The Wreck of the Penn Central The Wreck of the Penn Central
By Joseph R. Daughen and Peter Binzen
1999/02 - Beard Books
1893122085 - Paperback - Reprint - 379 pp.

The engrossing story of the giant Penn Central Railroad formed from the merger between the Pennsylvania and New York Central Railroads, and its short course to bankruptcy.

Publisher Comments

Category: Bankruptcy & Restructuring

This title is part of the Business Histories list.

Of Interest:

Railway Problems

The Fallen Colossus

It took ten years of laborious planning and extensive negotiations to create the mammoth Penn Central Railroad, the largest railroad in United States history. When the leviathan was finally born of a merger between the Pennsylvania and New York Central Railroads on February 1, 1968, the event was hailed as a great day for railroading. But the baby giant survived only 867 days. The crash of the Penn Central set a new record, this time for the largest bankruptcy the United States had yet seen.

From the back cover blurb:

...The Wreck of the Penn Central, which The New York Times called "a great book" offering the reader "a ringside seat" to this economic debacle, provides a close-up view of the events that brought the Big Train to bankruptcy court -- over-regulation, subsidized competition, big labor featherbedding, greed, corporate back stabbing, stunning incompetence, and yes, even a little sex.

Review by Regina Engel 
Turnarounds and Workouts April 15, 1999

On June 21, 1970 the Penn Central Transportation Company filed for bankruptcy reorganization under Section 77 of the Bankruptcy Act, a mere 872 days after the largest railroad in United States history was formed with the merger of the Pennsylvania and New York Central Railroads. While the memories of the major players were still very fresh, the authors set out to examine the causes of the stunning collapse. Their exhaustive and in-depth analysis was originally published in 1971, but as the authors recognized, "[t]he dimensions of the disaster that befell the Penn Central Transportation Company, its 100,000 creditors, its 118,000 stockholders, and the hundreds of lesser companies tied economically to the railroad will provide food for thought for students of business history for years to come."

The largest merger in the nation's history came about following more than ten years of discussions, but one of the points the authors make is that because it was so uncertain that the merger would in fact take place, very little was done during those years to actually work out the details of merging the two very differently operated companies.

The authors offer fascinating accounts of the personalities and backgrounds of the people involved. Chapter 2 gives a brief overview of the history of the railroads as a necessary backdrop to understanding the conditions in the industry at the time of the merger. Succeeding chapters focus on the three principals, Alfred E. Perlman of the New York Central who became president of the Penn Central; Stuart T, Sounders, who had led the Pennsylvania Railroad for the previous five years and was named chief executive officer and chairman of the board of the merged company; and David C. Bevan, the Penn Central's chief finance officer. Detailing the differences in style and social position, the authors contend that the failure of these men "to work as a team and to inspire their subordinates to do so hastened Penn Central's collapse." In addition to the people problems, the authors devote chapters to the opposition of future Pennsylvania Governor Milton J. Shapp, and David Bevan's forays into questionable outside investments, including an airline business, which the authors maintain diverted badly needed attention away from the problems of the railroad. Similarly, the authors question whether the attempt to deal with the railroad's cash problems through a diversification program, under which the railroad had considerable real estate holdings, hurt more than helped by taking time and attention away from the railroad's problems.

The concluding chapters contain discussions of numerous other problems that precipitated the collapse, from the continuing decline in the railroad industry, in part because of competition from other means of transportation, to the bad winter of 1970, the poor condition of equipment, labor problems, government regulation, and, in the end, the failure of the government to provide loan guarantees. In the final chapter, the authors quote extensively from Perlman's and Sounders' assessments of what went wrong. Despite their differences and attempts to lay blame, they both conclude that without government support, the problems of a very sick industry were too much for any management team to overcome

Review by Bill Hough. Taken from the misc.transport.rail.americas newsgroup, originally posted October 4, 1997.

On February 1, 1968, the Pennsylvania Railroad (PRR) and the New York Central Railroad (NYC) combined to form the Penn Central Transportation Company. Just over two years later, the Penn Central (PC), then the largest railroad in the United States, entered reorganization under section 77 of the Bankruptcy Act. The bankruptcy of Penn Central was the biggest business failure in United States history and led to the 1976 creation of Conrail. After PC went bankrupt, several books were written about the failure, including Daughen and Binzen’s The Wreck of the Penn Central, which was published in 1971.

Daughen and Binzen begin with an introductory chapter that describes the events in the merged railroad’s headquarters city of Philadelphia of the day of the merger, February 1, 1968. These included a midnight ribbon cutting ceremony at 30th Street Station and the ceremonial first meeting of the new company’s Board of Directors. Chapter 2 provides a historical review of the rise and fall of the railroad industry in the United States, focusing on PRR and NYC whose rivalry dated back to the mid 19th century. The PRR was founded by the civic and business leaders of Philadelphia, who were concerned that the Pennsylvania city was losing ground in east-west commerce to New York City, which was benefiting from the Erie Canal. The railroad’s charter was signed in 1846, and by 1858 its main line was completed between Philadelphia and Pittsburgh. Meanwhile, the New York Central was created by Erastus Corning who consolidated ten upstate railroads into one Albany - Buffalo system. The Central was acquired by Cornelius Vanderbilt, who also controlled railroads connecting New York City with Albany. Before buying the NYC, Vanderbilt drove the price of its stock down by stopping his New York-Albany trains on the east side of the Hudson, forcing passengers connecting to the NYC to walk across the river on a cold, snow-covered bridge. This tactic caused the price of NYC stock to fall, until Vanderbilt acquired control of the railroad for some $18 million. The excesses of the late 19th Century’s so-called “robber barons” led to changes in the industry. About a fifth of the nation’s trackage was operated by bankrupt companies by 1895, and rail workers began forming unions in response to low wages and poor working conditions. In 1887, the Interstate Commerce Commission (ICC) was created by the federal government to regulate the industry. After peaking in influence and mileage during the early 20th Century, the railroad industry entered into a period of decline starting with the Great Depression of the 1930s and continuing after World War 2 with the diversion of passenger and freight traffic from rail to road, and to a lesser extent, to air. One response by the railroads to these new competitive threats would be to seek economies of scale through mergers.

After the introductory and background chapters, the authors turn to the merger itself. Planning for the merger began in 1957 when PRR’s then-president James Miller Symes received approval from the railroad’s board of directors to begin talks with his counterparts at the NYC. The combination of PRR and NYC was only one scenario being considered by the major Eastern railroads during this time. Another alternative involved the PRR merging with Norfolk & Western, a Virginia-based railroad in which the Pennsylvania Railroad owned over a third of the stock. New York Central, under this plan, would combine with the Chesapeake & Ohio and Baltimore & Ohio railroads. Although these combinations did not happen during the 1960s, it is interesting to note that under the current Norfolk Southern/CSX plan to divide Conrail, Norfolk Southern, descendant of N&W will acquire PRR’s main Philadelphia-Pittsburgh line while NYC’s “Water Level Route” through upstate New York would go to CSX, corporate successor to C&O and B&O. After a brief hiatus while the other options were considered, PRR and NYC resumed merger talks in October 1961. Merger details were quickly hammered out, and both railroad’s boards approved the unification on January 12, 1962. Hearings before the ICC began the following August and lasted for 14 months, after which the Commission took another two and a half years to approve the merger. The unanimous decision to allow the merger included the condition that the ailing New York, New Haven and Hartford Railroad, a struggling Connecticut-based property that neither PRR or NYC wanted. The merger was delayed for almost two years due to court challenges. One opponent of the merger, future Pennsylvania governor Milton J. Shapp rates an entire chapter in the book.

The middle half of the book deals with various problems which plagued the newly merged company. A major source of trouble involved combining the workforces of two bitter rivals for over a century. These problems began at the top. PC’s Chief Executive Officer and Chairman of the Board was PRR’s Stuart Saunders, a member of upper-crust Philadelphia’s social clubs. Reporting to him was President and Chief Administrative Officer Alfred E. Perlman, president of NYC. Mr. Perlman was less than thrilled about the merger, maintaining his office in New York despite the fact that PC’s head office was in Philadelphia. David C. Bevan, Chairman of the Finance Committee, was a former PRR executive that, according to the authors, nobody outside of his staff liked. These three men presided over an organization chart that had PRR and NYC personnel mixed together in a futile attempt to meld the workforce. The authors report that nobody in upper management even considered that problems might occur when combining two former competitors, each of which had its own corporate culture, operational practices and computer systems. During the two years before PC went bankrupt, infighting at the executive level led to the departure of many people. Toward the end of 1969, Perlman was eased into a figurehead position, and on June 8, 1970 Perlman, Saunders and Bevan were dismissed from the railroad.

Daughen and Binzen devote considerable space to Penphil and Executive Jet Aviation, both of which are alleged to be major factors in Penn Central’s bankruptcy. The authors state that as PC was falling apart, its chief financial officer, David Bevan, was busy using the company’s financial resources and credit to benefit his private investor’s club, Penphil. The complicated story of this group “served to discredit Bevan and mark him as the chief villain in the collapse of the Penn Central. The Penphil story rates an entire chapter in the book as does Executive Jet Aviation, a dubious and illegal attempt of Bevan’s to get the Penn Central into the airline business. The authors’ position is that Bevan’s involvement with Penphil and Executive Jet, in addition to being highly unethical, kept him from focusing on the railroad’s financial problems. This is a controversial position. Stephen Salsbury, in his 1982 book, No Way To Run A Railroad, is more sympathetic to Bevan. Written with his full cooperation and the passage of a decade since the bankruptcy, Salsbury’s work presents Bevan as the competent financial expert whose advice was ignored by Saunders and Perlman. During the time between The Wreck of the Penn Central and No Way to Run A Railroad, Bevan was tried and acquitted in a $4 million theft of Penn Central money.

The book’s final and perhaps most significant part, Chapter 11 places Penn Central’s failure in the context of the problems of the railroad industry during the late 1960s. Perlman and Saunders are quoted extensively, and they both contend that Penn Central was a victim of unfortunate industry trends. Stuart Saunders told the authors that the railroad industry “is basically a sick industry. And it’s been sick for years. A big problem was that railroads were heavily regulated by the ICC, and railroads were still treated is if they still had the transportation monopoly they had in the late 19th century. Saunders tells the authors that although railroad intercity freight market share decreased from 67% in 1947 to 40% in 1971 , government money is spent building highways and airports and funding SST research . Meanwhile, although the Post Office Department diverted mail shipments from rail to both air and road, depriving railroads of revenue, the ICC forced the railroads to continue operating many money-losing passenger trains until the 1971 creation of Amtrak. Passenger trains were significant money losers for North American railroads during the 1960s, and Daughen and Binzen devote the book’s sixth chapter to them.

The Wreck of the Penn Central is an interesting read, but it is not a definitive work about the railroad’s failure. It was written not long after the events took place and subsequent events reinforce the position of Saunders and Perlman that the railroad industry was impeded in its ability to compete by excessive government regulation and obsolete labor practices. Additional railroad bankruptcies in the Northeast led to the creation government-owned Conrail in 1976, and government’s response was to phase in deregulation of the industry. In addition to unfavorable industry trends, the implementation of the Penn Central merger was bungled, with two incompatible railroads quickly forced together. The lessons of merging the operations of two large railroads are still relevant today, witness the current paralysis of the present-day Union Pacific.

Co-authors Joseph R. Daughen and Peter Binzen are professional journalists of many years experience and have written for several newspapers. Currently their bylines can be found in The Philadelphia Daily News and the Philadelphia Inquirer, respectively, where they have been since 1982. A successful writing team, Daughen and Binzen also co-authored The Cop Who Would be King.


1. A Head of Steam: February 1, 1968 3
2. Ties to the Past 19
3. The Coupling 48
4. Man against the Merger 69
5. The Red and the Green 90
6. "If You Don't Like It, Walk!" 129
7.  A Very Small Affair 148
8. Sidetracked 176
9. Highballing to Nowhere 206
10. End of the Line 252
11. Thoughts from the Caboose 308
Index 349
List of Illustrations
Stuart T. Saunders and Alfred E. Perlman shakes hands on Merger Day


David C. Bevan 10
The New York Rangers, a further branch of the Penn Central empire, in action 15
Real estate holdings of the Penn Central 16
George B. Roberts 20
J.P. Morgan's yachts, Corsair 20
Chauncy Depew 21
J.P. Morgan, Sr. 21
J. Edgar Thomson 32
Commodore Cornelius Vanderbilt 32
Jay Gould 33
Jim Fisk 33
Daniel Drew 34
William H. Vanderbilt 34
James M. Symes 51
James M. Symes and Stuart T. Sanders 56
The Penn Central Lamented 70
Walter Annenberg 80
Milton J. Shapp 87
Stuart Saunders and his wife, Dorothy 94
Penn Central Board of Directors 106
Richard King Mellon 108
David E. Smucker 114
Henry W. Large 114
The Ardmore Station 130
Penn Central's Metroliner 138

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