The president of Auto-Train Corp. told an audience of disturbed and distraught shareholders here yesterday that the train company has reached a critical turning point: In six months, it either will chug into daylight or run out of cash.
Two years of losses and a disappointing second quarter this year have thrown the company into a very serious cash squeeze.
Underlining the seriousness of the situation, Eugene Garfield, founder and president of the seven-year-old train line, arrived two hours late for yesterday's annual meeting. He said he had been in Jacksonville negotiating an extension in payments owned one of Auto-Train's chief creditors - the Seaboard Coast Line Railroad Co., which supplies the engineers and owns most of the track the car-carrying trains use on their five-day-a-week trip from the suburbs of Washington to the outskirts of Disney World.
"The cash situation is critical," Garfield said in an opening statement to shareholders. "We have recently fallen significantly behind in some of our payments. We have a period of six months to develop a diversification program and take other steps."
Calling this past year "the most difficult in the company's history in many respects," Garfield outlined a series of programs Auto-Train has under way to pull itself out of the crisis:
Restructuring the company's capital base. Auto Train has retained Bear, Stearns and Co., a New York investment banking firm, for this purpose.
Extending train service to the Newark area. Original fears that the company's bilevel rail cars would not fit through the tunnel of north of Washington were eased last month when a trial run proved successful.
Extending service to Mexico. Negotiations have been under way for several years with a Mexican corporation to provide Auto-Train service south of the border. Nothing that the negotiations have been long and difficult, Garfield said he now has a tentative signing date of Aug. 15 for the Mexican connection.
Diversifying into the train repair business. Auto-Train has hired Paul Reistrup, until recently president of Amtrak, to advise on the creation of a wholly owned subsidiary that would maintain rail cars owned by a number of private companies.
[WORD ILLEGIBLE] could use Auto-Train's maintenance facilities in Sanford, Fla. and Louisville. It also might involve purchase of additional facilities in Rocky Mount, N.C., or Rochester, N.Y., but Garfield said the start-up investment of the new operation would be "modest."
Auto-Train lost $2.5 million during the last eight months of 1977 on revenues of $17.8 million. Its 1978 first-quarter earnings showed a healthy jump into the black, but Garfield said second-quarter earning were off again due to a slump in train travel.He blamed the slump on increased competition from airline discount fares.
The company's financial problems stem more from insufficient revenues than excessive costs, he said. But in fact Auto Train's costs have inflated in recent years as a direct result of several serious derailments, which have upped maintenance costs and insurance premiums. Also, the company has experienced union pressures for higher wages for its employes.
Upset by a number of news reports, innuendoes and rumors about Auto-Train's management - and a decline in the value of the share of Auto-Train stock from a one-time high of $60 to just over $2 - several shareholders fired a barrage of questions at Garfield about what was happening to their money.
Charles Houston of Orlando charged company officers with overpaying themselves. Houston noted that Garfield and several other top officers had taken a 15 percent pay cut last fall only to turn around this spring and reinstate their original amounts.
Garfield said that the raises could have been justified at the end of the first quarter, but that he has not thought about rescinding them in light of the second-quarter results.
Houston then asked whether another derailment could force Auto-Train into bankruptcy, noting that the company now carries large deductibles of $500,000 on personal injury insurance and $1 million on its property damage claims. Garfield declined to predict what would happen if there were another Auto-Train accident.