Science Fair Project Encyclopedia
Lionel, LLC is a designer and importer of toy trains and model railroads, based in Chesterfield, 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 MPC (General Mills) era
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. Lionel Corporation went on to reorganize as a chain of toy stores.
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.
In 1982, General Mills moved production of the trains from the United States to Mexico, an unpopular move that was reversed by 1984. The brand was sold to Kenner-Parker in 1985 and sold again in 1986, this time to a railroad enthusiast real estate developer from Detroit, Michigan named Richard Kughn.
The Kughn era
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.
Additionally, Lionel began selling reproductions of its designs that dated from the period before World War II. 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.
The Wellspring era
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 . 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 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, there was no backlash like 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.
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.
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