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Company Takes $10 Million PPP Loan Then Closes Alabama Plant And Moves Jobs To Mexico

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FreightCar America, the publicly traded company that received a $10 million Paycheck Protection Program Loan, the maximum amount available under a pandemic relief program, just closed a factory and will move it to Mexico. 

The company’s factory near Muscle Shoals, Alabama will be no more in a crushing blow to employees who will see their jobs shipped to Mexico.  Jim Meyer, FreightCar America’s CEO, told the news organization that broke the story, ProPublica, that he had not intended to shutter the plant when he received the PPP money but the cash allowed the company to keep workers on the job through most of 2020 despite a sharp dropoff in new orders.

Robert Bulman is not buying it. He worked at the plant for seven years. He said:“When the Mexican plant opened, we were told at the beginning they would just be helping Shoals and making parts for the trains. But the whole time, it was a setup, we were gone.”

From Propublica: FreightCar laid off 550 people with the Shoals plant shutdown, according to a notice filed with the state of Alabama. Along with its headquarters employees, that alone would exceed the PPP’s ostensible 500-employee cap. But FreightCar availed itself of a loophole baked into the PPP.

The SBA’s alternative size standards, a complex set of industry-by-industry thresholds that have been debated for decades, allowed it to qualify with up to 1,500 workers.

Originally, the SBA allowed foreign-owned applicants to count only their U.S.-based employees under the 500-person cap. That guidance changed last May, requiring foreign-owned applicants to count their entire global workforce.

But plenty of companies had already gotten PPP loans, and were allowed to keep them.

For example, Ledvance LLC, a Chinese-owned global lightbulb manufacturer operating in the U.S. under the brand name Sylvania, was approved for a $9.36 million PPP loan in April 2020. Then, between May and July, it laid off 50 people while closing down a distribution center near Bethlehem, Pennsylvania. Ledvance spokesperson Glen Gracia said in an email that the layoffs were “unrelated to the pandemic and in full compliance with LEDVANCE’s participation in the Paycheck Protection Program.”

Then there’s Chick Master Incubator Company, which took $1.34 million in April 2020. In June, its corporate parent — a Zurich-based private office that invests the fortune of a long-established industrialist family — announced it would combine Chick Master with its other hatchery holdings and close the plant, laying off 68 people in Medina, Ohio, by year’s end. Chick Master didn’t reply to a request for comment.

One type of applicant, however, still likely should not have qualified: companies controlled by private equity firms whose total holdings exceed the SBA’s size standard for the borrowers’ specific industries. Cadence Aerospace, a supplier of aerospace and defense parts that itself has bought three companies in the last three years, is majority-owned by Arlington Capital, a private equity firm managing billions of dollars. Cadence was approved for a $10 million PPP loan in April 2020, and later that month laid off 72 people at its Giddens Industries subsidiary in Washington state, according to a notice filed with the state. Arlington Capital did not respond to a request for comment.

The Shoals plant was the last remaining U.S. manufacturing facility for FreightCar, a 120-year-old company headquartered in Chicago that had been shrinking its U.S. footprint for years. In 2008, it shuttered its plant in Johnstown, Pennsylvania. In 2017, it shut down its factory in Danville, Illinois. In 2019, it closed its plant in Roanoke, Virginia and announced it would open a new facility under a joint venture in Castaños, Mexico. When executives informed investors in September that the Shoals facility would also close and manufacturing would shift to Mexico, they projected $25 million in overall savings, including a 60% reduction in labor costs.

“Our manufacturing transformation is now largely complete, and we have taken control of our own destiny,” Meyer said on an earnings call in March. “We have dramatically repositioned our competitive profile and in so doing created a new company, one that is able to win.”

In 2013, the future looked different. When the Shoals plant opened, it offered about $12 an hour to start and a chance at advancement. One worker, who asked not to be named in order to protect her future employment prospects, left a tile-making job to become a welder, constructing a variety of rail cars, from hoppers to gondolas. Soon, she moved up to air brake tester, sliding underneath the massive steel vehicles to fix pipes.

“I went to FreightCar to retire,” said the worker. “I wasn’t planning on leaving when I got there.”

In the following years, safety, pay and management concerns led to a union drive. During the campaign, anti-union employees circulated flyers warning that the plant would shut down if workers voted to organize, and in 2018 they voted decisively against it.

As it turned out, the Shoals facility wouldn’t last long anyway.

Leading up to 2020, FreightCar touted the Shoals plant’s competitiveness. A marketing video showed production lines run by industrial robots and skilled workers. “This is the largest, newest, most purpose-built factory in North America,” boasted Meyer. “A modern, state-of-the-art factory in every sense of the word.”