Nippon Sharyo opens rail car plant in Illinois

By Richard Wronski and Alejandra Cancino | Chicago Tribune | July 20, 2012

This tiny town west of DeKalb is nicknamed “the Hub” because it’s the center of a wheel with spokes made up of two interstates and two major U.S. railroads.

But it also became a hub of state, federal and international attention Thursday with the opening of Nippon Sharyo Manufacturing LLC’s $35 million passenger rail car plant.

For Illinois and Rochelle, the facility represents a multimillion-dollar investment — incentives to lure the Japanese manufacturer to build its first U.S. manufacturing plant amid the cornfields and create an anticipated 250 jobs.

For the Chicago area, the facility will produce a fleet of 160 “Highliner” rail cars for Metra Electric Line customers. The new cars will replace ones that date back decades, to the days of the old Illinois Central Railroad.

The plant’s dedication brought a bit of the Far East to the Midwest and was celebrated with traditional Japanese drummers and the cracking of a cask of sake for a good-luck toast.

Addressing some 500 guests, Gov. Pat Quinn hailed the company’s arrival as a stimulus to the economy and a generator of jobs.

“This (facility) will help our people get to work, to get to school, with cars that are being built right here in Illinois by Illinois workers,” Quinn told the audience, who lunched in the spotless, sprawling, 465,000-square-foot facility next to rail car prototypes.

Metra customers “need 21st-century rail cars,” he said.

Also on hand were Nippon Sharyo Chairman Katsuyuki Ikushima, Japanese Ambassador to the U.S. Ichiro Fujisaki, Federal Railroad Administration Deputy Administrator Karen Hedlund, Metra officials and others.

The new rail cars are being purchased for $577 million through the state’s $31 billion bond program, a capital program that funds construction and public works projects.

Previously, Nippon Sharyo had outsourced the final assembly of its passenger cars to Super Steel in Milwaukee.

Initially, 80 rail car “shells” are being constructed in Japan and shipped to Rochelle for completion. The remaining 80 will be entirely manufactured at the new plant.

Metra expects to test two prototypes in the fall and get delivery of the first four cars in November, CEO Alex Clifford said.

Eventually, all 145 1970s-era Metra Electric cars will be replaced with the new equipment. The new cars will feature power outlets for personal electronic devices, upgraded seating and new flush toilets — the scarcity of which has been a source of irritation among riders.

“I want to thank Metra Electric riders for their patience,” Chairman Larry Huggins said.

But what happens at the plant after the Highliners are built, in 2015?

Company officials say they plan to aggressively seek more work. Nippon Sharyo has already secured three contracts for 12 diesel cars for California’s Sonoma-Marin Area Rail Transit; 18 cars for Metrolinx in Toronto; and eight bi-level passenger cars for the Virginia Railway Express in Alexandria, Va.

The Rochelle facility will give the company greater control over its workforce and will position the company to surpass Buy America requirements, which allows companies to tap into federal incentives through states, municipalities or transit authorities.

Under the requirements, companies have to produce 60 percent of the total value of the rail cars in the U.S. The final assembly must be made by American workers with American-produced steel, iron and manufactured components.

One of Nippon Sharyo’s key steel suppliers has located a plant in Belvedere, Ill., and company President Akira Nakagawa, gesturing across the road at open land, said the Rochelle area is ripe for expansion.

Rochelle officials agreed, pointing out the proximity of the Union Pacific and BNSF rail lines, which cross in town; a city-owned rail line, which serves local industries; and the city’s own utility company, which provides fiber-optic broadband.

“We’re unique in that we have an older industrial base and a very strong agricultural component surrounded by cornfields,” City Manager David Plyman said. “But we’ve also branched out in recent years to provide industry with state-of-the-art technical services.”

To build the facility, the state in 2010 offered Nippon Sharyo an incentives package worth more than $4.7 million in training funds, grants, corporate income tax credits and other incentives.

The tax breaks in that package are worth more than $2.85 million, said Marcelyn Love, a spokeswoman for the state’s Department of Commerce and Economic Opportunity. That figure is based on 2010 tax rates, but since the rates increased in 2011, the actual breaks could be higher.

On Thursday, the state announced an additional $5.5 million in incentives through the Illinois Department of Transportation to build a rail spur from the BNSF main line to the new factory and $866,000 through the city of Rochelle.

Nippon Sharyo pledged in 2010 to create at least 250 jobs in the state within three years and retain 15 workers from its previous office in Arlington Heights. It now employs about 150 workers, including engineers, welders and plumbers.

“It sounds like a modest deal for 250 jobs that probably pay decently,” said Jim Nowlan, a senior fellow at the Institute of Government and Public Affairs at the University of Illinois. “States are pulling out all the stops and using all the wrenches in the toolbox to attract jobs in their respective states.”

The question is always whether the company would had come anyway. Rail car makers want to be next to their customers, so the location makes sense, he said.

“It makes you wonder out loud if any incentive is going to need to be provided. Any company will plead for any incentives from state or local governments because it reduces the cost of doing business,” Nowlan said.

However, to the unjaded eye, it looks like a good deal, Nowlan said, adding that the state has made offers that included a $150 million incentive package for a retailer that announced layoffs soon after the award was approved by lawmakers.

Joan Fitzgerald, co-author of the report “Reviving the U.S. Rail and Transit Industry: Investments and Job Creation,” said that in deciding when to use subsidies, states should require companies to buy parts and other products locally to create additional jobs in the supply chain.

“The supply chain is very important to Illinois. (The Chicago area) has a lot of manufacturing companies that can produce products for this company,” said Fitzgerald, interim dean of the School of Public Policy and Urban Affairs at Northeastern University.

The 2010 report calls for an investment of $12 billion in rail vehicles and bus purchases to create more than 79,000 jobs. If the country were to invest $37.2 billion — a level comparable toChina’sinvestment in rail and bus vehicles — the country could stand to gain more than 250,000 jobs, according to the report.

MyNEUFind Faculty & StaffFind A-ZEmergency InformationSearch

360 Huntington Ave., Boston, Massachusetts 02115 • 617.373.2000 • TTY 617.373.3768
© 2013 Northeastern University