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Thursday, Mar 28, 2024

Wheelmaker Has Smoother Ride

Superior Industries International Inc. has begun to turn the corner following an extended period of dismal financial results, plant closures and massive layoffs. As the U.S. auto industry exits one of its worst downturns the Van Nuys-based manufacturer of aluminum wheels in turn saw an increase in orders. Its first quarter earnings were the first time in almost two years that Superior posted net income, reporting $8.9 million. Now, the company is investing in an Indian manufacturer that exports wheels for the U.S. market as well as serving its growing domestic market. Executives with Superior refused to discuss the deal with Synergies Castings Ltd. In a statement, however, company Chairman, CEO and President Steven Borick called the deal an excellent long-term investment given the growing automotive market in India. Superior initially bought 8.7 percent of shares in the privately-held Synergies, based in Visakhapatnam, India. The company has an agreement to bring its ownership stake up to 26 percent by the end of the year. The deal is worth $9.5 million that Superior will make in four payments and subject to adjustments if Synergies reaches certain financial targets. Reliance by suppliers on a single market, especially those that are mature like in the U.S. and Europe, is no longer a smart business move making diversification into foreign markets necessary. There is likely to be no downside to entering the Indian market because it is a key place for investment as its affluent population grows and can afford to buy new cars, said Jesse Toprak, vice president of industry trends with TrueCar.com, a new car pricing website. “Even though all indications show improvement (in the U.S.) there is more of a potential for explosive growth in India than the U.S.,” Toprak said. As Superior entered one foreign market it exited another by selling off its share in a wheel manufacturing plant in Hungary. At the time of the sale Borick said in a prepared statement that it opened the door to other investment opportunities in emerging markets. Leaving Hungary made sense as the country no longer provided a cheap cost of labor as it once had, Toprak said. Changing fortunes A year ago entering emerging markets would not have been much of a priority as orders from Superior’s existing markets plummeted when the recession worsened and the U.S. auto industry entered the roughest period seen in decades. The Big Three automakers – General Motors, Ford Motor Corp. and Chrysler – provide more than 80 percent of Superior’s revenues. Dependence on the Big Three is a drag on Superior, especially in light of a shift away from the light trucks and SUVs using aluminum wheels in favor of smaller cars. Ford delayed sale of the 2009 F-150 pickup by two months in 2009, and General Motors closed four truck and SUV plants that did not reopen again until 2010. In its 2009 annual report Superior noted that as the Big Three lose North American market share, the company would have to make up the lost revenues elsewhere. Auto industry forecaster CSM Worldwide projects U.S. sales of light vehicles to reach 11.8 million in 2010 as consumers begin to make purchases they had held off making when the economy was weaker. While India will never reach the sales levels of the U.S., CSM was optimistic about the market there. New vehicle manufacturing plants and introduction of a new domestic model from carmaker Tata are among the bright spots, the forecaster said. India sales growth Light vehicle sales in India are expected to grow nearly 14 percent in calendar year 2011, according to CSM. Over the next 10 years, most new cars sales will shift to overseas markets, particularly India, China and South America, Toprak said. By swapping out Hungary for India, Superior maintains six manufacturing facilities, the others being in Arkansas and Mexico. As a response to lower wheel demand, the company consolidated its properties by closing a facility in Kansas in 2008 and eliminating the manufacturing in Van Nuys in 2009. The two closures resulted in more than 900 jobs lost. Plant closures and layoffs due to industry fluctuations are not uncommon for Superior. In 2007, the company shuttered a facility in Tennessee. The year before, quarterly wheel shipments hit a low not seen since 1998 and production was stopped at some plants, up to three full weeks in some instances. Also in 2006, Superior sold its discontinued suspension components business and laid off 375 workers from its Van Nuys location.

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