Conrail Faces Continuing Problems

Federal legislation establishing the Consolidated Rail Corporation (Conrail) authorized Federal assistance of $2.1 billion to enable the company to become profitable by the end of 1979. Conrail, in its latest business forecast, stated that this amount was not enough and that it will need an additional $1.3 billion through 1982 to achieve financial self-sufficiency. The United States Railway Association (USRA), in its report to the Congress, identified problems which indicated Conrail's poor prospects for achieving self-sufficiency.

Conrail's forecast of profits by 1980 was based on assumptions that contradict its past and current performance trends. It could require substantially more than the amount appropriated plus the additional $1.3 billion to become self-sufficient. Although Conrail recognized that additional moneys will be needed for its contributions to the railroad retirement system and to replenish the employee protection fund, its business plan makes no specific provision for these funds. Conrail made substantial investment in track and equipment rehabilitation, but its improvements program for modernizing yards and terminals lagged because of time-consuming planning processes. It has taken some steps to expedite improvements. Among problems experienced by Conrail were: a decline in traffic, primarily because of poor customer service; inadequate amounts and poor condition of equipment received from bankrupt railroads; and a high incidence of breakdowns, partly because of inadequate maintenance practices. Conrail expects to achieve labor savings as a result of a new labor agreement. The USRA found errors in the final system plan estimate of potential car utilization improvements; however, GAO believes that needed improvements emphasized in the plan should remain as a guide for Conrail performance.

Recommendations

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