New-York tribune., 1920-09-11
Rail Head SAYS
Ford Rescued
ROadF FrO1nRuii1l
Vice.President of Detroit,
Toledo & Ironton Line
Defends Lease Giving
the Auto Maker Control
Files Answer to Suit
Minority Stockholders Are
Complainants; Company
Near Financial COllapse

<au susWeE WaS uleQ IN the supreme
Court yesterday by the Detroit, Toledo
and Tronton Railroad Company, in a
suit brought against the company and
the Ford Motor Company, Henry Ford,
Edsel B. Ford, his son, and others by
Leon Tanenbaum and Benjamin M.
Strauss, minority stockholders, to pre-
vent the road going under the control
of the Fords' under a lease already
negotiated.
The answer was made by Frederick
Osborn, vice-president and general
manager of the railroad company
through whom the tranaction was
negotiated. Mr.: Osborn admitted that
the road had passed under the control
OF the Fords and justified this as
necessary to save and rehabilitate the
property.
Mr.. Osborn said that to place the
road in proper physical and financial
condition it was necessary to sell its
bonds at 85, which could not be done
because there was no market. Henry
Ford was willing to take the bonds at
that figure and also assume certain
lease was fair and reasonable to all
concerned.
Road Laid in Coal Fields
The railroad runs froan Ironton, Ohio,
to Detroit, Mich. The coal fields in
that district, Mr.. Osborn said, are
nearly exhausted and it will become
necessary to exploit new coal fields in
Kentucky and Virginia. He said be-
cause of lack of equipment and other
defects it has not been possible for
the road t. carry much ore and iron.
Mr.. Osborn denied the allegation of
the plaintiffs that the contract with
the Fords was improvident.
He said that SO per cent Of the bond
holders and stockholders had approved
the agreement. For twenty years prior
to 1914. he said, the road had been
operated unprofitably and had under
cone numerous receiverships and or
CARNATIONS until 1917, when the gov
ed continual loss without any allow
ance for interest deductions. At the
time the government took over the
property, the answer of the defendants
alleges, the floating Indebtedness ex-
ceeded the assets by $470,000. Dealers
refused to sell it supplies ind it was
necessary to confscate coal because the
coal operators wouldn't furnish the
fuel.
s. Lost $4,000 a Year
In 1918 and 1919, during the govern
ment operation, the losses we're
s722OOO and s72oO00, respectively,
while the net income for those two
years were 100000 and $4,000, respec-
lively. The property was turned back
to the company in need of repairs, the
company declares. The roadbed and
equipment had not been maintained.
A receivership would have followed
Immediately, said Mr.. Osborn, if the
government mad not guaranteed the
reads income for six months after
passing back to the company. The gov
ernment now claims s1,0o0,000 owing
it for betterments. Mr. Osborn said
the road must earn $4,000 mile to
operate profitably and that it never
had earned more than $4,000 mile.
Also it would be necessary to spend
$2,000000 at once for rails, to avoid
constant wrecks. Other necessary
equipment, including locomotives and
cars, would cost $1O,OO0,OoO. Mr.. Os-
born said S500,000 must be spent to
build bridge required because the
War Department. had stopped the use of
cuts. The deficit from March to July,
1920, was $62,722.
Facing all these unfavorable condi-
tions, the directors of the road sought
aid from large interests in Detroit, Mr.
Osborn said, and Henry Ford expressed
his Willingness to take the road, guar
anteeing payment of interest on the
adjustment bonds. Thus the road was
leased, Mr.. Ford assuming more than
$5,00O,O00 of interest obligations due
ana responsibility for bonds and the
debt to the government