Rail vs. Automobiles & Airlines: What Does the Market Say?

Many of the people who oppose passenger rail in the US claim to be believers in the free market. Their argument is based on the notion that the market favors the automobile over rail. Now there is obviously no way to put these claims to the test using methodology that would meet a scientific standard. Yet there is a litmus test we can apply to such claims by using something the rail haters claim to believe in: the market.

Since there is no free market in transportation in the US, we’ll have to use a different sort of exchange as our test namely the stock market. So let’s see what the stock market says about railroads and automobile companies. Anybody who doesn’t believe me can check the internet, stock values are public knowledge.

At the beginning of trading on June 24, 2011, Union Pacific Corp (one of the largest US railroads) was listed at $100.04 a share. Persons who follow stock should note that UP has been steadily increasing in value in a bull market. UP’s earnings per share were listed at $5.82 which is a good return.

On the same day the Ford Motor Company, the "healthiest" us car maker, was trading at $13.24 a share. Ford is supposed to be the best managed of the US automakers but the market values it at around 15% of the value of Union Pacific. General Motors, did a little better, its new stock was moving at $29.92 a share. Better than Ford but nothing compared to the railroads.

It is not just UP the market likes on June 24, 2011, another major US railroad the Norfolk Southern Corporation was trading at $71.67 a share. Even the little known Kansas City Southern (one of the smallest rail operators) was fetching $55.59 a share. Also notable is Warren Buffett’s Berkshire Hathaway, which owns the Burlington Northern, its class A stock traded at an astronomical $113,100 a share on June 24, 2011. Buffett is a value investor, he bases his trades on what he thinks has value and he’s usually right. He could have picked up either Chrysler or GM for a pittance in the last couple of years notice that he didn’t.

One auto stock that did well on US exchanges was Toyota Motor Corp which traded for $81.29 a share. Toyota is a Japanese company that operates under very different conditions than American firms so that isn’t a fair comparison. The other major US automaker, Chrysler is in such sorry shape that its management doesn’t even try offering stock.

What this shows is that the market thinks there is real value in railroads but not in America’s auto companies. Despite generations of favorable government policy and taxpayer support the market thinks little or nothing of the U.S. car makers.

It’s not just auto companies that fare badly when compared to rail. Southwest Airlines, considered the best of the airlines, traded at $11.36 a share on June 24, 2011. That’s about 11% the value of a share of UP stock. A much larger airline, UAL or United Continental, was trading for $22.99 a share on the same day. Another big airline, Delta was trading for $9.43 a share.

What these findings indicate is that in a truly competitive market, airlines and automobiles have a hard time competing with rail. Despite the massive amounts of tax funding and generations of government policy directed at those transportation modes, they still can’t be as profitable as rail.

One has to wonder what would happen if passenger rail were allowed to compete in a free market environment. The auto industry might survive in some form, but I seriously doubt passenger airlines would. One also has to wonder if the self-proclaimed champions of the free market in transportation are really scared of the free market. They don’t want a free market in transportation because it would quickly destroy their cherished illusions.

A final thought here I wonder how much automobile and airline stock, rail critics like Wendell Cox actually own(Probably none, like Noam Chomsky they only base decisions on their ideology when their money is not involved). I have a suspicion that the champions of “free market transportation” don’t own a single share in the companies that should profit from their socialist transportation infrastructure. Although I bet they own more than a few shares of Exxon, BP, Shell and other oil companies which profit from the current status quo without paying for it.