What if Al Perlman had run the Penn Central?

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What if Al Perlman had run the Penn Central?
Posted by narig01 on Tuesday, April 10, 2012 1:58 PM

I asked this question in another thread and someone suggested I start a thread on this.  So I ask:

What if Al Perlman had run Penn Central with or without the support of Blevens (the CFO) and other money people?

Could his management team have made it work?  Mr Perlman had been and had developed a lot of 1st rate talent.   And when he left the Rio Grande he left a railroad that certainly was hustling for a living.

     When he was at the New York Central Mr Perlman had immediate impacts.

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Posted by Ulrich on Tuesday, April 10, 2012 2:26 PM

Quite possibly, but they had alot going against them right from the get go...incompatible computer systems, a regulatory environment that didn't allow pricing in accordance with the market, outdated labor practices and featherbedding, strong competition from trucking on general freight, ..etc. In retrospect they probably never had a chance... They had talented people..but they ran out of time and money... bascally they had a couple of years to make changes that would normally require 15 or 20 years.

 

 

 

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Posted by PNWRMNM on Tuesday, April 10, 2012 4:35 PM

They also had money loosing passenger and commuter operations all over the place, plus the dead weight of the New Haven and its passenger trains. My personal opinion is that no mortal could have saved PC.

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Posted by Murphy Siding on Tuesday, April 10, 2012 4:59 PM

    I wonder if Perlman would have taken the job, had he fully understood the true situation he was getting into.  Had he left at the start of PC,  the railroading world may have been different.

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Posted by BaltACD on Tuesday, April 10, 2012 6:09 PM

The conditions that took, PRR, NYC & PC under were far beyond the ability of any carrier management to overcome.  The changes necessary to bring profitability to those lines and what became ConRail required both legislative and regulatory changes that no management  could pull off until the wreckage of the companies became fully evident to those who could make such changes - legislators & regulators.  As the Titanic was considered unsinkable in it's day, the railroads, when viewed by legislators & regulators, in the 50's, 60's & early 70's were also considered unsinkable - until they sank!

         

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Posted by Ulrich on Tuesday, April 10, 2012 6:54 PM

The Titanic is a good analogy. Bringing  back PC from the brink would have been tantamount to bringing the Titanic safely to shore after striking the iceburg. As J Paul Getty famously stated...many things are IMPOSSIBLE.  

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Posted by Murphy Siding on Tuesday, April 10, 2012 10:33 PM

     What was the alure, that brought Perlman east to start with?

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Posted by narig01 on Wednesday, April 11, 2012 12:48 AM

Murphy Siding

     What was the alure, that brought Perlman east to start with?

The biggest thing,  getting out on the property and meeting with people. An engineering eye to see when things are not right. Getting things hustling(at Rio Grande he started getting cars off the line before the 12m per diem would strike) .   Having a management development program to train and advance people so they would get a well rounded feel about how to run a railroad.

      And also the patience to deal with people who were at the limits of their abilities.(ie he did not throw chairs at people without very very good cause. If you did your best for the man he would respect that, if you tried to bs Mr Perlman he would take you apart).

      He knew the business.

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Posted by daveklepper on Wednesday, April 11, 2012 5:11 AM

About the Titanic:   Investigators have uncovered the fact that the shipyard ran out of steel rivits and substituted obsolete iron rivits where they thought the hull would be least stressed.  If steel rivits had been used throughout, the ship would not have broken apart nor sunk.

Pearlman could have been the steel rivits for Penn Central.   He would have seen things as they were and warned people that legislative action was neccessary to save freight railroading from becoming a money-loosing ward of government as passenger service (worldwide) has become.

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Posted by BaltACD on Wednesday, April 11, 2012 6:46 AM

The carriers & the AAR had been pleading their case for years for legislative fixes - all fell on deaf ears until the PC sank, Perlman may have prevented the sinking for several months - but PC was sinking and there were no actions outside of legislation that would have prevented it and until it sank legislators didn't think there were any problems.

daveklepper

Pearlman could have been the steel rivits for Penn Central.   He would have seen things as they were and warned people that legislative action was neccessary to save freight railroading from becoming a money-loosing ward of government as passenger service (worldwide) has become.

         

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Posted by edbenton on Wednesday, April 11, 2012 9:11 AM

I doubt Pearlman heck JP Mrogan Hill or any of the BEST Railroad CEO's Present or Past could have saved the PC I highly doubt the Mighty Hunter Harrison could have saved that Monster why the Regulatory Enviroment itself was not setup to allow it to make the CHANGES NEEDED TO SAVE IT.  When it took Years to abandon a line that had no frieght they were basically a Duplicate system that needed to pare almost half their Systems down and then they had Massive Passenger losses that they did not loose for 3 years after the merger. 

 

Put it to you in Terms anyone could understand They were a couple making 50K a year spending 90K a year and living on Credit Cards and then when the Credit cards came due they would get another one with a bigger Credit limit.  Basically think the Goverment except the Goverment has NO LIMIT. 

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Posted by Firelock76 on Wednesday, April 11, 2012 7:11 PM

Oh dear, I have to disagree and correct daveklepper, who I admire and respect.  It's about the "Titanic" rivet comment.  No-one substituted iron for steel rivets, they were ALL iron rivets, just as the hull plates were iron.  A VERY high grade of rolled iron, but iron just the same.

You see, "Titanic" was built of the best matierials available at the time.  Would those matierials be used today?  Certainly not, but  Harland and Wolf, the shipbuilders, were a class act and used the best stuff they could get.

In the end, it wasn't poor matierials, poor workmanship, or poor engineering that caused the sinking.  It was poor seamanship that killed "Titanic".  Take it from someone who's been a "Titanic" freak since he was 10 years old.

Sorry to set this topic "adrift". 

Oh, as for Al Perlman:  He SAID the merger of the Pennsy and the NYC was a bad idea, but no-one listened.  No-one could have saved Penn Central.

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Posted by Victrola1 on Thursday, April 12, 2012 9:25 AM

What if Jay Gould had run the ICC when its powers were at their zenith?

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Posted by MP173 on Thursday, April 12, 2012 9:33 AM

I agree with others....no one could have saved Penn Central.  When the New Haven was thrown in as a condition...it sealed the doom, which was pretty well cast anyway.

Declining freight base, high passenger costs, commuter service, 5 man crews, low volume branch lines, deferred maintennace, high property taxes, mismanagement, etc. 

It was time to reboot.

 

ed

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Posted by schlimm on Thursday, April 12, 2012 10:12 AM

And Conrail and other Eastern rails were probably doomed by redundant routes, too.  How many lines from metro NY to Buffalo?  NYC, the old West Side line, LV, DL&W, Erie, for declining traffic.  Chicago to NYC?  NYC, NKP/Lackawanna or LV, Erie, PRR, B&O.  Albany to Boston? B&M and B&A.  The list goes on and on between city pairs.

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Posted by Murphy Siding on Thursday, April 12, 2012 10:16 AM

     From what I've read, Perlman didn't think PC was a good idea  from the get-go.  I could never figure out why he didn't leave at the start-up of PC, or at least when he was given the opportunity several times before it crashed.  I seem to recall that Saunders tried to push him out the door a couple of times.

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Posted by oltmannd on Thursday, April 12, 2012 11:47 AM

MP173

I agree with others....no one could have saved Penn Central.  When the New Haven was thrown in as a condition...it sealed the doom, which was pretty well cast anyway.

Declining freight base, high passenger costs, commuter service, 5 man crews, low volume branch lines, deferred maintennace, high property taxes, mismanagement, etc. 

It was time to reboot.

 

ed

If you need proof of any of this, the condition of pre-Staggers Conrail in 1979 is it.  All the deferred maintenance had been taken care of.  Welded rail all over the place.  Lots of new locos.  Lots of traffic.  Smoothly running yards and shops.  

Red ink for the year.  One droplet of black ink in the second quarter.  FAIL.

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Posted by 466lex on Thursday, April 12, 2012 2:40 PM

Ah, the "what if's"!  We shall never know, of course, but what if ...  Stuart Saunders hadn't "sold out" on the labor terms governing the PC merger, gutting virtually the entire rationale for the merger?  Al Perlman would never have done that ....  What if ... Stuart Saunders hadn't ignorantly boasted to the world that he would put the two railroads together "in 100 days", then even more incredibly insisted that managers attempt to do it?  Al Perlman was a railroader, Saunders was a poseur.  What if ... Saunders hadn't "overseen" (laughably) the merger "planning process" which resulted in incompatible computer systems driving operations into gridlock in a matter of weeks?  Al Perlman undestood "cybernetics" as the heart and soul of an effective and efficient railroad operation, and he would never have stood for such folly.

Sunders was a political creature who knew next to nothing about managing a complex network, yet because of his political "skills" he out-maneuvered Mr. Perlman to become head of PC.  Suanders "leadership" drove PC into bankruptcy at an incredible pace, as Mr. Perlman's innovative "green team" was immediately marginalized and its members moved on to "greener" fields in mere months.  We will never know the details of why Mr. Perlman, the ultimate railroader of the time, was sidetracked, but it was a classic blunder by the boards of directors to have consummated the merger with Saunders at the throttle.

As for those grim externalities so often mentioned ... 1966 was the best year for U.S. railroads since WW II, so, yes, the recession of '67 was a problem for the merger (Feb. 1, 1968) but growth resumed rapidly.  Sure, passenger trains were a drag, but the "Twentieth Century Limited" was already dead, and other train-offs were occurring steadily.  Truck competition, sure.  Declining industrial base, yep.  But Al Perlman was attacking those challenges successfully:  Flexi-Van; Flexi-Flow; and a host of genuine marketing initiatives were working.

How did the C&O and the B&O survive the very same external factors?  Because they were manageable challenges, and Al Perlman was the railroad leader who would have been the most effective of the era, had he been chosen to lead the PC.  No way would Perlman have failed to lead PC to success!

If a refresher reading is desired, check out The Wreck of the Penn Central.  Stuart Saunders caused the "Wreck".  Al Perlman would have avoided it.

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Posted by Murphy Siding on Thursday, April 12, 2012 10:25 PM

        466lex- You bring up a good question.  How did C&O and B&O survive the same storm PC was in?  Is the answer coal?

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Posted by CSSHEGEWISCH on Friday, April 13, 2012 6:44 AM

Murphy Siding

        466lex- You bring up a good question.  How did C&O and B&O survive the same storm PC was in?  Is the answer coal?

It has been pointed out that PC got most of the passenger problem while C&O/B&O and N&W got most of the coal.

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Posted by oltmannd on Friday, April 13, 2012 2:52 PM

Murphy Siding

        466lex- You bring up a good question.  How did C&O and B&O survive the same storm PC was in?  Is the answer coal?

 Both were pretty clear of NYC and Phila, where the rust set in first.  The B&O was pretty wobbly on it's own - probably not much better off than EL before Agnes pushed them over the edge.  C&O had lots of coal and a nice export pier in Newport News.  Export coal was a licence to print money - an unregulated commodity.

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Posted by narig01 on Friday, April 13, 2012 3:22 PM

Would Mr Perlman been smart enough to try a go slow merger ala   Chessie?

And take time to get it right?

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Posted by BaltACD on Friday, April 13, 2012 3:37 PM

narig01

Would Mr Perlman been smart enough to try a go slow merger ala   Chessie?

And take time to get it right?

Thx IGN

With the shape both PRR & NYC were really in - 'going slow' would have only hastened the bankruptcy.  Both were dieing and looked at the 'shiny image' of the other as being the savior.  With the traffic leaving their service area both, individually, were in death spirals; getting together just continued the spiral.  The only saving, would have had to come from legislation and all the legislators could see was the 'shiny image' of what the companies once had been; not the wrecks they actually were.

         

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Posted by CatFoodFlambe on Saturday, April 14, 2012 6:07 PM

By the time PC was formed, mergers were no longer the solution. - essentially, PC/NYC were the leftovers from that trend. (The less said about the New Haven - from a economic standpoint only - the better).   Any potential reduction in fixed  and operating costs that could be realized by merger-related rationalization of the plant was dwarfed by the enormous capital investment that would be needed to make up for fifteen years of deferred maintenance and a lack of investment in technology.    Moreover, regulation would have minimized much of the potential to make the changes needed to extract those benefits.   Think of it as trying to play  "Call Of Duty XXIV" with a malfunctioning control console from an Atari 2600.  

Despite the ethical misbehavior of some members of top management, PC actually had an effective operating plan in place - they just didn't have the physical plant  or regulatory freedom in place to execute that plan.      The success of Conrail in the 1980's essentially came from the same operating template (executed by many of the same operation-level managers) after the government changed the regulatory climate and essentially donated the capital needed to bring the plant back up to plumb.

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Posted by wanswheel on Sunday, April 15, 2012 3:39 PM

 

Perlman & Saunders

Excerpt from Time Magazine (June 22, 1970) www.time.com

Uncle, Can You Spare Some Millions?

As plain as a red signal on the main track, the ominous figures in quarterly earnings reports showed for months that the Penn Central Transportation Co. was in precarious financial condition. The nation's largest railroad and its parent corporation, the Penn Central Co., are among the wealthiest companies in the U.S. (assets: $7 billion). But the railroad is burdened with debt, beset by spiraling costs, tangled operations, a drop in freight shipments and the $100 million annual drain of unwanted passenger service. As a result, a convulsion last week shook the once-mighty Penn Central and spread deep concern among leaders of business and Government.

The company was so desperately strapped for cash that Penn Central directors abruptly dismissed the men they blamed for that plight: Chairman and Chief Executive Stuart T. Saunders, Vice Chairman Alfred Perlman and Finance Committee Chairman David Bevan. Next day, fearful that the collapse of so large a corporation might bring down other companies in the shaky economy, the Nixon Administration took unusual action in order to rescue the ailing railroad from the brink of bankruptcy. Under seldom-used powers of the Defense Production Act, the Defense Department agreed to guarantee up to $200 million in short-term bank loans for the road....

Bickering at the Top. The agony of the Penn Central was aggravated not only by the money shortage but also by civil war within the company. The 28-month-old merger of the Pennsylvania Railroad and the New York Central was supposed to eliminate wasteful competition and thus enable two troubled rivals to highball into the future. Instead, executives of the Pennsy's "red team" and Central's "green team" bickered over business methods, and politicked for status and promotions, while service deteriorated amid appalling confusion. Even the computer systems of the two roads were incompatible: they could not transmit information to each other. Thousands of freight cars were "lost" in Penn Central yards or along its 40,000 miles of tracks. Shipments were delayed for weeks or longer, and food, beer and other goods went stale in the cars. While infuriated shippers switched to other carriers, frustrated middle-managers from the New York Central quit in wholesale lots as Pennsy men took over most of the key positions.

Friction became especially grating between the Pennsy's Saunders, 60, a lawyer turned railroadman, and Perlman, 67, former boss of the Central, who had been named chief operating officer of the combine because of his reputation as a wizard at running trains. Strong-willed men, they held each other in low esteem -and showed it. Moreover, the merger that Saunders engineered had long been opposed by Perlman, who had favored another grouping of Eastern railroads. The squabbles became so frequent that last December the board of directors finally moved Perlman upstairs to vice chairman. Other railroaders who had thought that mergers would alleviate their own woes now looked at the Penn Central and began to have doubts....

The Penn Central's passenger service has been a particular plague. The railroad still runs 1,280 passenger trains a day-35% of the nation's total and 75% of the remaining long-haul schedules. By Penn Central accounting, round-trip income from one New York-St. Louis train, for example, recently averaged $5,295 a day; but wages and other operating costs ran to $10,191. To pare such losses, the Penn Central two months ago petitioned the ICC to end all passenger service west of Buffalo, N.Y., and Harrisburg, Pa. Indignant protests from localities, rail buffs and organized passenger groups are likely to stall the commission's decision....

Having lunged to the aid of the Penn Central, the Government now seems headed for a quasi-nationalization of the nation's railroads. Legislation that sailed through the Senate and seems assured of success in the House would create a semipublic, Government-subsidized agency, the Rail Passenger Corp. (Rail-pax), to take over long-haul passenger service from railroads that want to give it up. Railpax would start operations in March 1971. Most of its directors would be named by the President; the Transportation Secretary would establish the routes, and the corporation would set standards of service...

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Posted by wanswheel on Sunday, April 15, 2012 3:55 PM

Excerpt from Time Magazine (Jan. 26, 1968)  www.Time.com

Toward the 21st Century Ltd

No green light flared from a track-side tower; no warning whistle echoed down the line. But no trainman missed the signal. When the Supreme Court gave its approval last week to the merger of the Pennsylvania and New York Central railroads, it was clearing the track for the nation's entire rail system. It was giving railroad management permission to highball into the future.

As Justice Abe Fortas read the 37-page opinion that put an end to ten years of frustrating negotiation and deliberation, the smile on the face of a chunky, balding spectator seemed to light up the marbled chamber. For Stuart Thomas Saunders, 58, the man who has already been picked to head the Pennsylvania New York Central Transportation Co., the court's 8-0 vote was a singular personal triumph.

It was Saunders, as chairman and chief executive officer of the Pennsylvania, who planned the tactics and organized the arguments that led to one of the largest mergers in corporate history. It was Saunders who held the pieces together during the frequent assaults from competitors concerned about the Penn Central's potential power; it was Saunders who won over dubious labor leaders, worried lest future economies lead to fewer jobs. Above all, it was Saunders, the lawyer-turned-railroader, who convinced the Interstate Commerce Commission and the Justice Department that both public interest and private good would be helped if two troubled rivals were allowed to operate as a unit, instead of continuing costly and wasteful competition. His victory was a victory for railroads across the country. For the court gave its approval to his philosophy that railroads must combine, that they must grow in size and decline in number if they are to serve their customers and survive.

Envious Hill or Harriman. Saunders will be working in tandem with the Central's President Alfred E. Perlman, 65, one of the best operating men in the business; and the two men will be managing a railroad empire to excite the envy of a Hill or a Harriman. The Penn Central will operate on 40,000 miles of track in 14 states and two Canadian provinces. It will run 4,200 locomotives, 195,000 freight cars, and 4,937 passenger cars. It will also be the nation's largest private landlord, with real estate holdings that include Park Avenue hotels and a Pittsburgh office building-apartment complex, a 25% share in the new Madison Square Garden, erected over the rebuilt Pennsylvania Station in New York City, resorts in Florida, parks in Texas and housing developments in California. The diversified corporation will have total assets of $6.3 billion, annual revenues of almost $2 billion, and tidy tax-loss credits from dismal years in the past that will help to improve net income for years to come. Most of all, in its plans and in its performance, Penn Central will be a prototype of the U.S. railroad of the future.

Saunders moved into the chairman's suite at Pennsy's Philadelphia headquarters only four years ago. He brought with him the bright reputation he had built as president of the Norfolk & Western, which he helped turn into one of the nation's most profitable railroads. He also brought a consuming energy that threatened to wear out associates. For he is a man who dotes on work. An average day includes twelve hours at the office, another three working at home-after which Saunders relaxes with a vengeance. He ordinarily takes a couple of double martinis before dinner, wine during the meal, and brandy plus two or three Scotches and soda afterward. Not long ago, at a reunion at Roanoke College, where Alumnus Saunders ('30) is now chairman of the trustees, a classmate told him: "You always were a lucky guy." Replied Saunders: "Yes, I suppose I was-but I have also noticed that the harder you work the luckier you get."

To work out his luck when he came to the Pennsy, Saunders had two major aims. One was to shake awake a slumbering, 121-year-old railroad that had stumbled onto hard times. Falling earnings and a high debt had led the road's conservative management to cut back on new spending; the Pennsy had hardly enough modern equipment to remain competitive. The new boss changed all that by allocating huge funds ($577 million in the last three years alone) for new equipment and by branching out into fields other than railroading. His other goal was to push through the merger with the New York Central, something that had been discussed and contemplated for years.

Tangled Midwest. To be sure, the merger trend among U.S. railroads is nothing new (see map). But the plans for the Penn Central were the most ambitious yet. As Saunders promoted them, his tireless determination seemed to promise eventual success. Inevitably, it gave new impetus to a growing roster of other corporate unions:

In the East, the coal-rich Norfolk & Western and the Chesapeake & Ohio-Baltimore & Ohio are moving toward a merger that will probably be consummated some time in 1970. The C. & O. took effective control of the B. & O. five years ago in a move that enabled the limping B. & O. to use C. & O. credit ratings to buy new equipment ($312 million worth last year). Together, the two lines achieved savings averaging $35 million annually. By merging with the Norfolk & Western, they estimate that they can save another $30 million a year. The merger would create a system every bit as affluent as the Penn Central. It would include the Nickel Plate and the Wabash, already owned by the Norfolk & Western, as well as the Erie Lackawanna, Delaware & Hudson, and Boston & Maine, which the ICC already has ordered the Norfolk & Western to absorb.

In the Midwest, where the railroad map is incredibly tangled, several efforts are under way to unsnarl it. The aggressive Chicago & North Western, run by Ben Heineman, has merger agreements worked out with the Chicago Great Western, and would like to include the Milwaukee Road. The Illinois Central and Gulf, Mobile & Ohio, with 9,200 miles of frequently parallel track, hope to merge too. The Missouri Pacific is anxious to take over the Atchison, Topeka & Santa Fe. The three "Northerns"-the Great Northern, the Northern Pacific and the Burlington-have been given tentative ICC permission to combine lines that cover most of the territory between Chicago and the Pacific.

The Rock Island Line, an enticing property despite financial difficulties, has a plethora of suitors. Hoping to take all or part of the Rock Island over are the Union Pacific, Southern Pacific, Santa Fe, and Heineman's Chicago & North Western. - In the Southeast, the Atlantic Coast Line and Seaboard Air Line Railroad have already merged into the Seaboard Coast Line and expect to realize annual savings of $38.7 million. Meanwhile the Southern Railway, bothered by this increase in competition, has been shopping around for a partner.

In the West, where mergers are less urgent because rail routes are longer, highways fewer and profits greater, one small railroad is being assiduously courted. Both the Southern Pacific and the Santa Fe have attempted to acquire the Western Pacific, if only because its profits are steady and its route includes the easiest pass through the Sierra Nevada. So far, Western President M. M. Christy has turned down all offers.

Sustained Sentiment. The man who is slated to preside over the Penn Central, fittingly enough, is the man who started the merger trend. It was Saunders, as president of the Norfolk & Western, who arranged for the takeover of the Virginian Railway in 1959 and laid the groundwork for the N. & W. to acquire the Nickel Plate and the Wabash. Born in McDowell, W. Va., Saunders grew up in Bedford, Va., within sight and sound of the N. & W.'s main line through the coal fields. He attended college in the town where the N. & W. has its headquarters. Even after he was graduated from Harvard Law School and set up a practice in Washington, Saunders retained his sentimental attachment to the region. In 1939, he and his wife Dorothy jumped at the chance to return to Roanoke when Saunders was offered a job in the legal department of the N. & W. There he made himself so valuable that he moved up steadily until he was finally named president in 1958. In that job, he left operating problems mostly to subordinates, concentrated on mergers and finance.

Saunders' performance at the N. & W. impressed the Pennsylvania Railroad directors, who, at that time, held 33% of the N. & W.'s stock. A delegation from the Pennsy, headed by Pittsburgh Banker Richard Mellon, called on Saunders in Roanoke to of fer him the opportunity of running the nation's largest railroad. Saunders accepted without hesitation. When he moved to Philadelphia, he took along a cadre of N. & W. executives who are still known around headquarters as the "Virginia Mafia." Before long the Mafiosi had eased 550 oldtimers into retirement. Almost nothing about the Pennsy remained untouched. Saunders, who collects cookbooks as a hobby, even hired a new chef for the executive dining room, ordered him not to serve diet lunches.

He did much more than change menus. Besides making huge investments in equipment and rolling stock, he really began to diversify. He concluded the purchase of the Buckeye pipeline, which threads for 8,000 miles through eight states in the East and South. Today, Buckeye ownership makes the railroad the principal supplier of jet fuel to Kennedy International Airport through a pipeline laid under New York harbor. Already well-stocked with real estate through its rail-related holdings, the Pennsy spent some $80 million to get more. It bought into Arvida Corp., Great Southwest Corp. and Macco Realty Co., which deal in real estate in California, Texas and Florida. Through its subsidiaries, the Pennsy is now developing Rancho California, an 87,500-acre residential project near Los Angeles; it is opening industrial and recreational parks in the Dallas and Fort Worth area, and it operates the Boca Raton Hotel and Club in Florida.

Unique Position. Saunders also bought a 57% interest in Executive Jet Aviation, a young company organized to provide charter service to businessmen. Among other advantages, Executive Jet gives the Pennsy a foothold in aviation and a start toward what Saunders calls a "total transportation company." For such investments the Pennsy has a large kitty. From its sale of the Long Island Railroad to New York State in 1966, and from the gradual disposal of its shares in the N. & W. and its 98.5% interest in the Wabash, the Pennsy had about $500 million to spend, still has around $107 million unallocated. "We are," says Saunders with some understatement, "in a rather unique position to pursue diversification."

For all the advantages of diversification, Saunders always looked upon consolidation with the New York Central as his most important project. The two lines were in the process of beating each other into bankruptcy. As early as 1957, merger talks had started between Saunders' Pennsy predecessor, James M. Symes, and the Central's Robert Young. Then, after Young committed suicide in 1959, he was succeeded at the Central by Perlman, an M.I.T. graduate who was with the Denver & Rio Grande before Young brought him back East. As it happened, Perlman was most reluctant to couple with the Pennsy, and Saunders had a tough time persuading him that it would be a good deal for both companies.

In his talks with Perlman, Saunders pursued a policy of not letting the opposition polarize. But keeping the opposition unpolarized was a herculean task; there was almost too much to keep track of. ICC examiners studying the Penn Central merger proposal, traveled to 18 cities, took 40,000 pages of conflicting testimony from 461 witnesses in 128 days. Nearly 350 lawyers have thus far been involved. Aside from legal tribulations (their case went to the Supreme Court twice and lower courts five times) the prospective partners have had to overcome objections from both labor and Government.

First, as far as Saunders was concerned, came labor. At one point during the ICC hearings, a railroad spokesman had glowingly boasted that the merger would enable the lines to get rid of some 7,800 employees. Officials and members of the 24 railroad brother hoods reacted with understandable concern. In an industry where management and labor rarely meet except in the hostile atmosphere of the bargaining room, Saunders began seeking out union leaders for informal talks. "I knew I had to change labor's position," he says. "My argument with the leaders was: 'This is really in the interest of your people. Merger means better earnings, which mean better savings, more business and more jobs. I can only get these savings with your cooperation.' " As a more practical matter, Saunders also promised the unions that no one would be fired because of the merger; only as jobs become vacant because of retirement or death will the Penn Central cut down on employees.

Next came the Justice Department, which strongly opposed the merger on the ground that it would lessen competition among Eastern railroads. Saunders brought the Government lawyers over to his side by agreeing to absorb the bankrupt New Haven. Perlman and the Central had said that they would not take the New Haven under any circumstances. "But it was apparent," says Saunders, "that the New Haven provided the factor needed to get the merger through: an urgent public interest."

One of Saunders' main efforts was to cultivate Lyndon Johnson. A lifelong Democrat, the ambitious railroad man made himself available for public statements approving almost all Johnson Administration policies-from Viet Nam to tax increases. "I could not have gotten the merger through without help from members of the Administration," Saunders says frankly. Then, in a masterpiece of understatement, he adds: "They got the Justice Department to change its thinking." It was significant that Saunders, while celebrating his Supreme Court victory in a Washington dining room last week, received a congratulatory personal telephone call from the President.

Without Illusions. While Saunders was maneuvering so skillfully toward merger, an unexpected problem arose: the New York Central began making noises about backing out of the deal. Elated by rising profits in 1966, Perlman announced that the Central appeared to be "recession-proof" and might not have to merge in order to prosper. Saunders paid calls on Central directors, pointed out that their line, unlike the Pennsy, was not widely diversified; he warned that a dip in the general economy would cause the Central painful headaches. Last year's mini-recession proved Saunders right. Rail returns for the less diversified Central during the nine months figured so far showed a $2,640,000 deficit, while Pennsy earnings held up substantially better. Suddenly the Central's merger enthusiasm revived.

Now only ragtag ends of the complicated corporate battle remain to be resolved. But Saunders labors under no illusions about the future. "The Pennsy itself," he says, "is a tough property to operate." The Penn Central will be a lot tougher. Pennsy President Allen J. Greenough, 62, whose title in the company is still unsettled, puts it even more strongly. "This is a big dog with a lot of fleas," says Greenough. "We'll be scratching for a long time."

To ease the itch, 40 representatives of both the Pennsylvania and the Central have planned together for many months. They worked in neutral territory-offices of the consulting firm of McKinsey & Co. The first sessions were stiffly formal, but even though some Central executives fear that they will be frozen out of key jobs by their opposite numbers at the dominant Pennsy, the atmosphere soon thawed.

More than 3,000 major merger problems have been discussed. One of the first projects was to take an inventory of all the equipment on both roads, from diesel engines down to dining-car flatware. A unified purchasing system for 180,000 kinds of hardware should save $750,000 a year. Altogether, eventual savings from combined operations should be at least $80 million a year. Plans have been made to eliminate about 1,000 miles of duplicate tracks, and computers were called into service to help decide upon the best routes. With a choice of two main lines from Chicago to the Northeast, for example, the computers found that the Central's water-level route would be much more economical than the Pennsy tracks that ascend nearly 3,000 feet over the mountains of western Pennsylvania. Connecting links between Pennsy and New York Central tracks are being rushed at Toledo, Grand Rapids, Cincinnati, Terre Haute, Chicago, Buffalo and Detroit. Freight yards at Cleveland and Indianapolis will be modernized, and an entire new yard-to be named after Perlman-is being built at Albany. The basic idea is to take advantage of the savings that through-freight operations can provide. "The speed factor is vital," says Perlman. "If goods are in transit for four days, someone has to have them on the books for four days. Any reduction in time that we can make will be beneficial."

Flying the Colors. Hundreds of problems remain to be settled. One immediate difficulty was deciding upon a new emblem to replace the red and gold keystone of the Pennsy and the olive, black and white oval of the Central. "Red and green together are too psychedelic," explains a Pennsy vice president in charge of paints. Last week, therefore, Saunders and Perlman inspected four freight cars that have been painted in various combinations of browns, greys, blues and greens, and now will decide which to adopt. When "M Day" (for Merger Day) takes place-with luck on Feb. 1 and almost certainly by March 1-the first order of business will be a meeting of the 25 directors of the combined lines.

Of these, 14 will come from the Pennsy and eleven from the Central. They will elect Saunders to be chairman and chief executive officer of the Penn Central and Perlman to be president and chief administrative officer. Even at that, it will be at least eight years before the two roads are completely integrated.

Small Succor. Long before then, freight should be moving faster and more efficiently than ever. But passengers will receive small succor from the merger. The benighted commuters of the New Haven will, to be sure, benefit from new equipment made possible by an infusion of money required by the ICC as part of the Penn Central deal. But the Pennsy lost $54 million last year on passenger service, while the Central dropped $25 million. And neither line is anxious to fritter away more cash. Says Saunders ominously: "We are studying all our passenger operations and will be forced, I am sure, to initiate at an early date a far-reaching program to adjust passenger service to actual public needs."

But even as the Penn Central prepares to cut back regular passenger service, it is forging ahead with a fleet of high-speed passenger trains. The railroad has committed $45 million of its own money, in addition to $11 million in Department of Transportation funds, to lay high-speed track between New York City and Washington and to buy ultramodern trains to make the run.

Already tested, the high-speeds will cruise at up to 150 m.p.h.; they promise to cut Washington-New York running times from nearly 4 hours to 2 hours and 18 minutes. Speed, plus such amenities as direct-dial telephones, good food and common courtesy, may win back shuttle passengers whose elapsed airplane time-commuting trips to and from airports-will at least be equaled by midcity to midcity railroad runs.

The high-speeds will spread no farther than densely populated corridors, for the long-distance (more than 200 miles) passenger train is already disappearing down the track to oblivion. "The railroads," says Saunders, "simply cannot compete with jets, to say nothing of supersonics." The Pennsy's boss is equally adamant that Government should support shorter-haul commuter service with subsidies. Says he: "The U.S. Government is spending virtually nothing to assist 73 million people to get to and from their jobs, while putting up $25 billion to send three men to the moon."

No railroad man anywhere disagrees. Western Pacific President Christy announced last week that his road will make another effort to drop the California Zephyr next month. "You can't run a long-distance passenger service on nostalgia," he says. The nostalgia-covered Twentieth Century Limited made its final run for the Central last month. Southern Pacific's president, Benjamin Franklin Biaggini, who would like to chop off his Lark trains running between Los Angeles and San Francisco, says: "It takes a crew of 21 and the operation of a whole train just to move an average of less than two busloads of people. There are 10,000 airline seats available each day in each direction, and it is obvious that the people who fly them don't want to ride trains."

Rent-a-Train. The future of the railroads, quite clearly, lies in freight. And in anticipation of that rich haul, railroads all around the country are adding new equipment, with a handsome outlay of $3.45 billion over the past two years. The results are already impressive. The Pennsy, for instance, pioneered with "unit" trains, in which continuously linked cars carrying bulk cargoes like coal can bypass freight yards and switching delays because they never have to be uncoupled. Beginning with one unit train in 1964, the road now runs 550 a month. Illinois Central has gone a step farther and devised a rent-a-train plan that Hertz and Avis might envy. Under the system worked out by I.C. Marketing Vice President John Ingram, companies can rent an 86-car train for $1,000,000 a year, run it as frequently as they like. Illinois Central has so far rented out five such trains to grain companies.

Three-tiered automobile haulers have won back new-car haul business from trucks and saved the auto companies on freight charges as well. For other customers, railroads can offer everything from "rail whale" tank cars with 50,000-gal. capacity to "high cube" cars built with extra-high roofs for odd-size loads. Piggyback hauls, in which flatcars carry over-the-road trailers, have increased 385% in a decade, to 1,207,242 carloads. The Southern Pacific, for one, has seen its piggyback service grow from 18,000 tons twelve years ago to 2,200,000 tons last year.

Everywhere, trains are getting bigger -the Norfolk & Western recently ran a 500-car train that was pulled by six engines with radio-connected controls operated by a single engineer. Last week the Santa Fe inaugurated service of its Super C freight from Chicago to Los Angeles. On its first run it zoomed from city to city in 34 hours and 35 minutes, or five hours faster than Santa Fe's famed Super Chief.

Happy Marriage. Nothing is changing railroading more than the computer. Just about every Class I U.S. road has acquired some of the electronic giants to control the costly and time-consuming business of putting freight trains together, taking them apart, and keeping track of the cars. The Union Pacific has so far installed 53 computers in 37 yard offices, ties them all in with four master computers in Omaha by a 2,900-mile private microwave system; the line figures that the economies obtained are equal to having 3,000 additional freight cars on hand.

Computers and the men necessary to run them have nourished a new breed of railroaders-management experts with wide-ranging interests. And they, in turn, have fueled the railroads' drive to diversify-if the Government eases up-into related areas of transportation. The Missouri Pacific, which already owns two truck lines extending 17,000 miles, last week applied to the CAB for permission to start an air-freight service. Says W. Graham Claytor Jr., new president of the Southern: "The railroads must press hard for the right to sell transportation, not railroad service. Then they must supply it in the most economical form suited to the customer's needs, including in many cases a combination of highway, rail, water and even air." Saunders enthusiastically agrees. "A transportation company," he says, "should be able to offer a customer every kind of shipping service."

In the effort to do that, the railroads are showing increasing enterprise. The Great Northern, Northern Pacific, Union Pacific and Southern Pacific, among others, have opened sales offices in the Far East. The Pennsy, in turn, has opened offices in seven European cities. The aim is to build up a business in containerized shipments that can be handled by rail after they are unloaded from ships. The U.S. railroads are pushing to establish a "land bridge" service by which freight bound between the Far East and Europe would travel by ship to the U.S., go by rail across the country, and on ships again to its final destination. The savings in time would be significant: 28 days from Japan to Europe by way of the land bridge v. 44 days on an all-ship transit through the Suez Canal.

Such is the future of U.S. railroading, and so auspicious is the outlook for the Penn Central merger, that Stuart Saunders last week relaxed his customary aggressiveness. "I have heard it said that a long courtship makes for a happy marriage," said Saunders, as he looked back over the years of fuss and frustration, "and I hope that it is true, for it will surely mean eternal bliss for the Penn Central." Bliss, perhaps. But with Saunders running things, certainly not tranquillity. Honoring Saunders last week with its annual Benjamin Franklin award, Philadelphia's Poor Richard Club summed up the situation pretty well. "When Benjamin Franklin arrived in Philadelphia," said a society spokesman at the presentation ceremonies, "things began to happen. It's the same with Stuart Saunders."

  • Member since
    December, 2009
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Posted by dakotafred on Sunday, April 15, 2012 6:13 PM

Thanks for the posts, Wanswheel. They are typical TIME ... long on style, short on substance, especially the panegyric of 1968. What that writer knew about the railroading of the day you could put in your ear. Which is why that mag and others like it -- Newsweek, US News -- are reduced to comic books today.

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    June, 2002
  • 13,265 posts
Posted by daveklepper on Monday, April 16, 2012 8:55 AM

I have it on very good authority that iron rivits were substituted at the last minute for the Titanic's hull where the shipbuilder felt they would take the least strain, simply becuase the manufacturer of steel rivits contracted for could not deliver enough on time.  This was verified by those divers who inspected the wreckage.   The iron rivits would have been thoroughly satisfactory  --- if no iceburg had been hit.

  • Member since
    November, 2005
  • From: Hope, AR
  • 1,944 posts
Posted by narig01 on Monday, April 16, 2012 12:18 PM

The Time articles:  The begining and the end of the begining.

Rivets hold things together. Obviously not enough or the right tight in the case of Penn Central.

Of course what does it say that of those that caught the blame Mr Saunders retired to play bridge at the Commonwealth Club in  Richmond..

Mr Perlman went on the Western Pacific and his management got the railroad thru the 70's to the UP.

Mr Blevens I do not know about.

Thx IGN

  • Member since
    March, 2016
  • From: Burbank IL (near Clearing)
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Posted by CSSHEGEWISCH on Monday, April 16, 2012 1:59 PM

David Bevan was also cashiered with Saunders and Perlman just prior to the Chapter 77 filing and I believe that his career and reputation were completely ruined, especially when his financial shenanigans became public.

The daily commute is part of everyday life but I get two rides a day out of it. Paul

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