The original Auto-Train is scheduled to chug into court next month for what at last could be the final chapter in the story of the little engine that couldn't.
The Auto-Train is just another Amtrak route today, a train on the Washington-to-Florida run that happens to carry cars as well as people.
But until May 1, 1981, when the bankruptcy court flagged down the last train, Auto-Train was a genuine Washington business -- the enterprise that was going to prove passenger trains could be profitable.
Could be they can be, but Auto-Train Corp. never proved it.
The idea looked promising in the early '70s when Auto-Train went public. Passengers loved the trains. Wall Street loved the stock. The first oil price hike helped sell tickets.
But carrying vacationers and their cars back and forth to Florida proved to be a more seasonal and less lucrative business than had been hoped for. Add high-living executives who had never run a railroad before and a couple of embarrassing accidents and Auto-Train was just another unprofitable passenger train.
After losing money for who knows how long, the railroad filed for reorganization in September 1980 and the courts turned the line over to Murray Drabkin, a veteran bankruptcy lawyer who is now a partner in Cadwalader, Wickersham & Taft. Drabkin kept the trains running until the following spring, when the flood of red ink washed out the tracks.
Ever since then, Drabkin has been sorting through the rubble of the wrecked railroad, trying to find out what went wrong and how much -- if any -- is left to pay off the creditors.
New answers to both those questions could be provided by the trial set to begin in May in U.S. District Court here. The bankruptcy trustee is suing Auto-Train's auditors, Alexander Grant & Co., for something like $50 million -- depending how you count the various claims for regular, compensatory and exemplary damages.
Drabkin's lawsuit contends the auditors signed off on false and misleading financial statements that failed to disclose how far the railroad's fortunes had fallen.
Because they relied on the inaccurate reports, lots of people lost lots of money dealing with Auto-Train, the trustee contends. People wouldn't have done business with the company if they'd known the truth about its finances, so the auditors are responsible for the losses.
Suing the auditors has become standard practice in corporate collapses. Whether the auditors knew what was going on or were themselves misled about the company's finances is one of the issues the court will have to decide. Grant & Co. responds that its reports met all accounting standards and disclosed everything the company had a legal obligation to disclose.
The auditors have listed Auto-Train founder Eugene K. Garfield as a witness for the defense, which could provide an opportunity for the chief executive to explain what happened to his railroad.
Regardless of whom the court holds responsible, the bankruptcy trustee's lawsuit is a gourmand's lesson in how to cook the books and keep yourself fat on other people's money.
When Auto-Train's revenue started slowing down, the company used cash that belonged to the government, its banks and its passengers, Drabkin discovered.
At one point in 1979, the railroad owed Uncle Sam $2.5 million in withholding and payroll taxes that had been taken out of workers' checks but never passed on to the government.
Cash overdrafts on bank accounts -- rubber checks -- grew to $662,000 in 1978. Another half a million bucks worth of working capital was raised by refusing to give refunds to passengers who paid for tickets and later changed their plans and canceled the trip. Many of them are still waiting for their money back.
None of those details showed on the financial statements, nor could you tell from reading the records that the company faced mounting losses from lawsuits over accidents. Liability claims climbed from $897,000 to $952,000 to $1.6 million in three years.
Then there was the rolling stock, carried on the books at $15 million. After shutting down a route to the Midwest, the company had two entire Auto-Trains sitting idle, but the financial reports failed to note that those assets were unemployed.
And the company's reports did not disclose that when repair parts were needed, mechanics pulled pieces off the mothballed cars. As a result of this cannibalization, much of the rolling stock couldn't roll -- a disadvantage not shown in the $15 million valuation.
Cannibalization continued even though the company claimed to be carrying a $2.3 million parts inventory. What parts there were, were worth a fraction of that, the bankruptcy trustee contends. As a result of the overstatement, the balance sheet was ballooned up and earnings were overstated.
The company wasted almost a quarter of a million dollars and three years trying unsuccessfully to start an Auto-Train in Mexico. But man ana never came. The money poured into the Mexican venture was carried as an asset on the books rather than written off -- another overstatement.
Also overblown was the status of a subsidiary called Railway Services Corp. that was supposedly formed to repair rail cars for other lines. In a 1980 plan to sell stock to the public, Railway Services filed a registration statement that Drabkin contends was full of falsehoods: The subsidiary had no separate operations and no books of its own. The assets it was supposed to have were never transferred by the Auto-Train board and even if they had been, the IRS had a lien on them. The stock it planned to sell was never issued by Auto-Train.
And finally there was the amazing turnaround reported by the railroad in the spring of 1980. After three years of losses, it claimed it made $639,000 that quarter. The number was so unbelievable that longtime PR advisor Tom Tucker refused to put out the press release, so Auto-Train hired ex-White House press secretary Ron Nessen to do it. Drabkin now says the claimed profit was "inconsistent with . . . Auto-Train's true financial picture."
If the bankruptcy trustee succeeds in pinning responsibility for the misleading financial reports on the auditors, some of Auto-Train's creditors may finally get some of their money back. Even if the auditors don't have to pay, the case should close the books on one of the worst failures in Washington business history.