Greyhound Corporation

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Greyhound Corporation

Greyhound Tower
Phoenix, Arizona 85077
U.S.A.
(602) 248–4000

Public Company
Incorporated: September 20, 1926
Employees: 36,050
Sales: $2.647 billion
Market Value: $1.401 billion
Stock Index: New York

Greyhound Lines has been the leader in the motorcoach industry since 1930. Through the decades, however, the veteran bus company has had to face a series of formidable competitors: trains, the automobile and inexpensive air travel. In the 1960’s Greyhound realized that it was going to have to alter its strategy and diversify into non-motorcoach related areas as airfares decreased and car ownership increased. Greyhound is presently committed to expansion into consumer products and its specialty, the service industry.

The bus company that became Greyhound was founded in 1913 by Carl Wickman. Wickman was an emigrant who settled in Hibbing, Minnesota because the weather there reminded him of his native Sweden. Wickman’s first ambition was to be a car salesman, but when he couldn’t sell a single seven-passenger “Hupmobile” he founded America’s first bus company.

The company started by transporting miners from Hibbing to Alice, Minnesota, where the Mesaba Iron Range was located. The round-trip fare was 25 cents. The secret to Wickman’s early success was maximizing rider-ship, which took the form of stuffing 18 miners into a seven passenger Hupmobile. Wickman’s revenues began to increase and he took on partners who helped him invest in larger vehicles. Since there were no buses in 1914, Wickman had large touring cars, mostly Studebakers and Packards, sawed in half and elongated. In 1916 the company, then known as “Hibbing Transportation,” had its own bus station which was located in a firehouse.

Carl Eric Wickman and his partners were not the only motor coach entrepreneurs in Hibbing. By 1915 a motorcycle racer named Ralph Bogan began transporting miners from Hibbings to Alice for 50 cents. Hibbing Transport responded by reducing its fares to 40 cents. Thus began the first known price war among bus companies. Wickman eventually offered Bogan a share in Hibbing Transport, establishing a pattern of merging with competitors that would eventually result in the formation of the largest bus company in the world.

By the mid-1920’s Wickman’s company, renamed Mesaba Transportation Company, was worth several million dollars and had numerous partners. In 1925 the man who had started it all left the company and purchased a fledgling firm known as the White Bus Line. This company merged with others to form the Motor Transit Corporation, nicknamed “Greyhound.”

Greyhound came along at a time when the idea of the “vacation” became firmly entrenched in the American psyche. The motorcoach, whose operating costs were a small fraction compared to trains, soon became the transportation of choice for vacationers, salesmen and even jazz bands.

Despite the popularity of this new form of tranporta-tion, Greyhound nearly failed after the stock market crash of 1929. In 1929 Greyhound’s net income was $1.3 million, but this dropped to $38,000 in 1930. The present title of the company, Greyhound Corporation, was adopted in 1930, but by 1932 Greyhound was $140,000 in debt. It was the 1933 World’s Fair that saved Greyhound by dramatically increasing ridership. Carl Jackson, a historian who has studied Greyhound, claims that ridership also increased after a 1935 movie entitled, “It Happened One Night,” was released. In this movie the then famous movie star Claudette Colbert takes a cross-country bus trip.

During the following years Greyhound revenues climbed to four, five and then six million dollars before the end of the decade. In 1939 management of Greyhound anticipated the coming war, and began to stockpile parts. Greyhound suspected both that its buses would have a part in the U.S. war effort and that its supplier, General Motors, would be busy manufacturing jeeps. Both intuitions were correct.

One of Greyhound’s principal duties during the war was to transport workers to shipyards and munitions factories. Military personnel were often transported via Greyhound to their bases. Wartime responsibilities and gas shortages made it difficult for Greyhound to serve all its civilian customers, and the company actually used advertisements to discourage ridership. “Serve American Now So You Can See America Later” and “Don’t Travel Unless Your Trip Is Essential” were two Greyhound advertisements during World War II.

A 35 m.p.h. speed limit, imposed to save rubber, and a continual shortage of parts annoyed Greyhound management throughout the war. America’s most well-known motorcoach company found consolation in its balance sheets however, as profits climbed to $10 million by the mid-1940’s. At that time, Greyhound served over six thousand towns and carried one-fourth of all U.S. bus passengers—more than any other company. Its bus routes stretched like a net across the continental U.S. and Canada.

In 1946 Carl Wickman retired as president of Greyhound and returned to Sweden. There he was knighted by King Gustav V “for serving the unserved.” Upon Wickman’s retirement, Orville Caesar became president of Greyhound. Orville Caesar lobbied intensely for wider highways to accommodate his buses and fought to change the laws restricting the length of a bus to 35 feet. His new “Scenicruisers” were 40 feet long and illegal in certain states.

The growth of Greyhound slowed to 2% a year in the late 1940’s. Postwar prosperity brought with it thousands of new passenger cars, and the increase in cars meant fewer bus patrons. In addition, severe labor problems did not help the company. A series of walkouts in 1950 was prompted by a well-publicized incident in which 19 drivers suspected of skimming fares were lured to a hotel and held there against their will for 36 hours. Labor difficulties were nothing new for Greyhound. During World War II the Navy commandeered shipyard buses when the Greyhound drivers decided to strike.

In 1956 President Arthur Genet decided to move Greyhound into the car rental business. There were several reasons for this move. One reason was that the car rental offices could operate out of Greyhound’s urban terminals. The rental business would allow Greyhound to capitalize on something that had been a problem, namely, the popularity of the automobile. There was an unforeseen problem with the car rental strategy, however, and this was that the typical Greyhound bus passenger, to whom the rental business was geared, was not likely to rent a car. Within two years the car rental division was depressing revenues and had to be abandoned.

Not all of Greyhound’s early attempts at diversification were as unsuccessful as the car rental business. Beginning in the 1940’s Greyhound established a chain of restaurants, called “Post Houses,” in its larger terminals. These were successful, as was the package express business, whose implementation cost almost nothing at all.

Until the mid-1960’s, Greyhound was primarily a bus company, and company management did everything it could to prevent passengers from defecting to trains or planes. A large proportion of Greyhound’s passengers were black, and by the early 1960’s Greyhound’s marketing strategy was oriented toward blacks. Greyhound was the transportation of choice for the freedom riders, in fact Greyhound buses were even attacked by the Ku Klux Klan. Seregationist laws requiring blacks to ride in the back of the bus were contended by Greyhound.

The company was motivated by economic considerations to promote black ridership, but it must also be noted that Greyhound was one of the first companies to implement something resembling an affirmative action program. Long before the civil rights movement Greyhound could be described as progressive in its hiring policy towards blacks, particularly black bus drivers. In the early 1970’s Greyhound began to hire women drivers and, at the present time, blacks and women are represented on the Greyhound board of directors.

Greyhound began to diversify in earnest during the 1960’s. Previous to 1961, the company’s diversification had been limited to the operation of restaurants in terminals, a van line, a package express service and the manufacture of buses and bus accessories. All of Greyhound’s original expansions were connected to its main business, namely, interurban transportation. Even the unsuccessful car rental business was meant to appeal to bus passengers, who were expected to rent a Greyhound car during their stay in the city. However, after 1962 Greyhound began to diversify into businesses not related to transportation.

In 1962 Greyhound purchased Booth Leasing and soon became the largest industrial leasing company in the world. Among the items offered for leasing were computers, locomotives and jet airplanes. In 1966 a separate computer leasing company was formed. In addition, a money order firm, Traveller’s Express, and an insurance company, General Fire and Casualty, were added to Greyhound’s list of purchases by 1965. Greyhound’s food services were expanded in 1964 with the acquisition of a roadside restaurant chain, Home’s, and Prophet Foods, a large industrial and institutional caterer. In 1967 Greyhound continued to make acquisitions in the service industry. One of these purchases, Aircraft Services International, provided ground handling and janitorial services. Greyhound also began to provide food for the airlines.

The companies purchased by Greyhound during its acquisition program during the 1960’s were all small, and the majority of Greyhound profits still came from the operation of buses. Even after its expansion, food services only accounted for 5% of profits, and financial and leasing activities for 20%.

The diversification of Greyhound into non-bus activity was necessary because the motorcoach industry was steadily shrinking, partly in response to an increase in inexpensive airfares. Even with some lucrative acquisitions, Greyhound lost money because profits from the bus line were down. Bus line profits hit a low point in 1967, when riots after the death of Martin Luther King depressed ridership.

Company management thought that a major acquisition would help Greyhound considerably. As a result, in 1970 Greyhound acquired Armour Foods for $400 million. To reduce its investment Greyhound immediately sold $225 million of Armour assets, leaving only the meat-packing and consumer products operations. Armour’s pharmaceutical division was sold to Revlon in 1977. Despite some problems with the low-margin meat packing business, the two remaining divisions generated a net income of $25 million on an investment that had been reduced to $100 million. Armour’s contribution to Greyhound was superseded, however, by the financial services division with 1978 profits of $25.8 million.

Greyhound’s success with its expansion into financial services and its initial success with Armour continued to be overshadowed by difficulties with bus operations throughout the 1970’s. Though some decline in ridership was inevitable as people chose the convenience of air travel, many of Greyhound’s problems resulted from poor management. One major problem was that Greyhound scheduling and routing favored long-distance ridership, while over 80% of its customers used Greyhound for distances of 200 miles or less. This inappropriate routing and scheduling discouraged some short-haul passengers. So did the bus stations themselves, whose interiors were often regarded as uncomfortable and unpleasant surroundings; in fact, the washrooms were a major passenger complaint. To aggravate matters, rather than making an investment in upgrading facilities the bus division engaged in a costly price and advertising war with Trailways motorcoach company.

In 1978 Greyhound Corporation chief executive officer Gerald Trautman realized that the company’s health still depended on its bus operations. Since he wanted to leave the company in good financial condition when he retired, Trautman postponed his retirement, demoted his protege James Kerrigan, and placed himself in charge of the bus operations that Kerrigan had supervised. After Trautman took charge of the bus line, more attention was paid to details such as clean washrooms and bus maintenance. Measures like these, coupled with the gas shortage (which made car travel less desirable), helped increase bus profits 83% between 1978 and 1979.

In 1982 Trautman decided to retire. His successor, John Teets, while not unappreciative of Trautman’s final efforts, had a different approach to the management of Greyhound. Upon becoming chief executive officer Teets immediately began to sell subsidiaries that were not performing well. The meat-packing division, which was earning $10 million on sales of $2 billion, was among the first to be sold. Teets blamed higher than average employee wages for Armour’s difficulties; when the unions refused to accept a reduction in pay Teets closed all 29 meat-packing plants in one day.

Teets’ handling of the violent 47 day bus driver’s strike was no different. This strike was precipitated by management’s demand that the drivers accept a 17% cut in wages and benefits. After a bitter series of negotiation meetings, the drivers were forced to swallow a 15% wage reduction. Greyhound had won a major concession, but the price was costly—$25 million dollars in lost revenues. On the whole, however, the corporation responded well to Teets’ management. Return on equity climbed to 12% and should continue to rise. Had a customer not defrauded Greyhound leasing of of $19 million dollars, 1985 profits would have been up 12% from the year before.

Greyhound’s future plans, according to Teets, involve a larger commitment to food, convention and travel services, and also consumer products. Purex, a food and soap manufacturer, was added to the Armour/Dial consumer products line. Although financial services provide approximately one-third of company profits, Teets does not anticipate any new acquisitions in that area. As for the bus line, it will be downgraded to accommodate the irreversible changes in transportation. Many of the valuable urban terminals have been and will be sold as the company concentrates on providing service for airports and suburban areas.

Principal Subsidiaries

Greyhound Lines, Inc.; Texas, New Mexico & Oklahoma Coaches, Inc.; Vermont Transit Co., Inc.; Motor Coach Industries; Transportation Manufacturing Corp.; Universal Coach Parts, Inc.; Dial Corp.; Armour International Co.; Greyhound Capital Corp.; Greyhound Realty Corp.; MCI Acceptance Corp.; Verex Corp.; Aircraft Service International, Inc.; Consultants & Designers Inc.; Dispatch Services, Inc.; Faber Enterprises, Inc.; Florida Export Tobacco Co., Inc.; Glacier Park, Inc. (80%); Premier Cruise Lines, Ltd. (Cayman Islands); Travelers Express Company, Inc.