Eastern Railroad Discussion > Penn Central Merger 50 Years Ago

Fifty years ago today, the Penn Central Transportation Company was born from the merger of the Pennsylvania Railroad and the New York Central. There has been much debate online and in books about the Penn Central and its subsequent bankruptcy two years later. What lessons did the industry and government regulators learn from the railroad? What positive reforms came from it? If there was no Penn Central failure, where would American rail systems be today? Was the Penn Central the primary motivator for the passage of the Staggers Act that deregulated the railroad industry?

Truly a bleak time in RR history.
Rich S

Remember the day well because it's also my birthday!
And then I was later hired by the Penn Central in November
of 1975!

Had Penn Central survived, they likely would have eventually been eaten by CSX and NS, though for some years after 1976, they, not Amtrak, would have still owned the NEC, just as Metra is partially operated by UP and BNSF.

Northern Wonders, in part:
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> Was the Penn
> Central the primary motivator for the passage of
> the Staggers Act that deregulated the railroad
> industry?


Actually, no. Several years after the several bankrupts were merged into Conrail, Conrail itself should have been posting net income of $200 million annually ($200 mill was big money back then, as Carter-esque inflation was still rampant). Instead, it was showing annual deficits in the range of $400 million. Hey! What went wrong? Where was USRA's system plan off track? In response, USRA undertook am massive review of factors that contributed to the deficits, and one of these was that ICC regulations has systematically transferred wealth from the railroads to shippers (not that the shippers were complaining or even gave a hoot), to the point that the entire industry was sick. Conrail's then CEO himself went to Congress, from office to office, informing our elected leaders (hah!) that failure to repeal or at least massively modify the ICC regulatory yoke under which carriers operated would result in him (and other rail industry CEOs each year coming to Congress, hat in hand, asking for bailouts. The combination of his ceaseless lobbying and USRA's analysis resulted in the Staggers Act.
Not all railroads embraced Staggers. Perhaps the most notable exception was the Southern Railway, which had adapted itself to be the pre-eminently rpofitable carrier under the old regulatory framework. Southern, under CEOs deButts, Brosnan, Claytor, and Crane had poured hundreds of millions into their system, and raised the productivity of their workforce and network above that of their sleepy competitors (notably SCL and its predecessors), and so when the ex parte rate incrases came along, Southern would book more additional revenue than its peers, and rather than blowing what it took in, it constantly reinvested in plant and equipment. The result was the perfect (well, almost) income producing machine in a regulated environment.
Anyway, after dereg, which for Conrail was accompanied by federal legislation telling it to "Become profitable or get sold in a fire sale," (rough summary), Conrail struggled mightily to dump non-compensatory lines, pare down its workforce, and (overlooked by many) adjust its rates (i.e., raise 'em) to compensatory levels. The resulting rate increases either turned losses into positive net income or drove off the traffic: either outcome was OK to Conrail management. Another huge change involve the routing of freight, especially inter (rate) territorial shipments. No longer could a shipment of widgets from the West Coast to a Conrail-served destination be routed via, say, B&O-Conrail, where the length of Conrail's haul was less than 200 miles. Conrail began to accept traffic at the gateways (the inter-territorial interchanges) like Chicago and St; Louis, not at Philadelphia or in North Jersey, and Conrail got paid for a 700-800-mile haul. Conrail began to impose a surcharge on traffic on which it was getting "short-hauled," and that pretty much dried up short-haul traffic (the connections didn't like this tto much, but they had been getting fat on Conrail's lunch. No more.
I've gone on too long, but, yes, Conrail did bring de-reg to the industry. Some carriers adapted early, some didn't. I interviewed with a senior vice president at a western road after dereg (whom came across to me as a jerk), who was indifferent to the winds of change and recall thinking that if he'd been at Conrail, he wouldn't have lasted a month (a couple of years later, I heard that he'd been canned).
But, to return the the original question, it was Conrail and its initial failure, not Penn Ventral, that led directly to dereg.
(I apologize for any typos, I'll try to purge them).
--billio

Our auditing professor in college (would have been around 1971) spent some time in class one day laying out his rationale about why we should buy some Penn-Central stock. He thought they would pull through and flourish. I didn't have investment money then....good thing!

TJY

The New York, New Haven & Hartford railroad was also included in the merger, by court order.

Some analysts believe its inclusion made the failure of PennCentral inevitable. Even if the PRR and NYC could have found some way around crippling taxes and commuter losses.

icancmp193 Wrote:
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> Our auditing professor in college (would have been
> around 1971) spent some time in class one day
> laying out his rationale about why we should buy
> some Penn-Central stock. He thought they would
> pull through and flourish. I didn't have
> investment money then....good thing!
>
> TJY

Penn Central as a company did (do very well).  It later became American Underwriters and did very well once that sold the railroad to the Government.

Northern Wrote:
-------------------------------------------------------
> Was the Penn
> Central the primary motivator for the passage of
> the Staggers Act that deregulated the railroad
> industry?

No - talk of deregulation was still either crazy talk or heresy in 1968, or 1971. Opposed by all sides - labor, politicians, shippers, and many in the RR and trucking industries (Southern RR, Yellow Freight, etc.) It took the collapse of the industry into Conrail, along with several deep recessions, and much lobbying from the RR industry, to get Staggers pushed over the finish line. Rail deregulation is still an amazing accomplishment, given how entrenched it was not even a decade earlier.

Chris

what did we learn?? invest in your railroad.
at the time of the bankruptcy penn central owned 19 of the 21 skyscrapers in nyc. they owned amusement parks, the buckeye pipeline company. tons on
subsidiaries. they just tried and did become a conglomerate.

For anybody that has never done so, I highly recommend reading Wreck Of The Penn Central. Fascinating book.

Posted from Android

Doug Wetherhold
Macungie, PA

I know I'm in the minority, but PC was always one of my favorite paint scheme.

Posted from Android

Doug Wetherhold
Macungie, PA

Yes, you are in the minority. :)

NYSWSD70M Wrote:
-------------------------------------------------------
> icancmp193 Wrote:
> --------------------------------------------------
> -----
> > Our auditing professor in college (would have
> been
> > around 1971) spent some time in class one day
> > laying out his rationale about why we should
> buy
> > some Penn-Central stock. He thought they would
> > pull through and flourish. I didn't have
> > investment money then....good thing!
> >
> > TJY
>

There were several investors who got their start with the busted bonds and in some cases the stocks of all of the Northeast bankrupts, as well as the Rock Island and the Milwaukee (CMC). I bought defaulted Erie and DL&W bonds that got exchanged for Erie Lackawanna, Inc. stock - we did very well in the end.

Tim
> Penn Central as a company did (do very well).  It
> later became American Underwriters and did very
> well once that sold the railroad to the
> Government.

Hard to believe 50 years have passed. I was a freshman in high school...

n Wrote:
-------------------------------------------------------
> what did we learn?? invest in your railroad.
> at the time of the bankruptcy penn central owned
> 19 of the 21 skyscrapers in nyc. they owned
> amusement parks, the buckeye pipeline company.
> tons on
> subsidiaries. they just tried and did become a
> conglomerate.

The sale of air rights and development of properties in Philadelphia, New York and DC kept the Pennsy afloat for longer than anyone expected. Tearing down NY Penn and building the MSG complex is an example of doing the right thing.

Investing in the railroad at a time when their shippers were collapsing on all sides would not have been a feasible alternative.

Lackawanna484 Wrote:

> Tearing down NY Penn and building the MSG complex
> is an example of doing the right thing.

The "right thing", by whose measure? PC shareholders--maybe yes; the train passengers and the people of New York City--most definitely not! That has been proven-out by the current Penn Station and by the US Supreme Court which blocked the pending destruction of Penn Central's Grand Central Terminal. I often wonder just when American Civilization reached its apogee and began its long decent on the "glide-path" to a has-been, like the Roman and British Empires before it. Was it: 11/22/63, Viet Nam, the first Oil Embargo, 9/11/01, or?? For me, I think it was with the collapse of Penn Central. We, as a country, succeed because of our healthy middle-class and the massive industrial complex it operated--all now rusting The Penn Central debacle was the poster child of America's decline.

I'll always remember one of the at-large city councilmen in Heath, Ohio tell me "Penn Central pays more property taxes to the city
than than any other single taxpayer"., with a grin. Population about 6000 at the time.

How many other municipalities with Penn Central right-of-ways and other real estate had happy politicians?

I was at E. Ft. Wayne on merger day. The PRR engine crew got on their train, working all the way to Conway Yard. Their attitude was: do not mess with my nice long inter divisional run!

Posted from iPhone

We, as a country,
> succeed because of our healthy middle-class and
> the massive industrial complex it operated--all
> now rusting The Penn Central debacle was the
> poster child of America's decline.

Definitely the model for all the industrial/financial hubris that followed. Distracted or corrupt management, bad investments, etc.

As a kid in N. Ohio, PC to me had an aura of being the "Big Railroad". I guess I knew it went to New York City, and that impressed me as making it important. I associate that era with 2 songs I heard on the radio alot then, "Let It Be" by The Beatles, and "Bridge Over Troubled Water" by Simon and Garfunkel.

There are several books worth reading about the merger, including the one mentioned above. Also: A Sampling of Penn Central, about the Southern Division, by Jerry Taylor who worked in PC management; The Fallen Colossus, by Robert Sobel; and No Way To Run a Railroad, by Stephen Salsbury.