Depression and Decline
The general economic downturn associated with the Great Depression affected the M&E as well. Smart and frugal management kept the railroad viable through the worst of the 1930s. In fact, the M&E would be the only U.S. railroad to rid itself of all debt during the era leading up to World War II. The railroad passed out of the McEwan family by 1943, and continued under new management. In 1952, the line received its first diesel, an S-4 from Alco.
When Andrew J. Cobb assumed the presidency in 1961, many of the mills that had been steady customers for so long began to shut down and consolidate. Two crews were still needed to handle the traffic on the line, though the railroad was facing mounting losses. In 1960, the Lackawanna and the Erie merged to form Erie Lackawanna Railway, which eliminated the competition for shipping rates to the M&E.
By the 1970s, the entire Northeastern railroad industry was in decline, and the M&E looked to alternative revenue streams. The Morristown shop was leased to a locomotive rebuilder for a period of time, but it wasn't enough. The last of the paper mills had closed and carloads were down to about a dozen a week. The railroad tried to invest its meager freight earnings into non-transportation areas, but these experiments failed. By 1978 the railroad had filed for bankruptcy protection and was operating "as needed."
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—Orson Welles (1915–1984)