Theoretical: Would K-Line Have Survived?

You have to remember that they were selling some really fabulous products for unbelievably low prices.  If they weren't losing money on them, the margins must have been razor thin.  That's not a sustainable formula for success.  They owed their manufacturer a great deal of money for these products.

So no, I don't see how they survived.

I still kid myself that somewhere, somehow, Maury Klein is sitting in a "Raiders of the Lost Ark" type warehouse secretly releasing products into an unsuspecting (but happy) train world. 

George

No.

@G3750 posted:

You have to remember that they were selling some really fabulous products for unbelievably low prices.  If they weren't losing money on them, the margins must have been razor thin.  That's not a sustainable formula for success.  They owed their manufacturer a great deal of money for these products.

Agreed and that was one element I omitted. What they were delivering for cheap with the K-Line Collectors Club engines alone seemed like an incredible loss leader. The GG-1s and A5s were $100, think the Trainmasters and EP-5s with sound (horn for the Trainmaster/horn, bell, engine hum, and announcements for the EP-5) were $125, and the level of detail on the SD-70s (which were ultimately fulfilled by Lionel, as part of the license deal from SK) for $125 (basic, no sound) was incredible.

I think you may have hit the nail on the head, though maybe if K Line had not gotten quite so ambitious they might have been able to hold on to a niche market for slightly longer: they were still a separate brand line under Lionel for a while after all so maybe they could have hung on a little longer?

Unfortunately I think their falling behind in the command-control development was probably ultimately going to be a problem, even if their “loss leader” products were cut. With the rise of things like LionChief I think probably a entry level command control is a must nowadays and I don’t think that would have been possible without development of a digital control system early on.

Maybe K Line could have eked out a market share like that of RMT or Menards, though, if they stuck to improving on the line of products they already had. But after the last two decades of economic turmoil, the prices probably wouldn’t be as affordable.

Funny, just tonight I was cleaning out some old boxes and found a few of the late KLine catalogs. It was a fun time for us in the hobby, so much to chose from. They made some nice products, but I don't think the would have stayed in business with their inexpensive,  but oh so nice, items.

Their Hudson is still one of the best looking made. But they sure blew it with the Not So Big Boy. At least Lionel made it into a nice S scale engine. And I still remember being amazed on how long the wheels would spin on their rolling stock, Lionel would stop long before KLines did

No.

My memory of the events is somewhat different.  Edited here as others have knowledge K-Line was developing their own command system .

The terminal legal case,  as I heard it reported, involved them hiring Lionel's chief engineer to design a transformer that unfortunately violated Lionel's patent(s).  Don't know whether he had a non-compete clause, but I don't believe he experienced any legal consequences per se.  Bob Grubba, who had been Lionel's head engineer, was then K-Line's and received the lionshare of the blame, but there was never any proof presented in public that he was aware of the details of what had occurred until after the fact.  People always feel a need to find a villain when things go south, but sometimes it's just ignorance or incompetence on someone's part, and it's easier to blame someone in charge.  We'll probably never know the details.  K-Line passed into history.

Grubba went on to develop one of the most successful HO and N gauge businesses in Broadway Limited.   Still going strong from what I see.  So maybe Maury Klein did have someone who knew what he was doing .

To add to the question if K-line would have survived, I wonder what would have happened had K-line bought the TMCC system through Lionel in much the same way that Atlas did.  It is a shame that they did not make it because they made some very good equipment and very competitive pricing.  I still have the collectors club SD70 and it looks as good as any of the new engines coming out today.  But like many I also had problems with the TMCC components which I ended up replacing with ERR cruise commander.

Marty

@GG1 4877 posted:

No.

I think they would have and we all be better for it.  Only reason we lost Weaver is the owner retired and didn't have any interest in selling.  MTH is reduced to Mike retiring, there's plenty of room today for Kline, Lionel, Atlas, and 3rdrail

Where did the tooling for their scale Hudson end up? Dave

If they had survived, what would we do with all our free time not spent reading threads like this.......

Seriously though- I found K-line trains after I got back into the hobby, and long after they were gone. They made some great products. Unfortunately they got lazy and greedy, and it cost them in the end.

Yea- they could possibly have survived, maybe not in the engine market but rolling stock and accessories (like Menards) could have been a niche. Their 13" passenger coaches are great for small layouts.

Bob

I certainly appreciate the above postings of details of the K-Line demise.  With the loss of and downsizing of major providers, and morbid rumblings of aging out of those who grew up with the hobby, l sadly doubt that K-Line would have survived, except in a merger similar to Williams'. K-Line did new and different prototypes, but today's market may not support the profitable quantities to do that. I am surprised the market is not saturated with the old stand bys, but new tooling costs at today's prices!? Only Menards has been bold enough to jump in...

@superwarp1 posted:

Only reason we lost Weaver is the owner retired and didn't have any interest in selling.

I think he did want to sell, but ran into the same problem Mike Wolf did -- no big-money buyers or investment groups interested in buying the business as a whole.  Had K-Line not had the legal troubles, they would have lasted a while longer, but would have eventually run into the same problem as Weaver and MTH -- no one to take over the company as a whole and keep it going.  At least Mike Wolf surrounded himself with enough good people that they could step in and take over portions of the business so that MTH survives, even if it is in a diminished capacity.

Andy

I believe it's hard to say unless someone knows how small the profit margin was for K-line on the products they were selling.  They had developed enough really nice tooling that they could have stopped developing new product for some time, taking a page out of Lionel's book and just re-decorated what they had for several years, thereby saving on development costs.

The control system would be the issue.  Could they afford that development cost if they didn't develop new models?  Would Lionel continue leasing TMCC and at a price that made sense?  I haven't kept up with the new market for several years due to prices so I don't know if Atlas still leases a command system.  I see posts about Blunami and other such systems, wouldn't a conventional 4-6-4T be a great candidate for such an aftermarket control system?

@Andy Hummell posted:

I think he did want to sell, but ran into the same problem Mike Wolf did -- no big-money buyers or investment groups interested in buying the business as a whole.  Had K-Line not had the legal troubles, they would have lasted a while longer, but would have eventually run into the same problem as Weaver and MTH -- no one to take over the company as a whole and keep it going.  At least Mike Wolf surrounded himself with enough good people that they could step in and take over portions of the business so that MTH survives, even if it is in a diminished capacity.

Andy

Mike Wolf ask for the Moon for MTH, or so I've been told.  No surprise he couldn't sell is.

I think they would have been OK if they didn't try to compete head to head with Lionel's scale Hudson using Lionel's factory and licensed controls.

@Landsteiner posted:

No.

My memory of the events is somewhat different.  K-Line never tried to develop their own command control system, although they had a remote system for controlling their accessories that was inexpensive.  The terminal legal case involved them hiring Lionel's chief engineer to design a transformer that unfortunately violated Lionel's patent(s).  Don't know whether he had a non-compete clause, but I don't believe he experienced any legal consequences per se.  Bob Grubba, who had been Lionel's head engineer, was then K-Line's and received the lionshare of the blame, but there was never any proof presented in public that he was aware of the details of what had occurred until after the fact.  People always feel a need to find a villain when things go south, but sometimes it's just ignorance or incompetence on someone's part, and it's easier to blame someone in charge.  We'll probably never know the details.  Bottom line, Grubba went on to develop one of the most successful HO and N gauge businesses in Broadway Limited.  So maybe Maury Kline did have someone who knew what he was doing .

Actually K-Line did try to develop their own control system

The description of the demise presented by the OP is most accurate.

Lou N

@G3750 posted:

I still kid myself that somewhere, somehow, Maury Kline is sitting in a "Raiders of the Lost Ark" type warehouse secretly releasing products into an unsuspecting (but happy) train world.

George

Maury Klein, not Kline.

Just a thought. There is a lot of drama here about an engineer secretly stealing Lionel's technology.

Just because a new design violates an existing patent, this does not mean that anything was done secretly or even with bad intent.

If a design is granted a patent, and someone else makes a significant and non-obvious improvement to that design, then the new design is allowed to get its own patent by the new designer.   This is done all of the time.

When the new designer files a patent for the improved design, this is publicly done, and often the new designer goes forth and starts production of the new item before or after the new patent is granted.

But, this does not mean that the original designer cannot challenge the new patent in court, on the grounds that it was not a significant and non-obvious improvement,  and should never have been filed or granted.    This happens very often.  And it is why you hear on the news about large companies being in court for years and years over patent battles.   (The surviving Wright brother spent most of his last years of life constantly in court, litigating over whether his patent for the invention of the "aeroplane" was being violated by other companies which made small improvements and claimed they were significant and non-obvious.)

I have no facts or information about what happened at K-Line, and I merely point out that the design engineer may have honestly thought that the new transformer he designed for K-Line contained a significant and non-obvious improvement over the Lionel patent.

Thanks,

Mannyrock

@Mannyrock posted:

I have no facts or information about what happened at K-Line, and I merely point out that the design engineer may have honestly thought that the new transformer he designed for K-Line contained a significant and non-obvious improvement over the Lionel patent.

This wasn't an honest mistake. The issue between Lionel and K-Line  was that the design engineer was still employed by Lionel at the time he was paid to develop K-Line's system. The framework and improvements were apparently quite obvious to Lionel and, as part of the ultimate settlement that doomed K-Line, K-line agreed to license their technology to Lionel in perpetuity…

From the first settlement (that was ultimately scuttled upon K-Line's public misrepresentation of it)…

"Under the terms of the settlement, K-Line and the other defendants, Maury Klein and Robert Grubba, admitted that they paid Lionel’s chief engineer to develop advanced versions of Lionel’s operating systems and features that were used in a number of K-Line’s engines and electrical transformers. They further admitted that these products actually contain Lionel’s technology and are currently for sale in the marketplace."

Anyone who ever met Maury Klein knows he could be a bit stubborn and emotional. Those traits helped him establish MDK Inc. and the K-Line brand, which, like Williams, focused on offering hobbyists options to Lionel’s limited product line during the early modern era, and those traits also likely contributed to the company’s demise.

When Maury started investing in new tooling — both for scale products like the GP38 and fresh traditional-sized products like the USRA Pacific — in the late 1990s, he did focus on keeping prices substantially lower than similar offerings by both MTH and Lionel. The extremely low-priced KCC offerings were shockingly inexpensive.

As he continued to challenge MTH and Lionel, he maintained that strategy, even as he began planning for a command system, which was much more likely the sticking point with Lionel rather than a transformer. (I don’t recall reading the a summary of the findings of fact anywhere, but it’s possible those may have been sealed by the court to protect proprietary information concerning Lionel’s specific claims against K-Line.)

The costly settlement essentially overwhelmed Maury’s business model, which assumed debt in tooling that would be amortized over time. When K-Line couldn’t amortize those costs any longer and fell into deeper debt, bankruptcy resulted.

Could anyone had told Maury, “Hey, you need to rethink your price structure to amortize your tooling costs more quickly, and you need to abandon a proprietary technological push until you have the capital to fully design your own,” would he have listened? I don’t know, but there is reason for doubt.

Regardless, for about 10 years, K-Line truly was a hobby leader. Hobbyists would have supported the product line. But there’s a caveat. Given that we no longer have Williams (as an independent company), Weaver, Right of Way and MTH (as an active producer of new tooling and a full product line like it once had), would support for K-Line been enough to maintain its continued existence? My heart says yes, but my head says no.

Yes, they could've survived but they were "stuck" in the licensing of other companies command systems, and those systems did not include speed control...and then they tried to develop their own, and maybe their own sound system as well, cannot recall. This may be a factor as to why Mike Wolf didn't go the TMCC/Railsounds licensing route, i.e., you are the mercy of the licenser and won't get the top tier electronic packages.

K-Line was innovative in their last decade of operations, including Super Streets and hi-rail looking operating accessories. I loved their scale reefers and passenger cars. They had a niche with these things alone, and it's a sad commentary that they got into legal trouble and had to sell out and close...with Lionel subsequently making some of the items under a different name.

I don't see how K-Line could have continued to import the volume of product that they were marketing when it all fell apart.  While there may have been enough pent-up demand for the first years of their "market flood", I doubt that the demand would have been sustained.  I bought a bunch of their 18" and 21" passenger cars, but, that done, I would not have acquired more.  And I do wonder if the most inexpensive items were being sold at a loss, which wasn't sustainable.

Had K-Line "stayed in its lane" with the TMCC licensing, shrunk its annual product offerings to better fit the market instead of attempting to supplant Lionel or MTH, and had a succession plan for Maury and his longtime associates, I think it might have survived into this era.

@Jim R. posted:

Maury Klein, not Kline.

Yep.  Fixed.  My brain was moving faster than my fingers.

K-Line had at least one engine I liked that I'm hoping Lionel will make sometime: the ATSF SD75M/I. Lionel does have the tooling (or do they?). I would love a Legacy SD75M or SD75I in either ATSF Warbonnet, BNSF Patched Warbonnet, or BNSF H3 swoosh liveries (preferably all 3). Their passenger cars are cool, too. Plus, they are smaller which is good for folks with slightly tighter curves on their layouts. I would also like to see K-Line's Pacific Surfliner Cars be rereleased. Those would go great with a Vision Line Siemens Charger (or the new 3rd Rail version; still hoping for the VL Lionel version).

Thanks for that additional information RedRockBill.  It explains alot.

With respect to the engineer himself, it all comes down to what his employment agreement said or didn't say.  And, what the state law was on duties of loyalty and the enforcement of covenants not to compete (if there ever was one.)

Mannyrock

I have a couple of their scale diecast freight cars, totally awesome pieces. It's almost like they shrunk the real thing.

To me the O gauge market is oversaturated coupled with a gradually shrinking demographic.

@redrockbill posted:

This wasn't an honest mistake. The issue between Lionel and K-Line  was that the design engineer was still employed by Lionel at the time he was paid to develop K-Line's system. The framework and improvements were apparently quite obvious to Lionel and, as part of the ultimate settlement that doomed K-Line, K-line agreed to license their technology to Lionel in perpetuity…

From the first settlement (that was ultimately scuttled upon K-Line's public misrepresentation of it)…

"Under the terms of the settlement, K-Line and the other defendants, Maury Klein and Robert Grubba, admitted that they paid Lionel’s chief engineer to develop advanced versions of Lionel’s operating systems and features that were used in a number of K-Line’s engines and electrical transformers. They further admitted that these products actually contain Lionel’s technology and are currently for sale in the marketplace."

It wasn't just the transformers.  If you look at a locomotive with K-Line cruise control in it, the slotted disc on the flywheel and the board that reads it look exactly like Lionel's Legacy System cruise, which was under development at the time.  My opinion is that K-Line beat Lionel to market with their own next generation cruise, and Lionel sought relief in the courts.  I know that Lionel's chief engineer at the time used to report directly to Bob Grubba, before Grubba left Lionel for K-Line.

@Landsteiner posted:

No.

K-Line never tried to develop their own command control system,

Not True, I had one of their remotes and base stations.

Let's not forget that interest rates were near zero in those days. Not true, today.

@Lenny the Lion posted:

To me the O gauge market is oversaturated coupled with a gradually shrinking demographic.

Today?  Or was it that way when K-Line gave up the ghost, causing them to collapse?

It's one thing to to portend K-Line's death because of oversaturation and a shrinking market back in 2005, quite another to imply that this is the case today, almost 20 years later, that it's presently being faced by all remaining manufacturers, and that our entire hobby is thus doomed now just as K-Line was then.

Don't believe it.  Maury Klein was trying to make up via higher volume what he was losing by underpricing on each piece.  It didn't work.

He needed to raise his prices, or take out a little value and continue to charge a little less, in order to ensure a profit.

He didn't do so.

Mike

@Dylan the Train Man posted:

K-Line had at least one engine I liked that I'm hoping Lionel will make sometime: the ATSF SD75M/I. Lionel does have the tooling (or do they?).

This is an all-too-common mistake hobbyists make, assuming Lionel has K-Line tooling because of the short lived K-Line by Lionel branding.

Lionel has very little K-Line tooling. As part of the K-Line bankruptcy, all tooling went to Sanda Kan, the production facility where K-Line’s products were made (along with dozens of other model train makers). Sanda Kan subsequently went bankrupt and was acquired by Kader, a major Chinese toy and hobby holding company that bought Bachmann in the 1980s. So Kader got the tooling.

K-Line by Lionel was a two-year arrangement in which Lionel sold K-Line’s inventoried product line and other newly produced products at Sanda Kan from K-Line tooling. But it was a limited license deal that didn’t last long.

It appears as though Lionel obtained some tooling. The A5 switcher stands out in my mind. So it’s possible it obtained tooling from Sanda Kan before Kader took over. But we really don’t know if the tooling, which was made in China, is under an alternative usage deal, such as a lease or exclusive rights, or if it was bought outright. Companies don’t usually discuss such details.

Kader is famous is sitting on all sorts of tooling acquired as part of its purchase of model train companies and factories, Sanda Kan/K-Line, Williams and Graham Farish included. It also shut out almost all of Sanda Kan’s manufacturing partners, Atlas, Athearn and other known American brands deeper in the alphabet. How that makes sense is beyond me. But it’s not the only mystery in Chinese production practices.

@KarlDL posted:

As I recall, there were two components to their demise, the domestic technology ownership issue and confidential steam loco product plans copied by one Korean contractor from another, with Mr. Grubba appearing prominently in both matters.

Had K-Line "stayed in its lane" with the TMCC licensing, avoided the Korean fiasco …

I remember a Korean production corruption case involving Lionel and MTH (link below). I don’t recall one involving K-Line.

https://casetext.com/case/mikes-train-house-v-lionel

@KarlDL posted:

As I recall, there were two components to their demise, the domestic technology ownership issue and confidential steam loco product plans copied by one Korean contractor from another, with Mr. Grubba appearing prominently in both matters.

The issue of plans and tooling in Korea was an issue between Lionel and MTH. MTH accused Lionel and Korea Brass of using stolen drawings and production schedules from one of MTH's subcontractors. Lionel wound up on the hook for $40 million owed to MTH when that was all said and done.

A second suit between MTH and Lionel concerning  control and synchronization technology did involve Grubba and his time at Lionel.

IIRC, those cases and verdicts set off some acrimony here and elsewhere that I hope we never have to revisit…

At one time I had hundreds of pages of both K-Lines and Lionel’s respective bankruptcy info and filings saved in a laptop as they were public info. I seem to remember separate from the trouble with Lionel, K-Line were deeply in debt to Sanda Kan and I don’t think they were ever going to have the volume of sales to get out of their financial problems they built . At least at the prices they were selling things at.

@Mellow Hudson Mike posted:

Today?  Or was it that way when K-Line gave up the ghost, causing them to collapse?

It's one thing to to portend K-Line's death because of oversaturation and a shrinking market back in 2005, quite another to imply that this is the case today, almost 20 years later, that it's presently being faced by all remaining manufacturers, and that our entire hobby is thus doomed now just as K-Line was then.

Don't believe it.  Maury Kline was trying to make up via higher volume what he was losing by underpricing on each piece.  It didn't work.

He needed to raise his prices, or take out a little value and continue to charge a little less, in order to ensure a profit.

He didn't do so.

Mike

Today.

Theoretically,  they "kind of" did. Lionel has already reproduced just about all of the scale K Line steamers.

Maybe not the most ideal situation, but it's far better than K Line tooling sitting in an abandoned warehouse or ending up in a dumpster.

Redrockbill and Jim R,

Thanks for all of the background information concerning K-Line and what happened to them, I wasn't aware of many of those facts and events that led to their closing. 

@Jim R. posted:

This is an all-too-common mistake hobbyists make, assuming Lionel has K-Line tooling because of the short lived K-Line by Lionel branding.

Lionel has very little K-Line tooling. As part of the K-Line bankruptcy, all tooling went to Sanda Kan, the production facility where K-Line’s products were made (along with dozens of other model train makers). Sanda Kan subsequently went bankrupt and was acquired by Kader, a major Chinese toy and hobby holding company that bought Bachmann in the 1980s. So Kader got the tooling.

K-Line by Lionel was a two-year arrangement in which Lionel sold K-Line’s inventoried product line and other newly produced products at Sanda Kan from K-Line tooling. But it was a limited license deal that didn’t last long.

It appears as though Lionel obtained some tooling. The A5 switcher stands out in my mind. So it’s possible it obtained tooling from Sanda Kan before Kader took over. But we really don’t know if the tooling, which was made in China, is under an alternative usage deal, such as a lease or exclusive rights, or if it was bought outright. Companies don’t usually discuss such details.

Kader is famous is sitting on all sorts of tooling acquired as part of its purchase of model train companies and factories, Sanda Kan/K-Line, Williams and Graham Farish included. It also shut out almost all of Sanda Kan’s manufacturing partners, Atlas, Athearn and other known American brands deeper in the alphabet. How that makes sense is beyond me. But it’s not the only mystery in Chinese production practices.

What about the early O gauge stuff made by AristoCraft/RMT, or the operating cars that Williams made?

@RickO posted:

Theoretically,  they "kind of" did. Lionel has already reproduced just about all of the scale K Line steamers.

Maybe not the most ideal situation, but it's far better than K Line tooling sitting in an abandoned warehouse or ending up in a dumpster.

Agreed, …..some of Lionel’s releases are carbon copies of Kline’s beauties!!…..stunning, scale detail, with a drivetrain that ain’t worth crap!!…😉

Pat