The Evil Genius Behind the General Motors Streetcar Conspiracy

Former GM President and Chairman Alfred Pritchard Sloan, 1937
Former GM President and Chairman Alfred Pritchard Sloan, 1937

The electric streetcar did not die a natural death. It was callously murdered - by General Motors Co. (NYSE: GM).

Thus begins the tale of the "General Motors streetcar conspiracy," otherwise known as "the great American Streetcar scandal."

According to the theory, the American streetcar system did not die out in the 1920s due to the automobile's rise in popularity; instead, it was systematically dismantled by GM. The company wanted to monopolize American surface transportation.

The mastermind behind GM's grand plan was then Vice President Alfred P. Sloan, Jr. - a business man lauded for his innovative corporate ideas at the time. He would eventually become GM's president. Not many people realized then - nor do they today - that some of Sloan's ideas often included bribery and terror.

Here's a look at how the General Motors streetcar conspiracy played out, thanks largely to Sloan's "power of persuasion"...

General Motors Streetcar Conspiracy: Sloan Hatches a Plan

In 1921, GM lost a whopping $65 million in sales. Alfred Sloan concluded that the auto market was saturated and believed that those who desired - and, most importantly, could afford - a car already owned one.

So he shifted his gaze onto the American railway system - specifically, onto its demise...

You see, at the time, 90% of all trips were by rail (chiefly electric rail). There were 1,200 separate electric street and interurban railways, a thriving industry with 44,000 miles of track, 300,000 employees, 15 billion annual passengers, and $1 billion in income.

Sloan reasoned that, should the profitable national tram system go under, automobile sales would rise again.

So he set about collecting a small team of "businessmen" to make it happen...

General Motors Streetcar Conspiracy: Sloan's Muscle

Sloan helped establish a "special unit" (read: team of gangsters with tommy guns) within General Motors in 1922.

Under the corporate banner, this "special unit" was responsible for threatening the heads of lucrative railway companies across the country. That included Southern Pacific, which owned Los Angeles' Pacific Electric - the world's largest interurban railway system with 1,500 miles of track. (Interesting side note: The gangster-lead bribery of LA's chief rail line was the overarching theme in the 1980's flick "Who Framed Roger Rabbit?")

Sloan's "special unit" delivered the following message to every rail line owner...

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Convert your electric streetcars to busses, or I'll divert GM's profitable automobile freight to rival companies.

But Sloan wasn't all scary threats. He used honey, as well as the stick. As far as the "great American streetcar scandal" story goes, Sloan sometimes used his "special unit" teams to convince the heads of railway companies with sweet deals like, "If you do as I ask, I'll deposit millions of dollars into your bank and give you a Cadillac."

General Motors Streetcar Conspiracy: Sloan's Two-Part "Plan B"

While Sloan's "special unit" was quite convincing, he also employed a backup plan.  He helped GM strategically create holding companies that would be used to buy up the railways directly. Here's how his plan worked:

  • First, GM purchased United Cities Motor Transit and made it into a subsidiary holding company. The plan was to buy up and motorize railways directly through United Cities in order to widen GM's reach across various regions of the northeastern United States. Once this method proved effective with United Cities, purchased several other businesses to turn into subsidiary holding companies - Greyhound, Rex Finance, Omnibus Corporation, National City Lines, Pacific City Lines, American City Lines, City Coach Lines, and Manning Transportation.
  • Once these companies were acquired, GM used them to systematically acquire and dismantle smaller-scale railway operations and systems across the country.

Proof of "Plan B's" success came in 1938, when National City Lines - one of the original subsidiary holding companies - reported that it alone owned or controlled 46 transit systems in 45 cities and 16 states. The subsidiary aided GM in the conversion of more than 100 electric transit systems to bus-only operations.

All of this acquisition and large-scale diminishment of an industry, however, smacked of monopolization to one of the country's most prominent city prosecutors...

The General Motors Streetcar Conspiracy: Sloan's Escape

On April 10, 1947, New York Attorney General Clark announced the indictment of nine corporations (among them, GM) and seven individuals (not among them - Alfred P. Sloan) on antitrust charges of conspiracy in the sale of equipment to a nationwide combination of city bus lines.

Alfred Sloan was not indicted solely because he'd kept no paperwork on file linking himself to the company's sketchier transactions.

The outcome of this trial itself went down in history. GM was only very lightly punished for attempting to form a transportation monopoly. It was ordered to pay a whopping $5,000 in fines, and the company's treasurer was ordered to cough up one dollar in restitution.

Read more about scandals like the General Motors streetcar conspiracy on Money Morning's Facebook page or Twitter at @moneymorning.

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