Great American Streetcar Scandal

The Great American streetcar scandal (also known as the General Motors streetcar conspiracy and the National City Lines conspiracy) is a conspiracy theory in which streetcar systems throughout the United States were dismantled and replaced with buses in the mid-20th century as a result of alleged illegal actions by a number of prominent companies, acting through National City Lines (NCL), Pacific City Lines (on the West Coast, starting in 1938), and American City Lines (in large cities, starting in 1943).

National, which had been in operation since 1920, was organized into a holding company, and General Motors, Firestone Tire, Standard Oil of California, Phillips Petroleum, Mack, and the Federal Engineering Corporation made investments in the City Lines companies in return for exclusive supply contracts. Between 1936 and 1950, National City Lines bought out more than 100 electric surface-traction systems in 45 cities, including Detroit, Cleveland, New York City, Oakland, Philadelphia, Phoenix, St. Louis, Salt Lake City, Tulsa, Baltimore, and Los Angeles, and replaced them with GM buses. American City Lines merged with National in 1946.

Background

In the 19th century, city transit systems were rail-based, first with horse-drawn cars and later with cable cars. Around 1890, streetcars began to be powered by electricity, and streetcar companies built large generating facilities to produce the needed electricity. They began to sell their surplus electricity to consumers and, in time, their electric businesses outgrew their transit businesses.

Expansion of cities, increasing competition from automobiles, difficult labor relations, and tight regulation of fares, routes, and schedules took their toll on city streetcar systems in the first third of the 20th century. By 1916, street railroads nationwide were wearing out their equipment faster than they were replacing it. While operating expenses were generally recovered, money for long-term investment was generally diverted elsewhere. This included consumer electric distribution systems.

Because streetcar companies were often the biggest single customers of electric utilities, they were often owned partially or wholly by the utilities themselves, which then supplied them with electricity at substantially discounted rates. In some cases, the origin of the situation was reversed; the streetcar company began providing its own electricity, and then later branched out into supplying electricity for other businesses and homes. The Public Utility Holding Company Act of 1935, an antitrust law, prohibited regulated electric utilities from operating unregulated businesses, which included most streetcar lines, and also restricted the ability of companies to operate across state lines. Many holding companies operated both streetcars and electric utilities across several states; those that owned both types of businesses were forced to sell one. The choice was obvious: the declining streetcar business was far less valuable than the growing consumer electric business, and many streetcar systems were put up for sale.

National City Lines began to buy streetcar systems. Even when the sale of a transit system was not forced, declining revenue – particularly in the Great Depression – left many streetcar systems short of funds for maintenance and capital improvements, and available for purchase. The newly independent lines, no longer associated with an electric utility holding company, had to purchase electricity at full price from their former parents, further shaving their already thin margins.

Los Angeles

Los Angeles had two separate trolley systems, commonly known as the Pacific Electric "Red Cars" and the Los Angeles Railway "Yellow Cars." National City Lines owned only the Yellow Cars, yet both ended up being dismantled. The two systems were often used in conjunction by travelers, and cutting service on one line made the other less convenient (as compared to automobiles). During this period, automobile ownership was rising everywhere in the United States, in cities where GM had purchased the local streetcar systems and in cities where it had not.

On April 9, 1947, nine corporations and seven individuals (constituting officers and directors of certain of the corporate defendants) were indicted in the United States District Court for the Southern District of California on two counts under the U.S. Sherman Antitrust Act. The charges, in summary, were conspiracy to acquire control of a number of transit companies to form a transportation monopoly, and conspiring to monopolize sales of buses and supplies to companies owned by the City Lines.

The proceedings were against Firestone, Standard Oil of California, Phillips, General Motors, Federal Engineering, and Mack (the suppliers), and their subsidiary companies: National City Lines, Pacific City Lines, and American City Lines (the City Lines).

The Seventh Circuit Court summarized the history of the arrangement this way:

"On April 9, 1947, nine corporations and seven individuals, constituting officers and directors of certain of the corporate defendants, were indicted on two counts, the second of which charged them with conspiring to monopolize certain portions of interstate commerce, in violation of Section 2 of the Anti-trust Act, 15 U.S.C.A. § 2. The American City Lines having been dismissed, the remaining corporate and individual defendants were found guilty upon this count."

"National City Lines, organized in 1936, as a holding company to acquire and operate local transit companies, had brought, up to the time when the contracts were executed, its necessary equipment and fuel products from different suppliers, with no long-term contract with any of them. Pacific City Lines was organized for the purpose of acquiring local transit companies on the Pacific Coast and commenced doing business in January 1938. American was organized to acquire local transportation systems in the larger metropolitan areas in various parts of the country in 1943. It merged with National in 1946."

"Additional facts, while not largely in dispute, are partially controverted, at least in so far as inferences are concerned; however, we think the evidence adequately justified the jury in finding affirmatively that they existed. In 1938, National conceived the idea of purchasing transportation systems in cities where street cars were no longer practicable and supplanting the latter with passenger busses. Its capital was limited and its earlier experience in public financing convinced it that it could not successfully finance the purchase of an increasing number of operating companies in various parts of the United States by such means. Accordingly it devised the plan of procuring funds from manufacturing companies whose products its operating companies were using constantly in their business. National approached General Motors, which manufactures busses and delivers them to the various sections of the United States. It approached Firestone, whose business of manufacturing and supplying tires extends likewise throughout the nation. In the middle west, where a large part of its operating subsidiaries were to be located, it solicited investment of funds from Phillips, which operates throughout that section but not on the east or west coast. Pacific undertook the procurement of funds from General Motors and Firestone and also from Standard Oil of California, which operates on the Pacific coast. Mack Truck Company was also solicited. Eventually each of the suppliers entered into a contract with City Lines defendants of the character we have described whereby City Lines companies agreed that they would buy their exclusive requirements from the contracting supplier and from no one else. We think the evidence is clear that when any one of these suppliers was approached, its attitude was that it would be interested in helping finance City Lines, provided it should receive a contract for the exclusive use of its products in all of the operating companies of the City Lines, so far as busses and tires were concerned, and, as to the oil companies, in the territory served by the respective petroleum companies. It may be of little importance, but it seems to be the fact, at least we think the jury was justified in inferring it to be the fact, that the proposal for financing came from City Lines but that proposal of exclusive contracts came from the suppliers. At any rate, it is clear that eventually each supplier entered into a written contract of long duration whereby City Lines, in consideration of suppliers' help in financing City Lines, agreed that all of their operating subsidiaries should use only the suppliers' products. These were not joint contracts; each supplier entered into a separate agreement. Whether the action of the suppliers in this connection was so concerted as to justify the jury in finding that defendants conspired to monopolize that segment of interstate commerce reflected by the purchase and shipment in commerce of busses, tires and petroleum products to the operating companies, we shall discuss more fully later. The facts related present only a sketchy outline of the setup as it was presented to the jury."

The court went on to detail how the various City Lines companies approached Firestone, Standard, Phillips, General Motors and Mack, offering exclusive supplier contracts in return for capital investment.

"Although defendants insist that each supplier merely obtained business from the City Lines defendants through separate negotiations, the documentary evidence referred to above and other circumstances in evidence seem to us clearly sufficient to justify the jury in finding that the contrary was true. It is clear that representatives of two or more supplier defendants were in attendance in Chicago and New York at meetings and conferences, out of which grew the investment and requirements contracts. And the fact that copies of a memorandum of discussions held between one of the supplier defendants and one of the City Lines defendants, as well as copies of many of the letters which passed between the contracting parties prior to the execution of the contracts, were sent to representatives of other supplier defendants, coupled with the fact that the latter corresponded with one another relative to the provisions of the contracts, is hardly reconcilable with defendants' contention that their several contracts were negotiated independently of one another but is, rather, convincing that each of the contracts was regarded by the parties as but a part of a 'larger deal' or 'proposition', to use the words of certain of the defendants, in which all of the supplier defendants were involved."

In 1948, the United States Supreme Court (in United States v. National City Lines Inc.) reversed lower court rulings and permitted a change in venue from the Federal District Court of Southern California to the Federal District Court in Northern Illinois.

In 1949, the defendants were acquitted on the first count of conspiring to monopolize transportation services, but were found guilty on the second count of conspiring to monopolize the provision of parts and supplies to their subsidiary companies. The companies were each fined $5,000, and the directors were each fined one dollar. The verdicts were upheld on appeal in 1951.

In 1970, Robert Eldridge Hicks, a Harvard Law student working on the Ralph Nader Study Group Report on Land Use in California, compiled and correlated these earlier events to expose the conspiracy. It was first reported publicly in Politics of Land, published in 1973.

In 1974, Bradford Snell, a U.S. government attorney, gave testimony before a United States Senate inquiry into the causes of the decline of the transit car systems in the U.S. that pointed to the effect of the NCL acquisitions as the primary cause. This theory was then popularized in U.S. popular culture in books such as Fast Food Nation and the film Who Framed Roger Rabbit, in which the scandal is masked and set in Los Angeles.

Another element of this theory is the effect of the construction of the Interstate Highway System, which began its initial construction in California after the large-scale dismantling of that state's trolley network.

Other explanations for the decline of the transit car industry

Randal O'Toole of the Cato Institute, a libertarian think tank, argues that streetcars faded away at the invention of the internal combustion engine and rise of the private automobile and then the bus. At one time, nearly every city in the U.S. with population over 10,000 had at least one streetcar company. 95% of all streetcar systems were at one time privately owned.

Robert C. Post wrote that "nationwide, the ultimate reach of the alleged conspirators extended to only about 10 percent of all transit systems—sixty-odd out of some six hundred—and yet virtually all the other 90 percent also got rid of trolleys (as happened with all the tramcar systems in the British Isles and France)."

Cliff Slater conducted research on U.S. transit history, and concluded, "GM or not, under a less onerous regulatory environment, buses would have replaced streetcars even earlier than they actually did."

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