KiwiRail says no jobs will be lost if it doesn't put in a bid for the contract to build 51 new trains for Auckland.
Workers at KiwiRail's train-building workshops say their industry could die if they aren't part of building the trains.
Chief executive Jim Quinn says the company has not made a final decision but if it doesn't bid, that will not impact on jobs in the workshops.
Mr Quinn says KiwiRail needs to finish agreeing a plan with the Government for turning the company around before it can say how many workshop staff will be needed in the longer term.
KiwiRail is about to call for expressions of interest in producing the railcars, now that the Government has set aside $500 million for new rolling stock.
Members of the Rail and Maritime Transport Union's Hutt branch say the company's mechanical arm must be able to bid for the contract or more skilled workers will be lost.
A fitter, Kasia Kurene, says four workers with up to 20 years of experience have already shifted to Australia in the past few months.
The union says the trains could built by KiwiRail with an investment of $8.5 million for new equipment.
BERL report sees great benefits
A report by Business and Economic Research (BERL) suggests an enormous overall economic benefit from producing the trains in New Zealand.
The contract is for 38 electric multiple units (carriages with engines) and 13 electric locomotives.
BERL says that up to 1300 new jobs and about $250 million would be added to gdp if the trains were produced by workshops in Dunedin and Lower Hutt.
But KiwiRail is unlikely to put in a bid. The company says it lacks the ability to be competitive or to meet the production deadline of 2013.
Unrealistic expectation - Joyce
Transport Minister Steven Joyce told Morning Report on Monday that New Zealand has to concentrate on sectors where it has a competitive advantage, and that it's not realistic to expect to compete against foreign manufacturers.
Mr Joyce said KiwiRail needs to make sensible commercial decisions and not be subjected to political pressure.
Rail and Maritime Transport Union general secretary Wayne Butson says however that both the United States and Australia require at least 40% of new rolling stock to be built locally, and that New Zealand should be doing the same.
Mr Butson agrees that Kiwirail must make commercial decisions but says central government is there to do social good for New Zealand.
Benefits 'still possible' for local firms
The Auckland Regional Council says manufacturers in this country can still benefit even if an offshore company wins the tender.
ARC chairman Mike Lee says that he supports as much New Zealand input as possible, and that, after many years of waiting, the priority must be to get electric trains without further delay.
Mr Joyce said the Government would ensure that companies tendering for the contract were aware of the local capacity to carry out maintenance work.