GATX is a highly diversified service-based asset company that provides capital equipment and related services to various domestic and international markets. GATX enables its customers to carry, store, distribute, or finance their products. Its principal business is the leasing of tank and other specialty cars to railroads and shippers. As the dominant tank leasing company in the United States, it controls approximately one third of that market. In addition, it is the ninth-largest owner of railcars. To support its fleet of railcars, the company maintains an extensive system of maintenance facilities. Its second-largest operation is GATX Capital Corporation, whose primary business is the leasing of aircraft. Other principal businesses are the operation of an extensive network of bulk liquid storage facilities through GATX Terminals Corporation; shipping on the Great Lakes through American Steamship Company; and management of distribution for various industries through The Unit Companies, Inc.
GATX was founded by Max Epstein in 1898. At that time the Duquesne Brewery of Pittsburgh, Pennsylvania, was in need of refrigerator cars in which to ship beer. Epstein, then working in the Chicago stockyards, connected the buyer with Armour and Co., which had 48 old cars to dispose of. Before Duquesne representatives came to view the cars, Epstein had their florid company logo emblazoned on one. The Duquesne reps at first sight thought the car was a giant billboard for their company and purchased 20 cars.
Epstein purchased the other 28 cars on a mortgage, using as down payment his $1,000 commission from the Duquesne sale. He began leasing cars under the name The Atlantic Seaboard Dispatch. Three years later, in 1902, the company incorporated as the German-American Car Company, a name taken after a Chicago packing firm. Although other companies rented out cars as needed, Epstein originated the idea of leasing specialty cars to shippers on a long-term basis. The continuing mainstay of the business is the leasing of tank and other specialty cars to railroads and shippers that cannot bear the cost and upkeep of maintaining such complex cars year round.
By 1907, with 360 tank cars and 73 refrigerator cars, the company had shifted its focus to tank cars and established itself as a prominent lessor. The same year it moved its repair facilities from a bit of rail trackage in Chicago, Illinois, to a larger site in East Chicago, Indiana.
GATX was able to attract certain customers by creating custom-designed cars for their products. Among its early specialty cars were chromium steel-lined cars to transport nitric acid; rubber-lined cars for phosphoric and muriatic acid; high pressure cars, which they developed in 1914; nickel-lined cars for transport of caustic substances; and airtight cars for dry-ice transport. By 1916 the business merited stock offering that it offered under the name General American Tank Car Company (GATC), which served as a holding company for its subsidiaries.
In 1925 the company officially entered into the field of bulk liquid storage, sowing the seeds for what would become the GATX Terminals Corporation, an operation that reached international proportions by the early 1990s with 27 terminals in the United States, 7 in the United Kingdom, and a world-wide daily throughput capacity of 69 million barrels. In 1928 GATC purchased Sharon Tank Car Corporation, whose manufacturing facilities in Sharon, Pennsylvania, became GATX’s second building site.
In 1929, the year Black Friday’s stock market crash ushered the United States into the Great Depression, GATX posted its best earnings to date. The following year GATX profits were $6,518,181, or $8.03 per share, exceeding those of 1929 by 13 percent. Assets reached $90 million for General American and its subsidiaries, and the company operated a fleet of 50,000 cars.
Epstein’s company weathered the Great Depression well, increasing profits each year despite the general financial malaise permeating the country. The three qualities that maintained the business during the Depression years are those that have continually kept earnings on a steady incline from GATX’s inception to the present day. First, the company transported products such as petroleum and food; during an economic depression, the price of these items may fall, but demand remains constant, thus ensuring the need for their transport. Second, GATX ran its leases over relatively long periods—usually three or four years—enabling it to ride out tough times on the cushion of old leases. Finally, the constant repair and maintenance work needed for the cars was a continual source of work for its manufacturing facilities, even when new car orders were low.
In 1932 Epstein, shortly after he became chairman and Lester Selig was appointed president, declared that “a time of depression is the best time to make mergers. You can make better deals then.” While GATX made three acquisitions before 1926, it made thirteen between 1926 and 1931, five of these after 1929. These included the company’s first foreign subsidiary in 1928, Allegmeine Transpotmittel Aktiengesellschaft.
In 1936 the assets and property of most of the subsidiaries were transferred to GATC, and the subsidiaries dissolved into the larger company. GATC took over the management of the Pressed Steel Car Co., the United States’ third-largest car builder. By 1940, GATX was operating 60,000 various kinds of freight cars, making it the country’s largest freight car leasing system. The bulk liquid storage system had also grown in its first 14 years into the country’s largest public liquid storage terminal facility.
By the end of World War II, GATX’s two main enterprises remained the leasing of cars and their manufacture. The company, however, was interested in diversifying, principally in the transportation-related fields. It had made some significant outside acquisitions in the 1930s, but many of them—such as a plastics facility and a bus manufacturing operation—would soon be sold off as unprofitable.
The most portentous diversification came in 1939, when the company acquired about 50 percent interest in Barkley-Grow Aircraft Corporation, a Detroit aircraft builder. By the early 1940s, GATC was also operating cargo ships on the Great Lakes, foreshadowing its later domination of that trade. By 1952, GATX ranked as the country’s fourth-largest manufacturer of freight cars as well as the largest lessor. The terminal and storage business continued to grow slowly and steadily, contributing 15 percent of 1952’s net earning.
In 1954, having earned profits every year since its incorporation, GATX acquired Fuller Co., a concern that built turnkey cement plants. Fuller was a wise investment that yielded steady profits until its sale in 1986. In 1959 GATX purchased Traylor Engineering & Manufacturing Company, a producer of cement machinery to complement Fuller’s operations. In addition to other projects, GATX constructed a cement plant in the Philippines in 1960 and an industrial waste treatment plant for Whippany Board Co. in 1962.
In 1960 GATX earned record profits of $3.44 per share, despite the fact that the railroad industry in general was a dark spot on the national economy. By the early 1960s, leasing of capital equipment had become a popular way of doing business in several fields, including trucking, airplanes, and tugboats. Automation developments in the 1960s made hauling less labor-intensive, and GATX developed several products that were more mechanized, including a 20,000-gallon wine tank and side-loading device for transferring 20-foot containers.
In 1961 GATC set up as a separate division its two Sharon, Pennsylvania, manufacturing plants, and T. M. Thompson moved into the position of chairman. In 1963 there was a huge boom in orders because the railroads were stepping up their competition with trucking and barges because changes in the federal tax laws made capital equipment purchases desirable. As a result, GATX reported the biggest backlog of rail flat-car orders in its history to that time. Demand remained strong through 1965, and GATX ranked fifth among builders. By 1968, as sales of freight cars dropped significantly throughout the industry, GATC stopped producing freight cars although they continued to build tank cars. Design and development of freight cars continued, but the company began relying on outside manufacturers to increase its fleet-size.
With the down-sizing of manufacturing facilities, the company entered into a somewhat unfocused period of diversification, which yielded both weak and strong investments. Among the profitable ventures was the formation in
1967 of GATX Leasing, which focused on the leasing of airplanes. Here was the core of the contemporary GATX Capital Corporations, one of the country’s oldest non-bank capital equipment leasing companies. The business earned $29 million for GATX in 1991 by leasing its capital portfolio, which consists of 44 percent aircraft, 14 percent railroad equipment such as locomotives, 13 percent real estate, 7 percent production equipment, 5 percent golf course equipment, and 17 percent other items.
Also profitable was the 1973 acquisition of American Steamship Company (ASC), which considerably expanded GATX’s trade in the Great Lakes Shipping market. By 1977, ASC carried 15 percent of the growing Great Lakes cargo trade. By the early 1990s it operated the largest self-unloading fleet on the Great Lakes. Though relatively small for a GATX operation, it is a stable and profitable business for GATX that yielded $6 million in 1991.
Among the less profitable acquisitions was the purchase in 1968 of Chicago’s LaSalle National Bank, which subsequent holding company legislation forced GATX to divest itself of by 1980. In addition, a particularly burdensome acquisition was made in 1979, when the company purchased an ocean-tanker business from Chinese entrepreneur C. Y. Chen for $65 million. GATX anticipated similarity between tank-leasing and ocean ship-leasing because the two industries serve the same customers and haul similar cargo. The company seemed not to consider, however, that the cost of building an ocean-going ship is hundreds of times what it costs to build a train car. Nor did the company realize the industry was overcapacitated and would take a drastic downturn in the 1980s, rendering it weaker than it had been during the Great Depression. The confluence of these trends meant that the ocean shipping subsidiary lost a hefty $7 million in 1976.
The cost of GATX’s somewhat motley diversification was a few years of declining income from 1974 through 1977, in which it posted a $40 million loss provision mostly based on losses and difficulties in the ocean shipping business. The company changed to its current name in 1975, becoming once again a holding company for its various subsidiaries, and in 1977 GATX began restructuring. Corporately, this meant replacing five of the ten board members between 1977 and 1980. By choosing outsiders, GATX freed key managers to work in operating units. Fran Theis was appointed president and James Glasser became chairman and chief executive officer.
GATX redefined itself as a business concerned with providing equipment and services for extracting, processing, and distributing dry and liquid bulk commodities. This resulted in the sale of most of the company’s insurance operations, a drastic reduction in its ocean shipping, and sale of an 84 percent interest in the LaSalle National Bank. The company posted growth in 1978 and 1979, and the remaining sectors began gaining strength.
In the early 1980s GATX narrowed its focus even more, centering on its service business and divesting its manufacturing operations. Expecting a diminishing demand for railcars at least through 1990, it completely closed its manufacturing facilities in 1984. It retained, though, its perennially profitable Fuller Co. until 1986. In 1981 the company blundered by acquiring the manufacturing facilities of Tech Specialty, a concern that lost money every year since its acquisition. By 1986 it was finally fit to be sold. The company also shed completely its ocean shipping lines, which became Marine Transport Line, Inc.
The restructuring resulted in some financial ups and downs for GATX. In 1984 its profit was $36.7 million because of a $78 million write down, and the following year the company lost $45.5 million. The instability combined with some solid businesses attracted some unwanted suitors for GATX. Leucadia National, a New York finance and insurance company, led a bidding war when it made an unsolicited offer to GATX to purchase the rest of its stock at $38 per share. GATX immediately turned down the offer, but Adler & Shaykin, a New York investment firm that specialized in leveraged buyouts, stepped in the next week with an offer of $40 per share. Leucadia matched the offer, and in the third week Gabelli & Co., another New York investment firm, topped the offers with a proposal of $42 per share. GATX chose Leucadia, but the firm backed out of the deal less than two hours before their midnight deadline. The company had previously provided a letter from Merrill Lynch supporting its ability to find adequate financial backing, and it had had full access to GATX books. Nevertheless, its abrupt withdrawal was based, it said, on hitherto unforeseen financial obligations caused by GATX debts. After the takeover war, GATX fortified itself against a repeat performance by repurchasing 30 percent of its stock and adopting certain defensive measures concerning the distribution of shareholder rights. In 1986 it sold both Fuller and Al Tech, completing its withdrawal from manufacturing.
In 1988 GATX Capital forged a joint venture with Credit Lyonnais, one of Europe’s largest banks, to do all future aircraft leasing. By 1989, the two companies sold 40 percent of the interest to four other financial backers. GATX was left with 40 percent interest as manager of the operation. The company concentrated on leasing high-demand, medium-range craft. In the 1970s the aircraft consisted of 727s, in the late 1980s they were MD-80s, and in the 1990s the company anticipates dealing principally in B737-300s, MD-80s, and Airbus A320s—120- and 170-seat crafts that are expected to be more popular than smaller planes. By the early 1990s, the airplane market had taken a downturn, causing lower-than-expected earnings.
Within the financial division of GATX, a real estate division was established in 1985 that did not fare well. The company reduced its real estate investment from $204 million at the end of 1989 to $170 million at the end of 1990. Heading into the 1990s, GATX Capital Corporation’s portfolio of investments were 44 percent in commercial jet aircraft, 14 percent in railroad equipment, 13 percent in real estate, 7 percent in production equipment, 5 percent in golf equipment, and 17 percent in other fields.
Rapid expansion of GATX Terminals in the late 1980s and early 1990 included the purchase of a 60 percent interest in WYCO pipeline and the acquisition of the Calney Pipeline. In 1989 it announced a joint venture to build a major petroleum facility in Singapore. Also in 1989 GATX acquired Associated Unit Companies, whose name was changed in 1990 to The Unit Companies, Inc. Although it operated at a $.7 million loss in 1991 and a $.4 million loss in 1990, the company was the largest provider of warehousing and distribution in the United States with 127 locations in 35 cities.
Although some of its businesses were experiencing reduced profits, GATX headed into the 1990s looking strong. From 1986 to 1991 its income expanded at a 24 percent compound annual growth rate, and it could boast of having paid a dividend every quarter since 1919. It continued to design new cars such as the Arcticar, a cryogenically cooled jumbo car for frozen food transport. It also continued to supply industry-specialized cars, such as the Airslide car used in the flour industry and its interconnected tank cars, in which a string of cars can be filled or emptied from a single hook-up point. It stood as a market leader in each of its diverse yet focused operating sectors, and still dominated the backbone industry it helped create: the leasing of tank cars.
General American Transportation Corp.; GATX Terminals Corp.; GATX Financial Services, Inc.; GATX Capital Corp.; American Steamship Co.; GATX Energy Assets Corp.; The Unit Companies, Inc.
“ ‘This Is the Time for Mergers,’ Says General American Tank Car,” Business Week, March 25, 1931; Altschul, Selig, “General American’s Diversified Business,” Barron’s, April 8, 1940; Epstein, Ralph C, GATX: A History of the General American Transportation Corporation, 1898-1948, New York, North River Press, 1948; “Car-Builder’s Net Propped by Leasing,” Barron’s, April 3, 1950; “Transportation Company Net Stabilized at High Level,” Barron’s, March 31, 1952; “Increase in Earnings Seen for Railroad Car Company,” Barron’s, March 22, 1954; “Business Turns to Equipment Leasing,” Financial World, February 1, 1961; Williams, John D., “Freight Car Boom,” Wall Street Journal, February 21, 1963; Barron’s, April 8, 1963; “GATX to Stop Making Freight Cars: Leasing, Tank-Car Output to Continue,” Wall Street Journal, April 24, 1968; “GATX Corp. Agrees with LaSalle National on Divestiture Plan,” Wall Street Journal, October 21, 1976; “They Shudda Stayed on Dry Land,” Forbes, July 15, 1977; Troxell, Thomas N., Jr., “Boxcar Power,” Barron’s, August 20, 1979; Wall Street Journal Transcript, March 10, 1980; Deveny, Kathleen, “GATX Is in Play—And It Doesn’t Seem to Mind,” Business Week, March 17, 1986; Richards, Bill, “GATX Board Clears Leucadia Merger Offer,” Wall Street Journal, March 24, 1986; Wall Street Journal Transcript, May 22, 1989; Byrne, Harlan S., “GATX Corp.: Despite the Economy’s Slowdown, Record Profits Are in Store,” Barron’s, December 24, 1990; GATX Annual Report, 1991, Chicago, GATX, 1992.
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