A steady climb
Children are often asked what they want to do when they grow up. Alfred Edward Perlman was asked that same question; from the age of eight his answer was always the same – he wanted to be “a railroader.” Unlike many children, though, who change their minds as time goes on, Perlman’s desire stayed rock-solid.
He was born in St. Paul, Minnesota, 119 years ago today (November 22, 1902). At 16 he got his first job – as an engine wiper and car cleaner at the Northern Pacific Railroad’s St. Paul railyards. Perlman worked there during his summer vacations to help pay for college.
In 1923 Perlman graduated from MIT with a degree in civil engineering (the same degree his father had earned). After graduating, he worked for the Northern Pacific until 1930.
His high school experience at the railroad had convinced him that “…the way to get to the top was to start at the bottom.” He began as a track laborer, then worked as a draftsman, and in 1925, he was promoted to the position of inspector of icing facilities at St. Paul. The following year, he was named Assistant Superintendent for Bridges and Buildings in the Yellowstone Division. He then served as a roadmaster. In 1930, the Northern Pacific paid to send Perlman to Harvard’s Graduate School of Business Administration to study railroad management.
He earned his MBA in 1931, and returned to the Northern Pacific as an assistant to the Vice President of Operations. During the Great Depression, Perlman was loaned to the Reconstruction Finance Corporation (RFC) in 1934 as a consultant to aid the nation’s financially struggling railroads.
Denver and Rio Grande Western
The Denver and Rio Grande Western Railroad was one of the railroads that Perlman analyzed for the RFC. In 1936, the Rio Grande was in receivership. Despite the railroad’s financial situation, Perlman joined the railroad as its engineer-in-charge of maintenance-of-way work. He climbed the Rio Grande’s ranks – promoted to chief engineer in 1941, general manager in 1948, and executive vice president from 1952 to 1954.
Perlman’s time at the Rio Grande built his reputation as an operations expert; he was a key member of the management team that helped the railroad climb out of bankruptcy. Perlman helped reorganize the railroad, and in 1947, the railroad paid dividends to its shareholders for the first time in 76 years.
Perlman led the Rio Grande’s aggressive modernization drive; it was one of the first railroads to move from labor-intensive steam locomotives to fuel-efficient diesel-electric locomotives. He also led the railroad to use off-track maintenance machines and established the railroad’s research laboratory.
Perlman served as an engineering consultant for the Defense Plant Corporation during World War II. He also was a consultant for South Korea’s railroads in 1949 and Israel’s railroads in 1950.
New York Central
In 1954, the New York Central (NYC) was one of the largest railroads in the United States, but was in poor condition in many respects. Robert R. Young was the railroad’ chairman. Young had won a proxy fight for control of the railroad; he was not a life-long “railroader” – he was a financier/industrialist known as the “Populist of Wall Street.” Young invited Perlman to New York for discussions and then to become the railroad’s president. Young sought a partner to modernize and streamline the NYC’s properties while reorganizing its operations and personnel.
Although Young was considered a railroad visionary by many, the New York Central was in worse financial condition than he had first thought. As early as 1957 a merger with the Pennsylvania Railroad (the NYC’s long-time rival) was considered.
Although Perlman and Young improved the Central’s finances and reduced the railroad’s expenses, the 1957-58 recession hurt the railroad significantly. In January 1958, Young had to suspend the company’s dividend payments. Young had a history of clinical depression, and later that month he committed suicide. Perlman was left in charge of the New York Central by himself.
This was an era when all U.S. railroads were struggling with increased competition for passengers and freight from the nation’s airlines, shipping lines, trucking industry and automobiles. Perlman sought to strengthen the railroad’s financial situation by eliminating trains, stations and branches that were losing money. He also raised fares on the Central’s commuter lines and other passenger fares, as well as gaining tax concessions that enabled the railroad to compete more favorably with other transportation modes.
Perlman reduced the Central’s long-term debt by nearly $100 million over six years and lowered its passenger service deficit from $42 million to $24.8 million.
The Penn Central
Despite the railroad’s progress under Perlman, negotiations with the Pennsylvania Railroad continued. The planning and negotiations (with both the Pennsylvania Railroad and the Interstate Commerce Commission) took nearly a decade. The Penn Central Transportation Company came about in 1968. Perlman was named president, director and chief administrative officer of the new company and then Vice Chairman.
Perlman had quietly opposed the merger, but also helped to forge it. The merger created the largest railroad in the United States. The Penn Central unified passenger rail service on the East Coast and operated a system with “40,000 miles of track in 14 states and two Canadian provinces. It had total assets of $6.3 billion and annual revenues of nearly $2 billion.”
Despite its size (or perhaps because of it) the merger was unsuccessful. Although a post-merger implementation plan was created, it was not carried out. In 1970 – just two years after the merger, the railroad declared bankruptcy. It was the largest corporate bankruptcy in American history to that time.
There were many factors that led to the failure of the Penn Central: competition from the trucking industry, which used the federally funded Interstate Highway System; competition from shipping lines that used the federally funded St. Lawrence Seaway; failing industries in the Northeast and Rust Belt; strict regulation by the Interstate Commerce Commission; increased taxes; “redundant trackage; outdated work rules; incompatible computer systems; the inability to end money-losing passenger services; and the forced integration of the financially disabled New York, New Haven and Hartford Railroad by the Interstate Commerce Commission.”
In addition, the Penn Central’s employees (from top to bottom) failed to integrate the merged railroads, in part because of the two railroads’ very different corporate cultures and very different operating styles.
Western Pacific Railroad
The failed Penn Central dismissed Perlman on June 8, 1970. He was hired by the Western Pacific Railroad to lead its revitalization; he made it profitable within three months. He served as the railroad’s president from December 1, 1970, to December 31, 1972, and chairman from 1970 until his retirement on June 24, 1976.
Perlman’s influence and legacy
During his long career as a “railroader,” Perlman influenced not only the companies he worked for, but the industry as well. He was a proponent of research as a tool to solve management problems and was an early advocate of intermodal rail and containerization. He reformed maintenance and operations through decentralization and streamlining. By focusing research on fuel oil and other costs he saved millions of dollars at the railroads he served.
He started at the bottom and always sought to see issues first-hand. “To facilitate his many inspection trips to railroad shops, stations, yards and offices he had an automobile equipped to travel on rails as well as highways. Even as chief executive officer, Perlman was known to carry boots and denims in his business car.”
Perlman was widely quoted in industry publications and the general press. One key Perlman quote appeared in the New York Times on July 3, 1958: “After you’ve done a thing the same way for two years, look it over carefully. After five years, look at it with suspicion. And after 10 years, throw it away and start all over.”
Alfred E. Perlman died at the age of 80 in San Francisco after a short illness on April 30, 1983. He was a “railroader” to the end. Another of his most famous quotes is below.