What caused the GM&O to merge with IC? They had duplicate routes, and ICG ended up selling or abandoning most of the GMO in the 80s. Was the IC looking to reduce competition? Surely the GMO management would have saw something like this coming. Maybe the GMO should have merged with a western or eastern partner instead... GMO + EL, that would have given Conrail some competition! Thanks.
Chase Z.
RRFoose wrote: What caused the GM&O to merge with IC? They had duplicate routes, and ICG ended up selling or abandoning most of the GMO in the 80s. Was the IC looking to reduce competition? Surely the GMO management would have saw something like this coming. Maybe the GMO should have merged with a western or eastern partner instead... GMO + EL, that would have given Conrail some competition! Thanks. Chase Z.
GM&O was a financially weak competitor in a time when the merger philosiphy was one of merging parallel railroads to reap operating eficiencies. Another example of this was the 1959 merger of the Erie and the DL&W. Not much of the Lackawanna survived that merger while most of the Erie continued on through at least Conrail and most portions of the Erie main are active today except the large portion abandoned through Ohio and west.
IC saw the opportunity to reduce competition and at the same time gain some valuable traffic from the Gulf north.
LC
Also,
Some of the GM&O track that was abandoned was in really poor shape and was the inferior route. The Southern half of the GM&O's old Alton line is a good example of an inferior route with bad shape that had to go.
Furthermore, I don't know that railroads have any particular loyalty to their fixed plant? The only question they were likely thinking before the merger is how it would help their bottom line. Post merger, I think it only natural to preserve the better route.
Gabe
MP173 wrote:Gabe:They might not have loyalty to the fixed plant, but I would guess they would have loyalty to the employees assigned to the fixed plant.What do you mean by the southern half of the Alton Route...would that be below Springfield?ed
St. Louis to Cairo. My understanding of that section of the Alton line is it just had to go. There were grades, sharp turns, and the track was in very poor condition. The GM&O's Alton line from St. Louis to Springfield was one of the few examples of where the IC actually kept the GM&O line and abandoned the IC counterpart. Sadly, that counterpart happened to go through my hometown. As far as management loyalty, my line of work has led me to doubt anything close to that sort of management loyalty to their employees. However, I think one of the conditions of the mergers was no layoffs if I remember the bood I read called "Illinois Central" by Stover.
From a purely operational standpoint the IC/GM&O merger made no sense whatsoever. The IC was by far the dominate player in the Chi-NO market. While the GM&O still was the major player in the Chi-St.L passenger market (which was becoming a liabilty not an asset) it was a light density freight route due to direct competetion from the IC, the Wabash & the C&EI. The GM&O's line to Kansas City was lightly travelled and in poor shape and did not fit into the IC's freight pattern. As far as traffic south of St.Louis was concerned the GM&O was never a serious competetior of the IC. Operationally the only thing the IC gained from the merger was access to the port of Mobile.
IIRC the IC at the time of the merger was controlled by Illinois Central Industries, a holding company headed by bean counters who had no loyalty to the railroad, its customers or employees. It was the beginning of the decline or the once great ICRR and the start of the massive abandonments and sales of its own and former GM&O railroad assets. While not an expert in this area, I think these may have been dictated by tax advantages which may well have been the motive behind the GM&O merger.Deferred maintenance was the order of the day as rail revenues were siphoned off to finance IC Industries non-railroad ventures. Once profitable routes were allowed to deteriorate to 10mph slow order lines causing shippers to flock to truck transport because of the IC's pitiful service. Wholesale abandonments of these once profitable routes was the inevitable consequence.
Mark
KCSfan
Your understanding of the business of railroading is not very deep. The GM&O very much wanted the merger as it meant survival, and its CEO and Board of Directors knew well that absent getting included with a stronger system, bankruptcy and even liquidation was very possible. At the time parallel mergers were in vogue, first, because that was all the ICC was approving, and second, there were efficiencies that could be realized. Consolidation of operations allowed the same volume of traffic with reduced train miles and switch engine hours and the overhead cost for general management and other functions attendent to the railroad business were easy targets for cost reduction.
Bill Johnson was chairman of Illinois Central Industries and was a very effective manager of the conglomerate and the railroad. Contrary to the typical railfan view, cash from the railroad was not used to finance the conglomeration. One big reason, the railroad barely had the cash to keep going. As far as the loss of profitable business to trucks? Ever hear of the Federal Interstate Highway System. In spite of what you might think, very few senior railroad managers of the day purposely let track deteriorate. No railroad was generating the cash necessary to keep the tracks in good repair, and no one outside was about to put money in a business with as bleak a future as railroading.
By the way, "bean counters" do not tell a businessman what to do with the money the business brings in. They are only messengers and the businessman who shoots the messenger is likely to soon be an EX-businessman.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
At the time of the merger, the Interstate highway had become the new player in the markets served by these railroads. The GM&O was cobbled together from the Alton, spun off by B&O in 1949, and the GM&N, the route of the Rebel. While Alton was the main player in the Chicago-St.Louis market they still competed with IC and Wabash there, in the south, the Rebel was a motor bus for it's last years. All of the mergers of this period dealt with a vastly overbuilt system 70% of the traffic was on 30% of the system. IC cherry picked the best of the GM&O freight traffic and either abandoned or sold off whatever was left.
gabe wrote: MP173 wrote:Gabe:They might not have loyalty to the fixed plant, but I would guess they would have loyalty to the employees assigned to the fixed plant.What do you mean by the southern half of the Alton Route...would that be below Springfield?ed St. Louis to Cairo. My understanding of that section of the Alton line is it just had to go. There were grades, sharp turns, and the track was in very poor condition. The GM&O's Alton line from St. Louis to Springfield was one of the few examples of where the IC actually kept the GM&O line and abandoned the IC counterpart. Sadly, that counterpart happened to go through my hometown. As far as management loyalty, my line of work has led me to doubt anything close to that sort of management loyalty to their employees. However, I think one of the conditions of the mergers was no layoffs if I remember the bood I read called "Illinois Central" by Stover. Gabe
jeaton wrote: KCSfan Your understanding of the business of railroading is not very deep. The GM&O very much wanted the merger as it meant survival, and its CEO and Board of Directors knew well that absent getting included with a stronger system, bankruptcy and even liquidation was very possible. At the time parallel mergers were in vogue, first, because that was all the ICC was approving, and second, there were efficiencies that could be realized. Consolidation of operations allowed the same volume of traffic with reduced train miles and switch engine hours and the overhead cost for general management and other functions attendent to the railroad business were easy targets for cost reduction. Bill Johnson was chairman of Illinois Central Industries and was a very effective manager of the conglomerate and the railroad. Contrary to the typical railfan view, cash from the railroad was not used to finance the conglomeration. One big reason, the railroad barely had the cash to keep going. As far as the loss of profitable business to trucks? Ever hear of the Federal Interstate Highway System. In spite of what you might think, very few senior railroad managers of the day purposely let track deteriorate. No railroad was generating the cash necessary to keep the tracks in good repair, and no one outside was about to put money in a business with as bleak a future as railroading. By the way, "bean counters" do not tell a businessman what to do with the money the business brings in. They are only messengers and the businessman who shoots the messenger is likely to soon be an EX-businessman.
Yea, what he said.
Though it might of been a neat what it merger, GM&O+SLSF. Sort of a response to the MP+C&EI merger. GM&O/SLSF would abandon tamms,Ill to Tupelo, miss. GM&O/SLSF gets trackage rights from tamms Ill to rockview,mo via tbebes
jeatonContrary to the typical railfan view, cash from the railroad was not used to finance the conglomeration. One big reason, the railroad barely had the cash to keep going.
So enlighten us as to where the funds to purchase the non-rail assets came from? Leveraging? [from the non-railfan Encyclopedia.com article, muchof which was drawn from: IC Industries by William B. Johnson, New York, Newcomen Society, 1973.] "On August 31, 1962 the railroad was incorporated as Illinois Central Industries, Inc. And under William Johnson’s leadership the company had a new goal—diversification. The Johnson blueprint called for the building of a consumer and commercial products conglomerate by using company cash and stock to buy other businesses, and company tax credits to shelter their earnings. With the single-mindedness typical of its president, the company began methodically to work toward that end."
C&NW, CA&E, MILW, CGW and IC fan
To add a little to the Post by Greyhounds and jeatonwho wrote:[snipped] "...Bill Johnson was chairman of Illinois Central Industries and was a very effective manager of the conglomerate and the railroad. Contrary to the typical railfan view, cash from the railroad was not used to finance the conglomeration. One big reason, the railroad barely had the cash to keep going. As far as the loss of profitable business to trucks? Ever hear of the Federal Interstate Highway System. In spite of what you might think, very few senior railroad managers of the day purposely let track deteriorate. No railroad was generating the cash necessary to keep the tracks in good repair, and no one outside was about to put money in a business with as bleak a future as railroading..." [snip]
Here is a linked article that adds much to the story of how and why as ICRR added the GM&O RR and morphed into ICIndusreies. linked @ http://www.referenceforbusiness.com/history2/93/Illinois-Central-Corporation.html
FTL[snipped] "...Although IC had toyed with activities in other industries, such as real estate, prior to forming ICI, it stepped up its efforts after Johnston retired in 1966. The first new member of the ICI family was Waukesha Foundry Company, a producer of castings and pumps.
By the early 1970s, ICI boasted major holdings in several industries, including industrial products, consumer products, real estate, and financial services. It also put renewed effort into enlarging its rail service: In 1972, IC Railroad merged with Gulf, Mobile & Ohio to become the Illinois Central Gulf Railroad. The resultant carrier had almost 10,000 miles of track in 13 states. Nevertheless, in 1972 ICI's railroad operations furnished less than 30 percent of its pretax income. ICI continued to diversify throughout the decade, investing in everything from Midas International (Midas Muffler) to Pepsi Cola, and steadily diminishing the importance of its rail services.
By the late 1970s, the railroad industry was staggering. Competing transportation services had all but snuffed out some of its most important market niches. Furthermore, much of the massive rail network that had been created during the past century was in dire need of replacement. IC, for example, was forced to rebuild most of its lines during the late 1970s and early 1980s at an enormous expense, thus worsening the subsidiary's financial performance. In the early 1980s, ICI even started looking for a buyer for the lagging division. As it broadened its reach into food service, automobile repair, and aerospace, ICI began selling off chunks of Illinois Central Gulf, eventually reducing it to a 3,000-mile freight rail system by 1988. Finally, ICI, which by then was a $4 billion conglomerate, found a way to jettison its rail operations... "
"...In 1989, ICI, which became Whitman Corporation in 1988, sold Illinois Central to The Prospect Group, Inc., an investment company. Prospect eventually paid a total of $560 million for the railroad, which basically consisted of a 3,000-mile system of rails between Chicago and New Orleans. It created a holding company called Illinois Central Corporation with Illinois Central Railroad Company as its chief subsidiary. Prospect made Edward Moyers president of Illinois Central. In fact, it was Moyers who had masterminded Prospect's buyout of IC and had devised a plan to return the ailing carrier to profitability.
The 62-year-old Moyers, a Mississippi native, had started his career with Illinois Central in the 1940s. He swept floors during his summer high school breaks and then joined the company full time after college. The would-be entrepreneur rose sluggishly through the ranks, developing a contempt for IC's bureaucracy. "I was hardheaded," Moyers recalled in a December 1990 issue of Forbes. "I spoke up about things I thought ought to be done and was told to go home and be quiet." Moyers left IC in 1977 and joined a smaller railroad where he could have an impact. He eventually ran the smaller railroad. In the late 1980s Moyers began eyeing the ailing Illinois Central as a potential takeover target and approached Prospect with the idea.."
This was the ERA of Rationalization FTL:"...Moyers removed one of the side-by-side tracks that connected Chicago and Illinois for northbound and southbound traffic. Every 12 miles he left a 3.4-mile siding where a train could move off of the track while an oncoming train passed. He sold the withdrawn rails and fittings for $50 million and used the remaining materials to cut IC's supply budget by $70 million over four years. He also installed a $20 million automated signaling and scheduling system that saved IC about $100 million.."
As someone who grew up with the ICRR as a neighbor, and had many friends who worked there; this is quite an account of the story..
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