Re: PC: What killed PC? -Reply

[User <wfdurham@xxxxxxxxxxxxxxxx>]

Robert Holzweiss wrote:
> 
> "Philip J. Kuhl" wrote:
> 
> "I think that in our admiration for fallen flag railroads we shouldn't lose
> our sense objectivity."
> 
> Agree wholeheartedly.  Like any other business, if railroads can't make a
> profit they should go bankrupt.
> 
> "Penn Central was formed because the Central and the Pennsy could no
> longer hack it financially as independent companies by the mid-1960s.
> The other roads folded into the PC camp came in for the same reason.
> The reasons for the financial decline were many:  Excessive government
> regulation when it came to setting rates or dropping unprofitable service,
> archaic labor regulations that shot up labor costs astronomically, a
> physical plant in much decay due to years and years of deferred
> maintenance -- and certainly because of subsidized competition.  (The
> "unfair competition" argument has been around for as long as I can
> remember -- certainly NYC employee training films from the late 1940s
> mention it.  Alas, it's not that clear-cut an issue either:  Rail passenger
> service benefitted greatly from Railway Post Office contracts for years.
> PC's own Metroliner service was the result of heavy Department of
> Transportation subsidy.  And western railroads in particular benefitted
> greatly from enormous free land grants to spur construction.)
> 
> Many excellent points.  I would just like to add a few things.  The PC
> merger was the result of a general trend toward merger in the railroad
> industry after the passage of the Transportation Act of 1958.  NYC
> strenuously objected to the B&O-C&O affiliation of 1964 and thought the
> PRR (which controlled the N&W) was putting together a system to
> "surround" the NYC.  (N&W / Wabash / NKP) + PRR = disaster for the
> NYC.  After NYC's repeated attempts to stop the B&O-C&O failed and
> PRR found it could not merge with N&W / WAB / NKP the only option left
> was merger between the two although some version of the merger was
> in the works as early as November 1957.  For more see Richard
> Saunders "Railroad Mergers and the Coming of Conrail" and Frank Wilner
> "Railroad Mergers: History, Insight, and Analysis"
> 
> As for government regulation.  Believe it or not in the 1950's and 1960's
> the ICC approved over 90% of passenger train abandonment petitions
> and 31 of 36 petitions for mergers.  The ICC's job of regulating intermodal
> competition based on the ambiguous language of the Transportation Act
> of 1940 and the Transportation Act of 1958 was difficult at best.  Where
> they really fell down and a case can be made is in rate making especially
> the setting of minimum rates.  Railroads were generally but not always
> the big losers here.  The government really stuck it to the PC by forcing
> to take the NH.  A tremendous financial drain no matter how you slice it.
> See Ari and Olive Hoogenboon "The ICC: From Panacea to Palliative" for
> more information.
> 
> Archaic labor regulations, absolutely.  Stuart Saunders brought a lot of
> this on himself when he signed the Luna-Saunders agreement to get
> labor on board with the merger.  The agree guaranteed jobs for
> everyone who worked on the railroad when the merger was approved.
> As you know the merger was approved in 1966 but not allowed to
> proceed until 1968.  By then many employees were already laid off
> because of the consolidation of facilities etc,...  They had to be brought
> back and or paid for not working.  Interestingly, labor issues are what
> finally got the feds moving on forming Conrail.  The strike of February 8,
> 1973 (caused by the trustees unilateral actions to end some labor
> practices) put the fear of God in all concerned parties especially when
> the trustees followed up with a plan to liquidate the entire PC after
> October 1, 1973.
> 
> Mr. Kuhl continues:
> 
> "Penn Central did not have a good record at all of improving its situation
> from 1968 to 1976.  Physical plant declined even further, and
> maintenance was deferred even more.  (I even lost a brand-new 1976
> Chevy Vega being delivered from the assembly plant in Ohio because of
> a PC train wreck. Probably a good thing in retrospect!)  PC's management
> was much more concerned with saving what financial assets it could.  It
> was not in a position to change Government regulation or get its labor
> unions to renegotiate work rules.  PC was is FAR worse shape when it
> died than when it was born.  That's why Conrail was created.
> Government subsidies to PC without changing the causes of PC's
> financial distress would simply have been money down the tube.  And if
> you look at it another way, we basically got Government subsidies to PC:
>  PC simply was taken out of private hands, made a quasi-Government
> corporation for a few years, and was renamed.
> 
> Agree with your analysis of the Vega :).  Agree with Mr. Kuhl.  It is
> important to note that the PC was operated longer by court appointed
> trustees (6 years) than private management (2 years).  There is a
> significant difference in the way each approached managing the
> property.  Private managers (Stuart, Perlman et. al.) wanted to make
> money to pay dividends, improve physical plant, etc,...  The trustees
> were assigned the task of protecting the investors stake in the PC.  They
> were not bound to operate the company.  Whatever option would
> maximize their clients (stockholders, bondholders, creditors, suppliers)
> return (operation, partial or entire liquidation, partial or entire sale of PC)
> would be the option they would use.  The key was to prevent the
> continued erosion of assets.   This explains the almost total lack of
> investment in plant and equipment 1973-1976.  Without a realistic shot at
> private reorganization, the trustees were reluctant to send money down
> a black whole.
> 
> One point of disagreement with Mr. Kuhl.  I believe the PC WAS in a
> position to change work rules and government regulation.  Even a
> bankrupt 1.5 billion dollar company with 100,000 employees has a lot of
> leverage.  In fact, the trustees together with the Ford Administration tried
> to make regulatory reform the centerpiece of any federal bailout.
> Congressional reaction to this almost sunk the entire plan.  Although the
> Ford Administration did not get all they wanted, the seeds of the
> Staggers Act were sown.
> 
> In addition to Mr. Kuhl's and others comments just a few other comments
> on why the PC went under for the consideration of the list:
> 1. Excessive dividend payments in times of economic crisis
> 2. Loss of profitable outside investments (especially the PRR's N&W
> stock) eliminated PC's chances to cover the railroad losses from outside
> income (although David Bevan tried).
> 3. The NYC and PRR accounting methods did not fit well together.
> 4. Clashes of personality.  Perlman often went outside the chain of
> command to find "friendly" ex-NYC men and compromised the integrity of
> the corporate structure.
> 5. Poor consolidation planning - The three volume "Patchell Report"
> purportedly planned the merger.  I have seen it and it falls far short of a
> comprehensive plan.  It is available at the Hagley Museum and Archives
> Wilmington, DE if anyone would like to look at it.
> 5. Chronic shortage of working cash, sometimes not enough to meet
> payroll.
> 6. Extravagant capital expenditure urged by Perlman.
> 7. High inflation making loans a high cost method of raising capital.
> 8. Poor methods of collecting and tracking outstanding bills owed to PC.
> 
> One final comment - Like many list members, I was curious about the
> Maybrook gateway (grew up in Peekskill, NY thirty miles south of the
> bridge) and looked for it in the Patchell Report.  Sure enough, PC planned
> to keep it open however the volume would be reduced.  However, it
> makes sense that the PC did not rebuild the bridge.  Way short haul
> yourself?  PC realized that time sensitive shipments were already all but
> lost so time was no longer a factor.  They would realize more revenue
> from the longer haul than they would lose from lost traffic.
> 
> The FSP and the PSP (Preliminary System Plan) can be obtained at
> libraries that are government repositories.  They will almost certainly
> have it on microfiche.  If they don't have it they can order it through
> interlibrary loan.
> 
> Bob Holzweiss
> "Robert.Holzweiss -AT- bush.nara.gov"

Dear fellow PC fans,

These are all excellent points.  I would like to add one more.  Along
with the management problems, heavy government legislation on rate
setting by railroads, poor planning, etc., etc, I think another blow to
the PC was Hurricane Agnes in 1972. Even though this came after the
bankruptcy filing, Agnes finished off any hopes that PC and other
Northeastern railroads could pull out of their dilemma.  Agnes caused in
today's dollars $11,472,000 according to TIME.  Agnes was to PC and NE
railroads like Lockerbie was to PAN AM.  If the feds had been decent
enough to bail out PC like Chrysler, a lot of that money would have had
to repair already existing plant and facilites which is not exactly what
you want to spend loan money on.  Incidentally, EL filed for bankruptcy
shortly after the wrath of Agnes.  Anyway, just another angle.

Bill Durham