What Would Have Happened if NYC Had Stayed out of PC

I agree that an end-to-end merger would have been the best move for the NYC.
In my very humble opinion I actually think the best partner would have been the Milwaukee Road. NYC had already started to lay the groundwork for very fast intermodal with them, as they had done with the Santa Fe as well. However, I believe that the regulators would be much happier with an NYC/CMStP&P merger over one a NYC/ATSF one purely for the fact that the latter would create a supermassive railroad that would dominate the market too much.

I also believe that a NYC/CMStP&P merger would have set off a chain reaction of transcontinental mergers. The PRR would probably have hooked up with the roads that became the BN while the UP and ATSF would have found a way to get in with the Southern and C&O systems respectively. By today, we'd probably have seen them merge down further with the northern transcontinental lines merging with the southern ones to create two huge lines that would compete much more like the Canadian roads did. Over time the smaller lines that went bankrupt still would have, but they would have been eaten by the bigger, probably with some government intervention and designing especially in the northeast and plains.

In the end, it would have created the high-speed globalized roads we see now much earlier and preserved competition far better than the system we have.

Now we're getting into pure theory, but it has nothing to do with what actually took place.

The problem for New York Central back in the 1960s was that N&W had acquired Nickel Plate and Wabash while C&O was taking control of B&O. Alfred Perlman said that Central was being surrounded by hostile systems and had to find a partner or face being driven into bankruptcy.

There was no interest in Central on the part of the western roads. An end-to-end merger would've made sense from a purely operating viewpoint but not from a business standpoint. For the same reasons C&O rejected Central in 1961.

Primarily that a) Central had a huge ($800 million) debt and b) Central was not earning enough return on investment. As a business decision there was no way any road wanted any part of Central, sad to say. No solvent railroad wanted to take on all that debt when the debtor was not earning enough income to adequately maintain itself. There's no incentive.

Yes from a purely operating standpoint it's interesting to imagine Central as a transcon in partnership with a western road. From a business point-of-view it makes no sense.

Back in the 1960s Trains' David P. Morgan gave a lot of play to people (including the ICC) who were urging that N&W and C&O look at merging with Central and Pennsylvania. The idea was to "save" eastern railroading from the mass bankruptcies that eventually took place. The handwriting was on the wall by 1960.

But N&W and C&O would not do it. They said they didn't have enough resources to take on all the debt and all the other problems NYC and PRR were dealing with. Commuters, passenger trains, declining industrial base, taxes, etc.

Central and Pennsy wound up with one another because no other railroad wanted them. Sad but true.

A railroader on another list said that the prospect of merging Milwaukee Road with one of the eastern roads -- given the fact Milwaukee Road also had some very serious problems -- would've been a disaster.

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With that being the case, why even merge? How was Central going to be surrounded? They served most of the large cities in New York, as well as the ones across OH and IN.

Also interesting would be if the PRR had made the decision to stick with their own system verses merging with the NYC. The PRR had a strategic system prior to the merger that if properly managed would have been able to make it to deregulation using dividends from its stock in the N&W and Buckeye Pipeline. James Symes should have gone to the N&W and recruited John Fishwick to run the PRR instead of Stuart Saunders to lead the PRR. Fishwick would have avoided building Buckeye Yard in Columbus, instead focusing finances to modernize the three major segments of system with track improvements and CTC: NYC to Pittsburgh; Pittsburgh to St. Louis; Pittsburgh to Chicago, and to purchase the Reading Railroad for a direct connection from its own system in Harrisburg to the Lehigh Valley. The Reading purchase would have allowed the PRR to sell all of the electrified segments of the system to include the Northeast Corridor from Washington to New York and the Philadelphia to Harrisburg line to the U.S. Government, ridding the PRR of the large expense of running expensive passenger trains on those lines, retaining freight rights, and concentrate on running the freight portion of the railroad. For traffic bound for Potomac Yard and points south, sister railroad N&W could have worked out a haulage agreement with the PRR to move their cars via the Hagerstown gateway and Front Royal for access to both the Southern Railway and the RF&P and New England bound freight could have been interchanged with the N&W subsidiary Delaware & Hudson. By 1980 the PRR and the N&W could have worked on a merger of their own similar to the merger that the C&O and the B&O put together saving the northeastern rail system from the bankruptcy of the Penn Central.

I don't think buying the Reading in the late 1960's would have helped the Pennsylvania that much, there was still the problem of branch lines, a lot of commuter service and deferred maintenance. The PRR would have done better had they done just what Perlman did on the Central, pull up unneeded mainline trackage and equip the railroad with CTC. The PRR had a superb physical plant by 1930's standards but in the 1960's and 1970's it was already obsolete and for the most part it took Stanley Crane on Conrail to correct this situation. Labor costs alone on the PRR far exceeded the NYC due to the money that Perlman spent in the 1950's and early 1960's on improvements that paid for themselves in labor costs. I think the policies of Saunders are what dragged Penn Central down the road to bankruptcy more than anything else. Certainly the facts later on prove this. Once the deferred maintenance of Saunders and the available technology of the 1950's taken advantage of Conrail showed them all how to move freight and make money. There is more to this one but I have covered enough for now.
Noel Weaver

This entire very interesting discussion overlooks the very important matter that NYC could not have stayed out of PC for an important reason. As much as Perlman or any other exec might have wanted NYC to remain independent the fact is that any CEO is professionally and ethically obligated to secure the best ROI for the shareholders. And in the late 60s all the numbers showed that the PC merger would accomplish that. Those numbers turned out to be misguided because the success of the merger was unachievable given the personalities and cultures of the two companies involved.

That is true. Could Pearl man have rolled the dice with saying that he could make better returns by staying independent? The MTA took the LIRR out of Penney's hands by then. Could he have cried for a similar remedy for the Harlem, and southern Hudson Div.?

The fact still remains that there were so many choices in the NYC-Buffalo corridor, and a cutting was necessary. What if he did something like what was done by C&NW, and buy a parallel line, then kill it? Northwestern was no money machine either. The Chicago-Omaha, Chi-Twin, St. Louis, and KC corridors were just as over saturated.

I'm just looking at possible ways that Pearlman could have held things together long enough, and make enough improvements to become an attractive bride.

I agree with Tommy Meehan .... NYC and PRR were out of dance partners (I think Morgan wrote some such line in TRAINS back when too).

Over on the N&W the tail was now beginning to wag the dog (PRR) with acquisition of Wabash and NKP which changed the whole dynamic of PRR.

Perlman very much wanted a C&O / NYC merger but not the C&O folks who wanted no part of that debt and the dilution of the stock. Swiss bankers could not be enticed to make a deal palatable either as I recall Perlman and the NYC folks jet setting out of Idlewild (JFK) seeking foreign financing.

I don't think that a case could be made whereby after 1958 Perlman or the NYC BOD were thinking anything about holding out as an independent, the business case was against that and major energy was being put into becoming part of a bigger system. Also too was the EL with William White who had returned to the EL (former DL&W President) and recognized the need to fold the EL into a bigger system which became Dereco - albeit after White's untimely death. The rail industry was becoming what it is essentially today - about the franchise.

Nice to think of the what-ifs and with what happened to the PC, and later Conrail was indeed all but a foregone conclusion by 1962 or thereabouts as posted above. TRAINS did a pretty credible job chronicling the issues with NYC / PRR from 1958 into PC which is pretty good reading. Also a number of books out that are pretty good discussing the business / financial issues revolving around all of this too.

White wanted to add the D&H too, but it was afraid of the Erie's debt, just like C&O was of Central's debt.

The one disadvantage which Central had over PRR and B&O was no real connection to the southern roads, ACL, ,SAL (via RF&P), and Southern. In OH, and IN, the market was just as saturated as the NYC-Buffalo corridor. Here the main opposition was NKP, Erie, PRR, Wabash, CN/GTW, and B&O. PRR was the wrong dance partner. That's why I mentioned the Northwestern strategy of buying a parallel and killing it.

In the meantime of playing the merger game, Pearlman did a great job of improving what he had. CTC and efficient yards were two prime examples.

Cactus Jack wrote:Perlman very much wanted a C&O / NYC merger but not the C&O folks who wanted no part of that debt and the dilution of the stock...

Point of information. Perlman was courting the Baltimore & Ohio as a potential merger partner. Remember that as early as 1957, NYC knew they needed to find a merger to survive. The B&O considered the idea, or at least was not hostile to it, but when the Chesapeake & Ohio took control of the B&O in 1961, Perlman was forced to look elsewhere.

-otto-

As has been previously discussed and should be known, I would think, to anyone familiar with New York Central's merger history post-1957, Central did propose an NYC+C&O+B&O merger. This is from a paper posted on the Princeton University website:

After its merger discussions with the PRR were terminated [in 1959], the NYC began to purchase capital stock in the Baltimore and Ohio (B&O). Shortly after February 1959, the NYC entered into negotiations with the Chesapeake and Ohio Railway Company (C&O) and the B&O, looking toward the possibility of a so-called two-party railroad system in the East composed of the NYC, C&O, and B&O on the one hand, and the PRR and its satellites (including the N&W) on the other. The NYC's action in pursuing the C&O and B&O arrangement was largely founded on the consummation of the N&W-Virginian merger, which it had not opposed other than seeking limited conditions. link

In his book History of the Baltimore & Ohio Railroad, author John Stover writes, on page 357:



The reason C&O gave for turning Central down was financial and the fact C&O did not expect Central's position to improve significantly due to the company's 1) large debt; 2) extensive (and money-losing) commuter and long-haul passenger services; and 3) the decline in the industrial traffic base in much of the territory NYC served. Stover writes on page 361:



A good part of John Stover's B&O book (including both of the passages I quoted) are available on-line through Google Books. Here's a link.

Engineer Spike wrote:White wanted to add the D&H too, but it was afraid of the Erie's debt, just like C&O was of Central's debt.

Just as a point of information, the D&H+Erie+DL&W merger was proposed in 1957 and the D&H pulled out in April 1959. At that time, however, William White was the president of Delaware & Hudson.