Lionel, LLC
Lionel, LLC is a designer and importer of
toy trains and
model railroads, based in
Chesterfield Township, Michigan and currently in
bankruptcy. Its roots lie in the
1969 purchase of the Lionel product line by cereal conglomerate
General Mills.
Although Lionel, LLC now owns all of the trademarks and most of the product rights associated with
Lionel Corporation, the original producer of Lionel trains founded in
1900, there is no direct connection between the two companies.
The bankrupt Lionel Corporation sold the tooling for its then-current product line and licensed the Lionel name to General Mills in 1969, who then operated Lionel as a division of its subsidiary
Model Products Corporation. General Mills did not buy the company, however. The Lionel Corporation became a holding company and invested in a number of ventures, including what would eventually become an East Coast chain of toy stores known as "Lionel Leisure World."
Due to General Mills' cost-cutting measures, production of Lionel-branded toy and model trains returned to profitability, but sometimes at the expense of quality. Detail was often sacrificed, and most of the remaining metal parts were replaced with molded plastic. A number of MPC's changes to the product line endure to the present day, the most noticeable being the use of needlepoint axles and trucks made of
Delrin, two changes made to reduce
friction and allow longer trains. Also starting in
1973, MPC experimented with a line of cars it called "Standard O," which were scaled to 1:48 (most postwar Lionel and MPC production was undersize for
O scale). The experiment's failure is generally blamed on MPC's lack of a 1:48 locomotive and caboose to go with the cars; when it was repeated again in the
1980s with locomotives of appropriate size, it proved more successful.
An internal reorganization after 1973 caused Lionel to become part of General Mills' Fundimensions group. Although Lionel's tenure with MPC was relatively short, "MPC" is the most commonly used term for the 1970-1985 era.
In
1979, General Mills resurrected the
American Flyer brand and product line, which Lionel Corporation had purchased from its bankrupt competitor (The A. C. Gilbert Company of New Haven, Connecticut) several months prior to its own bankruptcy in
1967. American Flyer products by Gilbert made after World War II are scaled roughly to a 1:64 proportion and are known as S gauge; their most distinctive feature, however, is that they operate on two-rail track as opposed to Lionel's three-rail trackage system.
With so many years of absence from the market, Gilbert American Flyer S gauge trains were no longer considered a direct competitor to Lionel's 1:48 proportion O gauge trains. To this day, Lionel markets American Flyer S gauge in limited quantities as collectibles.
The year
1982 brought General Mills' ill-fated move of train production from the United States to
Mexico. Some Lionel fans were angry simply because the trains had been made in the United States for more than 80 years, while others criticized the quality of the Mexican-produced trains. Lionel production returned to the United States by
1984. During this time, corporate offices were retained at the company's Mount Clements (later, Chesterfield), Michigan, location.
When General Mills spun off its
Kenner-Parker division in
1985, Lionel became part of Kenner-Parker. Lionel was sold again in
1986, this time to toy-train collector / real estate developer Richard P. Kughn of
Detroit, Michigan.
Kughn was a prolific toy train collector who said that his friends joked that the only thing his collection lacked was the company who made them. Kughn believed that if he moved production to Detroit, it would be possible to improve quality to a level characteristic of the original Lionel Corporation and still maintain profitability.
After his purchase, Kughn founded a company called
Lionel Trains to continue the brand, and Lionel Trains Inc. opened a plant in Chesterfield, Michigan. In
1989 Lionel Trains introduced a locomotive featuring realistic electronically-produced sounds.
During this time frame, Lionel began producing new products based on designs from the Post-War era, when its popularity was at its peak. Additionally, some offerings began to depart from Lionel's toy-like design and place more emphasis on scale realism and detail, mirroring MPC's earlier "Standard O" experiments but to a larger degree.
Lionel also began selling reproductions of its designs that dated from the period before
World War II, mostly in
Standard Gauge. These products were made by
MTH Electric Trains using original Lionel Corporation tooling, which had been sold at bankruptcy in the late
1960s after sitting unused for decades. This arrangement ended in the early 1990s after a disagreement between Kughn and MTH owner Mike Wolf.
The year
1993 brought Kughn's Lionel an opportunity. The original Lionel Corporation had recovered after the sale of its trains and survived as an entirely separate entity, operating a successful chain of retail toy stores for 24 years and becoming for a time the second-largest toy retailer in the country. However, it went bankrupt in the early 1990s under increased competition and liquidated in 1993, allowing the train manufacturer to purchase the Lionel trademark after years of operating as a licensee.
Lionel changed hands again in
1995, when Kughn sold controlling interest in the company to an investment group that included
rock and roller
Neil Young and holding company
Wellspring Associates, which was headed by former
Paramount Communications chairman Martin Davis. The new company became known as
Lionel LLC. The company continued marketing reproductions of its vintage equipment, and the trend towards producing new equipment that was ever-more-detailed (with a correspondingly higher price) continued.
Additionally, Young, who has a 20% stake in the company[
1], helped finance the development of
Trainmaster Command Control, a technology similar to
Digital Command Control which permits, among other things, the operation of Lionel trains by
remote control. In order to proliferate this standard, Lionel has licensed it to several of its competitors, including
K-Line.
Lionel, LLC continued to manufacture and market trains and accessories in O scale under the Lionel brand and
S gauge under the American Flyer brand. While most of the American Flyer product comprises re-issues using old Gilbert tooling from the 1950s, the O scale equipment is a combination of new designs and reissues. Lionel also ventured into
HO scale at times during its history, with limited success.
In
2001, Lionel closed its last manufacturing plant in the United States, outsourcing production to
Korea and
China. While this move proved unpopular with some longtime fans, the backlash was minor in comparison to the failed move of production to Mexico in the 1980s. The company also licensed the Lionel name to numerous third parties, who have marketed various Lionel-branded products since 1995.
The 2004
Christmas movie
Polar Express, based on the children's book of the same name, provided Lionel with its first hit in years. Lionel produced a train set based on the movie, and stronger-than-anticipated demand caused highly publicized shortages. Various news stories told of a reporter's quest to locate a set, and some dealers marked the prices up above the suggested retail price of $229. Sets turned up on
eBay with buy-it-now prices of $449 as Lionel ordered an additional production run but said it would not be able to deliver the additional sets until March of the following year. Although many criticized Lionel for not producing more sets, Lionel's management called the set a great success.
This era was marked by legal troubles. In April
2000, competitor and former partner
MTH Electric Trains filed a
trade secret misappropriation lawsuit against Lionel, LLC, saying that one of Lionel's subcontractors had acquired plans for an MTH locomotive design and used them to design locomotives for Lionel. Additionally, on
May 27, 2004,
Union Pacific Railroad sued
Athearn and Lionel for
trademark infringement because both companies put the names and logos of UP, as well as the names and logos of various
fallen flag railroads UP had acquired over the years, on their model railroad products without a license. While Athearn quickly settled and acquired a license, Lionel prepared to fight, arguing that it and its predecessor companies had been using the logos for more than 50 years and had been encouraged or even paid to do so.
The misappropriation lawsuit by MTH eventually went to trial, and on
June 7,
2004, a jury in
Detroit, Michigan found Lionel liable and awarded MTH $40,775,745. On
November 1, 2004, a federal judge upheld the jury's decision. Lionel announced it would appeal, but two weeks later filed for bankruptcy.
In September 2004, the troubled company dismissed its CEO, Bill Bracy, and replaced him with Jerry Calabrese, a former
Marvel Comics and
NASCAR executive. Along with Bracy, another 17 high-level employees were also dismissed.
In July
2005, Lionel sued competitor K-Line for theft of trade secrets. The two companies settled out of court but the settlement quickly fell apart, leading to K-Line declaring bankruptcy and selling its assets to Sanda Kan, a Chinese subcontractor who did manufacturing for both K-Line and Lionel. Sanda Kan quickly licensed the K-Line name and intellectual property to Lionel.
On
November 15, 2004, Lionel, LLC filed for
Chapter 11 bankruptcy protection, citing the $40 million-plus judgment in the MTH lawsuit as the primary factor. In the filing, it listed $55 million in debt and $42 million in assets. The largest secured creditor was PNC Financial Services Corp., owed $31 million. The MTH judgment was not included in the $55 million figure.
The collector value of "modern era" Lionel trains has been limited compared to the trains produced by Lionel Corporation prior to 1969. There has been only limited collector interest in trains produced by this succession of entities, from MPC through to Lionel Trains Inc. and Lionel, LLC, especially if the items are in less than mint condition and do not include the original box. In addition, Lionel's reissues have somewhat decreased the collector value of even vintage Lionel and American Flyer equipment.
The MPC era is often derided, especially by fans of recent-production Lionel products that have better scale fidelity than the majority of MPC production and by fans of Lionel Corporation's postwar era. These critics often call MPC an acronym for "Mostly Plastic Crap." MPC has a small following due to the quality of the graphics, variety of roadnames produced, and play value. Others are attracted to MPC because of its low cost and the ease of finding MPC-produced train sets and accessories, often barely used, in its original packaging.
* http://www.lionel.com
