Getting on the Right Track : After Years of Decline, Lionel Train Is Making a Comeback

For countless middle-aged American men, a bit of the essence of Christmas can be traced to a nondescript industrial park just outside this working-class city a short drive from Detroit. It is where Lionel electric trains come from.

Building toward the Christmas season, hundreds of workers at Lionel Train Co. perched on stools as a little assembly line rolled slowly past, transporting parts of toy locomotives, freight cars and other “rolling stock” carrying the proud Lionel name.

A bona fide American icon created 90 years ago by a New York tinkerer named Joshua Lionel Cowen, Lionel has become as much an idea as a product. For many, the trains and boxy black transformers in Lionel’s familiar orange and blue packaging embody the Christmas memory of the 1930s, 1940s and especially the 1950s.

But the company that makes the trains has a history as convoluted as that of the full-sized railroad industry. Lionel has ricocheted from factory to factory and owner to owner like a runaway train, enduring labor strife, corporate indifference and quality snafus that might have doomed other enterprises.

Without getting too corny about it, one could say that Lionel has been kept alive by the promise and magic of childhood--at least as per ceived by today’s customers through the prism of time.

Most recently, it was rescued in 1986 by Detroit millionaire Richard Kughn from a near-dormant plant in Tijuana, where General Mills had shipped production two years earlier.

Bungled from the start, the move to Tijuana nearly did Lionel in. By the time Kughn came along, dealers say, only 50 of every 300 trains shipped from the new plant were usable. Production all but dried up, and Lionel virtually disappeared from the marketplace.

Kughn, a car and train enthusiast who made his fortune running Taubman Co., a big shopping mall developer, returned production to Michigan and the union work force General Mills had fled. Lionel has since ridden the maturing baby boom generation to new prosperity. Kughn won’t divulge many financial details. But, he says, “if we weren’t profitable, I’d have sold it long ago.”

Sales have tripled in four years to $60 million, Kughn says. The work force--down to 300 before the Tijuana fiasco--ranges from 700 to 900. There are whole new train lines, microchips that replicate the sounds of the rail yard, even tiny video cameras in the engines. The latest entry is a handsome, $1,300-plus reproduction of a 1937 vintage New York Central locomotive known as the Hudson.

But keeping Lionel alive remains a dicey long-term notion, and there is a fair measure of turmoil behind the nostalgic scene.

Some dealers complain that Lionel is ignoring kids in favor of adult electric train fanatics and collectors willing to invest heavily in such big ticket items as the Hudson. They account for 60% of Lionel’s business--and at an average age of 45, they will be dead sooner rather than later.

Meanwhile, quality problems dating to the late 1960s have persisted at Lionel; apparently, they were a major factor in a shake-up last May in which Kughn ousted his top managers.

One of Lionel’s sternest critics, Allen Drucker, owns Allied Model Trains in Culver City, among the nation’s biggest retail train shops.

“They’re in jeopardy of absolutely losing this generation,” Drucker says. “They’re living off the fact that the baby boomer wants it for his kid. Mind you, the kid doesn’t want it to begin with. And the sets they have for the kids are absolute crap.”

Current management regards the quality problem as a legacy of the General Mills years; the executives who left in May were long-time toy executives from that company. “We stopped the quality problems last May,” Kughn says. “Right now we have an entirely improved situation from six months ago.”

The quality might well have been fixed, but the historic decline of railroads and the explosion of video games and other toys has made the long-term generational issue more problematic.

Kughn speaks optimistically about mass transit introducing a new generation to railroading. And it is hard to quarrel with his spiel about the virtues of a family setting up an electric train set instead of “sitting in front of the idiot box.”

But despite the baby boom-driven growth enjoyed by Lionel and model railroads generally in the 1980s, Managing Editor Mike Christianson of Model Railroading magazine says: “It’s tough to argue that 50 years from now there are going to be as many model railroad enthusiasts as there are today.”

Sales this year were flat compared to 1989, Kughn acknowledges, a situation he blames on the weak economy. Nor can Lionel expect to return to the double-digit growth of the late 1980s. But Kughn remains bullish about the 1990s for toy trains, real trains and the economy generally. “I think our business is going to survive very well,” he says.

The first Lionel electric train used batteries to power an electric motor that founder Cowen had built in his shop. Cowen put the motor in a model railroad car, and people started buying the contraptions.

Buying out his competitors along the way, Cowen built a formidable company that defined the standard track and car sizes for electric trains. It muddled through the Depression by collaborating with Walt Disney on a $1 Mickey Mouse handcar that sold 1 million units.

The post-World War II years saw Lionel become the world’s largest toy company, surviving such bonehead ideas as a train set for girls with a pink locomotive and robin’s-egg-blue caboose. A failure then, it is now a collector’s item.

The corporate turnovers began in 1959. That is when Cowen’s son sold Lionel to shirttail relative Roy M. Cohn, the celebrated Red hunter and later celebrity lawyer. Cohn sold it to financier Victor Muscat, who sold it to businessman A. M. Sonnabend, who also bought Lionel’s biggest competitor, American Flyer Trains. Lionel still builds American Flyers.

In 1969, Lionel Corp.--which remains a publicly traded holding company for toy stores--sold the train business to General Mills, which moved it to Mt. Clemens. Fourteen years later, General Mills lumped Lionel--by then a relatively small player in the modern toy industry--together with its Kenner Toys and Parker Bros. Games and moved them all to Tijuana.

Editor Christianson says Lionel dozed off after the 1950s as a new category of HO-sized trains--for half O, or half the size of Lionel’s O-gauge--swept the market. The little HO sets eventually commanded as much as 77% of the business, and two Lionel efforts to enter the HO market failed miserably.

Similarly, Lionel’s collapse in Mexico widened the opening for a German import known as the LGB, an oversized toy train that yuppies, it is said, like to set up to chug around their gardens or hot tubs.

Kughn, 61, a Detroit booster, agreed to buy Lionel if General Mills first moved the operation back to Mt. Clemens. It was a cause for local celebration, part of the economic recovery that Michigan enjoyed in the mid-1980s after a crunch in the auto industry.

Under Kughn’s stewardship, Lionel has broadened its product line, entering the LGB market as well as becoming the dominant producer of a wide array of classic and collectible trains.

It has also brought new technology to bear, with mixed results.

Dealer Drucker remains unimpressed by “railscope,” a Lionel invention that consists of a miniature video camera mounted in a locomotive. When hooked to a television set, the $250 system enables the gung-ho hobbyist to see what his model train layout looks like from the perspective of the engineer.

But it runs on batteries, not on the power from the track that runs the train itself. And Drucker could never get the things to run longer than 20 minutes without putting in new batteries.

“I lost tens of thousands of dollars on those things,” he says.

John Brady, Lionel’s vice president for marketing, blames such problems on cheap batteries, though he concedes that the railscope needs track power and a color camera.

Lionel remains at the pricey end of the traditional electric train market, as it was in the 1950s. Brady says a complete Lionel beginner’s set can be had for $75, though the cheapest available at one major chain toy store last week was $100.

At a store for hobbyists, better Lionel sets start at $175 and climb to $350. And although a single boxcar can run as low as $10, most Lionel cars exceed $20.

By contrast, toy stores sell electric HO-scale sets for $35 to $75. And name-brand HO boxcars are often priced below $5. Kughn says Lionel’s quality problems are nothing compared to those of cheaper sets, and he vows that he will never compete at the low end of the market. But the company still hopes to capture more of the kid market.

As for quality, Brady says, the company is up against a ghost of Christmas past.

“We stumbled a little bit last year, but our quality is consistently higher than it used to be,” he says. “We’re competing with the memory of a train that probably seemed like it weighed 200 pounds and was 100 feet long and was the greatest thing ever made. We’re competing with a memory and an ideal. Sometimes we don’t quite match it.”