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Steam Locomotives versus Diesels

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Posted by AnthonyV on Monday, January 9, 2006 10:28 AM
Michael:

I don't mean to nitpick, but on page 11 you stated the following:

"Maintenance costs of motive power per revenue ton were, if anything, overall slightly higher after dieselization than before. Where's the benefit?"

"Fuel costs are slightly higher after dieselization than in 1944 when Milwaukee operated 1094 steam engines and only 79 diesels. Where's the benefit?"

Could you clarify whether there were savings and why the conclusion has changed?

Thanks

Anthony V.
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Posted by MichaelSol on Monday, January 9, 2006 10:13 AM
QUOTE: Originally posted by AnthonyV

Michael's analysis indicates that there was no economic benefit to the railroad anywhere. (I'm a little confused as to whether the Diesel saved the Milwaukee Road anything in fuel and maintenance.) No credits, just debits.


My quote above:
QUOTE: For this specific railroad, fuel costs and maintenance costs declined, but these savings were overwhelmed by financing costs and crew cost increases.

Dieselization performed as promised on fuel and maintenance. Inflation adjusted (1944) maintenance costs for the Milwaukee non-Electric fleet went from 67 cents per 1000 GTM (average, years 1945-1948) mostly Steam, to 53 cents per 1000 GTM (average, years 1958-1962), all Diesel.

Best regards, Michael Sol
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Posted by oltmannd on Monday, January 9, 2006 6:37 AM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by oltmannd
If a RR buys 100 locomotives to handle their traffic and the locomotives perform exactly as advertised, but 90% of the traffic goes away, the nomalized measures will show that the locomotive's performance deteriorated, when, in fact, nothing of the sort happened.

I think you missed your own very good point.

If 90% of the traffic goes away, so do the fuel costs and maintenance costs as well. Employees can be furloughed. With Dieselization, one big cost thereafter remained that railroads could no longer control: the interest charges on the investment.

It may be that 90% of the traffic goes away, but 40% of the cost remains even when the shiny diesel-electric locomotives are just sitting there. Except that it becomes 80% or 90% of your cost and there's nothing you can do about it.

However, this does fit with your comment that railroad management at this point viewed railroading as a short term enterprise. Bankers, who benefitted the most from Dieselization, sat on most railroad boards at this point.

Walter Cummings, the chairman of Continental Illinois Bank, sat on the Milwaukee Road Board of Directors 1945-1966 ... it's most senior and influential board member during that era. When he retired, he was replaced by his son Tilden "Tillie" Cummings, by then, Chairman of Continental Illinois Bank.

Best regards, Michael Sol


I don't think I missed my point, but we are looking at it from 180 deg opposite angles.

-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/

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Posted by oltmannd on Monday, January 9, 2006 6:32 AM
QUOTE: Originally posted by Tharmeni

Hey, Tom Diehl: Thanks for the info on the ACE 3000. I was actually in several of the meetings the BN had with the ACE folks and there WAS interest by BN in the idea, but it soon faded.


...primarily because the gap in cost between coal and diesel fuel closed. ACE 3000 was pitched at a time when the price gap between coal and oil was very high. Later on, there was a very large gap between the cost of oil and nat'l gas that led to some work on using CNG and LNG as locomotive fuel. That interest also evaporated as soon and the price gap closed.

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Posted by wallyworld on Monday, January 9, 2006 6:19 AM
Steam has certain advantages. We have plenty of coal resrves which they can use as fuel which diesels cannot. In theory, you can even burn prepped refuse. With care, they have a long service life. With new combustion technology developed by Porta, they are efficent users of fuel with greatly reduced emission problems.The disadvantages are they are labor intensive, cannot be mu'ed ( at least now-if you discount the ACE design which never got off the drawing board). The main problem is also the secondary cost of reinstalling service facilities. The only disadvantage of diesels is the fuel they burn which is becoming a problem that will only grow worse with time. I expect to see studies made by the Class I's in the next few years to study this problem of fuel supplies. Where is the tipping point? It's a moving target I cannot predict. I am no expert. It's an interesting topic that is seemingly inexhaustable.It's amazing that nearly 50 years later, the "debate" continues.

Nothing is more fairly distributed than common sense: no one thinks he needs more of it than he already has.

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Posted by AnthonyV on Monday, January 9, 2006 5:48 AM
Michael - Thanks for the analysis. You have done a great job making and defending your case. I'll admit that I have nothing to offer in the way of analysis since I have no access to inside railroad data. I can only ask questions.

Have you considered writing an article for Trains Magazine, rebutting Jerry Pinkepank, the author of the article "How the Diesel Changed Railroading" in Diesel Victory? His response would be interesting, since he is supposed to be a renowned international railroad consultant.

What I'm trying to get a handle on is what direct and indirect economic benefits the Diesel offered to the railroads. I'm visualizing a balance sheet showing debits and credits for the Diesel. If I understand was has been discussed thus far, Michael's analysis indicates that there was no economic benefit to the railroad anywhere. (I'm a little confused as to whether the Diesel saved the Milwaukee Road anything in fuel and maintenance.) No credits, just debits. I am searching for anything we can place on the credit side.

Can anyone show quantitatively any economic benefits realized through Dieselization? It should be easy to show if any of the following qualitative advantages are true.

1. Lower terminal costs because locomotive "turning" is reduced/eliminated.

2. Reduced track damage by eliminating the hammering associated with steam.

3. Reduced intermediate servicing facilities.

4. Reduced non-revenue carloads associated with fuel transportation.

5. Easier on-site handling and storage of fuel.

6. Elimination of water towers and the whole issue of boiler water quality and treatment.

7. Elimination of ash handling and disposal.

8. Higher locomotive availability.

9. Reduced need for helpers.

10. Higher efficiency due to a more centralized operation.

Can anybody shed any light on these or any other areas?

If we cannot show quantitatively that the Diesel benefits the railroad anywhere, then what else can we conclude?

As rrandb asked, why would it ever make sense to Dieselize?

Thanks

Anthony V.
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Posted by daveklepper on Monday, January 9, 2006 3:08 AM
I don't know Brown personally. But I did know the Boston and Maine and Denver and Rio Grande Western managements personally, and always had huge respect for the Norfolk and Western. The B&M had some special reasons for rapid dieselization, which I discussed ealier on this thread. Indeed, so did the Santa Fe with its getting-water-to -the desert problem. But the hardheaded and competent managers of the D&RGW and N&W also opted for fairly rapid diesilization, the N&W after giving modern steam the very best opportunity to prove itself that any railroad could. I cannot agree that their decisions were wrong.

At the same time, Michael, regarding the Milwaukee, you may have a point, especially since many people agree that the western extension should have been kept as the real moneymaker, and somehow the money should have been found to upgrade and extend the electrification. That certainly would have slowed the conversion of the rest of the system to diesel.
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Posted by rrandb on Monday, January 9, 2006 2:18 AM
QUOTE: Originally posted by MichaelSol

To Anthony's comments.

I've gone back and revised some of the numbers to show correlations with gross ton miles, removing the Electrification numbers entirely from the mix. Except for percentages, all numbers are stated in 1944 dollars. Further, train crew and train "enginemen" expenses were looked at. No yard crew or expenses are included in these figures.

Cost per 1000 gross ton miles, locomotive fleet maintenance, plus fuel, plus financing charges.

1945: $1.24/1000 gross ton miles.
1960: $1.54/1000 gross ton miles.

This is a 25% increase in costs during a time when revenue declined by 17.5% and all other operating expenses declined by 23%.

Interestingly road crew costs increased as a result of Dieselization. Comments on this thread would have led one to believe otherwise. The 1945 cost associated with road service train crews was 89 cents per 1000 gross ton-miles, and after Dieselization was completed had increased to 96 cents per 1000 gross ton-miles, a 12% increase in road crew costs.

During this period of time, wages associated with maintenance of way decreased by 41% and wages associated with station agents declined 43%.

Overall, fuel, maintenance, financing, and road crew costs, which represented 18.5% of revenue in 1945 consumed 23.3% of revenue in 1960. Overall, these expenses increased by 21% from $2.13 in 1945 per 1000 gross tons to $2.59 per 1000 gross tons in 1960.

For this specific railroad, fuel costs and maintenance costs declined, but these savings were overwhelmed by financing costs and crew cost increases.

Not exactly the conventional wisdom, and the analysis is far from complete, but I think these numbers leave no doubt that the idea that Dieselization was an economic benefit to this particular company are just simply false. There is no basis in the statistical record for that conclusion. Since this supports H. F. Brown's findings with regard to the Santa Fe, the Pennsylvania and other U..S. railroads he looked at, Milwaukee Road at least is further evidence supporting his findings, that Dieselization "represented a net economic burden on American railways."

With that, I've analyzed these numbers just about every which way and they keep leading to the same result. There is no doubt to me that anything which increases operating costs is going to decrease ROI, particularly when the substantial investment made generates a net negative internal rate of return.

While the admiration for Dieselization takes on virtually religious overtones -- in which no factual demonstration to the contrary will shake an article purely of faith -- railroads are business enterprises. There is no place for pervasive mythologies perpetuated by self-annointed knowledgeable insiders. As I noted to one of teenagers early in this thread: "go to the source."

Best regards, Michael Sol

So based on these studies and armed with these facts why pray tell would the british proceed with the transition from steam to diesel as well?? [?] AS always I have enjoyed you indepth analyisis and a new twist on an old problem!! ENJOY
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Posted by MichaelSol on Monday, January 9, 2006 2:07 AM
QUOTE: Originally posted by Old Timer

MichaelSol and futuremodal:

You guys get funnier and funnier the farther you go. I don't have to present any data because I'm not the guy who's trying to change the way we look at railroading's past. You are, and neither of you have presented anything but several thousand words and a bunch of statistics based on specious assumptions by parties whose motives for coming up with them are not clear; they weren't paid by the RRs, nor the AAR, nor any government agency, nor any consulting firm of any repute.

Sorry - I gotta go. I'm late for my date with Hillary. Please don't tell Bill . . .

Old Timer

Interesting misfire on facts, since the motivating study on this was paid for by an experienced railroad, British Rail, which practically invented railroading, at the time a government agency, and the study was conducted by the most experienced transportation consulting firm of the era by one of the most experienced motive power engineers of the time.

Talk about false assumptions ....this isn't just a misunderstanding, this is willful ignorance.

Spin, pure and simple.

Best regards, Michael Sol
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Posted by Anonymous on Sunday, January 8, 2006 11:25 PM
MichaelSol and futuremodal:

You guys get funnier and funnier the farther you go. I don't have to present any data because I'm not the guy who's trying to change the way we look at railroading's past. You are, and neither of you have presented anything but several thousand words and a bunch of statistics based on specious assumptions by parties whose motives for coming up with them are not clear; they weren't paid by the RRs, nor the AAR, nor any government agency, nor any consulting firm of any repute.

Sorry - I gotta go. I'm late for my date with Hillary. Please don't tell Bill . . .

Old Timer
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Posted by MichaelSol on Sunday, January 8, 2006 3:43 PM
To Anthony's comments.

I've gone back and revised some of the numbers to show correlations with ton miles, removing the Electrification numbers entirely from the mix. Except for percentages, all numbers are stated in 1944 dollars. Further, train crew and train "enginemen" expenses were looked at. No yard crew or expenses are included in these figures.

Cost per 1000 ton miles, locomotive fleet maintenance, plus fuel, plus financing charges.

1945: $1.24/1000 ton miles.
1960: $1.54/1000 ton miles.

This is a 25% increase in costs during a time when revenue declined by 17.5% and all other operating expenses declined by 23%.

Interestingly road crew costs increased as a result of Dieselization. Comments on this thread would have led one to believe otherwise. The 1945 cost associated with road service train crews was 89 cents per 1000 ton-miles, and after Dieselization was completed had increased to 96 cents per 1000 ton-miles, a 12% increase in road crew costs.

During this period of time, wages associated with maintenance of way decreased by 41% and wages associated with station agents declined 43%.

Overall, fuel, maintenance, financing, and road crew costs, which represented 18.5% of revenue in 1945 consumed 23.3% of revenue in 1960. Overall, these expenses increased by 21% from $2.13 in 1945 per 1000 tons to $2.59 per 1000 tons in 1960.

For this specific railroad, fuel costs and maintenance costs declined, but these savings were overwhelmed by financing costs and crew cost increases.

Not exactly the conventional wisdom, and the analysis is far from complete, but I think these numbers leave no doubt that the idea that Dieselization was an economic benefit to this particular company is just simply false. There is no basis in the statistical record for that conclusion. Since this supports H. F. Brown's findings with regard to the Santa Fe, the Pennsylvania and other U..S. railroads he looked at, Milwaukee Road at least is further evidence supporting his findings, that Dieselization "represented a net economic burden on American railways."

With that, I've analyzed these numbers just about every which way and they keep leading to the same result. There is no doubt to me that anything which increases operating costs is going to decrease ROI, particularly when the substantial investment made generates a net negative internal rate of return.

While the admiration for Dieselization takes on virtually religious overtones -- in which no factual demonstration to the contrary will shake an article purely of faith -- railroads are business enterprises. There is no place for pervasive mythologies perpetuated by self-annointed knowledgeable insiders. As I noted to one of teenagers early in this thread: "go to the source."

Best regards, Michael Sol
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Posted by MichaelSol on Sunday, January 8, 2006 2:03 PM
Milwaukee Road, Passenger Service Operating Ratios:
1950 .. 145.1%
1960 .. 138.2%
1965.. 124.5%

CNW
1950 146.0%
1960 134.7%
1965 99.5%

GN
1954 179.8%
1960 175.8%
1965 161.4%

UP
1956 163.5%
1960 147.5%
1965 137.7%

If passenger expenses were "exploding," then the only thing that explains improving operating ratios would be that revenues were "exploding" even more.

I doubt that.

Railroad ROI during this period was declining. Passenger service had nothing to do with that. Rather, improvements in passenger service operating ratios could only benefit ROI during the period of Dieselization, at least for the railroads referenced.

Best regards, Michael Sol
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Posted by Anonymous on Sunday, January 8, 2006 12:55 PM
QUOTE: Originally posted by Old Timer

Eighteen pages and counting . . .

MichaelSol, TomDiehl is right; you've hijacked this thread and have posted at least fourteen pages worth of your endless discourses trying to impress the unwary.

APG is right, too. You do conveniently ignore relevant questions and go off on tangents hoping to confuse readers.

If we all get together and tell you how impressed we are with you, will you let this thing go?

Old Timer


How about providing some reference for your views, for starters? All you've done so far is to attack a logical premise and hard statistical data with nothing but your Democrat spitballs. You and Hillary make a nice couple.

If you have a reference to your inference that the 1940's - 1950's dieselization improved the railroads ROI rather than degraded it, then by all means present it here in this thread. We won't even accuse you of trying to "hijack" this thread back to status quo of possible mythology as it relates to the *history* of dieselization into which we've all been indoctrinated.

You seen to believe in some sort of conspiracy to undermine the credibility of the railroad press. What's it to you, anyway? Does it really harm you or your trade if it turns out that the method used by the industry to dieselize may not have been the best way to accompli***his task? Isn't the whole purpose of historical analysis meant to get it right, rather than allow myth to become percieved as reality? Most of us know that history isn't black and white, that there may be certain misconceptions that have been worked into the fabric of establishment, and to re-explore these possible misconceptions so that the factual record is not scewed, such is apt.

Besides, we all know that the established railroad press is rife with gross misrepresentations of fact. Take the rail industry myth of highways being "subsidized" while railroads are entirely financed via the private sector - we all know that intercity highway corridors are all paid for mostly via user fees, it is only local roads that get de facto "subsidies", and of course the rail industry is immersed in various amounts of state and federal aid over the years. Or take the AAR's propaganda campaign that railroads are "taking trucks off our nation's roads and highways", when in fact the whole process of retrenchment of trackage and consolidation of rail terminals has actually forced more trucks onto the highways. Or the false premise that longhauls are more profitable than shorthauls, when actual cycle times relative to per car rates more often than not prove the opposite to be true.

Nevermind, Old Timer, you go right on believing whatever the railroad press has established as *fact* over the years. 1940's Dieselization good, 10 year old steam bad. Longhaul good, shorthaul bad. Highways subsidized, railroads not. Trains take trucks off highways, not put more trucks on highways.

There, now do you feel better?
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Posted by rrandb on Sunday, January 8, 2006 11:14 AM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by APG45

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by The Duke

Maybe you said it I can't find it, but why were the interest charges higher on the diesels than new steam. Understandably they could have bought them slower, but in the end the cost would be the same, would it not?

The idea that it's "all the same" is not accurate.

There are two fundamentally different methods of financing involved here...................................


That's great but how about answering his question??? I've noticed you conveniently ignore relevent questions or go off on tangents hoping to confuse readers. Fortunately most of us are too educated and intelligent to fall for it.

Well, just because you didn't understand the answer, that's not a basis to assume I'm "hoping" anything.

Steam $120,000. Equivalent diesel, $160,000, financed. Steam paid out of internally generated funds. It costs $120,000. Diesel, financed at 5%, costs $207,207 dollars, at 10% $260,392.63. Ultimately, that is three times the cost of the steam, because the funds are borrowed, not internal.

Answered?

I appreciate that you feel both educated and intelligent and look forward to that approach to the conversation.

Best regards, Michael Sol



If they had internal resources of $120K for Steam they only need to finance $40K to upgrade to Diesel. Apples to oranges me thinks??[?] There cost analyisis showed the savings of increase transisit time with additional reductions in labor and facility charges should have offset the finance charges. The dramatic drop in passenger revenues and steel wheel to rubber did not allow this to happen. Bad crystall ball not bad cost forcasting. It was there own consevative inability to adapt quickly to changing traffic cycles that drug them down. Not EMD's sales department.
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Posted by rrandb on Sunday, January 8, 2006 10:54 AM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by nanaimo73
If you have Trains magazines from before 1960, read DPM's News and Editorial Comments. Several of these mention the increasing burden on the railroad's ROI because of exploding passenger service deficits.

Milwaukee Road, Passenger Service Operating Ratios:
1950 .. 145.1%
1960 .. 138.2%

CNW
1950 146.0%
1960 134.7%

GN
1954 179.8%
1960 175.8%

UP
1956 163.5%
1960 147.5%

With all due respect to both you and David P. Morgan with regard to the term "exploding," what was he talking about?

Best regards, Michael Sol

Exploding = i.e. expanding or increasing exponentialy. As always ENJOY . [2c]
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Posted by beaulieu on Sunday, January 8, 2006 10:52 AM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by nanaimo73
If you have Trains magazines from before 1960, read DPM's News and Editorial Comments. Several of these mention the increasing burden on the railroad's ROI because of exploding passenger service deficits.

Milwaukee Road, Passenger Service Operating Ratios:
1950 .. 145.1%
1960 .. 138.2%

CNW
1950 146.0%
1960 134.7%

GN
1954 179.8%
1960 175.8%

UP
1956 163.5%
1960 147.5%

With all due respect to both you and David P. Morgan with regard to the term "exploding," what was he talking about?

Best regards, Michael Sol



Absolute Dollars perhaps? The ratio was improving, but the worst performing trains were being cut off and it wasn't helping much. Overall the railroads financial performance was sinking. Do you have the figures for AT&SF? They were still trying to run top quality passenger trains on their most important routes.
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Posted by Anonymous on Sunday, January 8, 2006 9:49 AM
Words, so many words ahhhhhhhh!!!!!! [banghead]
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Posted by MichaelSol on Sunday, January 8, 2006 1:24 AM
QUOTE: Originally posted by nanaimo73

You win. I'm done.

Well, there's nothing to win. You have always been a reliable reporter of what you read. That begs the question of where on earth did Morgan come up with his allegations? Was he making this stuff up?

Best regards, Michael Sol

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Posted by nanaimo73 on Sunday, January 8, 2006 1:14 AM
You win. I'm done.
Dale
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Posted by MichaelSol on Sunday, January 8, 2006 1:08 AM
QUOTE: Originally posted by nanaimo73
If you have Trains magazines from before 1960, read DPM's News and Editorial Comments. Several of these mention the increasing burden on the railroad's ROI because of exploding passenger service deficits.

Milwaukee Road, Passenger Service Operating Ratios:
1950 .. 145.1%
1960 .. 138.2%

CNW
1950 146.0%
1960 134.7%

GN
1954 179.8%
1960 175.8%

UP
1956 163.5%
1960 147.5%

With all due respect to both you and David P. Morgan with regard to the term "exploding," what was he talking about?

Best regards, Michael Sol
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Posted by Anonymous on Saturday, January 7, 2006 11:02 PM
QUOTE: Originally posted by APG45

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by The Duke

Maybe you said it I can't find it, but why were the interest charges higher on the diesels than new steam. Understandably they could have bought them slower, but in the end the cost would be the same, would it not?

The idea that it's "all the same" is not accurate.

There are two fundamentally different methods of financing involved here...................................


That's great but how about answering his question??? I've noticed you conveniently ignore relevent questions or go off on tangents hoping to confuse readers. Fortunately most of us are too educated and intelligent to fall for it.


Sounds like you're just plain confused. I'll "diseducate" it down for you with an analogy you can understand.

You have a 5 year old car. It's probably good for another 5 years, but you want a brand new hybrid, it's all the rage now, gotta keep up with the neighbors. Normally, a person would simply trade in the old one to get cash off on the new one, and then you are making payments for the rest out of your future income (debt servicing). Just what you've always done previously.

Except.....

Imagine if your 5 year old car has no trade-in market with which to wedge down the price of a new car (which is analogous to the railroads' lack of a trade-in market for steam). You have a choice of either (1) running your old car another 5 years until you can accumulate enough ca***o buy (or at least make a substantial downpayment on) the new hybrid, or (2) you can go ahead and just scrap the 5 year old car and go into deeper debt to get that new hybrid.

What do you think will happen to your future cash flow if you do #2 as opposed to #1? Frankly, it wouldn't matter if the new car you covet was just another spark-ignition auto (analogy = steam locomotive) or a new "technologically advanced" gas-electric hybrid (analogy = diesel locomotive), if you scrap an auto with another 5 years of useful service life to get that new car (along with a much higher debt obligation), you're going to have cash flow problems in the future.

If instead of scrapping not-so-old steam locomotive and going all out for wholesale dieselization, the railroads had instead done the same thing for all new steamers, the future drop in ROI would probably followed the same drop over the years. What compounded this unnecessary debt load increase was the first generation diesel's relatively short service life, forcing even greater debt accumulation for those second and third generation diesels.

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Posted by Anonymous on Saturday, January 7, 2006 10:42 PM
Eighteen pages and counting . . .

MichaelSol, TomDiehl is right; you've hijacked this thread and have posted at least fourteen pages worth of your endless discourses trying to impress the unwary.

APG is right, too. You do conveniently ignore relevant questions and go off on tangents hoping to confuse readers.

If we all get together and tell you how impressed we are with you, will you let this thing go?

Old Timer
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Posted by MichaelSol on Saturday, January 7, 2006 10:38 PM
QUOTE: Originally posted by APG45

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by The Duke

Maybe you said it I can't find it, but why were the interest charges higher on the diesels than new steam. Understandably they could have bought them slower, but in the end the cost would be the same, would it not?

The idea that it's "all the same" is not accurate.

There are two fundamentally different methods of financing involved here...................................


That's great but how about answering his question??? I've noticed you conveniently ignore relevent questions or go off on tangents hoping to confuse readers. Fortunately most of us are too educated and intelligent to fall for it.

Well, just because you didn't understand the answer, that's not a basis to assume I'm "hoping" anything.

Steam $120,000. Equivalent diesel, $160,000, financed. Steam paid out of internally generated funds. It costs $120,000. Diesel, financed at 5%, costs $207,207 dollars, at 10% $260,392.63. Ultimately, that is three times the cost of the steam, because the funds are borrowed, not internal.

Answered?

I appreciate that you feel both educated and intelligent and look forward to that approach to the conversation.

Best regards, Michael Sol


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Posted by MJ4562 on Saturday, January 7, 2006 10:22 PM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by The Duke

Maybe you said it I can't find it, but why were the interest charges higher on the diesels than new steam. Understandably they could have bought them slower, but in the end the cost would be the same, would it not?

The idea that it's "all the same" is not accurate.

There are two fundamentally different methods of financing involved here...................................


That's great but how about answering his question??? I've noticed you conveniently ignore relevent questions or go off on tangents hoping to confuse readers. Fortunately most of us are too educated and intelligent to fall for it.
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Posted by TomDiehl on Saturday, January 7, 2006 8:57 PM
QUOTE: Originally posted by SteamerFan

QUOTE: Originally posted by rgroeling

So...uhh are you guys still arguing about steam engines..? Or the BNSF and produce shippers..? or what...

Lots a flaming goin on here... [|)]


It's just 18 pages of dribble, move along, nothing to see here, they lost the point a long time ago and are now ego boosting only.


Actually Jay, that's refered to as "hijacking a thread."
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Posted by Murphy Siding on Saturday, January 7, 2006 7:52 PM
QUOTE: Originally posted by espeefoamer

For more on this subject,you should read"Black Diamonds,Black Gold",a two volume book on the how and why of dieselization on the Pennsylvania Railroad.It is a very interesting and informative read.


Can you tell the author of this book?Thanks.

Thanks to Chris / CopCarSS for my avatar.

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Posted by espeefoamer on Saturday, January 7, 2006 6:16 PM
For more on this subject,you should read"Black Diamonds,Black Gold",a two volume book on the how and why of dieselization on the Pennsylvania Railroad.It is a very interesting and informative read.
Ride Amtrak. Cats Rule, Dogs Drool.
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Posted by Anonymous on Saturday, January 7, 2006 5:15 PM
QUOTE: Originally posted by rgroeling

So...uhh are you guys still arguing about steam engines..? Or the BNSF and produce shippers..? or what...

Lots a flaming goin on here... [|)]


It's just 18 pages of dribble, move along, nothing to see here, they lost the point a long time ago and are now ego boosting only.
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Posted by Anonymous on Saturday, January 7, 2006 2:47 PM
So...uhh are you guys still arguing about steam engines..? Or the BNSF and produce shippers..? or what...

Lots a flaming goin on here... [|)]
  • Member since
    October 2004
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Posted by MichaelSol on Saturday, January 7, 2006 1:43 PM
QUOTE: Originally posted by The Duke

Maybe you said it I can't find it, but why were the interest charges higher on the diesels than new steam. Understandably they could have bought them slower, but in the end the cost would be the same, would it not?

The idea that it's "all the same" is not accurate.

There are two fundamentally different methods of financing involved here. In today's management, you would generate a "Self Sustainable Growth" model, SSG. This model permits a manager, based upon current results, to generate budget requirements for future growth and identifies with some specificity how much internal cash is generated for those future needs, and how much debt needs to be incurred to meet those future projected needs.

Any time a company expects to generate revenue, it is going to consume assets in a well-defined proportion to the revenue generated. So, any time the company expects, or wants, to generate more revenue, it has to be able to supply more assets to do so. I don't mean here, "fixed" assets, I mean everything that appears on the asset side of a Balance Sheet -- cash on hand, inventory, fixed, etc.

If the additional assets the company needs to produce the revenue costs more than the revenue produced, there's a problem.

However, the SSG model produces an identifiable point -- a "tipping point", if you will, game theorists might call it a "saddle point". One side of that polint generates internally financed decisions. The other side of that point generates outside debt.

Two different management worldviews exist around that tipping point.

If the SSG model tells you that if the company is going to grow (either expects to or wants to) 8% next year, then there is a tipping point of a certain percentage. If the SSG model generates a 10% SSG, then the company is home free for the additional investment needed to generate next year's expected revenue. The 10% SSG is greater than the 8% projected growth: the company will generate sufficient internal ca***o finance the growth and the assets needed to achieve that growth. However, if the model generates a 6% SSG number, then management has to make a decision. The 8% growth is greater than the 6% SSG. The company cannot generate enough funds internally to finance the growth.

That is where the world views come into play.

Management needs to decide if its want the extra 2% growth. It can achieve that extra growth in one of two ways. If it does not finance the 2% growth by incurring external debt, it generates it the only other way possible: by consuming internal assets. Railroads typically do that usng a "deferred maintenance" account and/or a "deferred capital investment" account. You might also see it as an increasing "accounts payable" account. When you see those accounts start to fill up, without even generating the model you instantly know three things: 1) the railroad is operating past its SSG number, 2) it has insufficient free cash flow to finance its current operating activities, and 3) it was unable to finance the growth that was beyond the SSG number.

Or the company can accept the 6% growth rate and incur no debt and preserve its assets.

What is clear is that, prior to WWII, railroads by and large purchased motive power on one side of the SSG number. A cautious, conservative world view. After WWII, their purchasing decisions were made on the other side of the SSG number. A much riskier and more problematic approach.

And there was nothing driving the need to adopt that approach except the perception of the need for Dieselization.

The problem with operating on the far side of the SSG is, of course, it is the inherently risky side. You had better get the growth. If you don't, then the additional debt reduces the SSG number with each successive year, and debt begets more debt. And by the way, reduces the ROI with each successive year. That is exactly what happened in the rail industry.

You can only exceed the SSG number if you expect growth. But 90% of the Dieselization process occured during a period of decline. You cannot beat the SSG model, but with Dieselization that is exactly what the rail industry attempted to do.

Once that process starts, it takes a very long time to turn it around.

Milwaukee Road happens to represent a textbook example of this.

After its PCE opened in 1909, between 1909 and 1925, growth was extraordinary. Milwaukee Road was one of the fastest growing railroads in the country. It exceeded its SSG and did not obtain sufficient financing. By 1925 it was in receivership.

After Dieselization, by 1970 Milwaukee Road's SSG number was dismally low. Virtually any new growth had to be financed. The boom came, by 1974: "the fastest growing railroad in America." How could it grow? It's Board had decreed to Worth Smith that they weren't going to borrow any money. Growth was financed by exactly the way the SSG model predicted, consuming internal assets: rail, ties, ballast, maintenance, and brand new diesel-electric locomotives at $18 million a year.

Ironically, railroads that did not grow past their SSG number could survive. Railroads that grew faster than their SSG failed.

Best regards, Michael Sol

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