Why did the PC merger fail?

This is a prime example of how managing with fear and intimidation generates extreme, nonconstructive avoidance behavior. That was the mindless SOP in Philadelphia well into the Conrail era.

Yessir, that's the Pennsy way!!

mxdata wrote:From the standpoint of a supplier who did business with many railroads, Penn Central was memorable for its arrogant and myopic upper management, they seemed to have a talent right from the beginning for attracting people at the upper levels that were preoccupied with silly rituals and unnecessary complications. My personal favorite was always the daily shop check, where they would survey all the shops to see what units were tied up for work, and then get on the phone and chew out the local shop manager if he had too many units undergoing repairs. This automatically penalized the shop managers who were trying to improve the equipment availability. The local solution that usually resulted was to string together some of the dead units, put them in back of a couple units that could still run, and send them out on a train to get them off the shop list. Combined with a constant lack of money for equipment maintenance and a run them till they die locomotive maintenance philosophy, it was a prescription for disaster.

As a hostler and fireman runner (qualified engineer who was not set up on an engineer's job at the time) in Harmon, I saw the shop shuffle on a daily basis. One day, they insisted on releasing a Bud Car for a run to Poughkeepsie despite a strong protest from the mechanic working on the car that it was not ready. He was overruled. When the hand brake was released, the car began to roll but there were no brakes! The mechanic who was ordered to take down his blue light was changing the belts on the compressor, so there was no air on the car. Luckily, the hand brake was put back on before any damage was done. The reason the belts weren't replaced? There weren't any in the store room! In traditional PC fashion, the belts were taken off another unit that was being serviced to get the first one running. We called that robbing Peter to pay Paul. It happened every day.

As far as management arrogance, one high ranking official gave the local road foreman a lot of grief over this incident. He told the veteran supervisor, "why don't you spend some time in the shop and try to learn something about the equipment!" The Road Foreman got on the next train to New York and ran over to 466 Lexington and into the office of the big wig. He told him, "I know more about the Bud cars than you think!" Then he dropped the operators manual on the desk and said, "when you get the time, you can read this. I wrote it!" Names have been withheld to protect the guilty.

A Philadelphia newspaper article claimed that the PRR widened the gauge 1/4 inch on curves to 4 feet, 8-3/4 inches; but the NYC had a different idea: use just 1 gauge and make their whole railroad 4 feet, 8-3/4 inches! I don't know if this was the source article, or just repeating the rumor.

I have read-- I am not sure where, it was a long time ago-- that in the late 19th Century (and maybe early 20th?) the pennsylvania Railroad tried to use 4' 9" on tracks with primarily freight traffic and the standard 4' 8.5" on trackage that got primarily passenger usage. The idea was that the "tighter fit" of the narrower gauge gave a smoother and more comfortable ride (more control over truck hunting?), and the looser fit of the marginally wider one decreased rolling resistance, and so fuel usage (decreased friction from decreased flange contact with rail?). (The parenthetical comments with ? ware my guesses as to explanation for the effect.) ... A few years before the Penn Central merger, the New York Central (which had more high-rated freight, and so more loss and damage worries, than the PRR which hauled more coal and ore) narrowed the gauge to 4' 8.25" on at least some lines: evidently agreeing that this led to better ride quality. (This was reported in "Trains" at the time.) ... In neither case was the difference enough to make operation of trains over the two different gauges problematic, but after the Penn Central merger the PRR:foureightandahalf/NYC:foureightandaquarter was cited by a journalist as an example of the different practices of the two partners.

Slight widening of the track gauge on curves has long been an accepted practice on many railroads.

In my Intermediate II accounting class, we're learning about short-term obligations expected to be refinanced. I was surprised to see this example in my textbook:

Another example was the Penn Central Railroad before it went bankrupt. The railroad was deep into short-term debt but classified it as long-term debt. Why? Because the railroad believed it had commitments from lenders to keep refinancing the short-term debt. When those commitments suddenly disappeared, it was "good-bye Pennsy."

M.T.

The PC merger was higly sucessefull .. .all it took was PC to go bankrupt and all problems seem to have been resolved.

considering that they were pretty much two dead horses (correction tree) then we get some live ones today.


^^ If you understand what I mean.


Ultimately the cause of the ruin of the failed company was the planes+cars/trucks development ... and then came the 72 oil crisis wich is an ironic twist of fates.
ditionally one must consider that if it wasn't the demise of PC passenger services then Amtrak could have never existed in the first place (for all it's worth).

Why did the PC merger fail? Read all the good books on the subject.
Personal opinion after reading books , reading anecdotes, hearing from former employees,
Everything that could go wrong did. The major problem was shrinking traffic base.

Examples there are huge numbers of former textile factories all over New England(specifically Ct, Ma, Ri)converted to other uses. Also think about the Waterbury Branch of the New Haven ( the brass tack line). Or the coal mines in the Wilkes Barre/Scranton, Pa area. The history here is complex, but the result was a loss of outbound revenue.
Add to that management that did a good job of tying its hands and at the same time had its hands tied by ICC. Try to remember Conrail had to get both the ICC & the passenger rail off it's back to be profitable, in addition to good managers.

Rgds IGN

narig01 wrote:Why did the PC merger fail? Read all the good books on the subject.
Personal opinion after reading books , reading anecdotes, hearing from former employees,
Everything that could go wrong did. The major problem was shrinking traffic base.

Examples there are huge numbers of former textile factories all over New England(specifically Ct, Ma, Ri)converted to other uses. Also think about the Waterbury Branch of the New Haven ( the brass tack line). Or the coal mines in the Wilkes Barre/Scranton, Pa area. The history here is complex, but the result was a loss of outbound revenue.
Add to that management that did a good job of tying its hands and at the same time had its hands tied by ICC. Try to remember Conrail had to get both the ICC & the passenger rail off it's back to be profitable, in addition to good managers.

Rgds IGN

I don't think that shrinking traffic base was a major factor. Conrail was able to reduce crew sizes and abandon service on unprofitable lines, something that PC could not do.

Penn Central wrote:

narig01 wrote:Why did the PC merger fail? Read all the good books on the subject.
Personal opinion after reading books , reading anecdotes, hearing from former employees,
Everything that could go wrong did. The major problem was shrinking traffic base.

Examples there are huge numbers of former textile factories all over New England(specifically Ct, Ma, Ri)converted to other uses. Also think about the Waterbury Branch of the New Haven ( the brass tack line). Or the coal mines in the Wilkes Barre/Scranton, Pa area. The history here is complex, but the result was a loss of outbound revenue.
Add to that management that did a good job of tying its hands and at the same time had its hands tied by ICC. Try to remember Conrail had to get both the ICC & the passenger rail off it's back to be profitable, in addition to good managers.

Rgds IGN

I don't think that shrinking traffic base was a major factor. Conrail was able to reduce crew sizes and abandon service on unprofitable lines, something that PC could not do.

I disagree. Most of those lines were profitable in the past... but the decline of Northeastern manufacturing and the rise of truck traffic took that profitability away by the time Penn Central came along.

Look at a 1968 PC map in the midwest and see how many duplicate routes the merger created. Name a pair of major cities in Ohio and Indiana and PRR and NYC had as rivals built or bought routes between each pair. Now throw in an ICC that won't let you abandon the duplication - and forces on you yet another bankrupt road with loads of passenger commitments and most of it's freight business dying a slow death (New Haven RR). Then load it with managerial idiocy. The result is about like trying to take the Titanic from New York City to Buffalo via the Erie Canal. The 1825 Erie Canal at that.

narig01 wrote: Or the coal mines in the Wilkes Barre/Scranton, Pa area. The history here is complex, but the result was a loss of outbound revenue.

The loss of anthracite traffic in the Scranton/Wilkes Barre region had a minimal effect on PC, as the Pennsy had been a minor player in those coal fields. The real losers were LV, the CNJ, the D&H, the Erie and the DL&W during the '50s... as those 5 RRs derived significant revenue from anthracite busines prior to its collapse in the '50s.

A shrinking traffic base was indeed the core of the problem. A business with healthy volume and unit profitability can make up for managerial incompetence, government meddling, overcapacity, etc... But when volume and unit profitability disappears, other problems are magnified. Take a look at how many freights (boxcars especially) are seen in NH-era pictures. You sure don't see that in the Northeast today.

Gilbert B Norman wrote:in the Amtrak section under RAILPAX Version 2.0 on Sun Jan 16, 2011 12:03 pm:
However, one item that personally caught my attention was when reviewing the PC 1968 Annual Report (I was a returning student majoring in Accounting at UofI at that time) the Net Income reported for the year ending 1968 was some $100M. But a more careful review showed a deteriorating cash position, an increase in loans, and the best of all was the Special Charge made directly to Retained Earnings of some $150M and captioned to the effect of "pre- merger and merger integration expenses". In short Mr. Dunville, that term we both love; a WRITE OFF.

Were there enough retained earnings to cover the write off? Was it used to reduce the Net Income on any Annual Report? Or, was the purpose of this Special Charge "accounting gimmick" to record an expense while still preserving the "profit"?

JimBoylan wrote:Were there enough retained earnings to cover the write off? Was it used to reduce the Net Income on any Annual Report? Or, was the purpose of this Special Charge "accounting gimmick" to record an expense while still preserving the "profit"?

That was the objective Mr. Boylan; to mask the effect from Net Income (it did nothing to enhance Cash Flow or the EBITDA, which essentially reduces a Corporation's accounting to the level of "Household Accounting"). Somehow PC management convenced Peat Marwick (KPMG today) that these were one time non-recurring charges relating to the integration of the two properties; that was likely simply more ballyhoo.

"The literature", or what we accountants refer blanketly to pronouncements from the FASB Financial Accounting Standards Board, have been considerably tightened regarding what conditions give rise to Special Charges; no doubt this Penn Central, which is there for anyone having access to that public document to see, accounting practice was a factor in the rule changes.