Railroads: Toward the 21st Century Ltd.

• Share

(6 of 9)

Without Illusions. While Saunders was maneuvering so skillfully toward merger, an unexpected problem arose: the New York Central began making noises about backing out of the deal. Elated by rising profits in 1966, Perlman announced that the Central appeared to be "recession-proof" and might not have to merge in order to prosper. Saunders paid calls on Central directors, pointed out that their line, unlike the Pennsy, was not widely diversified; he warned that a dip in the general economy would cause the Central painful headaches. Last year's mini-recession proved Saunders right. Rail returns for the less diversified Central during the nine months figured so far showed a $2,640,000 deficit, while Pennsy earnings held up substantially better. Suddenly the Central's merger enthusiasm revived.

Now only ragtag ends of the complicated corporate battle remain to be resolved. But Saunders labors under no illusions about the future. "The Pennsy itself," he says, "is a tough property to operate." The Penn Central will be a lot tougher. Pennsy President Allen J. Greenough, 62, whose title in the company is still unsettled, puts it even more strongly. "This is a big dog with a lot of fleas," says Greenough. "We'll be scratching for a long time."

To ease the itch, 40 representatives of both the Pennsylvania and the Central have planned together for many months. They worked in neutral territory—offices of the consulting firm of McKinsey & Co. The first sessions were stiffly formal, but even though some Central executives fear that they will be frozen out of key jobs by their opposite numbers at the dominant Pennsy, the atmosphere soon thawed.

More than 3,000 major merger problems have been discussed. One of the first projects was to take an inventory of all the equipment on both roads, from diesel engines down to dining-car flatware. A unified purchasing system for 180,000 kinds of hardware should save $750,000 a year. Altogether, eventual savings from combined operations should be at least $80 million a year. Plans have been made to eliminate about 1,000 miles of duplicate tracks, and computers were called into service to help decide upon the best routes. With a choice of two main lines from Chicago to the Northeast, for example, the computers found that the Central's water-level route would be much more economical than the Pennsy tracks that ascend nearly 3,000 feet over the mountains of western Pennsylvania. Connecting links between Pennsy and New York Central tracks are being rushed at Toledo, Grand Rapids, Cincinnati, Terre Haute, Chicago, Buffalo and Detroit. Freight yards at Cleveland and Indianapolis will be modernized, and an entire new yard—to be named after Perlman—is being built at Albany. The basic idea is to take advantage of the savings that through-freight operations can provide. "The speed factor is vital," says Perlman. "If goods are in transit for four days, someone has to have them on the books for four days. Any reduction in time that we can make will be beneficial."