Auto-Train Corp., announced yesterday it has signed an agreement to establish a Mexican version of its automobile and passenger service beginning next April.
If the Mexican venture is successful, it could have a major impact on the troubled Washington railroad which has been operating in the red for almost two years. The company lost $664,000 in the latest quarter.
At the company's annual meeting earlier this month, President Eugene K. Garfield said the survival of the company would be determined in the next six months, and listed the Mexican service as a critical element in the corporate strategy.
After nearly four years of negotiations, an agreement for the Mexican Auto-Train was signed Thursday in Mexico City, the company announced.
The Auto Tren de Mexico will run about 750 miles from Nuevo Laredo, which is across the Rio Grande River from Laredo, Tex., to Queretarro, a city which the company described as "a short drive" from Mexico City, about 100 miles.
Garfield said Auto-Train Corp. will sell tickets for the Mexican route in the United States and receive a 10 percent commissions. It will also earn royalties on the Mexican service.
He said Auto-Train will sell 30 passenger and auto carrier cars to the Mexican operation for $4.6 million.
Whether the royalty revenues will begin soon enough to ease Auto-Train's severe cash shortage or whether it will receive an significant amount of cash from the sale of equipment was unclear yesterday.
Various lenders to whom Auto-Train owes more than $11 million hold mortgages on virtually all of the company's equipment, and leading agreements provide that most of the proceeds of any sale of property must be used to pay off old loans.
Tom Tucker, a Washington public relations consultant to Auto-Train, said yesterday he did not know how much money the company would receive from the Mexican service but said it would be "a very significant factor in their financial picture this fiscal year."
Auto-Trains cash flow situation is said to be so tight that the company is delaying making refunds on cancelled tickets to conserve cash.
Employes said refund checks were being held up for as long as two months; An Interstate Commerce Commission official said the office of rail passenger service had recently received two complaints about lengthy waits for refunds by passengers who cancelled trips.
Garfield revealed at the annual meeting that one of the company's major creditors, the Seaboard Coast Line Railroad, had agreed this month to wait until sometime next year to collect $800,000 due it. The Seaboard provides the tracks and engine crews that take the Auto-Train along most of its trip from Lorton, Va. to Sanford, Fla.
The Seaboard and two other major creditors earlier this year agreed to guarantee a $3 million dollar loan to Auto-Train by American Security Bank of Washington.
Seaboard backed 66 2/3 percent ($2 million) of the loan. The Richmnd, Fredericksburg and Potomac Railroad guaranteed 20 percent, and Marriott Corp. guaranteed the remaining 13 1/3 percent.
The loan agreement, which was filed with the Securities and Exchange Commission required Auto-Train to "maintain its accounts payable with the guarantors on a current basis." The extension of the additional $800,000 credit by the Seaboard apparently indicates Auto-Train was unable to meet that condition.
The loan agreement required Auto-Train to open its books to the bank and the three firms guaranteeing the loans, prohibiting any loans by the company to its officers or directors, and set a $2.4 million limit on Auto-Train's monthly expenditures.
The Mexican service is one of three ventures Garfield has said could keep Auto-Train alive.
The company has applied to the Interstate Commerce Commission to extend the northern end of its Florida run to Newark, N.J. And Garfield has said Auto-Train will go into the railcar maintenance business, repairing cars for other railroads and car owners.
All three of these diversification moves, however, require additional capital.