Jobs Issue Snares Rail Car Maker : Transportation: Morrison-Knudsen, part of uproar over Metro Rail contract, is being sued in Chicago for hiring Sumitomo as a subcontractor.

It was a bruising contest for a major mass transit job. On one side was a foreign company long on experience. On the other, a scrappy American newcomer seeking to win the contract by offering a lower price and more local jobs.

Sound familiar? It should.

The scrappy newcomer was Morrison-Knudsen Corp., the Boise, Ida., company that provoked an uproar in Los Angeles by charging that transit officials were shortchanging American workers by hiring Japanese-owned Sumitomo Corp. of America to build cars for the Metro Green Line.

In Los Angeles last month, union members championed Morrison-Knudsen as the savior of American jobs, helping it to overturn the contract award to Sumitomo. But for this job, in Chicago, the company is finding itself on the other side of union sentiment.

After winning the $379-million order for 313 new and rebuilt commuter train cars for Metra, the metropolitan Chicago commuter-rail agency, Morrison-Knudsen is being pilloried--and sued--by union members for exporting jobs overseas by hiring a Japanese firm to do 23% of the work.

The Japanese firm: Sumitomo.

But the ironies do not end there.

Morrison-Knudsen’s foreign rival in Chicago--Bombardier Inc. of Canada--is being lauded by American workers for having proposed to build the train cars by calling 225 laid-off United Auto Workers members back to their old jobs at a General Motors Electro-Motive Division factory in La Grange, Ill.

The UAW is seeking to overturn Morrison-Knudsen’s contract in court by claiming that the negotiated bid-evaluation process was vague, overly subjective and prejudiced--the same allegations made by Morrison-Knudsen when it lost the Green Line job in Los Angeles.

Morrison-Knudsen’s predicament in Chicago illustrates the dilemma that it faces as it elbows its way into the competitive mass transit business: Being the only American-owned new-car maker can be a powerful selling point, but one that can easily backfire when foreign companies supply too many components.

But the company’s Chicago experience also demonstrates what a powerful draw the promise of local jobs can be when competing for high-stakes mass transit contracts. The big selling point for Chicago officials was the company’s vow to establish a Chicago plant to build rail cars.

Morrison-Knudsen has raised the same prospect in its fight for Los Angeles’ Green Line.

That is a tempting notion for Los Angeles officials, who are eager to attract industry and jobs in a time of high unemployment.

But as the Los Angeles County Transportation Commission readies a new round of bidding for the 23-mile Norwalk-to-El Segundo Green Line car contract, it has to divine whether selecting Morrison-Knudsen will get them what they want.

Morrison-Knudsen is not the first company to invoke national pride or promise local jobs to secure contracts. But executives at other U.S. transit equipment suppliers said privately that the Green Line controversy could hurt the company because it raises questions of hypocrisy.

More than a few people have archly noted that Morrison-Knudsen teamed with Sumitomo to secure the Metra contract at the same time it was bashing the Japanese company for robbing it of a chance to demonstrate American know-how in Los Angeles.

And while Morrison-Knudsen Chairman William J. Agee was eagerly criticizing Los Angeles for buying foreign-built train cars, he was drawing up his company’s role in a proposed high-speed rail line in Texas--using trains designed and made in France. At the same time, his company was filling its first major new-car order with frames and bodies imported from Brazil.

Agee has proposed to finance that showcase of French technology with an $800-million research and development grant that Congress authorized to spur the development of high-speed rail technology in the United States.

“I can understand why people might say that,” Agee said of the criticism, “but the logic doesn’t follow.” What skeptics do not understand, he said, is that Morrison-Knudsen is trying to revive a domestic new-car manufacturing industry that has been dormant since the last U.S. car maker, Budd Co. of Philadelphia, quit in 1987.

“Technology transfer--and that is the phase that we’re in now--is a very natural development stage,” Agee said. “The best technology in the world today comes from Germany, France, Japan and Brazil, and you use those people. Once you build up local demand and capability, you do it yourself.”

The key, he said, is demand, and that is being built by the renaissance of rail transit. Nowhere is this rebirth more apparent than in Los Angeles, the archetype of 20th-Century automobile-oriented development.

“When we look up the road three or four years,” Agee said, “we see the market expanding rapidly . . . and that was before the passage of the federal Surface Transportation Act, which will open the market even further.”

Unquestionably, Agee has raised Morrison-Knudsen’s presence in the transportation industry. Starting with a car-refurbishing business that has 70% of the domestic market, the company added new-car manufacture in 1989. It has since won big new-car orders from Metra, the Chicago Transit Authority and the Metro-North commuter railroad in New York.

Morrison-Knudsen also is considered a leading contender to build the next generation of San Francisco Bay Area Rapid Transit District vehicles, a 250-car order to be awarded in March, as well as 200 intercity sleeper cars for Amtrak and 88 intercity passenger cars for Caltrans.

Morrison-Knudsen also has been chosen to build a $1.7-billion, 15.7-mile driverless transit line in Honolulu and it heads a consortium that has been awarded a state franchise to establish high-speed train service between Houston and Dallas. In both cases, the company will manage the heavy construction and leave the car-building to others.

Although five foreign-owned manufacturers--Canadian, Japanese, Swiss and two German--also run transit car plants in the United States, Morrison-Knudsen has re-established a wholly American presence in the market.

In the process, the company has created hundreds of jobs at its main plant in Hornell, N.Y., and has promised to create 286 more at the new factory planned for an abandoned Pullman coach plant on the South Side of Chicago.

But both of those plants have to assemble rail cars using foreign-made shells--the one-piece frames and bodies--because there are no American makers of car shells. This has exposed the company to allegations by unions that it does nothing more than provide relatively short-term, low-paying jobs assembling “car kits” shipped to the United States by foreign manufacturers.

“In the short term, that is correct,” Agee said. “The (domestic) market, when it was smaller, did not justify getting into that (car shell) business.” But, he added, that will change now that the market is growing--and as his company increases its share of it.

At the height of the Green Line controversy, Agee said that his company planned to start up its own car shell factory at a site that had yet to be determined. He pointedly added that Los Angeles could not be considered as a home for the plant if Morrison-Knudsen does not get a car-building contract here.

The implication tantalizes Los Angeles transit officials because such a factory represents a long-term commitment to the region--unlike an assembly plant that might remain open only as long as it takes to bolt together a few dozen cars for a project.

What is unclear, and what Agee declines to discuss in specifics, is whether Los Angeles can compete for that factory. The region has the money to buy a lot of cars and the skilled labor force to make them. But it is an expensive and difficult place to do business, with high land and labor costs, strict environmental regulations and tarnished living standards.

Also working against Los Angeles are the company’s other factories, such as the plant in Hornell, 220 miles northwest of New York City, and the new plant that it is committed to have in Chicago. Both have the advantage of lower costs and proximity to the large number of transit systems in the East and Midwest.

However, Agee said, Chicago and New York are just finishing thorough fleet modernizations and will not be in the market for more cars for some time, while Philadelphia lacks the money to update its equipment. That, he said, leaves California.

“California clearly will have enough volume over the next five to 10 years to support any company that wants to come,” he said. “The volume more than justifies expanded manufacturing capacity.”

Los Angeles officials, after watching a German joint venture called Siemens-Duwag establish a plant in Sacramento, are trying to make sure that the next plant--if there is one--comes south. The county transportation commission is developing a six-point plan to design a single car that can work on all of its light-rail lines, then find a factory location to build the large 100-car order.

Los Angeles has one advantage in that it is paying for its transit cars with local funds, so it can require car builders to establish local factories. Cities using federal grants for their car purchases are forbidden to make such demands.

At the same time, Rep. Julian C. Dixon (D-Los Angeles) has introduced legislation to give tax relief to any company willing to come to Los Angeles County, while Rep. Howard L. Berman (D-Panorama City) and LACTC board member Nick Patsaouras are pursuing parallel efforts to set up a transportation research center to nurture a Silicon Valley-style boom for transit.

Agee said he envisions a need for plants in New York, the Midwest and California, but it is difficult to gauge whether Morrison-Knudsen will need that many facilities. And he has made similar promises to other cities before.

In Chicago, Morrison-Knudsen overcame its relative inexperience in new-car construction by promising to deliver cars to Metra 14 months sooner and $8 million cheaper than Bombardier. But Metra spokesman Chris Knapton said the company clinched the contract when Agee promised to “bring back the transit industry” to Illinois.

“That wasn’t lost on our board,” Knapton said. “We said: ‘Great. If we can bring the transportation industry back to Illinois, let’s do it.’ It’s been hell since Budd--and Pullman before them--went out of business.”

New York officials figure to be able to compete well for any expansion planned by Morrison-Knudsen.

“It isn’t as though they established it (the Hornell factory) only for New York projects, although it doesn’t hurt to be close to the New York City market,” said Bern Rotman of New York’s state Department of Economic Development. “There is also the fact that it is a very low-cost facility. It (Hornell) is a very competitive location in terms of cost. . . . The question is, can Los Angeles compete in terms of cost?”

Even if Los Angeles is able to use its clout to force local assembly of its car order, it will have to work hard to keep the jobs.

When BART bought 150 cars from GEC Alsthrom of France in the early 1980s, the company agreed to assemble the cars in Union City. But when the last car left the factory floor, so did the jobs.