Penn Central Transportation Company - The Merged Railroad

The Merged Railroad

As it turned out, the PC was little 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 unsuccessful, due to clashing corporate cultures, incompatible computer systems and union contracts. In the decade prior to the merger, the NYC had trimmed its physical plant and assembled a young, eager management group under the leadership of Alfred E. Perlman. The PRR had been a more conservative and traditional operation. Many of NYC's management people (known as the "green team") saw that the PRR (the "red team") was dominant in PC management and soon left for other positions. Those who departed had often said the different corporate philosophies (NYC said they were in the transportation business, while the PRR stated they were in the railroad business) could never have merged successfully.

Subpar track conditions deteriorated further, a result of inheriting decrepit facilities from PC's predecessors. Trains regularly operated at greatly reduced speeds. This resulted in delayed shipments, personnel regularly working excessive overtime, and soaring operating costs. Derailments and wrecks were regularly occurrences, particularly in the midwest.

In addition, the industrial states of the Northeast and Midwest were fast becoming known as the rust belt. As industries shut down and relocated, railroads found themselves with excess capacity. The PRR, in particular, was worse than all the other ailing railroads in the region, having four to six tracks where one or two would do fine — track that was no longer needed but which was still on the tax rolls. Railroad historian George Drury later said the merger resembled "a late-in-life marriage to which each partner brings a house, a summer cottage, two cars, and several complete sets of china and glassware — plus car payments and mortgages on the houses."

PC management created a holding company, the Penn Central Company, and tried to diversify the troubled firm into real estate and other non-railroad ventures, but in a slow economy these businesses performed little better than the railroad assets. In addition, these new subsidiaries diverted management 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 additional funds to maintain operations. Interest on loans had become an unbearable financial burden.

In 1969, most of Maine's potato production rotted in the PC's Selkirk Yard, dooming the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.