the American railroad industry. At that time, electric locomotives outnumbered diesel units 7 to 1, and several firms were developing a steam turbine engine to replace the conventional steam locomotive.255 In November, GM ordered its traffic division to begin routing freight over railroads which agreed reciprocally to scrap their electric and steam equipment for GM diesels. For the next 35 years it used its formidable leverage as the largest commercial shipper to exclude locomotive competitors and to force the railroads to convert to all-diesel operation.256 By 1970, it had effectively dieselized the entire industry: steam units were virtually extinct; and diesels, 80 percent of which were manufactured by GM, outnumbered electric locomotives 100 to 1.257
The dieselization of America’s railroads did not require blatant acts of coercion. Rail executives were fully aware of GM’s formidable freight leverage. As an interoffice legal memorandum drafted by GM’s antitrust attorneys stated, “GM could, in all probability, have successfully capitalized upon the railroad’s sensitivity to reciprocity by frequently reminding them of GM’s considerable traffic, and could have done so without ever interfering substantially with the economical routing of traffic.”258 Nevertheless, on occasion, GM may have resorted to blatant pressure.
In November 1948, for instance, Roy B. White, president of the Baltimore & Ohio Railroad, was apparently contacted by Alfred P. Sloan, Jr., chairman of General Motors, regarding GM’s offer to locate one of its warehouses on B. & O.’s tracks in return for B. & O.’s agreement to convert to GM diesels. Later that month, White replied by letter to Sloan to the effect: “Here is your Christmas present…we will purchase 300 diesel locomotives…we now expect to receive a New Year’s gift from you…locate your warehouse near our tracks.”259 Likewise, in the fall of 1958 a General Motors official informed Gulf, Mobile & Ohio Railroad that certain GM traffic would not be routed over its lines because other railroads had purchased more GM diesel locomotives than Gulf.260
Through its shrewd use of freight leverage, GM eliminated all but one of its competitors by 1970. Westinghouse, a pioneer in railway electrification, announced its departure from the industry in 1954.261 Baldwin-Lima-Hamilton, one of the Nation’s oldest railroad builders, built its last locomotive in 1956.262 Fairbanks-Morse, which attempted to enter in 1944, was forced out by 1958.263 In 1969, American Locomotive, an aggressive manufacturer of gas turbine, electric, steam turbine, as well as diesel locomotives, and the leading exporter of rail equipment, was purchased by one of GM’s automotive parts suppliers (Studebaker-Worthington) and immediately withdrawn from locomotive production.264 By 1973, 99 percent of the locomotive fleet was dieselized and GM’s only competitor, General Electric, accounted for less than 17 percent of total production.265
The immediate effect of dieselization was suppression of an alternative system of train propulsion: namely, electrification. In 1935, when GM initiated its dieselization program, two of the country’s major railroads had electrified their systems and several others contemplated similar action. The New York, New Haven & Hartford had constructed the world’s first 11,000-volt, 25-cycle alternating current system along 500 miles of New England track.266 The Pennsylvania had inaugurated electric passenger and freight train operations between New York and Washington.267 By dieselizing these and other roads, GM may have curbed in its incipiency a trend toward electrification. By 1960, when virtually every other industrialized Nation in the world was electrifying their trains, America was locked-in to GM diesel locomotives.
The long-term effect of dieselization was impairment of the railroads’ ability to compete effectively with cars and trucks. By vastly increasing operating, maintenance and depreciation costs, dieselization contributed to the curtailment of maintenance and service, and eventual bankruptcy of many American railroads. This process was arguably apparent in General Motors’ conversion of the New Haven system from electric to diesel power. In 1956, GM reportedly used its freight leverage to coerce the railroad into scrapping all of its electric passenger and freight locomotives in favor of GM diesel passenger units.268 The conversion was followed by loss of a substantial portion of the New Haven’s passenger and freight traffic to cars and trucks. Dieselization may have been the responsible factor. The slower GM diesels were less attractive to New Haven passengers accustomed to rapid electric trains.269 They were also less powerful and, consequently, less suitable for moving freight than the electric locomotives they replaced.270 Within a short time the company began to experience serious operating deficits. These deficits coupled with the diesel’s higher operating and depreciation costs compelled, in turn, cutbacks in maintenance and service, which generated another round of traffic diversion to cars and trucks.
A subsequent investigation by the Interstate Commerce Commission in 1960 confirmed that in fact dieselization had contributed to the New Haven’s severe financial crisis and eventual bankruptcy. Observing that “without an intelligent locomotive policy, no efficient railroad operation can possibly be conducted,” the ICC hearing officers stressed the significant economic advantages which the New Haven had derived from the durability, efficiency and extraordinary power of electric locomotives.271 They noted that the life of an electric locomotive was about twice that of a diesel (30 years versus 15 years, respectively) and, being a less complicated, more efficient and less delicate piece of machinery, was substantially cheaper to operate and maintain. In addition, they emphasized that a single electric locomotive could do the work of three diesels and that new electric locomotives cost only one-third as much as the diesel locomotives sold to the New Haven by General Motors.272 The examiners found, however, that despite the numerous advantages of electric operation as compared with diesel, and contrary to the advice of its own independent engineering consultants, the New Haven had relied instead on General Motors’ “ridiculous” representations as to the savings to be derived from dieselization.273
According to the ICC officials, GM’s claims of anticipated savings proved to be “a mirage.”274 The New Haven’s replacement of its electric locomotives with GM diesels generated higher operating, maintenance and depreciation expenses and substantial losses in passenger and freight revenues.275 During 50 years of electrified operation, it had never failed to show an operating profit. In 1955, the year before dieselization, it earned $5.7 million carrying 45 million passengers and 814 thousand carloads of freight.276 By 1959, 7 years after GM dieselization began, it lost $9.2 million hauling 10 million fewer passengers and 130 thousand fewer carloads of freight.277 In 1961, it was declared bankrupt; by 1968, when it was acquired by Penn Central, it had accumulated a capital deficit of nearly $300 million.278
In 1961, the ICC upheld the hearing officers’ recommended report on the bankrupt New Haven and censured General Motors for contributing to the railroad’s financial ruin. Of the several factors it listed as responsible for the New Haven’s downfall, it placed special emphasis on the elimination of electric locomotives.279 Although it refrained from suggesting that GM was guilty of fraudulent representation, the Commission found the automaker’s estimates of savings from conversion to diesels “erroneous,” “inflated,” and “manifestly absurd.”280 Referring to the “great advances in railway electrification made in Europe and in the Soviet Union,” it concluded with a recommendation that the trustees undertake a study of the economic feasibility of complete reelectrification of the New Haven’s main line.281
The New Haven was probably not the only casualty of GM’s dieselization program. All six of the major railroads serving the Northeast corridor are today bankrupt, and those in the rest of the country are earning an average of less than 2 percent on investment.282 Had these roads electrified, they might have fared better financially and might have been better able to compete effectively with motor vehicles. That technological option, however, was foreclosed to them as a result, in part, of GM’s diversification into railroad locomotives.
Since GM began its dieselization campaign in 1935, the railroads have progressively lost traffic first to buses and then to cars and trucks, most of which are manufactured by GM. In 1939 they carried half a million passengers and accounted for 75 percent of all freight revenues; by 1972 they had lost 50 percent of their passengers to cars, and nearly 75 percent of all freight revenue to trucks.283 Whether this result was actually intended by GM is irrelevant. Nonetheless, it is difficult to believe that a firm fundamentally interested in marketing cars and trucks would develop an efficient high-speed train system that might diminish their sales.
The impact of dieselization on this Nation’s railroads has been the subject of expert scrutiny. H.F. Brown, an international authority on railroad motive power, has concluded that dieselization “was the single most important factor responsible for the demise of America’s railroads.”284 Significantly, his studies of America’s experience with GM diesels helped persuade Parliament to electrify rather than dieselize the British railway system.
4. The Political Restraint of Rail Transit.—General Motors’ diversification into streetcar, bus and railroad transportation was very likely a significant factor in their eventual displacement by automobiles and trucks. A second structural feature, the asymmetrical distribution of economic power in the ground transport sector, may also have generated the political restraint of a third alternative to automobile transportation: rail rapid transit (subways).
As discussed in part I, small deconcentrated industries are less able to influence government policymaking as effectively as their concentrated rivals. This may explain, in part, the political disregard until quite recently of rail transit as an alternative in congested urban areas to automotive transportation. Due to its high concentration and gigantic sales volume, the auto industry has accumulated hundreds of millions of dollars in revenues from higher-than-competitively-priced motor vehicles. It has used some of these revenues to finance political activities which, in the absence of effective countervailing activities by competing ground transportation industries, induced government bodies to promote their product (automobiles) over other alternatives, particularly rail rapid transit.
Every industry, of course, has the constitutionally protected right to petition Government bodies and to mobilize public opinion as a means of shaping Government policies to its own private corporate advantage. This study does not take exception with that privilege. It does, however, suggest that the presence of a relatively large and highly concentrated automotive industry in the important multi-industry ground transportation sector may have resulted in the distortion of political processes to the advantage of this industry and to the disadvantage of the riding public. The effect, in short, may have been to deprive the public of the opportunity of choosing among competing transportation alternatives. More specifically, an imbalanced distribution of political power in favor of the automakers may have encouraged the Government to allocate overwhelmingly disproportionate sums of money to highways rather than to rail systems.
Generally, the automakers’ political activities have been twofold in nature: establishment of a powerful lobbying organization to promote the public financing of highways, and participation in competing associations which favored the construction of subways.
On June 28, 1932, Alfred P. Sloan, Jr., president of General Motors, organized the National Highway Users Conference to combine representatives of the Nation’s auto, oil, and tire industries in a common front against competing transportation interests.285 Sloan became its permanent chairman and served in that capacity until 1948, when he was succeeded by the new chairman of GM, Albert Bradley, who continued as its chairman through 1956.286 Its announced objectives were dedication of highway taxes solely to highway purposes, and development of a continuing program of highway construction.287
In a statement issued the following January, NHUC formally proclaimed its political commitment to automotive transportation: “Until now those interested in automotive transportation have fought their battles independently. Participating in the National Highway Users Conference are a large majority of the interested groups. The manufacturers of motorcars and accessories have joined with the users of their equipment in the common cause of defense.”288 The “interested groups” included the Motor Vehicle Manufacturers Association (representing automobile and truck companies), the American Petroleum Institute (spokesman for the oil industry), the American Trucking Association (representing the trucking interests), the Rubber Manufacturers Association (comprising the tire companies) and the American Automobile Association (purporting to speak for the Nation’s millions of motorists).289 Although it disclaimed any intention of lobbying on behalf of these highway interests, it proposed to serve as “an agency of coordination of activities of interested groups” and to cooperate with “such State organizations as are set up along the same lines as the national body.”290 Implicitly, therefore, its function was to influence Congress and the State legislatures where it claimed “the membership may be badly informed or where a considerable part of it may yield to the influence of selfish interests.”291
During the succeeding 40 years, the National Highway Users Conference has compiled an impressive record of accomplishments. Its effect, if not purpose, has been to direct public funds away from rail construction and into highway building. At the State level, its 2,800 lobbying groups have been instrumental in persuading 44 of the Nation’s 50 legislatures to adopt and preserve measures which dedicate State and local gasoline tax revenues exclusively to highway construction.292 By promoting these highway “trust funds,” it has discouraged governors and mayors from attempting to build anything other than highways for urban transportation. Subways and rail transit proposals have had to compete with hospitals, schools and other governmental responsibilities for funding. By contrast, highways have been automatically financed from a self-perpetuating fund which was legally unavailable for any other purpose. Largely as a result, highways, not subways, have been built. From 1945 through 1970, States and localities spent more than $156 billion constructing hundreds of thousands of miles of roads.293 During that same period, only 16 miles of subway were constructed in the entire country.294
Likewise, at the Federal level this organization has been very successful in promoting highways over rail transportation. For example, under the early and exceptionally capable leadership of GM’s Sloan and Bradley, it became a principal architect of the world’s largest roadbuilding effort, the 42,500-mile, $70-billion Interstate Highway System. During the years prior to passage in 1956 of the Interstate Highway Act, NHUC and allied highway groups had worked assiduously building support among Congressmen, Federal administrators, academicians and engineers.295 They contributed to congressional campaigns, placed their members in important administrative posts, and granted millions of dollars to highway research.296
At the time, few opposed the idea of building a system of interstate highways. Only one witness during more than 2 years of congressional hearings even raised the issue of what effect it might have on the Nation’s railroads.297 In retrospect, a national highway program was unquestionably needed. Whether its tremendous scope and budgetary commitment, however, might preclude Federal financing of alternative rail transport systems was a point which should have been debated at that time. The uneven distribution of political resources between automakers and rail manufacturers may explain why this important question received virtually no political attention.
When Congress finally began hearings on the Interstate Highway Act in 1956, the outcome was a foregone conclusion. Only the manner of financing the program was at issue. In the end, the National Highway Users Conference managed to persuade Congress to adopt the same trust fund arrangement which it had successfully promoted to the State legislatures. The impact of the Federal Highway Trust Fund on transportation spending was similar to that which occurred at the State level. While urban rail proposals were forced to compete for funds with dozens of Federal priorities including national defense, health, and social security, thousands of miles of highways were built automatically with gasoline tax revenues unavailable for any other purpose. From 1956 through 1970, the Federal Government spent approximately $70 billion for highways; and only $795 million, or 1 percent, for rail transit.298
Today, the National Highway Users Conference, now known as Highway Users Federation for Safety and Mobility (HUFSAM), works effectively with highway-related groups such as the Motor Vehicle Manufacturers Association (MVMA) to promote the automakers’ interest in more highways and less rail transit. With combined annual budgets of nearly $16 million, most of which comes from the Big Three auto companies, HUFSAM and MVMA fight State and Federal attempts to “divert” highway funds for rail transit purposes.229 In this regard they are aided by a score of allied highway interests which collectively spend an estimated $500 million a year lobbying to preserve highway trust funds.300 They are also active in financing research groups which invariably conclude that automobiles, trucks, and, if necessary, “bus transit” complete with underground diesel “busways,” can satisfy every ground transportation need.301
By comparison, the three leading transit lobby groups are financially weak and torn by the conflicting interests of their membership. The American Transit Association, the largest element of the transit lobby, operates on an annual budget of about $700,000 which must be apportioned between the conflicting political needs of its bus and rail transit manufacturing members. The Railway Institute spends an estimated $600,000 a year. The third and smallest element of the transit body, the Institute for Rapid Transit, operates on a meager budget of about $200,000 a year. In short, HUFSAM and MVMA alone outspend the three principal transit organizations by more than 10 to 1. 302 Furthermore, General Motors, whose personnel organized and continue to direct the highway lobby, has secured the power to influence the policies of two of these three transit groups. Due to its position as the Nation’s largest producer of bus and rail vehicles, it is a major financial contributor to both the American Transit Association and the Railway Progress Institute. It is also a powerful member of the Institute for Rapid Transit.303
Absent a powerful and unequivocal rail transit lobby, those interested in balanced transportation are no match for the organized highway interests. Legislators including Senators Kennedy, Muskie, and Weicker, citizen and municipal groups such as the Highway Action Coalition and the League of Cities, Mayors Alioto (San Francisco), White (Boston), Daley (Chicago), and numerous others have failed repeatedly to shift anything other than token amounts of State and Federal gas tax revenues from highways to rail transit.304 As an apparent consequence, national transportation policy principally reflects the legislative objective of the automakers: building more highways which sell more cars and trucks.
Publicly, the automakers proclaim their support for mass transit. They cultivate this seemingly paradoxical image for two reasons. First, a protransit posture at a time of petroleum shortages and environmental concerns is good for public relations. Second, and perhaps more importantly, they seek to control and direct the development of nonautomotive transport technology in a manner least threatening to their fundamental interest: selling cars. In this regard, Ford is developing “horizontal elevators” and PRT (personal rapid transit) vehicles capable of moving people short distances within strictly downtown areas.305 Ford’s transit vehicles would compete, therefore, not with automobiles but with pedestrians. Likewise, General Motors is engaged in a continuing effort to divert Government funds from rapid rail transit, which seriously threatens the use of cars in metropolitan areas, to GM buses, which fail consistently to persuade people to abandon their autos. In place of regional electric rail systems, for instance, it promotes diesel-powered “bus trains” of as many as 1,400 units, each spaced 80 feet apart.306 Instead of urban electric rail, it advocates the use of dual-mode gas/electric vehicles which would be adapted from GM’s minimotor homes.307 In sum, the automakers embrace transit in order to prevent it from competing effectively with their sales of automobiles.308
General Motors’ diversification into the buses and rail industries and the asymmetrical distribution of power between automakers and rail builders would appear to have contributed at least in part, therefore, to the decline of competing alternatives to motor vehicles. By 1973 five different forms of nonautomotive transportation had either disappeared or been seriously impaired: electric streetcars, trolley coaches, interurban electric railways, buses, and trains. In short, diversification and asymmetry in ground transport manufacturing may have retarded the development of mass transportation and, as a consequence, may have generated a reliance on motor vehicles incompatible with metropolitan needs.
5. Current Performance of the Ground Transportation Sector.—Due to its anticompetitive structure and behavior, this country’s ground transport sector can no longer perform satisfactorily. It has become seriously imbalanced in favor of the unlimited production of motor vehicles. Unlike every other industrialized country in the world, America has come to rely most exclusively on cars and trucks for the land transportation of its people and goods. Cars are used for 90 percent of city and intercity travel; trucks are the only method of intracity freight delivery and account for 78 percent of all freight revenues.309 This substitution of more than 100 million petroleum-consuming cars and trucks for competing forms of alternatively powered ground transportation is a significant factor in this sector’s unacceptable level of inefficient and nonprogressive performance.
Efficiency in terms of market performance may be defined as a comparison of actual prices or costs with those that would obtain in a competitively structured market.310 Currently, Americans pay $181 billion per year for motor vehicle transportation.311 In terms of high energy consumption, accident rates, contribution to pollution, and displacement of urban amenities, however, motor vehicle travel is possibly the most inefficient method of transportation devised by modern man.
More specifically, the diversion of traffic from energy-efficient electric rails to fuel-guzzling highway transport has resulted in an enormous consumption of energy. Rails can move passengers and freight for less than one-fifth the amount of energy required by cars and trucks.312 The displacement of rails by highways, therefore, has seriously depleted our scarce supplies of energy and has increased by several billion dollars a year the amount consumers must pay for ground transportation. It has been estimated, for example, that the diversion of passengers in urban areas from energy-efficient electric rail to gasoline automobiles results in their paying $18 billion a year more in energy costs alone.313 In addition, economists have found that the inefficient diversion of intercity freight from rail to trucks costs consumers $5 billion per year in higher prices for goods.314
The substitution of highways for rails has also reduced efficiency by imposing higher indirect costs on the public in the form of accidents, pollution, and land consumption. Rail travel is 23 times as safe as travel by motor vehicles. The diversion to highways has cost the public an estimated $17 billion each year in economic damages attributable to motor vehicle accidents.315 This figure, however, cannot reflect the incalculable human costs of motor vehicle accidents: The violent deaths each year by car and truck of 55,000 Americans, more than all who died in the entire 12 years of our involvement in Vietnam, and the serious injuries to an additional 5 million of our citizens.316
Likewise, the costs of urban air pollution have been greatly accentuated by the imbalance in favor of cars and trucks. Motor vehicles annually consume 42 billion gallons of petroleum within the densely populated 2 percent of the U.S. geographic area classified as urban.317 The consumption of this enormous quantity of fuel in urban areas produces in excess of 60 million tons of toxic pollutants, which in turn cost urban residents more than $4 billion in economic damages.318
The presence of high concentrations of these motor vehicle pollutants, particularly oxides of nitrogen, in densely populated areas, has also generated a crisis in urban public health. In Los Angeles alone, more than 500 persons die each year of ailments attributable to motor vehicle generated smog.319 The hazards of carbon monoxide and hydrocarbon emissions from automobiles have been widely acknowledged.320 Less well known are the potentially more serious effects of oxides of nitrogen produced primarily by diesel trucks and buses in high concentrations on congested city streets. When inhaled, these oxides combine with moisture in the lungs to form corrosive nitric acid which permanently damages lung tissues and accelerates death by slowly destroying the body’s ability to resist heart and lung diseases.321 Although the burning of fuels to generate this increased electrical energy would produce some pollution, it would pose a substantially less serious hazard to public health. Electric powerplants can often be located in areas remote from population centers. Moreover, the increased pollution by generating facilities would be offset by a reduction in pollution due to oil refinery operations. Furthermore, the abatement of air pollution at a relatively small number of stationary powerplants would represent a far easier task than attempting to install and monitor devices on 100 million transient motor vehicles.323
The diversion of traffic from rail to highways has imposed a third cost on consumers—the consumption of vast amounts of taxable urban landscapes from 60 to 65 percent of our cities’ land area is devoted to highways, parking facilities, and other auto- and truck-related uses.324 In downtown Los Angeles, the figure approaches 85 percent.325 This has led to an erosion in the cities’ tax base and, concomitantly, to a decline in their ability to finance the delivery of vital municipal services. Electric rail transportation, by comparison, requires less than one-thirteenth as much space as highways to move a comparable amount of passengers or goods, and in many cases can be located underground.326
Progressiveness in terms of market performance is generally understood as a comparison of the number and importance of actual innovations with those which optimally could have been developed and introduced.327 The substitution of highways for rails has resulted in a decrease in mobility and has precluded important innovations in high-speed urban and intercity ground transportation. The decrease in mobility is most acute in urban areas. The average speed of rush hour traffic in cities dependent on motor vehicles, for example, is 12 miles per hour.328 Studies indicate that city traffic moved more quickly in 1890.329 Moreover, 20 percent of our urban population (the aged, youth, disabled, and poor) lack access to automobiles and, due to the nonexistence of adequate public transportation, are effectively isolated from employment or educational opportunities and other urban amenities.330 Substitution of highways for rails has also retarded innovations in high-speed urban and intercity transport. Technologically advanced rail transit systems, which currently operate in the major cities of Europe and Japan, would relieve congestion and contribute to urban mobility.331 High-speed intercity rail systems, such as Japan’s 150-mile-per-hour electric Tokaido Express, would help relieve mounting air traffic congestion and offer a practical alternative to slower and more tedious travel by car or truck.332 But the political predilections of the automakers have become the guidelines for American transportation policy. In contrast to the advanced rail transport emphasis of Europe and Japan, this country has persisted in the expansion of highway transport. As a result, America has become a second-rate nation in transportation.333
There are strong indications, moreover, that due to mounting concerns about air pollution and a worldwide shortage of petroleum, our motor-vehicle-dominated transportation system will perform even worse in the future. The Environmental Protection Agency has warned that by 1977 motor vehicle emissions in major urban areas may compel a cutback in automobile, truck, and diesel bus use of as much as 60 percent.334 In addition, the Department of the Interior has forecast that the current petroleum crisis might cripple transportation and cause “serious economic and social disruptions.”335 More precisely, an excessive reliance in the past on fuel-guzzling motor vehicles for transport has contributed to a crisis in energy which now threatens to shut down industries, curb air and ground travel, and deprive our homes of heating oil for winter.
Despite these adverse trends, the automakers appear bent on further motorization. Henry Ford II, for instance, has noted that notwithstanding “the energy crisis, the environmental crisis, and the urban crisis” new car sales in the United States “have increased by more than a million during the past 2 model years.”336 General Motors’ chief operating executive has predicted that soon each American will own a “family of cars” for every conceivable travel activity including small cars for trips, recreational vehicles for leisure, and motor homes for mobile living.337 GM is also engaged in the displacement of what little remains of this Nation’s rail systems. To that end, it is developing 750-horsepower diesel engines to haul multiple trailers at speeds of 70 miles per hour along the nearly completed Interstate Highway System.338 These “truck trains” are slated to replace rail freight service. As substitutes for regional subway systems, GM is also advocating 1,400-unit diesel “bus trains,” which would operate on exclusive busways outside cities and in bus tunnels under downtown areas.339 Both diesel truck trains and underground bus trains, however, would seem grossly incompatible with public concerns about petroleum shortages and suffocating air pollution.
The automakers’ motorization program, moreover, is worldwide in scope. The superior bus and rail systems which flourish in the rest of the industrialized world interfere with the sale of cars and trucks by the Big Three’s foreign subsidiaries. “The automobile industry put America on wheels,” said GM Chairman Gerstenberg in September of 1972. “Today,” he added, “expanding markets all around the world give us the historic opportunity to put the whole world on wheels.”340
(Document compiled by Car Busters from the original, March 2001)