The Great Railroad Revolution

by Christian Wolmar

  Then there was the support given by many local authorities to the construction of airports. Every city wanted at least one, and occasionally two, and gave land and other help in kind, such as tax concessions. There was more covert help in the form of air traffic control services: “The tab for air traffic control was picked up by the federal government. Railroads installed their own signals at private expense and they paid taxes on their railroad stations,” and, indeed, on all their other property, such as goods yards and even the track.13 As if that was not bad enough, the railroads lost a major source of revenue in 1967 as a result of another government decision when the Post Office Department removed almost all mail cars, a long-established source of steady income, from passenger trains. There was even the St. Lawrence Seaway project that was funded by the Canadian and American governments, which opened up the Great Lakes to deepwater ships and seemed to threaten the viability of various railroad routes from eastern ports to the Midwest. In the event, the seaway soon proved to be built on a scale that was too small to accommodate big-enough ships, but nevertheless it was yet another project built by public cash that affected the privately owned railroads. The dice always seemed to be weighted against them.

  The overall effect of all these factors was the gradual gnawing away at the profitability of the railroads. A microcosm of their problems can be gleaned from the story of the Elmira Branch, an unassuming minor line that ran between the shores of Lake Ontario in upstate New York and central Pennsylvania. It was part of the Pennsylvania Railroad and ran deep into New York Central territory, principally carrying coal but also a wider range of other goods. It remained, in the immediate postwar period, a busy railroad. Although its flourishing ice business had been killed off by refrigerated trains in the 1930s, milk was still carried in the 1950s, and there was considerable movement of agricultural produce, ranging from fresh fruit to flowers, in what were disparagingly called “cabbage trains.” Processed food from various canneries and food plants, including a big Bird’s Eye factory, was transported on the Elmira, along with a host of industrial products from companies big and small, several of whom had sidings connected with the line. There were junctions with a dozen other lines linking with five other railroads. It was not exciting, but it was profitable. Passenger trains had never played much of a role on the Elmira, being cut from four per day in the 1930s to just one in the 1950s, a night train with a through sleeper service linking Rochester, New York, to Washington, DC, that was discontinued at the beginning of 1956. That was, effectively, the beginning of the end: “Across the next decade, plants closed or shifted their business to trucks or converted from coal to oil; and shipper by shipper, the traffic fell away.”14 The last straw came in the form of Hurricane Agnes, a particularly violent storm that swept across the East Coast in the summer of 1972; it caused havoc to several rail lines and, in particular, damaged so many bridges and embankments on the Elmira that it was abandoned for through traffic, though a few sections linking with other railroads survived. Thus, in the space of barely a quarter of a century, a once thriving and profitable railroad was wiped off the map.

  In a famous and remarkably prescient feature, published as early as April 1959, “Who Shot the Passenger Train?” in the magazine Trains, the editor, David P. Morgan, listed a series of reasons for its demise: “Man has yet to invent an overland passenger mode of transport with the train’s unique combination of speed, safety, comfort, dependability, and economy. Yet the passenger train is a museum candidate today. Its native profitability has been frustrated by archaic regulation, obsolete labor contracts, unequal taxation and publicly sponsored competition.” Morgan added, too, that railroad managers had failed to adopt sufficiently customer-friendly practices. He said that since 85 percent of the railroads’ revenue came from freight, the only solution was to hive off the passenger trains and run them as a separate business. His words fell on deaf ears. Neither the railroads nor the politicians were ready at the time to take his advice, though eventually his idea was accepted by the government with the creation of Amtrak in 1971.

  By the early 1960s, almost every major railroad was trying to close lines to passengers or reduce services, but they first had to petition the Interstate Commerce Commission, which did not always grant permission. There were, of course, covert ways of making services so unpalatable for any remaining passengers that closure was inevitable. There were a lot of tricks, both overt and underhanded, such as using old rolling stock, providing short trains with no catering or other facilities on board, demolishing station waiting rooms and restrooms, reducing the timetable to make it impossible to use the service efficiently, and so on. In Britain, during the same period, British Railways became a master of such practices.

  The Lehigh Valley Railroad, principally an anthracite-carrying railroad but which also had at one time run the prestigious Black Diamond service between New York and Buffalo, was the first to petition the commission in 1958 when fewer than 350 people per day were using its service. Its last trains ran early in 1961, by which time two other major railroads, the Maine Central and the Minneapolis & St. Louis, had managed to abandon all their passenger services. A further eight railroads followed by the end of 1967, and then at the end of the decade the movement threatened to become a flood, as big names such as the Erie (which had now joined with the Lackawanna to form the Erie Lackawanna) and the Western Pacific sought to abandon passenger services. By then, passenger railroads were costing the railroads some $470 million per year in losses.

  The railroads were so eager to get out of the passenger business that several of them simply stopped any trains that happened to be running when permission came through from the ICC, with the result, in the case of the Chicago, Aurora & Elgin, that the company’s daily commuters were left stranded in town after services were cut in the middle of its final day in July 1957. Similarly, in January 1969, the Louisville & Nashville dumped its last fourteen passengers, who had the misfortune to be on its final Humming Bird service between Cincinnati and New Orleans, in Birmingham, Alabama, more than four hundred miles short of their destination and, after a delay, bused them the rest of the way. The Burlington tried the same trick, forcing its passengers to leave the train at a small town in Nebraska, but failed to notice that one passenger was a congressman—who promptly persuaded the commission to force railroads to give forty-eight hours’ notice of any closure. Others, who had been allowed to end services in one state but not another, just stopped at the boundary, leaving passengers stranded. It was generally not long, of course, before the other state caved in. Such incidents were evidence of the railroads’ desperation to quit the passenger business. Freight was quiescent and did not answer back. Passengers had, in the eyes of many railroad managers, always been a pain to deal with anyway. As Albro Martin sums it up, “Industries which have the bad fortune to deal directly with the public—especially where the public’s total physical and mental welfare are one’s responsibility for periods of from an hour to three or four days at a stretch—will always be fair game for public abuse.”15

  It was the failure of the biggest merger in corporate history up to that date that would finally trigger a response from government. In 1965, rumors of talks between two of the biggest railroad companies, the Pennsylvania and the New York Central, began to appear in the press, suggesting a measure of desperation on the part of both managements about the state of these behemoths’ finances. They were prepared to bury their rivalry to save their railroads and in the process created the biggest railroad company America had ever seen, with more than twenty thousand route miles, the equivalent of the whole British network at its peak. After fraught negotiations and the meek acquiescence by Stuart Saunders, the chairman of the Pennsy, to various conditions imposed by President Johnson, the merger went through in February 1968. It started disastrously and got worse. The legacy forced on Saunders included not only taking on the ailing and loss-making New Haven Railroad as part of the deal, but also agreeing to union demands that there
would be no redundancies and, remarkably, that the joint company would rehire five thousand previously laid-off workers, even though there were not necessarily any jobs for them.

  As if that was not bad enough, the two companies proved to be simply incompatible. Despite years of ICC hearings into the merger, and endless negotiations, no one seemed to have thought through the practicalities: “It was a shotgun marriage that should never have happened.”16 The two companies were very different beasts. Whereas the Pennsy made its money from hauling raw materials such as steel, ore, and coal, the Central primarily concentrated on carrying merchandise and components to midwestern factories and car plants. The Pennsy focused on bulk, and delays to its services were less important than for the Central, whose customers were dependent on regular supplies. Even the computer systems were incompatible—one used punched tapes to input information (this was the 1960s!), the other punch cards—and therefore the two railroads could not communicate with each other. As on all railroads, most freight had to be channeled through at least one and often more classification yards, where railcars were sorted into trains for particular destinations. Within days of the merger, the yards were in chaos, as many trains had no waybills—the paperwork showing their provenance and destination—because of the computer failures and therefore were lost in the system. Clerks who had no knowledge of the layout of the other railroad simply sent out cars to a station they thought might be close to the destination. A shortage of serviceable locomotives added to the delays, and the poor management of staff often meant that crews were left hanging around doing nothing. Perishable goods predictably perished in the yards, and factories were left with shortages of parts. Eli Lilly, the pharmaceutical firm, reported that a car with frozen animal glands had arrived twenty-seven days late for the three-hundred-mile journey between its plants in Iowa and Indianapolis, and the contents had thawed, creating a stinking mess. In another case a hundred-car coal train was “lost” for ten days outside Syracuse, New York. Journeys that used to take a day now sometimes ran to five. The customers were in an uproar, bombarding the company for information but getting none. Indeed, little was done to appease them, and local trucking firms soon benefited from their custom. Worse, the top three executives—Saunders; Alfred Perelman, his counterpart on the Central; and the finance director, David Bevan— spent more time plotting against each other than running the company.

  Possibly because he realized that the railroad business could not make any money, Saunders embarked on a massive round of acquisitions, resulting in the Penn Central owning an extraordinary 186 subsidiaries.17 Moreover, he ran the company on the basis of what was kindly described as “creative accountancy” but was really outright fraud. He consistently over-valued assets and undervalued liabilities and boosted profits through paper deals to convince Wall Street that the company was profitable. It was in fact losing $1 million per day and started borrowing money at 10 percent interest, when even in the good times it was earning 5 percent: “Never, in recent times, had the books of a large corporation been so thoroughly cooked.”18 It could not last and it didn’t. By the summer of 1970, the Penn Central executives halted their squabbling for just long enough to establish that they were reaching a point when there was not enough cash to pay the ninety-four thousand employees. Less than thirty months after the merger, on Sunday, July 26, 1970, the directors decided there was no alternative but to file for bankruptcy. It was the biggest corporate bankruptcy in Wall Street history until Enron thirty years later.

  The press had a field day. Why, for example, did the Penn Central own five New York hotels and have a 25 percent stake in the New York Rangers ice hockey team? Or indeed, why did it own a charter airline company, Executive Jet Aviation, through a complex ownership structure made necessary by the fact it was illegal for a railroad to be involved in aviation? And best of all, what exactly went on during those “dates” for top executives that took place in parked sleeper cars in a remote part of New York’s Penn Station, and who paid for them? It was all good fun, but it missed the central point. The lurid press coverage rather overshadowed the basic story that the railroads were not viable in the climate in which they were forced to operate, according to the authors of a book published soon after the collapse: “Here was the record-sized merger bringing together two badly disorganized, unprofitable companies in a discredited industry regulated by an unsympathetic federal agency, denounced by public and politicians for its poor performance record, and hemmed in by powerful unions clinging to archaic work rules.” Furthermore, they added, there was “management blundering, corporate disloyalty, executive suite bickering, board-room slumbering, tight money, a national recession, inflation—and an unusually severe winter.”19 In effect, they concluded, even had the company been better managed and conditions for railroads been better, there was little anyone could have done to save the merged railroad. Bankruptcy, of course, did not mean the trains stopped running, and, as we will see below, a temporary public-sector solution was found to rescue the eastern railroads.

  Meanwhile, other railroads, too, were falling down like flies hit by a spray of insecticide. The Jersey Central and the Boston & Maine had already gone bankrupt before the Penn Central collapsed. The Lehigh Valley declared bankruptcy two days after the Penn Central, and another major eastern railroad, the Reading, followed suit fifteen months later. Then came Hurricane Agnes in June 1972, which wrecked the economics of several more railroads.

  First, though, the crisis in the passenger rail industry that had been brought to a head by the collapse of the Penn Central had put the government under pressure to find a solution, as it could not simply allow passenger rail to die. Rather ironically, given Americans’ previous well-established hostility toward the railroad companies, in 1969 and 1970 the public clamor to keep the trains running had become louder and louder. It was in small-town America, where people did not have access to an airport but saw their passenger train clanking through every day, even though most never ventured onto it, that the pressure was most strongly expressed. The local congressman (or-woman) whose livelihood depended on their votes was easy to get on their side, and a momentum built up to save the train. Whereas these politicians might have been skeptical of the value of passenger rail services in the past, they realized that losing their hometown service was not going to look good at election time. Clearly, with the pace of closures accelerating and the Interstate Commerce Commission powerless on the sidelines in the face of these market forces, the end of all intercity passenger services appeared only a matter of time. America might not have liked the railroad companies, but they did like train travel, or at least the thought that it was available to them. A solution had to be found to prevent the death of a once great industry. And it could not be a private-sector one. The railroads, keen on concentrating on freight, would have none of it. They wanted out of the passenger rail business.

  12

  RENAISSANCE WITHOUT PASSENGERS

  There was only one way of saving passenger rail services, and that was government intervention. Out of the ashes of a once flourishing industry emerged Amtrak, that fantastic anomaly of modern American history, a nationally owned rail company. The federal government had, in fact, already become involved in subsidizing passenger services. After Lyndon Johnson, probably the last president who was a genuine enthusiast for rail, was reelected in 1964, he persuaded Congress to subsidize the Northeast Corridor Project, serving the major East Coast cities with new electric Metroliner trains on the New York–Washington route operated by the Pennsylvania and New Haven Railroads. The ultimate aim had been to create a 125-mph high-speed line between the two cities, but the merger of the three railroads and the subsequent collapse of the Penn Central meant that aspiration remains unfulfilled. Nevertheless, the Metroliners were a great success, tempting passengers out of cars and planes. The experiment was to prove important in the creation of Amtrak, since it showed that federally supported passenger rail could be successful.

  Nevertheless
, it was a difficult birth. There were fierce negotiations behind the scenes involving the railroads, Congress, the federal government, and the states. The plan to create Amtrak—American train track, which was initially going to be called by the awful name Railpax1—was first announced by the White House, now in the hands of the Republican Richard Nixon, in January 1970. Despite backroom deals involving considerable horse trading over what routes would be saved and which abandoned, in public there was not much debate, with the plan passing through both houses of Congress relatively easily. Although Nixon might have been tempted to veto such a bill, since creating a government monopoly business did not accord with his political instincts, the prospect that he might have to nationalize some of the big freight railroads ensured he signed it. The bill creating Amtrak was passed in the autumn of 1970, with the company due to come into being on May 1, 1971. When in the run-up to the starting date Amtrak’s president, Roger Lewis, a former chief executive of a defense contractor with no railroad experience, announced that 110 of the 259 intercity routes covered by passenger services would be cut, there was a predictable outcry, and various last-minute attempts were made both in Congress and through the courts to derail the process. They all failed, however, and America gained its first-ever national rail service operating in all but a couple of the mainland states. Amtrak’s network was “just a skeleton of a skeleton,” as so many services had already been closed down by the private railroads with the permission of the Interstate Commerce Commission, and Amtrak was not even in a position to run all the promised routes on day one. Twenty railroads, all but six of those eligible, agreed to provide services for Amtrak. To join, they had to make a payment equivalent to a year’s expected loss on passenger services and provide the rolling stock and other equipment necessary to run services. If that sounds onerous, there was a strong negative incentive to join because to refuse meant agreeing to continue to run their existing passenger trains for another four years. Since these services were invariably loss making, throwing in their lot with Amtrak seemed the least-worst option. The railroads would supply crews to operate the trains, but the on-board staff, such as catering staff and porters, were to be Amtrak employees. It was, as George Douglas puts it, “a typically American compromise—the kind of thing that makes no one totally happy.”2