The Gulf, Mobile and Ohio
By James H. Lemly

 

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CHAPTER XI

Renewed efforts toward growth, 1934-38

 

1934

THE GULF, MOBILE AND NORTHERN ended the year 1933 so favorably that it gained widespread recognition for its “recovery.” Actually, its $75,000 net for 1933 was far below the average for predepression years.  From 1922 to 1930 the GM&N had earned an average of $1,000,000 per year and had overmaintained rather than undermaintained its property, as was the case in 1933.  The publicity which the road received over its “recovery” naturally caused the employees to think that if prosperity had returned to the Company some, if not all, of their reduced wages should be restored.  Mr. Tigrett felt it necessary to forestall a premature request for wage increases in order to prevent the hard feelings which might go with a refusal.  For this reason, the News of January 2, 1934, carried a full-page message from the President.  His remarks are reproduced in Figure 11.

Mr. TIGRETT’S WAGE MESSAGE

GM&N News, January 2, 1934

A great deal has been printed recently indicating that much prosperity has come to the Gulf, Mobile and Northern in the year 1933.  Unhappily, the actual facts do not bear out the impression which has been made.

In addition to the large loan made by our directors, which is mentioned above, the Company has had to make additional loans during the depression amounting to Nine Hundred Eighty Thousand Dollars ($980,000.00).

Of this, the amount that was borrowed from the Reconstruction Finance Corporation has been paid back.  However, that payment did not come out of earnings, but was made possible by the loan procured by the directors in 1930, and we still owe Seven Hundred Thousand Dollars ($700,000.00) of the Nine Hundred Eighty Thousand Dollars ($980,000.00) that has been borrowed since 1930 and which must be repaid from earnings.

The cash, which we secured from these loans and the sacrifices made by security holders would have been of no avail without the sacrifice and cooperative effort on the part of our employees of every rank.

Salaries have been reduced.  Taxes and rents have followed the same trend.

Throughout these lean years we have furnished our employees as much work as our financial situation would permit.  We have felt an obligation to do this in view of the cooperation that our employees have given.

We have continued some departments which could have been temporarily suspended.  We have postponed desirable improvements and have deferred maintenance insofar as safe and efficient operation would permit.  We have kept in force our group insurance policy although the cost is a heavy drain upon the company.

We have occasionally asked a young person with no dependents to surrender his or her seniority in favor of those who had families to support.  We have in various ways joined in taking care of employees who could not otherwise withstand the depressive current in which they bad become engulfed.

We hope to continue this same policy.  We hope to be showed to make the money which we have to spend furnish employment to the greatest number of people.

It might be just as well, however, for me to state, plainly and frankly our position.  We cannot operate this Railroad with our expenses greater than our revenues, and we are not going to do so.

My long association with the employees of this Railroad convinces me that our method of administration has the approval of those who are informed of the Company’s problems and who have a real interest in its continued operation.

Figure 11

 

The night trains had been put back on the road in the fall of 1933, but the public acceptance of them was not as great as the Traffic Department expected.  In an effort to improve the service and its use, changes in the schedule were announced for March 31, 1934.  The night Pullman trains were shifted from the Mobile-Jackson, Tennessee, run to the New Orleans-Jackson, Mississippi, Jackson, Tennessee, side of the road.  The gas electric coaches which had run between New Orleans and Jackson, Mississippi were moved to daylight schedules on the Mobile-Jackson, Tennessee, line.  In their place, on the lower part of the old New Orleans Great Northern run, the Company put a motor coach which operated between Bogalusa and New Orleans so that that territory would have daytime service as well as service by the night trains.

The Board of Directors, at its meeting in New York on April 19, recognized the fine and loyal work of F. M. Hicks by making him Executive Vice-President of the road.  Mr. Hicks had been Vice President in charge of Traffic for many years.  In effect, he bad had been Mr. Tigrett’s right-hand man as far as finance and traffic were concerned since 1920.

The recovery which the GM&N experienced in the last half of 1933 continued in 1934.  At a Board meeting on July 19 the Directors were told that the GM&N had a much better first six months in 1934 than in 1933.  In the first half of 1934 the road bad an operating deficit of $30,000, compared to the $197,000 deficit in the first half of 1933 and a $310,000 deficit in the first half of 1932.  Both freight and passenger earnings were considerably better than in 1933.  The road moved almost twice as many cars of perishable fruits and vegetables in 1934 as it did in 1933.  Mr. Tigrett made a special point of reporting that the road had finally been able to join in the movement of bananas from the Gulf, and he hoped that this would become a profitable source of income.

Other signs of progress were reported to the Board at this same July meeting.  Employee relations were reported to be on a harmonious basis.  The Company had satisfactory contracts with every branch of the railroad unions which, in each instance, called for pay scales below the national wage level.

The Board was advised, however, that the road was to be called on for an additional $100,000 per year during the years ahead as its contribution to the railroad pension program recently instituted by the government.

At  the  same  July  meeting,  the  management  announced  that  preparations were being made to rebuild 90 miles of the old New Orleans Great Northern so that the GM&N would be able to meet the schedules of its New Orleans competitors, the Illinois Central, the Louisville and Nashville, and the Southern Railway.  Also needed to help in the increased freight business were some 200 new freight cars.  About 50 of these were gondola cars, and the Company planned for construction of them in the Mobile shops of the GM&N, while 150 box cars would be purchased from other firms.

Mr. Tigrett closed his report and suggestions to the Board with a request for approval to purchase two new Diesel electric trains for passenger service.  He stated that the Public Works Administration was willing to lend money on a 15-year basis to buy this equipment and that the management felt that the lower operating costs of these trains would allow the Company to pay for this equipment before the loan was due.  The final section of the request presented the position of the operating management of the GM&N very forcefully.  This position was that of the professional manager who was looking at the permanent operation of rail service, rather than the view of the security bolder seeking an immediate profit.  The report said, in conclusion:

The future of railroads insofar as can now be seen, offers no occasion for optimism.  Yet we are firmly of the opinion that whether or not government ownership is ahead of us, or whether or not there may be a general breakdown of the economic structure of the country, or whether or not brighter and more profitable days are ahead of us, the Gulf, Mobile and Northern is justified in continuing its effort to make both its freight and passenger service as attractive and economical as possible. . . . I am asking the Board this morning to give us authority to borrow this money.

The response of the Board is history.  The Diesels were ordered and were placed in service the following year to win new laurels for the GM&N as the first streamliners in the South and to earn a profitable revenue for the road.

Not long after this July meeting of the Board of Directors, the management of the GM&N began to study the advantages and disadvantages of merging with the bankrupt Mobile and Ohio.  Since becoming President of the GM&N in 1920, Mr. Tigrett had never forgotten that be was operating a railroad which had to grow into a more important line or go backward.  The M&O almost paralleled the GM&N from Mobile to Jackson, Tennessee, but it went on to a terminus at one of the nation’s major rail centers at St. Louis.  If the GM&N could get into St. Louis, it never need worry again about being squeezed out for lack of connections.  For this reason, the main line of the M&O looked most valuable to the smaller, but more aggressive, GM&N.

At a meeting of the Board of Directors in November, the matter of merging with the M&O was discussed, and the Board appointed a committee to explore the possibilities of such action.  The committee was instructed to study the proposition and report to the Board for its decision.

The Southern, which was the owner of most of the M&O’s first mortgage bonds and owner of most of the now worthless common stock, was not interested in the GM&N purchase.  For this reason the idea had to be shelved.  However, it never left the minds of the GM&N’s managers, and negotiations were to be resumed in 1938 after the Southern had changed its thinking on this matter.

1934 was definitely a year of improvement on the GM&N.  Freight tonnage was about 23 per cent higher than in 1933, and revenues were up also.  It is true that expenses increased at a faster rate than revenues, but this was caused largely by increases in maintenance costs.  A deliberate effort was made to restore the property to former standards wherever possible.  One example of this was the statement in the Annual Report for 1934 which said that creosoted ties in the track had been increased from 70 per cent at the end of 1933 to 74 per cent at the end of 1934.  Another important item was the purchase and construction of new freight cars which the Board had authorized in the middle of the year.  The rebuilding of 45 miles of the New Orleans Great Northern lines during the fall of 1934 was also a major improvement in this period.

 

1935

The GM&N entered 1935 with a determination to continue its forward progress along the recovery trail.  The Operating Department announced plans for efficiency campaigns similar to those of the twenties, primarily to save fuel and cut other costs.  Glenn Brock, who had been made General Manager in April, 1934, said, “This is more than a fuel campaign.  We have to do something to save money.  The price of fuel is constantly increasing.”

The road went into 1935 with some new passenger and freight equipment on hand and with more new equipment to be delivered soon.  The Traffic Department announced that it would place a railplane in service between Jackson, Mississippi, and Tylertown, Mississippi, on January 6.  This was a streamlined motor coach which had been designed for rail service by Stout Engineering Laboratories and the Pullman Company for use on lightly traveled lines.  At the same time, a newly scheduled train was to begin operations between New Orleans and Covington, Louisiana.  These two schedules were to give intermediate service between New Orleans and Jackson, Mississippi.  Since the night trains were to continue operations, this would add service along the Louisiana Division.

By far the biggest event for the GM&N during 1935 was the placing in service of the new streamlined Diesel passenger trains.  These trains were scheduled to begin operations before June 1 on the run between Jackson, Tennessee, Jackson, Mississippi, and New Orleans.  There was much interest along the road and throughout the territory as to what the new trains would be named.  In a speech on April 1 before the Rotary Club of Jackson, Mississippi, Mr. Tigrett announced that the name of each train would be “The Rebel.”   His address was titled “Our Transportation Plight,” but the latter part of his speech, dealing with the name of the new trains, was an inspirational call to attack the ills which beset the nation’s railroads, rather than to worry about them.  The highlights of this section of his speech are in Figure 12.

 

It is a pleasure to congratulate the Gulf, Mobile and Northern on the arrival in New Orleans of its beautiful Rebel train.  We are sure that many New Orleanians who have admired its graceful streamlines, the cleanliness of its oil engines, and the comforts of its air-conditioning and fixtures, feel that they have looked in on a distinct stage of progress in railroading in this territory.  Several of our other railways have made progress by air-conditioning their trains.  The Gulf, Mobile and Northern gives the city its first ultra-modern passenger flyer of the first class.

After some years of constantly decreasing business and constant dwindling cash reserves, we on the Gulf, Mobile and Northern are attacking.  We are rebuilding the oldest part of our railroad.  I hope it is the wise thing to do.  Men needed the work which is being supplied, and in time we hope to need better tracks.

 And we have taken another step which we expect to be a benefit to us and to all of the passenger patrons whom we serve.  Before June 1st, when we shall have put into service the streamlined air conditioned trains propelled by Diesel engines, our passenger service will have been completely motorized, which by the way will make the Gulf, Mobile and Northern the first railroad in the United States operating as many as one million railroad passenger train miles per year entirely motorized.

It has been a custom for a long time for trains of this character or trains of some special importance to be named, and our selection of a name has been a matter of much interest to us.

The management of the Gulf, Mobile and Northern Railroad has, for many years been occasionally referred to as radical or rebel-minded.  We were, I think, the first railroad in the country to advertise freight service in magazines and newspapers.  We were, I am quite sure, the first railroad in the country to reduce passenger train fares, and there have been other steps of ours which were a departure from the conventional course.  I have rather grown to like being designated as a rebel.  The word implies action.

It is the rebels of the world who have made history, industrial history, political history, patriotic history. I hope, we who are in command, can use this instrument, the Gulf, Mobile and Northern Railroad, relatively small though it may be, toward making the history of this section one of usefulness and progress, and I hope that our new train, The Rebel, will accelerate and make more comfortable the passenger travel on our railroad.

 

Excerpts from speech by Mr. Tigrett delivered on April 1, 1935, in Jackson, Mississippi

Figure 12

 

Although the new trains were somewhat late in arriving on the GM&N lines, no one seemed to mind.  Both units made triumphal tours of various points in their trips from Berwick, Pennsylvania, to the lines of the GM&N.  According to official count by the road, 208,148 people inspected the new trains during these tours.  It is no exaggeration to say that this was the biggest publicity opportunity the little GM&N had ever had, and she made the most of it.  One of the milder editorial comments on the train is quoted below.  It is from the New Orleans Tribune of June 28, 1935:

Another feature of The Rebel and its service was the fact that hostesses were employed to serve on these trains.  This also was a “first” for rail service.  The airlines of the country had for some time used hostesses to make their travelers more comfortable, but the girls who rode on The Rebel were pioneers in this rail venture.  In addition to their services, the mere presence of these hostesses on its trains caused newspapers along the line to devote much space to the girls and to the GM&N, all of which brought welcome publicity to the railroad.

Mr. Tigrett had stated that with the use of the two new Rebels all of the GM&N’s passenger service would be motorized.  The new units replaced the night trains which had been running between New Orleans and Jackson, Tennessee.  The railplane was also serving on the Louisiana Division line from Jackson, Mississippi, to Tylertown.  The Mobile-to-Jackson, Tennessee, service had been motorized when the gas electric coaches were switched over from the former New Orleans Great Northern territory.  These units had been purchased in 1930 and had proved successful for intermediate service.  The GM&N had found by experience that its relatively light passenger traffic could be given better schedules with this new type of equipment.  It also teamed that the service was more than paying its total out-of-pocket cost, which the old steam trains certainly had not done.

Another significant event for the GM&N took place in 1935.  This was not an improvement in service, as the inauguration of the Rebels bad been.  It was the abandonment of the Blodgett branch from McLain junction to Piave, Mississippi, a distance of about 25 miles. The line was dismantled with the approval of the Interstate Commerce Commission because all the timber in the area had been cut and there was no hope for future traffic which could justify operation of a rail line.  This was the same branch which had been completed in the early 1920’s to tap a major source of timber.  This record of construction and later abandonment is a clear example of the type of problem which the GM&N faced throughout its life.  The entire main line of the road had to find new sources of traffic or face the same dismantling process.  Fortunately for the GM&N and its tributary territory, new sources of traffic had been found in time to prevent the collapse of the road.

One of the most spectacular new sources of tonnage during these depression years was a new type of forest product for the South.  Pulpwood had long been important in the northern forest areas, but prior to 1930 there had been little use for the more resinous pines of the southern region.  By 1935, however, two major uses of pulpwood had been developed in GM&N territory which had created a profitable new industry in the cut-over areas of Mississippi and other pine-growing states.

Kraft paper, used for packaging or for the making of paper boxes, had long been a by-product of some of the major lumber mills in the area.  In 1918, for example, the Bogalusa Paper Company was founded by the Great Southern Lumber Company to use the waste from its lumber operation.  Later it was found that paper pulp could be made profitably from small pine logs.  As the lumber supply decreased, the paper mills began to buy pulpwood to fill the demand for its paper products.  Because paper packaging materials were progressively improved and stayed relatively cheap during the depression, more and more paper was substituted for other forms of packaging.  Thus the kraft paper industry and its allied packaging industry were able to maintain a relatively good market throughout the depression years.

The other pulpwood user during the depression was the fiberboard industry.  Mr. William Mason was largely responsible for the rise of this development, and the important lumbering town of Laurel, Mississippi, was the scene of his early efforts.  Mr. Mason also was trying to utilize the waste products from sawmill operations.  His efforts, however, were directed toward uses other than papermaking when he exploded wood chips into a mass of cellulose fibers.  His experiments showed that these fibers could be pressed into panels while still wet, and that these panels had exceptional strength and durability upon drying.  From this beginning, the famed Masonite hardboard and fiberboard have become household words and almost household necessities.  The plant erected at Laurel to use the wastes of the lumber mills quickly outstripped its supply, and the company had to turn to the small scrub pines found growing all over the cut-over timber lands of the region.  By 1935 this was a major source of cash for the farmers and other land owners, as well as being a profitable source of traffic for the railroads of the area.  Thus, the forest lands, which had caused the building of much of the GM&N in 1900-10, were instrumental in its recovery from the depression that gripped the whole country in the years after 1930.

1936

The GM&N finished operations for the year 1935 with a net income of  $405,000, which compared quite favorably with a loss of $171,000 in 1934.  This was good news to everyone connected with the line, but the Company was not yet able to begin to pay dividends on its preferred stock.  Neither was it able to pay back all the money it had borrowed from the Public Works Administration to rebuild much of its Louisiana Division and other sections of the road.  For these reasons, the Company management still was not willing to restore all of the pay cuts which had been made in employees’ wages during 1931-32.  As a result of this decision, a few of the employees began open criticism of the Company.  Mr. Tigrett felt that it was necessary to answer the attacks by certain labor spokesmen.  He did so in the News of January 22, 1936, in a front-page announcement which said in part:

After an association of more than fifteen years you have become quite intimately acquainted with the management of this Company, and you know whether or not the officials are interested in the welfare of the employees.

This interest has been not only an obligation but a privilege.  I think it should be said to you, however, that the management also has other obligations.  It has obligations to its patrons in those communities which look to it for continued and improved transportation service.  It has obligations to those men and women all over the United States who have invested their savings in the property of this railroad.

To the best of our ability we will meet all of these obligations.

It is disappointing that certain of your representatives choose to disregard the information which has been furnished.  However the responsibility is on them and not on us.

For a long time there has existed a satisfactory sort of partnership between our management and employees.  Both have been willing to recognize the needs and demands of each other and have worked out their agreements upon this kind of basis . . .

In the same issue of the News the Company announced that it was preparing to discontinue its payments to the employee group insurance plan.  This program had been set up on a cooperative basis many years before with both the Company and employees sharing in the cost.  Each year the Company had increased its contribution under this plan, until by 1936 the Company was paying a large share of the total cost for both employees and Company.  The explanation given for this action was as follows: “The management does not feel that the company should continue to make so large a contribution especially since executives of the labor organizations have indicated a lack of appreciation for this expenditure by us.” The Company, however, did propose to assist in developing a new plan for those employees who desired such group insurance.  By the latter part of February a new policy with another company had been secured, and 75 per cent of all eligible employees had signed up under this plan.

One of the main reasons that the GM&N had a successful year in 1935 was the fine performance of the Rebels, along with the speedy public acceptance of these new trains. Statistics released in January, 1936, showed that up to December 31 the Rebels had operated at a direct cost of 31.8 cents per train mile.  When the cost of 12.6 cents per train mile was added for depreciation and interest, the total out-of-pocket cost was 44.4 cents per train mile.  Revenues had been 59 cents per train mile.  This left a substantial figure of 14.6 cents per train mile to apply against the former passenger train deficit.  This trial period definitely proved the superiority of the Rebels for GM&N passenger service, and it caused the operating managers to think of the possibilities of Diesel operations in freight service.

Among the things which have always been sources of strength for the GM&N in its dealings with its employees has been top management’s policy of acknowledging employee accomplishments.  The employees individually and collectively knew that they would get recognition for a job well done.  A good example of this management attitude is found in the News of March 22, 1936.  It is reproduced in Figure 13.

 

STATEMENT OF COMMENDATION

GM&N News, March 22, 1936

Since my connection with this railroad I have frequently expressed publicly my pride in the high character and ability of my fellow employees, and this applies to all departments.

The other night some criminal attempted to wreck one of our passenger trains on a trestle.  Quick thinking and quick acting on the part of Engineer Jack Hildon was responsible for getting the train over the trestle before it turned over, thereby preventing what would most likely have been a serious disaster.

The finest asset which the Gulf, Mobile and Northern has is its employees, both men and women, who put so much interest and efficiency in their work.  Whether they are track men or office workers, whether they are trainmen or traffic solicitors, the same spirit prevails.

I take this occasion to send to them my renewed expression of appreciation.

I. B. Tigrett, President

FIGURE 13

  The Company’s earnings stayed up well during the first part of 1936.  Because of this, during the contract renewal discussions which were held in the latter part of the year, an employee and officer wage and salary cuts were restored.  As a result of this action, the GM&N was again on a par with other railroads of the country in its wage levels.

The GM&N had long been aware of the losses it was taking in competition with truck service.  In a few cases it had begun operating trucks itself as far back as 1930.  Finally, in the spring of 1936, the road decided to go into more bus and truck service in conjunction with its rail service.  To do this more efficiently, the Company decided to create a subsidiary corporation to own and operate its highway equipment. As a result, Gulf Transport Company, a wholly owned subsidiary of the GM&N was chartered in April, 1936.  The railroad Company turned over all its equipment and franchises for highway service to the new company and also subscribed $10,000 in capital stock.  In addition to this, the GM&N has always acted as banker whenever Gulf Transport has needed new capital for increasing its operations.

The GM&N did not intend to compete with itself, but to supplement rail service with highway movement where the latter was more economical.  Trucks were to be used for pick-up and delivery on L.C.L. business and on other business where it was too costly for the trains to stop.  The idea was to render better over-all transportation service to the territory and at the same time to serve some small communities not on the rail lines.

Gulf Transport has continued since 1936 to render this type of service and has grown into a very important arm of the bigger rail Company.  This highway service has never been a great moneymaker, but it has been self-supporting in the main and has protected rail service in many instances.  It was largely because the GM&N thus showed its willingness to serve its entire territory that no community on the GM&N opposed the M&O merger case before the Interstate Commerce Commission in 1939.  Some towns suspected that they might lose some of their rail service, but they felt confident that the GM&N would not ignore their basic need for some type of transportation service.

During the first months of 1936 the GM&N seemed to be progressing satisfactorily in its efforts to grow out of its depression-bred troubles.  In one instance, however, a decided shock was in store for the road.  On April 16, President L. A. Downs of the IC notified the GM&N that its trackage contract to Paducah from Jackson, Tennessee, would be terminated after April 30 unless IC employees were put on these trains as crewmen.  At the same time, the IC advised the GM&N that it was filing notice of ouster proceedings at the close of business on April 29.

The contract in question had been negotiated in 1932 to take effect in 1933.  The IC bad agreed to allow the GM&N to use its own crews and trains over the IC tracks.  This was the same type of provision as had been in the Nashville, Chattanooga and St. Louis contract.  The IC signed this contract in spite of the fact that such a contract apparently was prohibited by the road’s labor agreements.  The IC labor arrangements provided specifically that if the IC made such trackage agreements IC employees should run the trains of other lines using the IC tracks.  Both the IC and the Interstate Commerce Commission accepted the contract with the GM&N, however; thus, the GM&N began operations with its own personnel on July 7, 1933, in spite of the opposition of IC labor groups.  These labor organizations held an investigation and submitted a report on June 27, 1934, in which they claimed the right to operate the GM&N’s trains over the 113 miles of IC line.

In March, 1935, the IC labor organizations submitted the matter to the National Mediation Board.  Before the Board could act, however, the unions withdrew their complaint and threatened to strike the entire IC system if their demands were not complied with.  After this threat by its employees, the IC turned to the GM&N and advised that the contract would have to be revised or canceled.

The management of the IC obviously knew of its commitments to its own labor groups at the time the contract was signed.  Because of this fact, the GM&N expected the IC to arrange its own affairs so that the contract could be complied with.  In an effort to enforce its contract, the GM&N filed a bill for specific performance in the United States District Court at Memphis, Tennessee, on April 24, 1936.  As a result, the question was before the courts in two suits.  Pending settlement, the GM&N continued its operation as usual.

The management of the GM&N, however, was not waiting for the court’s decision before it started to develop alternative plans for future operations in case the IC lines were denied to the GM&N.  At a Board meeting in June, President Tigrett presented a proposed plan of merger between the M&O and the GM&N.  This merger was management’s preferred solution in case the IC trackage agreement was broken by the courts.  In September, 1936, the Board of the GM&N agreed to buy the bonds and notes of the M&O if they could be obtained at a substantial discount.  Negotiations were begun, but no definite action was taken at this time.

In spite of the conflict over the Paducah trackage agreement, the GM&N found that 1936 was a good year.  Business continued to increase, and the Company decided it needed much new equipment.  On December 11, 1936, the Interstate Commerce Commission authorized the GM&N to buy 400 new freight cars, 1 new Diesel electric power unit, similar to The Rebel, and 2 new standard steel passenger coaches.  At the same time, the Commission authorized the Company to issue $1,440,000 in equipment trust certificates to refund some outstanding issues and to help pay for the new equipment. An indication of the financial strength of the Company was the fact that arrangements had been made to sell these 2.25 per cent certificates at 100.17. This meant that the actual annual cost of this new money was about 2.214 per cent.

 

1937

In the early days of 1937 the GM&N did some more financing at a favorable price.  The Company sold $800,000 3 per cent serial notes at par plus accrued interest.  These funds were to be used to repay some 4 per cent notes issued in 1935 for the purpose of paying off the remaining PWA notes. By this transaction, the GM&N not only reduced its interest charges but also freed about $1,400,000 in GM&N and New Orleans Great Northern bonds which had been tied up for collateral purposes.

Most of the new equipment which was ordered in 1936 was put into service during the early part of 1937.  In June the Traffic Department announced that the “day trains” which ran between Jackson, Tennessee, and Mobile had been air-conditioned for the passengers’ comfort.  Also in August, the Traffic Department announced that a new Rebel would begin operations on a shuttle basis between Mobile and Union, Mississippi, as soon as the equipment became available.  The plan was to make contact at Union with the older Rebel, thus giving Mobile sleeper service and connections to the North, with the same type of equipment as that found on the New Orleans-Jackson, Mississippi, Jackson, Tennessee, run.  This equipment was finally placed in service in January, 1938, and was immediately nicknamed “The Mobile Rebel.”

During the latter part of 1936 and the early months of 1937, Gulf Transport Company made a determined drive to secure franchises in territory served by the GM&N.  Both Alabama and Tennessee were rather prompt in granting rights to operate trucks along the rail lines of the road.  Mississippi, however, was somewhat slower about its action.  Since the vast majority of the mileage was to be in Mississippi, this delay held up completion of the plan.  The road began a campaign to secure public support in an effort to get favorable action for its policy of rail-highway coordination.  Mr. Tigrett and others made numerous public appearances to discuss the matter with the people of the state— The road stressed the fact that it wanted to supplement its rail service and did not want to go into the trucking business for itself alone.

One of the reasons the Mississippi Railroad Commission was slow in granting authority to Gulf Transport was that the IC opposed the project.  The IC based its opposition on a supposition that the GM&N intended to “raid” IC territory in an “all-out” battle of freight solicitation.  It was felt that the GM&N would send its trucks across country to IC terminals to pick up competitive freight.  The GM&N officially stated, however, that it was only asking for permission to operate alongside its own rails or in towns not served by any railroad.

The Mississippi Railroad Commission finally did decide to accede to Gulf Transport’s request in June, 1937. The application was granted in its entirety, but it was recognized that service could not be started in many localities until the state’s highway construction program should permit safe and dependable operation.

Rail operations of the GM&N continued to get heavier and to improve in efficiency during 1937.  The average car miles per day rose to 46.1, and the gross tons per train also continued upward.  Coal saving was pushed, as was the safety program.  As a result of the latter, the GM&N won its sixth annual safety plaque in 11 years for its 1937 record.

On November 10 the GM&N heard its first court decision on the Paducah trackage case.  It was adverse to the GM&N in that the GM&N could not demand its own crews.  The IC was ordered to live up to its contract in every other particular.  Since there was one more case to be heard, this was not the final decision; however, it pointed toward a reversal of the GM&N’s hopes in the matter.  Because of this, more effort was put on studies of alternative operations from Jackson, Tennessee, northward.

Two momentous events took place at the meeting of the Board of Directors held on November 30, 1937.  First, a 2½ per cent dividend on the preferred stock was voted.  This was the first dividend since 1930 and was hailed by everyone as definite proof of the road’s over-all recovery.  Investors had learned that the GM&N would not pay dividends unless “its house was in order” first.  The other event was the election of two Mobilians to the Board.  Mr. F. McRae and Mr. H. A. Pharr were the men chosen.  For years, Mr. Tigrett had been pressing to get more representation of the GM&N’s home areas on the Board, and this was a big step in that direction.

The year 1937 proved not to be nearly so profitable for the GM&N as 1936 had been.  The road bad gone forward, however, in its plans for growth, and if there had not been a general downward turn in business in the latter part of 1937, it would have been considered a very prosperous year.

 

1938

The decline in business activity, particularly the slump in building, which continued through 1938, had a continuing effect on the revenues of the GM&N.  The GM&N was not alone in being affected by this decline.  In the spring of 1938 the managers of the Southern finally agreed to serious discussion of the sale of the M&O’s first mortgage bonds.  Perhaps the “recession” of 1937-38 was a blessing in disguise to the GM&N, because the Southern, still hard pressed for cash, eventually agreed to the sale.

Not all of the members of the Board of the GM&N were willing to rush into a merger plan with the M&O.  Ralph Budd, president of the Chicago, Burlington and Quincy, stated that he could not agree immediately to this tentative proposal.  He felt that it was in the best interest of the Burlington for the GM&N to continue its operation to Paducah rather than to have its own tracks to St. Louis.  If this merger went through, the Burlington would lose the business of the GM&N which it was now getting from Paducah.  It was true that the GM&N and the Burlington could connect at East St. Louis, but this new situation would not be nearly so valuable to the Burlington.  If the GM&N could reach the St. Louis gateway, it would not need its preferential agreement with the Burlington, for many rail connections would be available north, east, or west from this second most important rail hub of the United States.

In spite of Mr. Budd’s uneasiness, the Board of the GM&N, on Mr. Coverdale’s motion, voted to continue its discussion and study of the proposed consolidation.  President Tigrett and Vice-President R. F. Brown were designated as GM&N’s committee to negotiate with the Southern.

At the same time, Mr. Coverdale’s firm of Coverdale and Colpitts was asked to make its own investigation of the proposal and to report on its findings in connection with the merger.  The GM&N’s own employees had made numerous studies of all phases of the problem, and they were satisfied as to the general accuracy of their position.  In a transaction as important as this one, however, it was felt that it would be well to have several authoritative supporters for the proposal.  Ever since Mr. Coverdale had made his first analysis for the New Orleans, Mobile and Chicago reorganization committee in 1913, he had been regarded by the GM&N as its final authority on railroad performance; therefore, it was quite natural to turn to his firm at this critical time.

On June 30, 1938, the final decree was rendered in the legal skirmish between the IC and the GM&N over the  Paducah  trackage agreement.  The GM&N was ordered to agree to use IC crewmen or to cease using IC tracks within 20 days.  This meant that some decision for continued operations must be reached before July 20.

The GM&N’s Board of Directors voted on July 6 to buy the M&O bonds held by the Southern for $7,295,000 if certain conditions could be met.  One condition was that the receiver of the M&O agree to an immediate traffic arrangement and division of rates so that the M&O could handle all of the GM&N’s business north of Jackson, Tennessee.  The other obvious condition was that the merger be agreed upon by the M&O, the Southern, and the Interstate Commerce Commission.  The arrangement was for the Southern to give the GM&N an option which would permit the purchase of these bonds as soon as the Commission gave its approval to the GM&N/M&O merger.  All the GM&N Board members voted for this proposal except Mr. Budd, who continued his opposition to the entire plan.

The next few days after this Board meeting of July 6 were hectic ones for the management of the GM&N.  The deadline of July 20 was very close, and the GM&N had decided that it would not, under any foreseeable conditions, continue use of IC tracks to Paducah with IC crews manning GM&N trains.

On July 14 Mr. Tigrett made a full report to the Board on the status of the proposed traffic arrangement with the M&O.  A proposal which was considered satisfactory to the GM&N operating management had been agreed to by the M&O receiver, by the management of the Southern, and by the Mobile and Ohio Refunding Bond-holders Protective Committee.

The final report from Coverdale and Colpitts was also presented that day, and it completely supported the findings of the GM&N’s own studies.  The report stated that approximately $700,000 in expenses of the two current company operations could be saved by the merger.  At the same time, revenues would be increased substantially.  With this added support, the Directors of the GM&N agreed to execute the traffic agreement with the M&O and to cease using the IC tracks to Paducah.  Again Mr. Budd opposed this move, but all the other Directors voted in agreement with the plan.

After this decision on the part of the Board of Directors, the management still had to execute the new agreement and had to obtain approval from the Interstate Commerce Commission for this course.  On July 18 the Commission issued a Service Order, which it uses only in emergency cases, authorizing the GM&N to cease operations over the IC to Paducah and to begin diverting its controllable traffic to the M&O at Jackson, Tennessee. - The M&O had agreed to put into effect the same rates which the GM&N had formerly offered through Paducah. In keeping with these arrangements, on July 19 the GM&N ceased its freight operations north of Jackson, and, in effect, permanently closed its Paducah gateway.

The agreement worked out very successfully for the GM&N.  Its earnings were not adversely affected, because it was able to divert much of its business to the M&O.  The greatest losses in the transaction were suffered by the IC and the Burlington.  The IC lost its rental receipts, as well as some freight tonnage, and the Burlington lost much of the tonnage it had been hauling from a point parallel to St. Louis down to Paducah.  It is to the credit of Mr. Budd and the Burlington management that, although they opposed this shift in the Board meetings, they took no other action to prevent the GM&N from following this course.  At this time the Burlington held not quite 30 per cent of all GM&N stock, and about 15 per cent more would have given them undisputed control of GM&N operations.  Any aggressive action by the Burlington would have stopped the merger plan, even though the Interstate Commerce Commission might have refused to let the Burlington completely control GM&N operations.  Fortunately for the GM&N, the Burlington did not take this step.  Soon after the major decision was made to try to complete the merger, Mr. Budd worked with the other Directors in their efforts to get the GM&N the best deal possible from the Southern and the other holders of M&O securities.

With these fateful decisions and actions the men in control of the affairs of the GM&N closed an era.  Either the merger program would go through and the GM&N would become a major part of a strong coordinated transportation system, or it would rapidly revert to its precarious days prior to 1926.  For this reason, all of the energies of the GM&N’s leaders were to be directed primarily toward the successful conclusion of the merger plan.  During the next two years, nothing was allowed to come before the tasks connected with the consolidation effort.  Many of the ordinary affairs of the road were allowed to coast along so that the maximum effort could be made toward overcoming all the hurdles that were discovered in the path of the merger program.

 

 

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