Luck on Tidewater

The first Baldwin locomotive (third in the U. S.) was born by a Caesarean operation. In 1832, when ex-Philadelphia Jeweler Matthias W. Baldwin finished work on "Old Ironsides," his first born, he found it too big to go through the exit of his tiny shop. So, vowing he was through with locomotives, he cut a hole in the wall. But "Old Ironsides" surprised him, hit 28 miles an hour on the six-mile Philadelphia-Germantown run. That was fast enough to earn immortality as a locomotive pioneer. For Old Ironsides the end came in 1857 when a Vermont landslide mummified it.

For years one unhandy thing about this Caesarean seemed to be the place where it occurred. Far more conveniently situated to serve mid-continent railroad customers are the inland industrial centres which sprang up in the following decades. But last week, Baldwin's 11,000 stockholders had reason to feel lucky that Matthias Baldwin set up shop on tidewater hard-by naval shipyards. They were shown their luck when Baldwin reported its unfilled orders.

Locomotive manufacturing is a feast or famine business and since depression hit the railroads after the 1929 crash it has been all famine. After four years of famine, Baldwin was so short of working capital that in 1935 it went into reorganization. But last week it had more than $30,000,000 worth of orders on the books, and things looked far rosier--but not for locomotives.

Besides its locomotive works, Baldwin has Standard Steel Works (railroad wheels and a wide assortment of industrial miscellany) and Baldwin-Southwark (capital goods from engines to nuts). In spite of all these, Baldwin would still be in deep Depression but for the accident of geography that established Baldwin on tidewater, and the shrewdness of former President Samuel Vauclain, who bought 61% of Midvale Co. in 1926. For well over half of Midvale's business--U. S. armament--does not swing with the ordinary cycles of depression, is bringing Baldwin Locomotive as close to the black as it can come when U. S. railroads are deep in the red. For Midvale is a specialist in pressing armor plate and forging heavy gun barrels from high-grade steel.

Baldwin Locomotive Works today depends on non-railroad buying for half of its sales in even a good railroad buying year. At present, 80% of Baldwin's unfilled orders come from its hedges against bad locomotive business. Of this, Mid-vale's $18,500,000 backlog adds up to the biggest single lump, 73%. Its presiding genius, handsome, abstemious Dr. Harry L. Frevert, lives from one ballistic test to the next, his only concern the race between armor-piercing shells and shellproof armor.

In 1938, on some $10,000,000 pf sales, Midvale paid stockholders $998,720 (of which Baldwin got $614,500), nearly 7% on Midvale assets. Midvale's 1939 present to Baldwin is sure to be much handsomer; in the first five months of 1939, its backlog boomed more than 140% over last year while the combined backlog of all other Baldwin divisions rose only half as fast. The Navy allows Midvale up to 10% profit on contracts after figuring a generous 10-20% depreciation. This assures not only good profit but is enabling Midvale to keep its capacities modern, efficient.

Without Midvale's contribution, Baldwin's order book would now be only about 40% of what it is. But if Baldwin stockholders can count on Midvale to keep their company from bogging down in depression, they cannot count on Midvale to do more than help Baldwin break even on its huge capacities (as it is barely doing now). Prosperity for Baldwin still depends on when U. S. railroad buying will come back.

In December 1926 there were 64,949 locomotives in the U. S. Today there are less than 44,000 and some 42,000 of them were bought before 1929, 30,000 before 1920. Meanwhile, insolvent roads "economize" by spending four and five times the cost of a new locomotive in piecemeal repairs to hopelessly obsolescent engines, although new freight engines would work 75-125,000 miles a year instead of 30-40,000 miles as the old ones do, would bring operating savings great enough to pay for themselves in a few years. Particularly true is this of Diesel switchers (which use fuel only when actually switching, do not puff while waiting). Diesel switchers are said to pay for themselves in two years, but only a fraction of U. S. switchers are Diesels.

But until railroads have money to invest they refuse to make money either for themselves or Baldwin by borrowing to buy new equipment. Should the New Deal, however, decide to fight Recession II by priming heavy industry instead of consumer purchasing power, it is likely to choose railroad equipment (either forming a corporation to rent equipment to tho roads or guaranteeing loans enabling them to buy it) as one of the surest, quickest ways to gain its end. The figure New Dealers like to quote as a "minimum" of new locomotives needed to modernize the U. S. rolling power plant is 500 new engines a year; at this rate, barely a dent would be made in U. S. locomotive obsolescence. Assuming that Baldwin got what has been its normal 40% share of such a windfall, that its share was all for steam power (though it makes Diesels, too) at $150,000 an engine, its locomotive sales on New Deal account would be $30,000,000 a year.

President Charles E. Brinley, who now fills the shoes of genial Patriarch Samuel Vauclain as head of Baldwin's management, may get Baldwin's break-even point down to its old $30,000,000 level (it was in the red last year on total business of $33,000,000). If he does, U. S. Naval expansion should soon increase Baldwin's non-locomotive business enough to put the company in the black. If Baldwin then got another $30,000,000 of locomotive business, and $5-10,000,000 of railroad accessory business, thanks to the Government, it would owe the New Deal a handsome bow indeed. Instead of a $1,032,000 loss (1938) it might one of these years turn up with better than $5,000,000 profit.

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