Lionel, LLC

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Lionel, LLC
Type Private
Industry
  • Manufacturing
  • Licensing
Predecessors Lionel Corporation
Founded Chesterfield Township, Michigan, United States (1969 (1969))
Headquarters New York City, New York[1], United States
Key people Howard Hitchcock, President
Products Model trains
Revenue US$62 million (2006)
Owners
Website lionel.com

Lionel, LLC is a designer and importer of toy trains and model railroads that is based in Chesterfield Township, Michigan. Lionel, a 114-year-old toy train manufacturer, set to expand in Concord North Carolina. 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.

According to its reorganization papers filed as part of its bankruptcy plan on May 21, 2007, about 95 percent of the company's sales come from O gauge trains. The plan estimated that about US$70 million worth of O gauge trains are sold each year, and that Lionel accounts for about 60% of that market, making it the largest manufacturer of O gauge trains.

The MPC/General Mills era (1969–1986)[edit]

Lionel Corporation leased 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 or MPC. 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".


According the "Lionel A Collector's Guide and History, volume IV, 1970-1980: Lionel struck a deal with General Mills to lease the Lionel name for ten years starting in 1970. This deal included the purchase of a portion of the Lionel tooling. The balance of the tooling was purchased on Decemember 31, 1969. The lease was renegotiated in 1974

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). 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.

After a period of time, 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 Clemens (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 and was known as Lionel Trains Inc (LTI).

Lionel Trains Inc/Richard Kughn era (1986–1995)[edit]

In 1986, Detroit-based real estate developer (and railroad enthusiast) Richard Kughn bought the brand and established Lionel Trains Inc. In 1989, Lionel rolled out RailSounds, heralding an era of high-tech audio realism. In 1992 Richard Kughn and musician Neil Young, an avid model railroader, created Liontech, chartered to develop exclusive new model train control and sound systems. Liontech's RailSounds II debuted in 1994.

Also debuting in 1994 was the brainchild of Neil Young, Lionel's Trainmaster Command Control, a technology similar to Digital Command Control which permits, among other things, the operation of Lionel trains by remote control. Richard Kughn sold Lionel in 1995.

The Wellspring era (1995–current)[edit]

Lionel changed hands again in 1995, when Kughn sold controlling interest in the company to an investment group that included Neil Young (a longtime fan of model trains and of this brand) and the holding company Wellspring Capital Management, which was headed by former Paramount Communications (formerly Gulf+Western) chairman Martin Davis (he had left the board of Viacom, which bought Paramount the previous year). 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 continued. Neil Young now had a 20% stake in the company.[2]

In order to proliferate Trainmaster Command Control as a standard, Lionel 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 products are 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 1990, Lionel LLC made the switch from MPC to RailSounds featuring the TMCC [TrainMaster Command Control] during that year. Some of those famous engines were mostly Hudsons like: the 1990 Lionel #5340 Hudson, the 1995 Lionel #490 C&O Hudson and the 1995 Lionel Commodore Vanderbilt. Others soon followed like the articulated engines in 1995.

In 1995, there was big demand for high-end articulated steam engines. In 1996, Lionel LLC manufactured the first three articulated steam engines to the country. Those three are the N&W A Class manufactured in early 1996, The Allegheny which was manufactured in 1997, and the Big Boy which was manufactured in 1999. Since 1996, Lionel has made more than 10 different types of articulated steam including the Virginian and Erie triplexes. Also in 1995, Lionel took a Postwar Texas Special diesel and put TMCC RailSounds in it. It sold very well but still rare to get any of these today since it was one of the best products to be ever made and many Postwar Lionel locomotives got a TMCC Railsounds overhaul as well.

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 US$229. Sets turned up on eBay with buy-now prices of US$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. The set remains a popular seller in the product line in 2012.

In 2006, the Lionel electric train was inducted into the National Toy Hall of Fame, along with the Easy Bake Oven. It was the first time an electric toy had ever been inducted. That same year, Lionel made a bigger push to sell its train sets outside of hobby shops, selling them in stores such as FAO Schwarz, Macy's, and Target. By November 2006, the company had turned a US$760,000 profit on sales of US$55 million.

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 initially resisted, 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. On September 13, 2006, Lionel and UP settled the suit for US$640,000 plus a royalty on future sales.

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 US$40,775,745. On November 1, 2004, a federal judge upheld the jury's decision. Lionel announced it would appeal, and two weeks later filed for bankruptcy, citing the judgment as the main reason. On December 14, 2006, the judgment was overturned on appeal, citing legal mistakes in the jury trial, and a new trial ordered. see;http://www.leagle.com/xmlResult.aspx?page=9&xmldoc=2006870472F3d398_1870.xml&docbase=CSLWAR2-1986-2006&SizeDisp=7

In September 2004, the 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. In January 2006, Sanda Kan licensed the K-Line name and intellectual property to Lionel.

On March 27, 2008, a bankruptcy judge approved Lionel's reorganization plan, including a settlement with MTH. Although the specifics were to remain sealed, the Associated Press reported that Lionel settled with MTH for US$12 million.[3]

Customer service and repair operations were moved from Michigan to Ohio in the summer of 2009, affecting operations as replacement parts did not resume shipping until at least the end of August.[4]

The department was run by Mike Reagan who used to own Train America, a manufacturer of electric model train components. As of July 2013, Mike has moved to Lionel offices in Concord, North Carolina, and Phil Hull is head of operations in Ohio.

In 2013, Lionel introduced "LionChief" Remote control trains to introduce wireless remote control to their starter sets. These sets feature enhanced sounds & long distance wireless control.[5]

In April 2014, Jerry Calabrese stepped down as President and CEO and was replaced by Howard Hitchcock who had been Senior Vice President and General Manager of the company.[6]


In August 2014 Lionel moved their service center to their headquarters in Charlotte North Carolina.

Bankruptcy[edit]

On November 15, 2004, Lionel, LLC filed for Chapter 11 bankruptcy protection, citing the US$40 million-plus judgment in the MTH lawsuit as the primary factor. In the filing, it listed US$55 million in debt and US$42 million in assets. The largest secured creditor was PNC Financial Services Corp., owed US$31 million. The MTH judgment was not included in the US$55 million figure. On July 26, 2006, Lionel's bankruptcy judge ordered that Lionel submit a plan for emerging from bankruptcy within 75 days of the appeals court's verdict on the MTH lawsuit. On December 14, 2006, a federal appeals court determined that the company was entitled to a new trial, and that their reorganized plan should be filed by March 1, 2007.

Subsequently, on March 27, 2008 Judge Burton R. Lifland, of the U.S. Bankruptcy Court in New York, approved Lionel LLC's Chapter 11 reorganization plan, clearing the way for the company to exit bankruptcy. According to Lionel Chief Executive Jerry Calabrese, the plan called for the company to pay all its creditors in full with interest, whilst the company itself would also obtain up to US$40 million in loans to fund its exit from Chapter 11, pay off its creditors and fund its working capital needs in the future.

In regard to MTH lawsuit, recent filings revealed Lionel agreed to pay MTH US$12 million in cash to settle the lawsuit and a separate suit involving patented smoke-puffing technology. Calabrese and MTH lawyer Alec Ostrow declined to comment on the settlement.

Lionel's Chapter 11 plan also called for private-equity firm Guggenheim Partners to contribute US$37.1 million to the reorganized Lionel company, which consequently would now own 48.6 percent of the new Lionel. Similarly, the plan also called for the estate of the late Martin Davis (former chairman of Gulf+Western Industries/Paramount Communications Inc.) to provide US$21.9 million to Lionel, and the Davis estate would now have a 28.6 percent share in the reorganized company. Guggenheim Partners's and the Davis estate's funding totaled US$59 million for the reorganization plan; they would also loan Lionel an additional US$10 million in second-lien debt. As a result, Calabrese expected the company to be out of bankruptcy "within a week".[3]

Following the reorganization plan, Neil Young was no longer a minority shareholder in the Lionel company; however, Calabrese insisted that the company wanted Young to remain involved, claiming that Neil would have an "ongoing role in the company", but that this role would be "up to [Neil]".[3] The pair had organized a meeting on March 28, 2008. Young remains an active consultant in the company's LEGACY and other high-end products as of 2012.

As of May 1, 2008, Lionel was fully out of bankruptcy.

While the company's website identifies it as Lionel, LLC, its press releases refer to it as Lionel Electric Trains, headquartered in New York, NY.[7]


Lionel, a 114-year-old toy train manufacturer, set to expand in Concord, North Carolina.

[8]

Collector value[edit]

Lionel trains are often sought by collectors, but the value of each piece can vary greatly. In general, older pieces tend to be more sought after due to age, rarity and nostalgia. The collector value of "modern era" Lionel trains has been limited by comparison to the trains produced by Lionel Corporation prior to 1969. As another generation grows nostalgic for this era, values may increase. As with any collectible, condition and rarity are important in assessing value. In addition, reissues and reproductions by Lionel and others have somewhat decreased the collector value and made it more difficult to authenticate vintage Lionel and American Flyer equipment. There are numerous collectors guides to help buyers make informed decisions on authenticity and value.

Currently, Lionel markets its products to several levels of skills and budget. As in the past, the higher-end, limited run products tend to retain the highest collectible value for the future. These products include the LEGACY equipped steam and diesel locomotives which are accurate and highly detailed scale models. Lionel introduced the Vision Line of locomotives and cars in 2009, with the goal of providing the most innovative and detailed O Gauge models available.[9] Ready-to-run sets and cars are also offered at lower price points. These sets are in the tradition of, and many are reproductions of, the entry-level sets of the classic Lionel era. In March, 2012, Lionel released the first American Flyer exclusive catalog, featuring many all-new models with advanced electronic features and increased scale compatibility.

Lionel also produces lines for children, including battery powered G Scale trains and "Little Lines" sets for children as young as four.

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