* Older railcars should be modified or phased out over time -CEO

* If changes ordered, GATX would phase out its 4,000 crude and ethanol railcars

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By Kristen Hays

HOUSTON, March 5 (Reuters) - GATX Corp GMT.N , the No. 2 lessor of oil rail cars, is working to redeploy older tank cars in its fleet to carry less hazardous cargoes after a series of fiery oil-train crashes highlighted flaws in older models, its chief executive said on Wednesday.

Chief executive Brian Kenney told investors that the company favors the use of stronger tank railcars that would be less prone to puncture in an accident, and said that his company's older cars built before tougher industry standards were adopted in 2011 would probably be phased out rather than retrofitted.

"We haven't sat and waited for regulation to occur," he said. "We're out trying to redeploy those cars into other service or sell them."

Those efforts follow a series of measures by railroads and regulators to address concerns over the safety of shipping oil by rail, including higher rates for older cars in Canada, agreeing to slower speeds in urban areas, and ordering more testing.

Kenney didn't specify what other kinds of cargoes the redeployed cars would carry, but they are designed to transport commodities or hazardous materials that don't need to be in a pressurized car. That includes gasoline and diesel fuel, or even corn oil or milk, though a redeployed crude car would move to refined fuels, industry sources said.

However, U.S. regulators have yet to decide on how to move forward with long-pending plans for stronger rules for tank cars that carry crude. Some say that long-known flaws in older models may have made them more susceptible to explosive derailments over the past year. In the worst such accident, a runaway train in Lac-Megantic, Quebec, crashed and exploded last July, killing 47 people.

"Yes, we need to build a stronger new car," Kenney said in a webcast presentation at the Raymond James Institutional Investors conference.

He said such fortified railcars would feature thicker steel, head shields, thermal insulation, different valve designs and pressure release devices.

Kenney said GATX would probably prefer to phase out the older models, as retrofitting costs could stretch into tens of thousands of dollars per railcar, which "probably wouldn't be worth it," Kenney said.

Crude shipments via rail have risen from nearly zero to some 1 million barrels per day in the last four years in tandem with the domestic oil production boom. Rail emerged as an attractive option to move relatively cheap U.S. oil to refining markets where pipeline infrastructure is lacking, particularly on the East Coast and the West Coast.

After the accidents, the rail industry agreed to conduct more track inspections and to slow down crude trains with older cars. Last week, the U.S. Department of Transportation issued an emergency order to test oil to be shipped via rail for flammability, though it did not specify the frequency or method.

Shippers are still awaiting potential new rules regarding railcars.

GATX, the No. 2 U.S. railcar lessor behind Union Tank Car, owned by Warren Buffett's Berkshire Hathaway BRKa.N , owns 110,000 railcars, and is affiliated with or manages another 7,000. Of those, 2,000 carry crude and another 2,000 carry ethanol, Kenney said.

The rail industry in October 2011 adopted a standard for new tank cars that carry crude that calls for thicker hulls and reinforced valves. Up to 80,000 of the older, less fortified tank cars built before then remain in service, Kenney said, and regulators could order that they be phased out or retrofitted to a new standard.

(Reporting by Kristen Hays; Editing by Jeffrey Benkoe, Meredith Mazzilli, Jonathan Leff and Jonathan Oatis)

((kristen.hays@thomsonreuters.com)(+1 713-210-8538)(Reuters Messaging: Reuters Messaging: kristen.hays.reuters.com@reuters.net))

Keywords: GATX CRUDE/RAIL