Article: The Sad Romance of the Detroit, Toledo & Ironton

By F. J. Lisman, F. J. Lisman & Company, New York

Reprinted from Railway Age, July, 1920

A brief History of the Road and an Analysis of the Steps the Fords Will Have to Take to Rehabilitate It

In these busy days even the acquisition of a 500-mile railroad by as conspicuous a personality as Henry Ford does not attract as much attention as it would have 10 or 20 years ago; but the event is certainly both an interesting and important one in the railroad field, both on account of the interesting and checkered career of this railroad and the novelty of the property’s present status.

Back in the early [18]70’s, when some genius discovered the fact that narrow gauge railroads could be built cheaper than standard gauge roads, it became the fashion to build railroads as crooked as possible. At about that time the Springfield, Jackson & Pomeroy was conceived to run from Springfield (then one of the most industrial centers of Ohio) southeasterly into the coal fields. There was considerable timber in those days in the southern part of Ohio; and as the constructors of the road were subsidy hunters, they hearkened to the voice of a lumberman who had some good hard wood timber on top of a ridge in the southern part of Ross County and who offered to supply a large number of ties to the road providing the line was built over his particular hill.

This was done; and while the ties for possibly 15 miles were originally supplied gratis, the road has more than paid for these ties in the way of additional fuel and wages during each and every year of its existence. The Springfield, Jackson & Pomeroy never got beyond the Jackson coal fields and promptly went into receivership before it was fully completed.

The Ohio Southern

It was subsequently made standard gauge and then became part of the Corbin system; that is, it was operated in connection with what is now known as the Peoria & Eastern and which was then known as the Indianapolis, Bloomington & Western, extending from Columbus, Ohio to Peoria, Illinois. This system also went into receivership and the road from Springfield to Jackson then became the Ohio Southern Railroad, which, in the later [18]80’s, authorized an issue of $15,000 per mile of first mortgage 6 percent bonds. The road extending from Springfield to Wellston was fairly prosperous, but the fact that it had then open mortgage, authorized at $15,000 per mile, attracted Henry S. Ives, generally known as "Napoleon Ives, a railroad buccaneer," who, in the early [18]90’s acquired control of the property and proceeded to extend the road wherever he could build cheaply and as long as he could sell bonds and make a profit out of issuing them at $15,000 per mile.

Around Jeffersonville, in Fayette County, the country is absolutely level and he proceeded to build branches from this town northeasterly towards Columbus and southwesterly towards Cincinnati, building as far as the country was level. He gave the euphonious title of "Columbus & Cincinnati Division" to these two branches, aggregating 42 miles. He also extended the road from Springfield to Lima, expecting to exchange a substantial coal traffic at that point with the Erie and Nickel Plate Railroads. However, the panic of 1893 brought about the downfall of this scheme and a long and picturesque receivership followed. The receivership was in the Ohio state court and the receivers were local politicians. The management of the property was a stench in the nostrils of the public. For instance, an investigation developed the fact that while the coal shippers as a rule could not get adequate equipment to move their coal, a friend of one of the receivers, who claimed that his mine was producing coal of an inferior quality and therefore had to have specially low freight rate, in order to enable him to operate at call, got all the cars he needed, while those who were paying higher rates had to do largely without them.

Finally the first mortgage bondholders’ committee foreclosed on the property and instead of organizing a new company as is customary, they proceeded to operate the road as a committee.

The Detroit & Lima Northern

In the meanwhile – this is, about 1896, some Ohio politicians, friends of the receivers of the Ohio Southern, headed by Chas. M. Haskell, who many years afterward became governor of Oklahoma, started to build a railroad from Lima northerly into Michigan, called the "Lima Northern", the title of which was subsequently changed with the expanding ambitions of the promoters, to the "Detroit & Lima Northern". They also wanted to build a branch to Columbus and showed the pictures of handsome through trains which were to be operated between Columbus and Detroit.

They sold their first mortgage bonds at any old price to whoever would buy them, but within a few months the contractors claimed that they had not been paid anything on account of construction. The road went into the hands of receivers and, under the Ohio laws, the contractors maintained a first lien on all the property ahead of all the first mortgage bonds. The theory of the Detroit & Lima Northern promoters was that, by reaching Detroit from the south without passing through the Toledo gateway, they could handle business to that city to the best advantage and could get the benefit of the 70 cents per ton higher freight rate on coal, etc. which was the differential prevailing at that time to Detroit as against Toledo.

However the road really did not get to Detroit at all, but to the outskirts of that city (partially over leased lines), it did not reach a single industry in Detroit and, as the Michigan Central exacted a switching charge of $7.00 per car, the road, of course, did no Detroit business and could not have made any money out of it if it had gotten it and, furthermore, its road was not in physical condition to handle any volume of business.

The Detroit Southern

In 1901, the Ohio Southern and Detroit & Lima Northern were taken out of receivers’ hands under a reorganization plan which greatly reduced the interest charges and which converted the old Detroit & Lima Northern bonds into stock, etc. The management of this new company, called the "Detroit Southern Railroad", under the presidency of Samuel Hunt, a well-known railroad man at that time, made a serious attempt to create a good property. Terminals were acquired on the Detroit River, arrangements were made to enter the city of Detroit, the old Ironton Railroad at Ironton was acquired and a short link was built at the south end giving the road connection with the Chesapeake & Ohio and making a through line from Detroit to the Ohio river and the West Virginia coal fields. However, this management could not overcome the handicaps of the property, as it could not raise sufficient additional capital to do all the needful, and another receivership in 1905 was the sequence.

Detroit, Toledo & Ironton

Control of the property was then acquired by H. B. Hollins & Co., and the late Eugene Zimmerman of Cincinnati, Hamilton & Dayton notoriety was made president of the company. The financial reorganization of the company was not a sound one, as the fixed charges had been increased rather than decreased and practically no new money had been provided for necessary improvements; in fact, immediately afterwards the company increased its fixed charges still further in order to acquire control of the Ann Arbor Railroad by the creation of a three-year note issue. When these notes came due, they could not be paid and another five-year receivership was the result.

Finally, in 1914, another foreclosure took place and the old first mortgage bondholders were asked to pay an assessment of $350 per bond, for which they received income bonds at 60 per cent of their par value and they received in exchange for their old first mortgage bonds about $500 in preferred stock and $500 in common stock. Any holder of the $8,500,000 first mortgage bonds not paying this assessment was wiped out and the holders of the $4,250,000 of the consolidated bonds were entirely wiped out.

During the last five years, the property has had earnest attention. The management has strengthened its hold on the Detroit situation but the times were very adverse to any substantial development of any railroad. In the meanwhile, the income bonds, for which the old first mortgage bondholders had paid 60 percent in the hope of thereby making their original investment good, had sole down as low as 7, or about one-ninth of their cost.

The Climax

Now along comes Henry Ford, who buys the property for just about the amount which the first mortgage bondholders paid in assessment in 1914; that is, he had paid exactly 60 for the income bonds, on which the bondholders have had no interest for six years, and he paid $5.00 for the preferred stock and $1.00 per share for the common stock, which works out an average of about $30.00, or 3 per cent for the original first mortgage bonds.

What is Mr. Ford going to do with this property? Geographically, it is ideally located as a through line from Detroit to the south. It crosses every trunk line from Chicago and St. Louis to the east; it connects at the mouth of the Big Sandy river, and through the Big Sandy division of the Chesapeake & Ohio with the Carolina, Clinchfield & Ohio, thus making a straight route from Detroit to the southeast.

The southern end of the line runs through coal territory and connects with the West Virginia and eastern Kentucky coal fields. The line crosses the Baltimore & Ohio at Napoleon, Ohio, and also connects at Lima with the Erie, Nickel Plate and the Pennsylvania Railroad’s main line. Mr. Ford, no doubt, expects to get better facilities for transporting to his plant the products of the Pittsburgh district than at present via the congested gateway at Toledo.

He undoubtedly controls enough business to keep the road busy hauling coal and other supplies northbound and hauling the products of this factory as southbound tonnage. However, pretty as it looks there are several flied in the ointment.

$8,000,000 Must Be Spent

Before this railroad can handle this tonnage, large sums must be spent. The present line through the City of Adrian, Mich., located about 63 miles southwest of Detroit, must be either re-built or more likely abandoned. The line around that city is crooked and hilly and cannot handle any substantial tonnage. It was built by the above-mentioned promoters as cheaply as possible and in its construction whenever an expensive barn was in the way, a heavy curse was used in preference.

There is an old right of way of an abandoned railroad which was purchased by the Lake Shore, extending from Dundee, Mich., southwesterly through Lenawee County, and can probably be purchased cheaply, which, together with what is known as the Fayette Branch of the Lake Shore, could be advantageously substituted for the present roundabout Adrian line. Some of the bridges will have to be strengthened but, above all, the hill in southern Ohio, referred to in the beginning of this article, will have to be eliminated. This is a ten-mile uncompensated 90 foot grade, with 12 degree curves.

In order to avoid it, it will be necessary to build another railroad probably 30 miles long, either a considerable distance to the north or to the south of the present line. Possibly arrangements might be made to use the double track Norfolk & Western line from Waverly in the Scioto Valley to Chillicothe and thence that part of the Cincinnati, Hamilton & Dayton (now part of the Baltimore & Ohio) which is not a particularly busy track between Chillicothe and Washington Court House. This would mean a trackage over other lines of approximately 50 miles.

The necessary shop facilities for the railroad would have to be substantially created anew and a large amount of ballasting and heavier rails is necessary to spend on the road, including the elimination of the Bainbridge Hill and the Adrian situation, not less than $8,000,000. To this must be added the cost of shops, equipment, additional sidings, water tanks, etc. When all this is done and with good management, Mr. Ford and the citizens of Detroit will have a railroad which will offer great facilities for their business and should, with good management, produce a fair rate of interest on its entire cost.

Fords Paid $5,000,000

The present physical value of the property is probably somewhere between $16,000,000 and $20,000,000. Mr. Ford has paid $5,000,000 for this, subject to $1,800,000 of first mortgage and car trust bonds.

Mr. Ford is reported to have always been a keen critic of railway management. It will be very interesting to know whom he is going to select to work out this proposition and how he will take the innumerable problems and annoyances which, during the next few years, will come up in connection with what the railroad men will, no doubt, call Mr. Ford’s "new tin lizzy".

Mr. Ford, it is stated, is going to equip the road with new Ford passenger motor cars. The Detroit, Toledo & Ironton has been particularly weak on passenger business because it runs across at right angles to the direction of passenger traffic, which, of course, goes to the big cities; that is, in the southern part of Ohio to Cincinnati and Columbus and in northern Ohio to Toledo. From Detroit southwesterly, the road competes with the Wabash, which gives much more frequent train service. The only city to which it would naturally have a large passenger business is Springfield and there it competes with a parallel trolley line.

Other Problems

The road has other problems of its own; such as, bad water (on a large part of the line) which requires treatment for locomotive use. It always lacked proper police protection in the city of Springfield, where it used to be the habit of a considerable proportion of the population to jump on the coal cars and help themselves to as much coal as they thought they needed. The Jackson coal field also has some particular troubles of its own. In fact from the railroad point of view, it is the most unsatisfactory coal field in the country. The Jackson coal field produces a very high grade of coal, suitable for domestic purposes only, which brings a particularly high price This coal has a market during the fall and winter months, in northern Ohio, Indiana and Michigan and very little of it moves at other times of the year.

This field is composted of a number of small mines and three railroads compete for the business. Consequently the cost of marshaling a train out of this district is expensive and, if a trainload is assembled, it is hauled north over the hills until the road reaches the level country near Lima, and then the cars are delivered in scattered lots to all the connecting lines. This coal commences to move heavily in September just as the demand for cars usually grows and the cars become scattered all over the country and do not return to the originating railroad until spring, when the season’s business if over.

In the meanwhile the coal operators shout for cars and about every other year they appeal to the Ohio Public Serv8ice Commission and ask that the Detroit, Toledo & Ironton show cause why its charter should not be repealed because it is not furnishing the shippers with an adequate and reasonable amount of equipment.

Taking it all in all, if Mr. Ford, himself, wants to learn something about railroads, or if he wants his son to learn the business, he could not possibly have done better than to buy the Detroit, Toledo & Ironton Railroad.

Part of the official announcement in connection with the property by Mr. Ford reads:

"For the immediate future of a program of large purchases of heavy rails, ballasting, construction of cut-offs and elimination of grades has been adopted and will be put into effect at once, and the capital thus provided by the automobile industry for the development of this Detroit road will enormously relieve the serious rail congestion which has existed in Detroit for some years past.

"It is also stated that all the employees of the Detroit, Toledo & Ironton will share in the Ford bonus distributions".