A Japanese company hired to build new passenger railcars for
regional Amtrak service has fallen years behind schedule and likely
won't complete the order before federal funding expires.
The stalled production undermines an ambitious plan to upgrade
Amtrak service in California, Illinois, Michigan and Missouri and
has highlighted the complexities foreign companies face in
complying with made-in-the-U.S. requirements. Funding for about
three-quarters of the 130-car order is tied to the American
Recovery and Reinvestment Act of 2009.
To help U.S. manufacturers recover from the recession, the
stimulus bill required the cars be built entirely in the U.S. with
domestically sourced components and materials. The stimulus-funded
cars must be completed by September 2017 and missing the deadline
would result in any unspent money for the cars being redirected by
the federal government.
"The intent is good, but 100% buy-American has been more of a
challenge than we anticipated," said Bruce Roberts, rail and mass
transportation chief for the California Department of
Transportation, which is overseeing the project for the four
states.
Sumitomo Corp. of Americas, the U.S. subsidiary of the Japanese
financing and manufacturing conglomerate, underbid two other car
builders in 2012 to win a $352 million contract to assemble the 130
double-deck railcars. But assembly work by Sumitomo's longtime
partner, Nippon Sharyo USA Inc., was suspended last fall after it
was unable to comply with U.S. design requirements.
The tight restrictions on when and where the stimulus money can
be spent left Nippon Sharyo with almost no room for error with a
car model that it hadn't built before and a brand-new assembly
plant 80 miles west of Chicago that cost $100 million.
Crashworthiness of passenger railcars has been a primary focus
of car designers since collisions involving commuter and freight
trains in Southern California killed 11 people in 2005 and 25
people in 2008. Nippon Sharyo's car hasn't been able to pass a
federally mandated test for absorbing rear- and front-end
compression force generated in a crash.
After repeated failures, engineers are now redesigning the car's
body shell. That and additional testing will take about two more
years to complete, according to people familiar with the matter.
The entire job was to be finished in 2018, with the stimulus-funded
portion due for completion in 2017. Now, Nippon Sharyo isn't
expected to start production until 2018, people familiar with the
work say.
Nippon Sharyo said it and Sumitomo "are working diligently to
ensure that all design requirements and contract terms are met…Once
everything is resolved with this particular issue, the production
will be back on schedule."
Said Matthew Lehner, public affairs director for the Federal
Railroad Administration: "The Federal Railroad Administration is
committed to its investment in high-quality and safe passenger rail
cars. And we are committed to the jobs the project has and will
create."
The production delay throws a wrench into the states'
anticipated rail-service upgrades. The states could be forced to
look for alternative funding or buy significantly fewer coaches and
rely on Amtrak's aging fleet built in 1970s and 1980s to make up
for the equipment shortage.
Blown delivery deadlines could leave Nippon Sharyo liable for
several million dollars of damage fees for violating the contract
terms, sources familiar with the contract said. The states could
use that money to pay for some railcars, but would likely have to
find other sources to make up the shortfall.
Nippon Sharyo has a long record of supplying cars to U.S.
commuter railroads, but industry analysts say many of the cars used
well-established designs and components that required a limited
amount of additional engineering work. The company also conducted
most of the engineering and production work for those cars in
Japan. Partially completed cars were then shipped to a U.S.-based
contractor for final assembly.
In a written response to questions from The Wall Street Journal,
Nippon Sharyo said the 88-foot-long Amtrak cars are "different from
all of the existing railcars" it has built for U.S. customers.
"Programs of this type are complex undertakings, have high
thresholds for safety and technical challenges are not uncommon,"
the company said.
It had to rely on suppliers that it has never worked with before
and found some components so difficult to obtain in the U.S. that
it sought permission to make them in Japan, the California
Department of Transportation said.
The combination of low bids and high costs for relocating
operations to the U.S. often puts foreign builders in a bind,
analysts say.
Five years after winning a $343 million contract to build 130
long-distance railcars for Amtrak, Spain's Construcciones &
Auxiliar de Ferrocarriles SA is struggling to complete the order.
The work was supposed to be completed by early 2015, but as of late
last year the company's CAF USA Inc. subsidiary had turned out 70
baggage carsfrom its plant in Elmira Heights, N.Y. Nearly 400
defects were identified in the first 28 baggage cars delivered,
according to an Amtrak report issued in February.
The work schedule has been renegotiated, with each delay pushing
delivery dates further out. CAF declined to comment.
Lack of experience in building railcars in the U.S. nearly
disqualified Hyundai Rotem USA Corp., a subsidiary of Korea's
Hyundai Motor Group, from competing for a contract to supply 120
cars to Philadelphia's public transit agency a decade ago. The
company fell years behind schedule as its production was besieged
by material shortages, design problems, software glitches, poor
quality-control and difficulty finding skilled workers.
Robert Pollin, an economics professor and co-director of the
University of Massachusetts Amherst's Political Economy Research
Institute, says: "The ones who get these contracts are really
operating on the razor's edge."
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
April 10, 2016 22:25 ET (02:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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