Lionel L.L.C.

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Lionel L.L.C.

50625 Richard W. Boulevard
Chesterfield, Michigan 48051
U.S.A.
(810) 949-4100
Fax: (810) 949-3340

Wholly Owned Subsidiary of Wellspring Associates
LLC.
Incorporated: 1900 as Lionel Manufacturing Company
Employees: 600
Sales: $55 million (1992)
SICs: 3944 Games, Toys & Children’s Vehicles

Lionel L.L.C. is the world’s leading manufacturer and marketer of model and toy trains. With almost a century of experience by the mid-1990s, Lionel held an established and respected name in the toy industry. Although the company suffered serious problems from the late 1950s through the 1960s, including bankruptcy proceedings, it recovered and regained much of the ground it lost by the 1990s. With 350 products and seemingly stable sales growth, Lionel enjoyed a resurgence of model train enthusiasm in the mid-1990s.

Joshua Lionel Cowen, born in New York City on August 25, 1877, did not set out to create the electric model train or to found one of the most successful 20th century toy manufacturers in the United States. Cowen dropped out of Columbia University and began work as an assembler at an electric lamp factory. However, Cowen’s natural skill with electric devices and his desire to innovate led him to conduct electrical experiments after hours at work. About 1898 Cowen’s tinkering led to his development of a fuse for igniting magnesium powder for photographers. The U.S. Navy heard about the invention and contacted Cowen to build fuses to be used for exploding mines. Cowen gained $12,000 from his subsequent contract with the Navy, which he used to open a small shop in New York City in 1900. The new enterprise, christened the Lionel Manufacturing Company, produced fuses, low-voltage motors, and electrical novelties. Cowen continued to experiment with electricity, and in 1900 he developed the first dry cell battery.

Early Electric Trains

In 1901 Cowen created a window display for his shop that would change the direction of his company. To showcase one of his small electrical motors, he placed one in a model railroad car and ran it on a track in his shop window. Cowen had hoped the train would grab the attention of passers-by, and they would stay to buy his products. The train did indeed attract the attention of people, but what they wanted to buy was the train! Cowen was soon selling the trains to individual customers and other stores. Within two years, the Lionel Manufacturing Company was issuing catalogs for the trains. The first catalog, in 1903, featured 2⁷/8-inch gauge trains and track. The gauge refers to the width between the rails of the track. In addition to locomotives, the catalog offered a steel derrick car and a gondola car. A particular train in this catalog, a steel reproduction of a Baltimore and Ohio R.R. locomotive powered by a wet cell battery, initiated a demand for small scale reproductions of real trains. Designing and manufacturing reproductions for those interested in this new hobby would become a staple for Lionel.

Business grew rapidly. In 1905 Cowen hired Mario Caruso, a young engineer, to help with manufacturing. Soon a strict division of labor developed: Cowen handled the marketing of the trains, and Caruso ran the manufacturing plants. Caruso remained with the company until 1945. Production quickly outgrew the company’s New York manufacturing plant, and in 1910 Lionel moved to a new factory in New Haven, Connecticut. In addition to an increase in the sheer number of trains produced, the selection expanded rapidly as well. The 1906 catalog offered a single locomotive, two electric trolley cars, two passenger cars, and seven freight cars, which included an oil tank, a coal car, a cattle car, a box car, a gondola, and a caboose. In contrast, the 1910 catalog offered several different locomotives, an increased number of freight and passenger cars, and eleven trolley cars. The company had also introduced tin lithograph stations and small human figures to aid in the creation of realistic scenes.

Company Perspectives

Lionel has so much to offer everyone. But what may even be more important than the products offered, is the American family tradition that Lionel represents. Lionel model railroading is not just a hobby, it’s an American institution which dates back nearly 100 years. From the time Joshua Lionel Cowen placed the first electrically-powered car on a circle of track, individuals, fathers and sons, and entire families have joined together to experience the ’ ’magic’’ of Lionel model railroading. Whether placed in large public displays, in living rooms, in basements, or around the family Christmas tree, a Lionel train truly has something special to offer everyone.

A couple of important changes occurred in Lionel train design in the first decade of the century. First, the increasing number of homes wired for electricity meant that the trains no longer had to be powered by dry cell batteries. Cowen developed a transformer that reduced household current to a safe level for use with Lionel trains. Second, Lionel introduced in 1907 a three-rail track that measured 2¹/8 inch between rails. This gauge became so popular in the United States it was soon known as “standard gauge.”

Gauge became an important marketing factor when Lionel competitor Ives Trains introduced the “O” gauge train in 1910. Smaller than the standard gauge train, the “O” gauge had only 11/4 inches between the rails. The gauge’s popularity led Lionel into that market in 1915, when the company introduced 9 sets of “O” gauge trains. At the time, Lionel offered 17 sets of trains in standard gauge.

Rapid Growth

The company, which changed its name in 1918 to the Lionel Corporation, continued to experience rapid growth through the 1920s. Increased production again forced the company to move to larger facilities, this time to a plant in Irvinton, New Jersey. Lionel also increased its size and market share by acquiring its biggest competitor, Ives Trains, in 1928. Initially Lionel bought the company in partnership with the model train company American Flyer Trains, and both companies supplied some parts for Ives trains through 1929 and 1930. However, Lionel bought out American Flyer’s interest in Ives at the end of 1930. Lionel then closed the Ives plant in Bridgeport, Connecticut, and transferred the operations to its New Jersey facility.

The demand for reproductions of real trains grew through the 1920s. Throughout this time Lionel produced several sets of highly authentic trains as part of its numerous offerings of locomotives and train cars. During this “classic period” for Lionel, the company created model cars and engines with an astonishing attention to detail, including many models with brass and nickel trim. For example, the powerful 408E twin-motored engine featured six running lights, operating pantographs, and all brass detail. Lionel sets from this time, which included highly detailed passenger cars in addition to the locomotives, became valuable collectors’ items, sought after by collectors and train enthusiasts through the end of the century.

Depression Product Lines

The Depression forced a slight change in focus at Lionel. Sales dropped for the toy manufacturer early in the Depression, and the company responded by shifting production to lower-cost items, particularly to the smaller “O” gauge trains. Customers reacted favorably, and by 1939 Lionel had completely discontinued production of its standard gauge, three-rail trains. Despite the focus on lower costs, Lionel continued to introduce new models. The company’s first steam-type “O” gauge locomotive debuted in 1930; within five years, Lionel made eight different “O” gauge steam engines. Streamlined passenger trains were introduced in the middle of the decade, as was the first steam whistle. Some demand for high-priced reproduction models remained, and Lionel filled it with its exact scale “O” gauge Hudson steam locomotive in 1937, which cost $75 at the time.

However, low-priced items were a staple in the company’s sales during the Depression. One new line in particular helped buoy company sales. In collaboration with the Walt Disney Company, Lionel created a Mickey Mouse hand car in 1934. A single car that was wound by hand, the one-dollar toy enjoyed a vast popularity. Its success engendered a whole line of similar toys, including a Santa Claus hand car, introduced in 1935; Donald Duck and Peter Rabbit “chick mobiles,’’ which came out the following year; and the Mickey Mouse Circus Train. Mickey, as the conductor of the tin locomotive, led the train filled with Disney passengers past a cardboard backdrop of a circus.

In 1938 Lionel introduced its first “OO” gauge train, a scale model of the Hudson engine with a tender and four freight cars. An immediate success in the “OO” gauge market, the Hudson model was the first of several that Lionel designed in the late 1930s. However, Lionel stopped production of toy trains in 1942 to join the war effort and never resume its line of “OO” trains, even after the war ended.

Lionel’s adjustments to the Depression market appeared successful. In 1937 the company employed 1,000 people and produced approximately 40,000 model train engines, 1.2 million railcars, and more than a million sets of track. That year Lionel offered stock to the public for the first time. With the entrance of the United States into World War II, Lionel suspended its model train production and began manufacturing navigation and communication equipment for the armed forces.

Postwar Growth

Toy train production resumed in 1945 under the direction of Lawrence Cowen, the son of Joshua Lionel Cowen. Having assumed the presidency that year, Lawrence remained at the head of the company until its sale in 1959. He oversaw the introduction of the company’s all-time top-selling train engine, the Santa Fe Diesel, in 1948. Not only did Lionel begin producing diesel engines in 1948, it used plastic in its trains for the first time. The year of its fiftieth anniversary, 1950, Lionel unveiled Magne-Traction, a system designed to increase the pulling power of the locomotives. By inserting permanent magnets into the locomotive driving axles, a magnetic attraction was induced between the wheels and the steel track, enabling the locomotives to pull more cars and work better on steep grades.

Pent-up demand for consumer goods after the war led to some of Lionel’s best years. By 1953 Lionel was the largest toy manufacturer in the world and employed 2,000 people. Mismanagement and a shrinking market, however, reversed the company’s fortunes. In the mid-1950s Lawrence Cowen attempted to diversify Lionel’s products and holdings, perhaps in response to decreasing interest in model trains from the public. In 1957 the company began marketing “HO” gauge trains, licensed first from Rivarossi and later from Athern, but the line didn’t sell and was dropped in 1967. Cohen also introduced a stereo camera and acquired Airex Corporation, a fishing reel manufacturer, but both ventures proved unprofitable. Labor disputes added to the company’s misfortunes, disrupting production at the New Jersey plant with strikes. In 1958 Lionel lost $470,000 on sales of $14.5 million, the company’s first yearly loss since the Depression.

The next year, 1959, Lawrence Cowen sold Lionel to a group of investors, sparking almost three decades of shifting ownership. Roy Cohn, Joshua Cowen’s great nephew and head of the investors, hoped to gain government missile contracts by acquiring electronics firms. Cohn placed John Maderis, a former major general, at the head of Lionel but replaced him in 1962 with Melvin Raney. Not only did government missile contracts fail to appear, but sales remained stagnant as well. Cohn sold Lionel at a significant loss in 1963 to financier Victor Muscat, who resold the company later the same year to a group led by A. M. Sonnabend of the Hotel Corporation of America. Sonnabend died the next year, and Robert Wolfe, a former toy company executive, was named president.

Wolfe took over a company that had suffered at the hands of its numerous leaders in the previous decade. Employees had been let go, and high-quality product lines had been discontinued in order to cut costs. Efforts to diversify the company’s product line, including ventures into microscopes, science labs, and tape recorders, had only served to blur the company’s focus. Wolfe was determined to return Lionel to its traditional niche as a high-quality toy train manufacturer. However, even with the company’s focus back on producing high-quality electric trains, Lionel continued to lose money. Its 1967 purchase of American Flyer Trains, its largest competitor, did nothing to stem the tide.

Bankruptcy and Reorganization

In 1969 the company was forced to reorganize by a bankruptcy proceeding. General Mills, Inc., bought the rights to the Lionel name and all of the company’s manufacturing equipment. What was left of the original Lionel Corporation emerged as a holding company for toy stores and hobby shops. Before resuming production of Lionel trains, General Mills moved the company’s manufacturing equipment from New Jersey to Mt. Clemens, Michigan. Fundimensions, a division of General Mills Fun Group, assumed responsibility for the Lionel train production and revitalized the ailing brand.

In 1973 Fundimensions attempted to revive the Lionel ’ ’HO’’ gauge line, manufacturing the trains in Mt. Clemens and the Orient. However, the line once again failed to sell and was discontinued five years later. In 1979 Fundimensions reintroduced the American Flyer S Gauge trains as part of the Lionel line. In general, Lionel trains regained its health in the 1970s, enjoying increasing sales through the decade. However, in 1983 General Mills combined its toy manufacturing, including the production from Fundimensions, Kenner Toys, and Parker Brothers Games, and moved it all to Mexico. The new plant had a difficult time maintaining the quality of Lionel products and frequently missed delivery dates to retailers, injuring the reputation of the brand. When Kenner-Parker Toys, Inc., spun off from General Mills in 1985, Lionel went with it as one of its divisions. That year Lionel moved its train production back to Mt. Clemens.

In 1986 Richard P. Kughn, a Detroit real estate developer, formed a corporation with a group of investors in order to purchase Lionel Trains. After paying an estimated $25 million, the group incorporated the enterprise as Lionel Trains, Inc. Kughn, who took over as the company’s chairman, was an avid model train collector and, when he became interested in purchasing Lionel, already owned thousands of trains in a collection whose worth was estimated at nearly $1 million. Within two years of the purchase, Lionel’s sales rose 150 percent, to $50 million a year, and market share reached 60 percent. Both the Collector and Traditional lines of trains showed record sales that year.

Kughn, with his background as a model train collector, saw a market for reissues of classic Lionel trains. He initiated a new line in 1988, Lionel Classics, that directly reproduced the metal Lionel trains of the 1920s and 1930s. However, Kughn also encouraged innovation, particularly in the development of state-of-the-art technological features. RailScope, a locomotive with a miniature video camera in the nose, was introduced in 1988 to give railroading enthusiasts a chance to see the ride as an engineer would. The following year RailSounds debuted in the Pennsylvania B6 Scale Switcher engine and the Reading T-l Northern Locomotives. The micro-electronic sound chip placed inside the engines held an exact sound recording from full-size trains. In 1994 Lionel incorporated a high-tech remote control device into a new series of trains. Through a joint venture with Lionel called Liontech, the rock singer Neil Young developed the TrainMaster in order to share his passion for model railroading with his son Ben, a victim of cerebral palsy. Easier to use than a traditional transformer, the hand-held controller uses onboard electronic processors to move the train via electronic signal and incorporates digital sound to more closely reproduce such sounds as engines churning or cars uncoupling.

Completely new product lines also expanded Lionel’s offerings during the late 1980s and early 1990s. Ready-to-run sets of trains with an “O27” gauge, slightly smaller than the “O” gauge, were first offered in the late 1980s. A new line of trains that were 1/24th the size of real trains was introduced in 1987. Roughly twice the size of the “O” gauge trains, the Lionel Large Scale was made of weather resistant plastic to allow their use indoors or out. In collaboration with the Smithsonian Institution, Lionel created a collection of museum-quality “O” gauge engines. An exact replica of the 1938 New York Central Dreyfuss-Hudson locomotive, the first engine produced, was offered in a limited edition run of only 500.

New Owners in the 1990s

Neil Young’s interest in Lionel expanded in 1995 when he joined with former Paramount Communications chairman Martin Davis to purchase Lionel from Kughn. The purchase was friendly, with Kughn remaining as chairman emeritus and retaining a minority share in the renamed Lionel L.L.C. Wellspring Associates L.L.C., an investment firm started by Davis, held Davis’s majority share. As part of the deal, Lionel became the full owner of Liontech, the joint venture with Young.

The increasing popularity of model trains in the mid-1990s boded well for Lionel. With 350 products and several years of steady growth, Lionel had a sturdy base from which the new owners could work. Davis and Young hoped that incorporating new technology into the company’s traditional train sets would draw even more enthusiasts into the Lionel fold. “[Lionel’s] technology is now the leading technology in toys,” Young was quoted as saying in Fortune in 1995. “The overall goal is to make an advanced toy that brings families together in a way videogames don’t.”