Invisible Giants: The Empires of Cleveland's Van Sweringen Brothers

14. The Summit I:An Appalachian Peak in the Rockies

An Appalachian Peak in the Rockies • 161 Fourteen The Summit I: An Appalachian Peak in the Rockies Alleghany, Virginia is just barely on the road maps, a classic off-the-beaten-path spot nestled high in a mountain notch across the ridge from the West Virginia border. In 1929, it was less a town than a small collection of gray railroad buildings, sidings, and signals. But the name showed up in large print on the working timetables of Chesapeake & Ohio train crews; when they passed the austere frame station, they knew their hardest work was over. For Alleghany marks the summit of the C&O’s main line between the West Virginia coal fields and the tidewater docks at Newport News. Sitting 2,072 feet above sea level, it is the end of the grueling grind eastward up the Allegheny slope out of the New River valley at Hinton, West Virginia. The heavy coal trains would pause there to uncouple their ponderous pusher locomotives and set their brakes before dropping down the eastern slope to the yards at Clifton Forge. The mountain air at Alleghany was perennially filled with the sound of slogging steam engines and tinged with the sharp smell of coal smoke and hot oil. 162 • Invisible Giants Alleghany’s gritty atmosphere was far from O. P. Van Sweringen’s always-neat desk in Cleveland, both physically and spiritually. In fact, if he ever saw the place himself, it is doubtful that he took any notice. But as the highest point on the Van Sweringen railroad system, it was an apt symbol for his new super–holding company which was to gather together all the present Van Sweringen railroads and any more to come. Alleghany—the corporation—was truly the summit of the Van Sweringen empire. Apparently overlooked, though, was another aspect of the symbol: Every summit also has a downgrade , and at Alleghany, Virginia, the eastern downgrade is almost twice as steep as the western. The Alleghany Corporation’s genesis went back to May 1928, when the Interstate Commerce Commission finally issued its mixed decision in the C&O unification case. It was then clear that the Commission intended to stay cautious and drag its feet until it could resolve the national railroad consolidation muddle—and that still seemed some years away. In the meantime, the brothers were out on a financial limb; they had about $53 million in short-term debts and, as O. P. put it, “five broken up propositions [his separate railroads] which I am trying to unify and coordinate.”1 The solution was a publicly financed holding company which, in one form or another, would control all of the Van Sweringen railroads. The money would come primarily from outside investors and, as before, the holding company would avoid the pesky ICC—and the particularly pesky Commissioner Eastman, who fought them at every turn, convinced that they were simply financial manipulators who did not belong in a strong national transportation system. In the fall of 1928, serious planning got underway with the Morgan bank, which would underwrite what promised to be a massive new creation. The Alleghany Corporation came into formal being on January 26, 1929, in the happiest and eagerest of financial markets. Alleghany’s basic purpose was simple enough: It would be the single repository for all railroad interests then being held by the brothers personally and by Vaness and the various existing special-purpose railroad holding companies, such as the Pere Marquette Corporation. That said, the details could be bewildering. For example, Alleghany would control the Chesapeake Corporation, which controlled the C&O, which controlled the Pere Marquette and owned the Virginia Transportation Corporation—which in turn controlled the Erie. Huge as it was—and it was labyrinthine when charted— Alleghany was nothing more than a vastly pumped-up version An Appalachian Peak in the Rockies • 163 of the 1916 Nickel Plate Securities Corporation, built on precisely the same simple principle of leverage: The Vans would hold voting control while most of the money came from elsewhere; in this case, the eager public. Of the $85 million to be initially raised from outside investors, over 70 percent was in the form of nonvoting securities—$25 million from preferred stocks and $35 million from bonds. The remaining $25 million would come from selling $20 par-value common stock, which did vote—but about 64 percent of the total of this stock issue went to the Van Sweringens and...