Why did Penn Central fail?

[egmurphy]

Another good book on the subject (at least in my opinion) is:

The Fallen Colossus, (The Great Crash of the Penn Central), by Robert Sobel, 1977, Weybright and Talley pub.


Regards

Ed

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill



Kenefick didn't really explain in his talk why Perlman didn't take an active role; in fact, Kenefick sort of talked around that key fact. The consensus from most people that I've talked to is that Perlman was tired and ill by that time, and had just burned out. I'd like to see better evidence for that, because without that evidence I still regard this as an unexplained mystery of railroading history.

Not that I am claiming to know anything about anything at all, but I do recall reading a little about this, in a book specific to NYC history. Though I cannot recall the title, so if you wi***o impeach the validity of the claim,..I haven't a leg to stand on.

But anyway, as I recall from the book, one of the big head bumpings between the two (Perlman and Saunders) was over the purchasing policy of new motive power. According to the book, Perlman during the last days of NYC autonomy was of a conservative perspective on the matter, convinced that the "worker bees" always asked for more than was actually needed, and consequently he made a practice of shearing off the size of whatever quantity was requested.. When the two great minds were forced to ponder such an ocassion for the merged entity, a conflict so intense ensued that ultimately Perlman threatened to resign.... Saunders, allegedly in response, insisted that is exactly what he should do.

Pondering,....but if the balance of power after the merger were such that Perlmans ultimate last resort was merely a threat to resign, a threat that his adversary was only too happy to be "prey" to,.... it appears that Perlman may have been "compliant" because he had no other real choice?

I'm guessing of course, but that seems to take the mystery out of it....

[robscaboose]

I have a friend who worked for the PRR in Terre Haute IN. The day of the merger he was taking a train from Terre Haute to Indy (approx 50 miles). The train never made it to Indy that day, nor the next day. Finally 3 days after the train left Terre Haute he was reassigned to to that very same train & finally was able to reach the yard in Indy.

Rob

[Anonymous]

Here are a couple of factors nobody has addressed.

Because of its own merger and N&W's, in 1964, PRR had to divest itself of its N&W stock which it had held since 1901. After 1964 PC was left with a small amount of N&W stock which had to be divested by 1974. If you don't think this was important, from 1901 to 1964 N&W paid PRR $406.6 million. From 1946 to 1964 the amount was $193.8 million, and in 1963 the figure was more than $17 million. So a sure source of income was lost (N&W paid its common stockholders $1.97 Billion {that's with a "B"} between its first common stock dividend in 1901 and the Southern merger in 1982). (It was rumored that one year during the Depression PRR paid its stockholders the same amount of money the N&W paid PRR, because PRR made no money on its own operations.)

Saunders was a lawyer who became president of N&W in 1957. He was no dummy, but ambitious. On the N&W he didn't have to know anything about operations - he had a superb team who ran the railroad for him while he went shopping for merger partners.

When he got to PC - it was agreed that he'd be president - he had no such unified team; instead he had the reds and the greens at odds with each other. He found himself without anybody under him who really wanted the combined road to succeed.

PRR paid great attention to passenger operations, evidently, but freight was subordinate, and when one got to outlying points and less important lines, they were left to run themselves.

A case in point: A friend of mine was an Assistant Road Foreman on the N&W and came into Columbus on a freight train. He noted a Sandusky coal train over in Grogan Yard, with a 2-10-4, pumping air.

He went and got his rest, and something to eat, and came back and the same train was still there, same crew still on it, still pumping air. Nobody cared that the crew was on overtime before it left the yard, and was not likely to make it to Sandusky. Where was the supervision that was supposed to see that the trains ran?

You tell me.

Add these things to the overbuilt plant, the regulation, the shift of industries from the Northeast, and neither Central or Pennsy had a chance. Merging them was not going to help unless some way was found to get the two factions to work together.

Old Timer

[Rick Gates]

The only subjective obsevation I can add to this since I didn't hire onto PC until 1973 is that the PRR side paid us alot in OT and arbitrary pay. When we got to the NYC side, we didn't make out as well pay wise despite more commuter traffic on the mains. That is in the case of frieght trains. On passenger trains, I made out better on my pay on ther NYC side though we still ran ontime.[2c]

[oltmannd]

QUOTE: Originally posted by 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.

The subsidies helped, but weren't carrying the full cost. Getting out from under commuter operations helped Conrail's profitabilty a great deal. A good chunk of Conrail's payroll of 100,000 at the start, that was reduced to 25,000 near the end was devoted to commuter operations.

[Anonymous]

It's been a really long time since I read the Wreck of PC, but weren't there also some corporate shenanigans where the profitable assets, real estate, mortgages, were spun off into a seperate company which ended up siphoning off what little revenue there was?? I don't remember the name, but the practice was common at the time - i.e. Northwest Industries from CNW and a really interesting one - Alleghany Corp(NYSE:Y) from the remains of the Jay Gould empire(C&O?).

[Anonymous]

I read The Wreck of the PC a long time ago. I still remember the lost trains which were located in upstate New York.

FWIW, the weary Erie struggled for 130 years. Unbalanced traffic from the beginning. Merged with a parallel road, the Lackawanna, in 1959. Bad move. Turned down being absorbed by Conrail. Finally, Hurricane Agnes in June 1972 wiped out much of the trackage in Pennsylvania and New York. ELRR couldn't recover after that.

[Anonymous]

OK So heres a Question on top of the question, where are the Executives of this RR right now?

Are they at home in a multi-million dollar mansion, did they move to other Railroads? or are most of them turning in their grave?

[Sterling1]

Jeez after reading all of this inforamtion, what an atrocious way to waste Northeastern railroads!!! I really wander what the long term social and economic damage if any there was??!!!

[Anonymous]

QUOTE: Originally posted by kevinstheRRman

OK So heres a Question on top of the question, where are the Executives of this RR right now?

Are they at home in a multi-million dollar mansion, did they move to other Railroads? or are most of them turning in their grave?

I asked the same question - They went down with the ship!!

[ValleyX]

Executives are probably dead, Sanders certainly is by now, as is Perlman.

It probably would have taken a Brosnan-type (legendary iron-willed Southern president) to even think of wrestling a mess like the Penn Central was.

As for the Sandusky coal train, I worked on the Sandusky District with a lot of former PRR men. They told tales of trains backed up all the way from Troyton (MP 31, Grogan being approximately MP 1, not exactly sure) and trains on up the road during lake season because they couldn't dump the coal fast enough. Perhaps that was the case here, crew sitting on the train and unable to take it. Factor in that a lot of those trains got helpers to shove them out of Columbus and they were operating on primarily a single track, manual block 35 MPH railroad

[Overmod]

Erie, I think you'll find that EL was one of the necessary reasons for Conrail, rather than 'turning down being absorbed by them'. Surely you mean they turned down potential inclusion in Penn Central? The Agnes floods were four years before Conrail...

How do I remember? Lost the family homes in Kingston when the water came through the Corps of Engineers barriers. (At right about the point where our family members were buried...) That was a memorable year.

I have good memories of EL SD45s on the double-track main at the end of Dorrance Street, and of something else further over -- never found out what it was! -- that I could hear but wasn't tall enough to see -- I remember just the very tops of boxcars being visible over the EL embankment. Not old enough to remember engines at the Kingston roundhouse, but my father was. I also remember being somewhat heartbroken to find PRR 7002 being parted out in Wilkes-Barre...

[Saxman]

To all posters to this thread,

Thank you for a very imfomative discussion on the failure of the Penn Central All comments were to the point and well thought out. This is one of the few posts I have read recently that has styed on topic. You are all to be commended. I gained new insight into the tangled web that is the Penn Central failure and sources for more information.

Thank you all.

Saxman

[Anonymous]

So how about that ball game...

[Anonymous]

ValleyX made a comment about the coal train I mentioned whose crew and engine sat on the train at Grogan Yard in Columbus for eight hours, at least. Valley, if the road can't take the train, bust the call and get the crew off the train and off initial terminal delay, and call it later when the road can take it. Good supervision would have done that. No supervision would have had the situation my friend saw.

I worked on the Sandusky Line after the merger, and I never saw traffic backed up as you mention. There must have been other factors present. Of course, the N&W DID put some supervision in there, and a lot of the ex-Pennsy guys weren't used to it.

Old Timer

[ValleyX]

You did? I worked there in the late sixties into 1970 and the traffic back-up I speak of was in Pennsylvania days. I never saw traffic backed up like that, either.

As for getting the crew off the train, one would think that would be the prudent thing to do but we're talking the days of the sixteen hour law and a different breed. As for the decision making process that left the crews set there, I can't speak to that.

I asked a lot of them to compare the N&W to the PRR and was usually surprised to find they seemed to think N&W wasn't as bad as PRR. I know I was working there when Penn Central filed bankruptcy and they were glad they weren't a part of that.

Now, the Nickel Platers I worked with later on had an entirely different opinion but that's another topic.

[daveklepper]

After reading the responses so far, I would like to note that Saudners was managing the whole shebang, but there had been absolutely zero attempt to plan OPERATIONS of the merged railroad on a sensible basis, to develop computer programs so that the existing computers in their places could talk to each other, even possible in 1971 with the right computer savey, and to gardually mesh operations so that shippers needs would continue to be served. Remember that the merger took place after Amtrak had been started (May 1st of the year) and the deficits did continue on the two Valporiso trains before they too were unloaaded on Amtrak, on the Baltimore - Washington local service, on one train to Chatham, shortly discontinued, and still the whole Nerw Jersey corridor and Jersey Shore operations, also possibly commuter service in Massachusettrs, but otherwise the Pasenger defitis had largely been shifted to Amtrak, and the states of New York and Connecticut. Why didn't Sauders object to the New Haven being forced on the PC? I don't remember any objection. Perhaps he thought the value of a New England monopoly was worth it? Remember they quicly moved to shift all through traffic off the New Haven onto the Boston and Albany line through the Berkshires, thus adding to the expense of running the Amtrak and commuter service, picked up by the states and Amtrak,. so maybe the inclusion of the New Haven wasn't such a bad thing!


There was simply no operating plan for the merger. You cannot run a railroad on that basis anywhere! If any readers have eperience on how the Erie Lackawanna, still independent, but more particularly the B&O and C&O picked up some business, it might be worth considering that input!

[ValleyX]

Eh, Penn Central came into existence on February 1, 1968. Amtrak came along May 1, 1971. Or did I miss something and you're talking about something else entirely in your points? If so, sorry.

[bobwilcox]

I remember at the time of PC our (CRIP/CNW) losing hudge amounts of traffic to truck from manufactues in MI, OH and IN shipping to customers in WTL (ie. IL, IA, WI, MN, etc.). Service before the merger had beed poor due to the Chicago interchange but with the PC merger it went into the tank. In addition we started seeing a lot of transcontiental boxcar traffic going to freight forwarders who whould truck to Chicago and the use TOFC to the west coast.

[Anonymous]

ValleyX

Why were you surprised to find the PRR Sandusky Line folks preferred the N&W after the merger? For the first time in many of their careers, they had good track to run good engines on, and supervision that cared how they did their jobs.

I was gone to the former Wabash by 1966. I'm not surprised that the NKP folks didn't like the N&W, but by then it wasn't N&W running it. The former Wabash president, Herman H. Pevler, became president of the N&W after the merger by a prior arrange ment, and the Wabash people saw to it that the NKP folks didn't do very well. One NKP superintendent, George Crews, survived; he wound up at Moberly, Mo. Another NKP operating man, Vernon Coe, wound up at the Kansas City Terminal RR, I believe. All the others took the gas pipe.

Pevler was an empty suit who'd started out on the PRR and gone to the Wabash from there.

Old Timer

[ValleyX]

I suppose I thought that because it seems to me that it's human nature to think that things were better in bygone days. Beyond that, I don't really have a good reason, I was pretty young in those days.

As for our discussion of sitting on trains such as the one at Grogan, it's not terribly uncommon today to sit on a train six or seven hours and then departing the terminal, because of lack of crews or determination to get it out, regardless of how far the crew will actually get. In very recent times, with the increase in business, it can be even longer, as has been demonstrated to me very recently.

[daveklepper]

Apologies to all. I confused the date of the Conrail startup with Penn Central. So you are all correct about passenger losses. The only subsidies for passenger service in 1968 were for the commuter service in and out of Grand Central on the New Haven and New York Central, and the LIRR had already been sold to New York State. It was sold by the Pennsylvania and not by PC. So the massive passenger losses were in place. I apologize. I was visitng New York from Chicago I believe the day of the merger and so used the Hudson line. I was living in NY at the time Conrail started. It is a long time ago, but some memories ar e pretty vivid, it just that I've got to place the dates correctly. Thanks.

[Anonymous]

I see several things that contributed to PC's downfall:

1. The recession during the time of the merger.

2. The incompatable management cultures. Each thought they knew it all and the other team were idiots. The were fighting as to where headquarters would be-Philadelphia or New York City.

3. Incompatable systems. There was no way the PRR and NYC computer systems could talk to each other. Even some of their rolling stock would not mesh. There are stories of incomp[atable electrical systems in passenger cars to the point that a train might have a couple of cars that were dark and cold.

4. Disregarding the basic mission by Saunders which is to run a railroad. Saunders was looking at maximizing cash flow by milking the railroads, which were regulated, to invest into non regulated industries. Saunders is reported to have said at a coctail party "Who gives a damn about the F _ _ _ing railroad". (or words close to that)

5. Deferred maintenance (translation NO maintenance) .

The house of cards was doomed to failure from day one. About the only thing the two railroads had in common was the distance between the rails and that is questionable.

[Anonymous]

"The root cause: the public. The public wanted a transportation system to fulfill all sorts of mutually exclusive and impossibly expensive objectives: make everyone wealthy from track laborer to shipper, serve everyone equally well from big city to tiny hamlet, look forward to the future and live in the past, and make money, too. The tool the public expected to advance its goals was regulation, and any time anyone pointed out that regulation was a miserable failure, grinding not only railroads but vast swaths of the economy into the dirt, the public put its fingers into its ears and demanded that someone else feel the pain."

regulation usually has some sponsor. someone is interested in drafting the law, pushing it through the legislative process, lining up legislators, planting impelling stories in the media ad infinitum. these sponsoring persons have some bottom line agenda, ie, labor wants more money and asks for more government involvement in the bargaining process, shippers wanting cheaper rates and permanent service ask for legislative help in harnessing carriers.
legislation is rarely driven by the "man on the street" , "the public". if we look around hard enough, there is always a list of "usual suspects".
can you offer any concrete examples of which market participants were responsible for what you might consider the most onerous aspects of the railroad legislative environment of the 1960,s and 1970's? what were the underlying motivations of these folks and how have these people responded to the lessened regulatory atmosphere we are currently in?
thanks,
cbt141

[daveklepper]

I still think that aside from passenger deficits, there was no plan. Don't say there was no way that the two computer systems could talk to each other. Any computer expert can tell you programs can be designed, just like IBM's can talk to Macintoshes today when the right programs are introduce. And there is no reason why a New York Central man could not have been handed a PRR rule book four months before the merger to study. People have brains, but Saunders clearly did not give the people either the motivation or the opportunity to use them. A merger of two railroads has to be planned down to the tiniest details if it is to be successful. If you are going to consolidate crew standby facilities, are the washrooms big enough to handle the extra people? Will the cafe be able to serve enough food? Is the parking lot big enough? If we put those additional PRR trains on this single-track NYC line, where will the meets take place? Are the sidings long enough? Are the signals spaced for the additional traffic? From what I gather, none of this kind of detailed planning was done, and the operating people was left to improvise (read flounder) just as the tools they were used to were taken from them and replace with none or with unfamiliar tools.

[Anonymous]

If there was so much fighting within the company, how did they agree to merge?

I know read the book. I still haven't purchased it yet.

[Anonymous]

Talbanese: It is a good book, although a bit dry. I read it while convalecing (sp?) from surgery a few years back. I got my copy from the library. Try that outlet. Sure it has to go back, but at least you can get your hands on it.

[Anonymous]

Wow, this thread is so full of information, If i had a laser printer, I'd print it all.

[MP173]

Just think of the problems Union Pacific had 10 years ago merging the CNW into its operations.

That was an end to end merger (mostly) in which the operations had been in concert for years. While that didnt bring UP to financial ruin, it did create havoc. The SP-UP merger a few years later was a disaster.

UP survived. But, put the shoe on the other foot. Would SP had survived such a fiasco had it been the surviviing carrier and had merged with someone else. My guess is that as bad of financial shape SP was in, it would have gone to chapter 11.

My point is this...PRR and NYC were not in good shape financially, had no plan for the merger, were saddled with huge operational costs (commuter trains, passenger trains, and 5 man crews), and were forced to take on another carrier they didnt seem to want. Plus, they didnt talk to each other.

Looking back, it is easy to see why they failed. The $64 million question is...would have PRR and NYC survived, or how long would they have survived without merging?

ed