Why did Penn Central fail?

[Anonymous]

Why did Penn Central fail when C&O/B&O/WM did not? I understand the Penn and NYC had similar lines of business, but so did C&O/B&O/WM, as far as I know.

Thanks.

[oltmannd]

Ugly logo. Nobody wanted to ship in cars with such an ugly logo.

I believe the PC was "pre-failed". That is the NYC and PRR were pretty much broke going in. NYC had modernized some, but was still pretty diapidated a lot of places and had a huge passenger train burden. PRR was stuck in neutral since the early 50s and had a rapidly declining traffic base. None of the basic issues that drove these RRs to that point were relieved by a merger. Creation of Amtrak, Conrail and the Staggers Act changed the landscape and got the RR back on it's feet again.

As for Chessie, they might have been right behind PC in bankruptcy if not for Staggers Act. The B&O portion had the same issues as PC. Chessie "rationalized" their system similarly to Conrail after Staggers.

[Anonymous]

There is quite alot of answers to this question,but in small terms.when you (PC) have liabilities of $3.3 billion,and fully mortgaged assets of $4.6 billion,the nations largest railroad unification of the NewYork,New Haven and Hartford,Pitttsburg and Lake Erie,Erie Lackawanna, Delaware and Hudson,Reading,Pennsylvania,New York Central railroad, and about 30 some odd other shortline and terminal railroads of the Pennsylvania Railroad,and having NO money in the bank, NO means of additional borrowing, NO remaining assets to mortgage,and your facing ANOTHER $30 million dollars worth of bills in 10 days!, you have a HUGE problem.In fewer than 900 days the Penn Central was done. But thanks to the Government ,it helped out,and the taxpayers getting the bill to repay back the Government,then taking the railroads of PC and forming Conrail. As for the C&O/B&O/WM merger,it was called sanctions on the C&O from NOT doing what the PC did. Spending alot on everything else,and not making enough revenue to cover the things that were purchased.

[ajmiller]

I'm certain there are other people on the forum that have a lot more knowledge about the Penn Central debacle than me. And I'm sure a lot of case studies have been done about Penn Central too.

I think the short answer is bad managment. There were a lot reasons. Penn Central was a very diverse corporation, and they lost focus on railroading. The merger just couldn't overcome years of deferred maintenance and regulation.

I think the C&O and B&O merger was a much more slowly controlled process than the Penn Central merger.

[ajmiller]

QUOTE: Originally posted by cnwfan11

...the nations largest railroad unification of the NewYork,New Haven and Hartford,Pitttsburg and Lake Erie,Erie Lackawanna, Delaware and Hudson,Reading,Pennsylvania,New York Central railroad, and about 30 some odd other shortline and terminal railroads of the Pennsylvania Railroad

I don't think the EL, D&H and Reading were a part of the 1968 PC merger, though they were severely impacted by the merger and were driven to bankrupcy along with the Lehigh Valley, Jersey Central, and Lehigh and Hudson River Railroad. These smaller roads, except for D&H were merged with PC into Conrail in 1976.

The P&LE was an NYC subsidiary that is now part of CSX I think. Not sure if P&LE was spun off, or went through Conrail.

[kevarc]

PL&E was a seperate corp from NYC, but was controlled by them, much as the same way PRR controlled LV. They stayed out out of PC as independants, but were already doomed because of the eroding industrial base of their repective regions. The EL, D&H, and B&M were part of Dereco, which was controlled by the N&W. The Reading and CNJ were controlled by the B&O (Chessie).

The PL&E entered bankruptcy not soon afterwards, but remained out of CR. The B&O had trackage rights over a large portion in the Pittsburgh area due to easier grades. The B&O was a relative latecomer to Pittsburgh and took the scenic route. IIRC, Chessie bought a portion of the PL&E that they had trackage rights on and the rest was sold off to a shortline.

The failure of PC can be attributed to all of the above. You had two failinging RR's that tried to make things go. This was a no-starter from the get go and then to be stuck with the NH was was another match in the fire. I have read books and other information on both sides of why it failed and thing it is more in the middle than the sides presented for each side.

There are a lot of differences between PC and Chessie. In the PC, there were no strong RR's, all involved were failing. Int he Chessie, the C&O was a extremely strong roaqd that had the resources to resue the weak, the B&O. NOTE: The B&O controlled the WM, but the stock was placed into a trust with the B&O not having as much control over it as it would of liked. After the B&O takeover by the C&O, the C&O applied for and was granted full control and merger of the WM.

It is interesting to note that the CHessie and the N&W entered into merger talks as niether felt that it would be able to compete with the PC. The talks had pregressed fairly far a long, but as it became evident that PC was failing talks slowed down and then broke off after the PC filed for bankruptcy.

[jeaton]

Kevin mentions a point that I feel had a profound impact on all the railroads in the area, that is, the severe decline of the industrial base in that area. At least that would be the starting point.

Jay

[Anonymous]

Thanks for the great info.

kevarc - Do you know the names of the books, about the PC merger?

[Anonymous]

Anyone here ever read "The Wreck of the Penn Central"? (Still available at Amazon.) The merger was perhaps the greatest corporate management fiasco of all time, written up as a classic Harvard Business School case study.

Where to start ...? Dare I start?! Because if I do, where do I stop? I'll give you a few "bullet points" and we can go from there. An apt phrase, "bullet points," for PC died of self-inflicted wounds.

(Full disclosure: I joined New York Central as market analyst-chemicals in mid-1967; became a PC employee on that ill-fated day, Feb. 1, 1968; and resigned late in 1968, convinced that bankruptcy was unavoidable and coming soon.)

1. The labor unions insisted upon, and the companies agreed to, post-merger lifetime job guarantees that made realization of significant merger labor benefits almost nil. It literally took an act of Congress in the mid-1980's to undo those agreements and allow Conrail to become viable. (Some have irreverently referred to this strategic error as "Saunder's Sell-out," Saunders being the head of the Pennsylvania before merger. The compliant role of Al Perlman, head of NYC, will, I think, always remain a mystery.)

2. Saunders (and the mysteriously compliant Perlman) were determined that the operations of the two railroads would be meshed in 100 days. The two executives immediately barnstormed the Northeast, meeting with major customers such as U.S. Steel and GM and assuring them of great things to come. What came was the greatest service meltdown in railroad history. (UP's problems with SP have been miniscule in comparison.) The melt down came so rapidly and so completely that by mid-1968 PC's operating cashflow was negative. Yes, there was an economic recession in 1967, and yes, the two railroads were not pictures of great economic health, but the same factors affected the B&O, for example. The entire system seized up and expenses exploded. The stories you have heard are not apocryphal ... entire trains lost ... entire trains interchanged to the wrong railroad ... entire yards clogged in cities such as Buffalo (with a dozen yards), with yardmen walking the tracks, recording car numbers, pencil on paper, in an attempt to get cars identified for switching to irate customers.

3. An personal anecdote which illuminates the chaos and explains why I believe the failure was self-inflicted: Days after the merger I was on a business trip to the Kanawha Valley of West Virginia, NYC's "chemical coast," and I stopped by the (former) NYC Yard Office in Charleston. Shooting the breeze and thoroughly demonstrating my "greenhorn" status to the NYC veterans, I naively asked about the pile of computer terminals over in the corner. I was told, and visual inspection confirmed, that they were "Singer-Frieden" Univac system terminals of the type used on the Pennsylvania. They were to be installed very soon, and everyone in the yard office would be learning the former Pennsy computer system. But even more interesting was the information that, "Yep, we'll be shipping the NYC's IBM system terminals up north." Up north referred to an unspecified former Pennsylvania Railroad yard office.

Upon my return to New York I explored this matter. I learned that no attempt had been made to preplan a computer management system for the merged railroad. Rather, some genius put a ruler on a map, drew a line from west to east that roughly divided the merged system into North and South, and decreed that all stations north of the line would use Pennsy's Univac system and all stations south of the line would use NYC's IBM system. The 1960's may seem like the dark ages of computer systems, but already the railroads were totally dependent upon them. So imagine the chaos that ensued when Saunder's "100 Day" edict met the reality that one-half of the new railroad, geographically spread throughout the system, was learning a new computer system. A depression, let alone a recession, couldn't have done as much economic damage.

[Anonymous]

QUOTE: Originally posted by Dick_Lewis


1. The labor unions insisted upon, and the companies agreed to, post-merger lifetime job guarantees that made realization of significant merger labor benefits almost nil. It literally took an act of Congress in the mid-1980's to undo those agreements and allow Conrail to become viable. (Some have irreverently referred to this strategic error as "Saunder's Sell-out," Saunders being the head of the Pennsylvania before merger. The compliant role of Al Perlman, head of NYC, will, I think, always remain a mystery.)

Thats insane!! Did Saunders walk away with a load of cash? Is this Enron'ish?

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill

The PC merger, like Overmod points out, was pre-failed.

If it was pre-failed, why was it approved? Was it only because the public wanted it so?

[Anonymous]

Mark Thanks. I will check out the books tonight when I get home (blocked here at work).

If regulation were removed earlier, would PC have survived?

[kevarc]

A list of books:
http://pc.smellycat.com/docs/biblio.html

This was Saunder's dream. He overrode anyone who got in his way in this merger. I have never really understood where Perlman really stood on the merger. I seems he was in awe of Saunders, but that seems to be out of character for him. I think he went along with it as he could see no viable option for the NYC. And no Saunders did not walk away. He was destroyed by this, his own folly. It did not matter who you were - if you disagreed with Saunder's, you were gone.

I think Perlman was a little out of his element with the NYC. He came from the N&W which was another world altogether. It was not saddled with the debt or the operational problems the NYC was saddled with. It was also a lot leaner and more focused RR.


Thanks ***, that is some great information.

[kevarc]

QUOTE: Originally posted by talbanese

Mark Thanks. I will check out the books tonight when I get home (blocked here at work).

If regulation were removed earlier, would PC have survived?

I doubt it. Not only was the ICC rate making hurting, but the labor protection and refusal to get rid of redundant track would have killed it.

[oltmannd]

It's interesting to read the annual reports of the NYC and PRR from the late 1940s and early 50s. In the late 40s, they lay out the main "challenges", full crew law/agreement, regulation (line abandonments and rates), and passenger svc losses. They did this year after year, with more emphasis each year, until the mid 50s, when they apparently gave up trying to do much about it and stopped talking about it. It was also about this time the tie replacement rates on the PRR and NYC dropped way, way below the steady state requirment. It seems that mgt figured out there was no money to be made in railroading and whatever profits were made were best invested elsewhere to serve their shareholders.

Later, Perlman on the NYC tried to make a modern RR out it. Lots of spending on CTC and new hump yards. Burned through lots of cash. Good thing the NYC had lots of real estate to sell/develop. His legacy was that Conrail worked as well as it did. About 2/3 of Conrail's "core" was built on the back of Perlman's investments.

[BaltACD]

QUOTE: Originally posted by talbanese

Why did Penn Central fail when C&O/B&O/WM did not? I understand the Penn and NYC had similar lines of business, but so did C&O/B&O/WM, as far as I know.

Thanks.

The prime reason PC failed and Chessie didn't can be reduced to four letters....COAL.

The Chessie system roads moved it in volumes that the PC roads could only dream of. Mark's comments on the era of Regulation are right on the mark and in that regulated enviornment coal provided the sustainable revenues that would keep the Chessie System roads financially viable.

Secondly the PC physical plant, because of the long term overriding dependence upon passenger service, was vastly overbuilt in comparison to the Chessie System routes. Overbuilt lines suck up vast quantities of maintenance dollars, additionally both NYC and PRR failed to see the handwriting on the wall of Passenger service and tried to make it profitable without serious retrenchment for much too long a time and thus took their companies to the brink of financial ruin before the merger.

As I recall there was a definate 'Blue Team' and 'Red Team' internal strife mentality that ran through the companies management from merger day until to formation of ConRail.

[StillGrande]

QUOTE: Originally posted by M.W. Hemphill

(IMO, the best source for used books is www.abebooks.com, a cooperative of several thousand used booksellers through which I've bought more than 1,000 used books, with 100% satisfactory results.)

Now everyone will know. All the lower priced copies will be gone. Prices will rise. Anarchy will reign. I am already trying to convince my wife and kids that the railroad books I need are more important than heating the house this winter!

[Anonymous]

WOW! Quick turn around time.

Why did PC refuse to get rid of redundant track? Was this a pipe dream of better things to come?

Thanks everybody.

Amazon has a used book (The Wreck of the Penn Central) for $6.95. I cannot see abebooks.com from work.

[oltmannd]

QUOTE: Originally posted by talbanese

WOW! Quick turn around time.

Why did PC refuse to get rid of redundant track? Was this a pipe dream of better things to come?

Thanks everybody.

Amazon has a used book (The Wreck of the Penn Central) for $6.95. I cannot see abebooks.com from work.

They didn't refuse. The ICC didn't allow it when they asked. Public interest was the overriding concern, not profitablitly. PC hired a new pres in the early 70s, a guy named Moore who came from the Southern. He figured out what needed to be done to make PC profitable, which was address the same 3 issues from the 1940s/50s annual reports - crew size, line abandonment and passenger losses (Amtrak had taken care of intercity, but PC was still getting nothing but bad publicity for commuter svc). He detailed a "profitable core" out of PCs 25,000 or so route miles that was about 12,000 route miles - not incidentally it looked very much like Conrail's route map at the end!

[SALfan]

From my limited knowledge, here are a couple of comments. If I'm wrong, please speak up.

The "Red Team" (PRR) and "Green Team" (NYC) wars were a factor, too. NYC had much the better management team and operating philosophy, but Saunders (PRR) and his cronies had the power, and they ran off or emasculated anyone who had previously worked for NYC. This understandably alienated the former NYC folks, who left in droves. Other RR's far and wide benefited from the former NYC talent, while PC floundered.

I came into the hobby in 1979, and still remember the wailing and gnashing of teeth from labor, shippers and towns/cities when Conrail was finally able to rationalize the physical plant. I'd like to know how much track was abandoned and how many shippers had to start paying the true cost of their service after deregulation. Both numbers were huge, from my understanding.

[espeefoamer]

WE had two giant,overbuilt, railroads,both ailing financially,merging into one.Then they are ordered to take on the New Haven,which had been in bankrupcy since 1961. NH also had a large(compared to its size) passenger service.This was a recipe for disaster.Also,PC management was siphoning off money from the railroads,and putting it into real estate.The Northeast was already becoming the rust belt with manufacturing leaving for other parts of the country.
If the Staggers Act had been passed in 1970 instead of 1980,could this have prevented the meltdown of Northeast railroading in general,and thus,the need for the formation of Conrail?Also one or more commuter agencies would have to have been formed at the same time to take this massive burden off of the freight railroads,along with Amtrak removing the passenger load.Also,work rule changes would have to be implamented at this time.

[Anonymous]

Couple of quick "fact checks" on later posts: Saunders, not Perlman, came to Pennsy from N&W. Perlman came from Rio Grande. NYC was "Green Team" not blue. (Pardon, but my loyalties are showing!)

A wise man once said, "It takes a long time to kill a railroad." Generally true, to wit, Rock Island, Katy, SP, New Haven, Lackawana, et al. But Saunders did it in three months. Not "the public," not regulation, not competition, not even labor. No, the word is "hubris." The railroads could have been run independently and gradually integrated, as were C&O/B&O. Nothing in the economic, regulatory, or competitive environment changed so radically in just one year that the failure was unavoidable. Remember, 1966 was the best year the industry had experienced since WWII.

[kevarc]

I stand corrected, thanks ***. It is still the same - I don't think Perlman was ready for the likes of the NYC and Saunders.

[rrnut282]

QUOTE: Originally posted by Dick_Lewis

for PC died of self-inflicted wounds......


Rather, some genius put a ruler on a map, drew a line from west to east that roughly divided the merged system into North and South, and decreed that all stations north of the line would use Pennsy's Univac system and all stations south of the line would use NYC's IBM system.

I think the same genius used a similar line when choosing which lines to downgrade. The Pennsy Panhandle had just spent millions on a grade separation of their line across Indiana to Indianapolis (think fast, no interlockings or grade crossing accidents to slow you down) a few years before the merger. It was one of the first to go, nevermind that it hadn't been used long enough to get any return on the investment. They downgraded three double-track mains across Indiana that were ex Pennsy in favor of two NYC routes that didn't travel through as many towns (to generate traffic). It's decisions like this that I question.

[CG9602]

If you're still looking for Richard Saunders books, try this link: http://www3.niu.edu/univ_press/index.html

Northern Illinois University Press is the publisher, & one can order directly from them.

[daveklepper]

One point however. In both the New York and Philadelphia areas, state and local governments were already starting to subsidize commuter service to some extent. This began in the PRR days in Philadelphia with the Operation Torresdale, Operation this, operation that, where the new Budd Silverliner cars were paid for by the City or State and some money given to subsidize operations. The theory was that highway expansion costs and traffic control police expenses would not increase so rapidly, just like rail expansion today. And it worked. And it saved the quality of the Philly commuter service during this terrible period. Meanwhile, the trustees of the New Haven threatened to just shut down the Connecticut and Westchester commuter service if the states did not come up with subsidies, becuase there would otherwise be simply zero money to pay any employees. So Nelson Rockefeller, the NY State Governor, came to the resuce and demanded that Connecticut share in the burden. And they did. And then the New York Central under Perlman demanded equal treatment and got it. The quality of the Phily service remained pretty high during this period, with the new Budd mu cars that generally did not have the problems that some later equipment had. The MP-54's still running were undermaintained, but their generaly rugged design kept them going OK. The mu's on the Central were in fairly good shape and the subsidy came along quickly enough to keep that way. But the New Haven's had already suffered from undermaintainance, and one saw things like FL-9's pulling strings of New Haven MU's with pantographs raised for lighting and heat only since the motors had already expired and may have been removed. After Penn Central took over, one saw the junk used primarily in the New Jersey service because that state started subsidizing commuter service later than the other three, even seeing Trenton trains being handled by a GG-1 pulling those "trailered" ex-New Haven mu's. But it was possible to find vestibule floor with holes where one could look to the trackbed below because of rust on any of these commuter operations.

I do remember riding the Hudson Division the day after the merger and seeing all the ex-NYC mu's of all types in service having the "New York" painted out and "Penn" (or was it Pennsylvania?) substituted, with the "Central" left alone. The lettering matched pretty well but the new green was a bit different than the old. Aging I guess.

[MP173]

I have read Richard Saunders two books on railroad mergers and both are excellent. The first volume covered til 1970 and pretty much focused on the eastern mess.

PC failed for all of the above reasons. It was overbuilt and it ran too many passenger trains. Look at the Official Guides from the 50's and 60's to see how many passenger trains the NYC and PRR ran. Think of all of the depots and clerks for each of the communities.

The ICC basically did not allow lines to be abandoned, until after PC failed. Trains ran with 5 crewmembers (and cabooses).

You also have to remember the marriage of PRR and NYC quickly became a shotgun marriage when the New Haven was added, then Conrail had to take all of the other fallen eastern lines.

the 70's were an ugly time in railroading.

ed

[Anonymous]

Poor managerment.

[csxns]

And dont forget the Trucking industry it did not help.

[CSXrules4eva]

I think the PC failed because the PRR failed in the first place. In the late 1800s and eairly 1900s they invested tons of money into new routes like the NEC and new projects. The electrification of passanger service was a huge step and PRR underestimated how much it would cost them for this project. The Philadelphia renovation project is a prime example. Broad Street station was torn down and 30th Street station was constructed. This improved eyesores like the "Chinese Wall" near 11th street in Philly. PRR ceased opperations of the eleavated tracks near Vine St which lead straigt into Broad Street Station. The also built other new stations like Market East and Suburban Station which were underground. The underground rail from Market to 30th Street improved the eyesores, reduced theft, and increased service. Local lines in Philly like the Chesnut Hill East and West lines were upgraded significantly. Other lines in the area that were upgraded were the Norristown line, and Paoli lines. (These today are owned my SEPTA) The NEC by far was the bigest project. They had to invest time and money into excivation, new power stations, locomotives, cars, and rail infastructure. I guess all of these reasons led PRR to bankrupcy, then lead them to merge w/ New York Central. Then PC was born and fell because of the enormous debt PRR was in. THIS IS MY THINKING.. . .. . .