Incorporated: 1902 as German-American Car Company
Sales: $1.7 billion (1997)
Stock Exchanges: New York
Ticker Symbol: GMT
SICs: 3743 Railroad Equipment; 4741 Rental of Railroad Cars; 6159 Miscellaneous Business Credit; 7359 Equipment Rental and Leasing Not Elsewhere Classified
GATX Corporation’s business is to provide capital equipment to its customers—usually other companies—enabling them to transport, store, distribute, or finance their own products. GATX is divided into five segments: railcar leasing and management, terminals and pipelines, logistics and warehousing, financial services, and Great Lakes shipping. As of the late 1990s, the company’s principal business was the leasing of tank and other specialty cars to railroads and shippers. The dominant tank-leasing company in the United States, GATX’s fleet of railcars is one of the largest in the world, including the fleets owned by railroads. To support this fleet of railcars, the company maintains an extensive system of maintenance facilities. Its second-largest operation is that of GATX Capital Corporation, whose primary business is the leasing of aircraft. Other principal businesses include 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 leasing and managing different communication technology assets—such as desktop computer systems and local area networks—through Centron DPL Company, Inc. and Sun Financial Group, 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 Duquesne 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. At first sight, the Duquesne reps 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 also 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 was 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.
The company 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 were developed in 1914; nickel-lined cars for transport of caustic substances; and air-tight cars for dry-ice transport. By 1916 the business merited a stock offering, and stock was listed 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 GATC’s second building site.
Expansion During the Depression
In 1929, the year Black Friday’s stock market crash ushered the United States into the Great Depression, the company posted its best earnings to date. The following year, profits were over $6.5 million, 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 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, the company 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 the company made only three acquisitions before 1926, it made thirteen between 1926 and 1931, with five of these coming 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 would later become a portion of a larger holding company, GATX Corporation, which remains in present day as the parent company for all remaining businesses discussed. GATC took over the management of the Pressed Steel Car Co., the United States’ third-largest car builder. By 1940, the company was operating 60,000 various kinds of freight cars, making it the country’s largest freight car leasing system. The company’s bulk liquid storage system had also grown in its first 14 years to become the country’s largest public liquid storage terminal facility.
By the end of World War II, the company’s two main enterprises remained the leasing of railcars and their manufacture. The company, however, was interested in diversifying, principally into 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.
Diversification through the Mid-Century
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, the company 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, the company acquired Fuller Co., a business that built turnkey cement plants. Fuller was a wise investment that yielded steady profits until its sale in 1986. In 1959 came the purchase of Traylor Engineering & Manufacturing Company, a producer of cement machinery to complement Fuller’s operations. In addition to other projects, the company constructed a cement plant in the Philippines in 1960 and an industrial waste treatment plant for Whippany Board Co. in 1962.
In 1960, the company 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 laborintensive, and so the company developed several products that were more mechanized, including a 20,000-gallon wine tank and side-loading device for transferring 20-foot containers.
GATX Corporation is characterized by stable cash flow, steady demand, long-term customer relationships and diversification of risk. As an industry leader in its five business segments, GATX, through its management and employees, seeks to promote excellence in customer service, high quality, environmental integrity, and shareholder.
In 1961 GATC set up its two Sharon, Pennsylvania, manufacturing plants as a separate division of the company, 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 due to changes in the federal tax laws which made capital equipment purchases desirable. As a result, the company reported the biggest backlog of rail flat-car orders in its history up to that point. Equipment lease demand remained strong through 1965, and the company ranked fifth among builders as well. Both of the company’s main areas of business were booming. By 1968, as sales of freight cars dropped significantly throughout the industry, GATC stopped producing freight cars, although it 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. This was the core of the contemporary GATX Capital Corporations, one of the country’s oldest non-bank capital equipment leasing companies.
Also profitable was the 1973 acquisition of American Steamship Company (ASC), which considerably expanded the company’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.
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 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 shipleasing because the two industries serve the same customers and haul similar cargo. The company did not 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 that the industry was in a state of overcapacity 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 led the ocean shipping subsidiary to lose a hefty $7 million in 1976.
Restructuring in the 1970s and 1980s
The cost of GATX’s diversification errors was a few years of declining income from 1974 through 1977, a period in which it posted a $40 million loss provision, based mostly on losses and difficulties in the ocean shipping business. The company changed to its current name of GATX Corporation in 1975, becoming a holding company for its various subsidiaries, and in 1977 GATX began restructuring. In terms of management changes, this meant the replacement of 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 the 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 after its acquisition. By 1986 it was finally sold, as the company also completely shed 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 due to a $78 million write down, and the following year the company lost $45.5 million. The instability, combined with some solid business, 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. Leucadia had previously provided a letter from Merrill Lynch supporting its ability to find adequate financial backing, and it had full access to GATX books. Nevertheless, its abrupt withdrawal was based, it said, on unforeseen financial obligations stemming from 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. By the early 1990s, however, 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, and 5 percent in golf equipment, with a remaining 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 $400,000 loss in 1990 and a $700,000 loss in 1991, the company was the largest provider of warehousing and distribution in the United States with 127 locations in 35 cities. The subsidiary’s name was again changed a short time later to GATX Logistics, Inc.
General Expansion in the 1990s
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 that it had paid a dividend every quarter since 1919. It continued to design new railcars such as the Arcticar, a cryogenically cooled jumbo car for frozen food transport. It also continued to supply industryspecialized 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.
In the early and mid-1990s GATX focused its expansion efforts internationally. In 1993 the company purchased the Scottish Sealand Oil Services Ltd. The following year it formed GATX EnviroLease Corp., a joint venture with EnviroLease, Inc. to provide capital equipment for the transport of wastes and recyclable materials by rail. The new company would provide lease financing for special-purpose containers, chassis, railcars, and other material- and container-handling equipment, which would provide safe transport of such materials as municipal solid waste, incinerator and coal ash, industrial sludge, and contaminated soil.
In 1995 GATX formed another international joint venture by teaming its GATX Rail Europe, Inc., with AAE Ahaus Alstatter Eisenbahn Holding AG, Switzerland. The venture company, AAE Ahaus Alstatter Eisenbahn Cargo AG, would provide services to government-owned railways and rail transportation companies across Europe with an initial fleet of over 2,000 freight cars. The same year the company expanded its presence in Mexico by leasing 1,200 tank cars to the state railroad. In 1996 GATX acquired 65 percent ownership of a bulk-liquid storage facility in Altamira, Mexico.
Sales climbed steadily for GATX in the early and mid-1990s, rising from $870 million in 1990 to $1.1 billion in 1993 to $1.4 billion in 1996. Net income faltered somewhat in the early 1990s, but by 1994 had reached $92 million, surpassing the company’s previous high of $83 million in 1990. In 1996, net income reached $103 million. In 1995 the company added 5,300 new and used railcars to its fleet.
GATX Capital, which had begun leasing information technology equipment in the mid-1980s, increased its commitment to this market in the mid-1990s. Having established joint ventures with lessors of various equipment types, GATX acquired full ownership of Centron DPL Company, Inc. in 1996 and Sun Financial Group, Inc. in 1997. The goal of GATX’s Technology Services Group was to provide “one-stop” solutions to customers’ information technology needs.
Although the company achieved record sales of $1.7 billion in 1997, restructuring costs resulted in a net loss of $51 million. Most of the restructuring charges were attributed to changes implemented in GATX Terminals, including the sale or closing of the company’s Staten Island terminal and certain U.K. terminal assets. Other charges could be traced to GATX Logistics’ writing off of past acquisitions in the public warehousing sector, an area the company had decided to abandon as unprofitable. Without these charges, 1997 consolidated income would have been a healthy $112 million. With these one-time charges behind them, the company expected their profitability to rebound in 1998, their 100th anniversary year.
General American Transportation Corp.; GATX Terminals Corporation; GATX Financial Services, Inc.; GATX Capital Corp.; American Steamship Company; GATX Logistics, Inc.
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—updated by Susan Windisch Brown