A comment on rolling stock protectionism

by Stephen Smith

In response to an article I posted yesterday about protectionism in public transit procurement, frequent commenter Alon Levy left this great comment about the history of rolling stock procurement in the US:

What happened in the 1970s was that the rolling stock market shrank, leaving American transit agencies with just a few US vendors. St. Louis and Pullman were fully protected by Buy American. As such, New York City Transit had no choice but to buy trains from them; the trains turned out to be defective, leading to breach of contract lawsuits that bankrupted both companies. Since then, NYCT has bought from foreign companies, following Buy America to the letter but not to the spirit. The first order after the St. Louis and Pullman disasters was imported from Kobe, as Reagan cut all federal funding, and went without a hitch. Subsequent orders required the vendors to establish US plants, but often only the final assembly is done in the US. In the most recent order, the car shells were made in Brazil.

Buy America does the opposite of leveling the playing field for foreign firms. It favors big players, which can land big contracts and establish US plants. The same is true for the regulatory structure: the various globally unique [Federal Railroad Administration] rules benefit companies that are big enough to be able to modify trains for the American market. Just recently, Caltrain’s request for an FRA waiver involved consultation with just the largest companies in the industry. There are a lot of smaller manufacturers that are shut out of the US market; they don’t have the capital to establish new overseas factories or pay lobbyists to write rules in their favor. Those include Switzerland’s Stadler, Spain’s CAF, the Czech Republic’s Skoda, all Chinese firms, and all Japanese firms other than Kawasaki. Those can occasionally land a US contract, but are usually unable to compete with Kawasaki, Alstom, Siemens, and Bombardier, whose US market shares far exceed their global market shares.

I should add that although I didn’t excerpt this part in the other post, the investigation that eventually revoked CAF’s contract in Houston started with a complaint by Siemens, which fits perfectly into Alon’s narrative. Like he says, even companies that aren’t domiciled in the US can take advantage of American protectionism by establishing plants here and then using that to restrict smaller firms that don’t have the resources to waste on Potemkin factories.

Thanks to Alon Levy for this great comment, and thanks to all the other commenters for your contributions – I very much enjoy reading the comments, and find them to be of much higher quality than the comments on most other blogs I read.

  • Jonathan M Feldman

    Hi again, you still have not addressed why CAF beat out the far larger Alstom to get the AMTRAK contract.
    Why have you done that? http://www.railwaygazette.com/nc/news/single-view/view/caf-wins-first-coach-order-from-amtrak.html
    Did you know that CAF has a factory in the United States? I don’t understand this quote:
    “even companies that aren’t domiciled in the US can take advantage of American protectionism by establishing plants here and then using that to restrict smaller firms that don’t have the resources to waste on Potemkin factories.”

    FROM: http://www.caf.es/ingles/compania/instalaciones4.php
    CAF’s plant in Elmira (New York, USA)
    is the result of the intense activity of the company in the North American market over the last few years.

    The high volume of orders in the US market (more than 600 million dollars in sales, in three years) has driven us to establish a solid infrastructure in North America.

    For this purpose, CAF USA acquired the plant in December 2000. This factory has produced railway vehicles since 1986 under the ownership of ABB and later Adtranz. Highly skilled workers and managers, experienced in the North American railway market, work in Elmira.

    In order to serve its customers’ needs in the USA, CAF has several, customer service and maintenance centers in Sacramento (California), Greenbelt (Maryland) and Pittsburgh (Pennsylvania).

    The Elmira plant is CAF’s North American manufacturing headquarters, centralizing the management, the coordination with all the US suppliers and on site support for the US customers.

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