Penn Central (#1019)

The Penn Central Transportation Company, usually called Penn Central, was an American railroad company, headquartered in Philadelphia, Pennsylvania and formed by the merger on February 1, 1968 of the Pennsylvania Railroad and the New York Central Railroad. The New York, New Haven and Hartford Railroad was added to the merger at the insistence of the ICC on January 1, 1969. The driving force behind the creation of the Penn Central was the perilous financial situations of all three railroads in the late 1960s. Although the decline of the northeastern US railroads had many causes, the most basic problem was that the demand for railroad transport was not big enough to keep all the railroads in the northeast going. Since WWII tonnage had fallen dramatically. Historically, many railroads in the region were closely tied to mining and heavy industry. The decline of these industries seriously hurt the bottom line of the railroads. Increasing competition from the trucking industry, subsidized by the federally-funded highway system, accelerated the financial difficulties. Another problem was the inability of the railroads to respond to market conditions. The railroad industry at the time was heavily regulated and unable to change the rates it charged shippers and passengers. Therefore, reducing costs was the only way to become more profitable. Government regulation and agreements with labor unions tightly restricted what cost-cutting could take place. Merger was a promising way out. As it turned out, the merged railroad was no better off than its constituent roads were before. A merger implementation plan was drawn up, but not carried out. Attempts to integrate operations, personnel and equipment were not very successful, due to clashing corporate cultures, incompatible computer systems and union contracts. Track condition deteriorated and trains had to be run at reduced speeds. This meant delayed shipments and personnel working a lot of overtime. As a result operating costs spiraled. Derailments and wrecks became frequent, particularly in the Midwest. Attempts were made to diversify into real estate and other non-railroad ventures, but in a slow economy these businesses performed no better than the railroad assets. And anyway they only distracted attention away from the problems in the core business. To make matters worse, management insisted on paying dividends to shareholders to create the illusion of success. The company had to borrow more and more to keep operating. The interest on the loans became an unbearable financial burden. The shock to the public came when after only two years, Penn Central declared bankruptcy on June 21, 1970 in what was then the largest corporate bankruptcy in American history. The railroad was kept running while efforts were made to save it. Salvation came, finally, in nationalization under the Railroad Revitalization and Regulatory Reform Act of 1976; the federally-owned corporation Conrail was formed to take over the railroad assets of the bankrupt Penn Central and five other failed railroads in the north-eastern United States as of April 1, 1976. Further help was given by the 1980 Staggers Act, which deregulated the railroad industry Conrail, using the old PC implementation plan, eventually became profitable and was sold back to the private sector in 1987. In 1999, the corporation was purchased by CSX and the Norfolk Southern Railway, and the majority of its assets split up between them. The small portion of Conrail that represented trackage that was of interest to both CSX and Norfolk Southern was kept as the remaining Conrail system under the name "Conrail Shared Assets". The Penn Central Transportation Company was merged into Conrail, but its holding company, the Penn Central Corporation, continued. Though it retained ownership of some rights of way and station properties connected with the railroads, it continued to liquidate these and eventually concentrated on the insurance business to the point that it changed its name to American Premier Underwriters in March 1994, and is today controlled by Carl Lindner and his American Financial Group. Despite leaving the railroad business many years ago, American Financial Group owns Grand Central Terminal in New York City. The New York Metropolitan Transportation Authority is the station's current lessee.

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