The Joplin Globe, Joplin, MO

Business

July 12, 2012

Siemens Rail Systems diversifies to trolleys, bullet trains

SACRAMENTO, Calif. — Sacramento has always been a train town. First it made steam locomotives and passenger coaches. Then light-rail cars. Now a German rail giant wants to greatly expand the types of trains built here, a move that could position Sacramento for years to come as a modern-era train manufacturing center.

For 20 years, Siemens Rail Systems has supplied light-rail cars to cities across North America from its south Sacramento manufacturing plant. The company recently began a push to diversify into trolley cars, locomotives, subway cars and train coaches.

Siemens also is positioning itself to build what could be the next big thing in American passenger rail - bullet trains.

Its success or failure has big implications for the local job market. Siemens employs 800 people building trains from the ground up. It’s a rare top-to-bottom manufacturing operation in a region that has struggled to reduce its reliance on government and construction.

But times have been tough in the recent recession. The company recently cut 44 jobs in Sacramento. By diversifying, Siemens is seeking stability and growth in a business that Siemens Rail Systems President Michael Cahill said is often unpredictable, or, in his words, “chunky.”

“Projects come and go, and you have to wait for the next project,” Cahill said in a recent interview. “That uncertainty is always difficult to manage.”

Siemens has invested $50 million in the past five years at its Sacramento plant, he said. It also purchased 20 adjacent acres as a manufacturing site for high-speed rail trains.

“We want to leverage our abilities and our location here, but also fill in the gaps between those chunky projects,” he said.

Siemens Rail Systems, part of Germany-based international technology conglomerate Siemens, is still a relative newcomer in Sacramento.

The company opened a temporary plant here with a few dozen employees in the mid-1980s to work on one of the early light-rail contracts in the United States, 26 vehicles for Sacramento Regional Transit’s starter line.

Siemens officials liked the area enough to make it their permanent North America light-rail manufacturing home base in 1991. Siemens now employs engineers, designers, marketers and manufacturing plant laborers.

The company takes raw steel, cuts and welds it, and merges it with electronics and engineering to produce a high-tech product. That type of manufacturing creates spinoff effects with other local companies, business officials say.

“Siemens really stands out in (the Sacramento) landscape,” said Jeffrey Michael, director of the Business Forecasting Center at the University of the Pacific. “It’s an example of exactly the type of industry we want more of.”

Mark Lonergan, chief operations officer for Sacramento RT, said Siemens’ plan to diversify beyond light rail involves some risk, but also offers the company a logical opportunity for growth.

Although the light-rail industry is expanding, there are only a few dozen cities with light-rail systems, Lonergan said. Siemens and its light-rail competitors make vehicles that last 30 years, which reduces the frequency of new fleet vehicle orders.

“Tapping into the broader rail market makes sense,” Lonergan said. “They have the infrastructure in place to make that move.”

Siemens’ parent company already makes other rail products, including high-speed trains overseas. The local plant likely will be able to take advantage of that expertise, Lonergan said.

A look inside Siemens’ cluster of hangar-like manufacturing buildings last week offered evidence of the company’s status as a transit production leader.

In one building, hammers clanged on metal and sparks flew as welders fit car frames with millimeter precision. Next door, in the final assembly hall, workers installed seats and doors on bright red cars bound for San Diego’s light-rail system. One vehicle headboard repeatedly flashed its future destination, “Old Town.”

A few feet away, assemblers put finishing touches on blue Atlanta streetcars, gleaming silver and blue vehicles destined for Edmonton, Alberta, and bright white cars for Houston.

That bustle belies the current tough economic times. The plant is currently producing six vehicles a day, only about 60 percent of its capacity, Cahill said. He said a series of contracts from 2007 and 2008 are coming to a close, which necessitated the recent job cuts.

The work pace could soon pick up, though. The company scored two successes recently in its diversification effort, signing a $17 million deal to produce streetcars for Atlanta, and a massive $466 million contract to build 70 locomotives for Amtrak. They will be the first locomotives built in the Sacramento plant.

Siemens also won a $73 million contract last month to produce 18 light-rail cars for Portland, Ore.

But the company lost its bid for a lucrative contract this spring. Los Angeles officials passed over Siemens in favor of a Japanese company for an $890 million contract to build more than 200 light-rail cars. Siemens protested the bid, but was turned down. The contract would have meant hundreds more jobs here and in Los Angeles. Cahill said the company is trying to put that loss behind it.

“We never like to lose a deal,” he said. But, “it is not the end of the world. We will survive that.”

The company doesn’t always win bids even in its hometown. Although Siemens supplied Sacramento Regional Transit with its first light-rail cars, the transit agency turned to other manufacturers the last two times it bought trains.

Siemens last month did win a $20million contract with Sacramento Regional Transit to refurbish 21 of those competitors’ train cars. A competing bidder complained Siemens got the contract because of its local connections. RT officials denied that.

“We have a good relationship, but there is no bias toward Siemens,” Sacramento Regional Transit General Manager Mike Wiley said. “They have to compete along with everybody else.”

Siemens’ Cahill said he believes his company is positioning itself well to do that. “Even in times of uncertainty, the trend toward passenger transit is still up.

“It never moves fast enough for us, but we are here for the long run.”

 

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