Car Wars

Battling over interest subsidies

New York City subway riders have long complained about the worn, graffiti-plastered cars that frequently break down and often lack air conditioning or even overhead lights. So it was good news earlier this year when the city decided to buy 825 gleaming new cars and retire many of the worst clunkers in the system.

Some unforeseen consequences of that decision, however, now threaten to ignite an international brawl. Trouble reached a climax last week when Treasury Secretary Donald Regan refused to grant cheap federal financing to aid the ailing Budd Co. of Troy, Mich., in a bid to build the cars.

In May, Budd lost the $660 million subway contract to Canada's Bombardier Inc. The Canadian government had given help to its firm by providing the financing that permitted it to offer New York an interest rate of just 9.7% on the deal. Budd tried to invoke a law that requires the U.S. Government to subsidize a loan when inexpensive credit gives foreign bidders the edge.

The Administration, though, did not agree. Said Regan in Washington: "Bombardier would have been awarded the contract even if Budd were able to offer matching financing." Regan said that the Bombardier bid was superior on all seven points that New York's Metropolitan Transportation Authority had considered. Those included the design and availability of the new cars, and their compatibility with other equipment.

Budd quickly challenged the argument that subsidized credit was not important. Said President James McNeal Jr. in Michigan: "That's a lot of crap. Financing was obviously a factor."

Budd has hired a battalion of attorneys who will continue battling the decision. The firm has labeled the Bombardier financing "predatory and noncompetitive" in complaints filed with the Commerce Department and the International Trade Commission. The struggle is also being waged in Congress, where Michigan Senator Donald Riegle Jr. and Congressman James Blanchard have introduced bills to aid U.S. firms that compete with foreign bidders. Says Blanchard: "This decision makes it apparent that we cannot rely on the discretion of the Administration to see that U.S. industries are able to compete on an equal footing with foreign firms."

Budd, an American subsidiary of Thyssen AG, a huge West German steelmaking firm, has lost five other rail-car contracts in the past two years to Canadian, Japanese and Italian competitors. Budd has done business with the MTA for two decades, and is to deliver 316 subway cars in 1984. The company said that as a result of losing the latest contract it will lay off up to 40 engineers and cancel plans to hire 550 workers in New York.

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