Auto sales across the country have been rising consistently for more than two years and major shifts in consumer preferences have forced suppliers like Superior Industries to retool its two local plants in Northwest Arkansas and construct a fourth plant in Mexico.
The wheel maker said recently its two U.S. plants in Fayetteville and Rogers face capacity challenges and are running far less efficiently than their sister facilities in Mexico.
In recent months local plant officials said their facilities were running at near maximum capacity employing roughly 1,400 workers in Northwest Arkansas.
The firm said it squeezed 800,000 additional wheels out of its plants last year and still lost some marketshare because it couldn’t keep pace with demand.
Superior recently broke ground on its fourth plant in Chihuahua, Mexico as it tries to capture additional marketshare.
The new plant will cost Superior about $125 million and take be completed in mid-2015. This plant will be equipped to produce up to 2.5 million wheels a year, giving the company 20% more capacity than it has right now.
“We are confident these investments will enable us to pursue the growth opportunities afforded by the strengthened automotive sector and to achieve our ongoing goal of enhancing shareholder value,” CEO Steven Borick, said last month.
Kerry Shiba, chief financial officer for Superior Industries said in the company’s recent earnings call, the challenges in the local plants relate to their older age, equipment reliability and they are less adaptable to the “increasingly challenging product mix” in orders it gets from its two largest customers Ford and General Motors.
“We continue to face up to these challenges with urgency and commitment of capital,” he said.
Superior spent nearly $8 million in the first quarter and allocated another $10 million in projects so far this year, the vast majority of that capital is targeted to the firm’s Fayetteville plant – it’s largest U.S. facility.
“However, we do remind everyone that a relatively long gestation period exists before many of the benefits of increased capital spending will begin to be realized. We are reallocating product mix to our factories where possible to better match process capabilities with technical product requirements,” Shiba said.
He said overflow production is being shifted in the short-term to their low-cost operations in Mexico when possible. Shiba reiterated to investors that the smaller plant in Rogers is showing better efficiencies with an improved profit margins since the plant was recently retooled.
Shiba said Ford is Superior’s No. 1 customer and continues to order more wheels.
Ford reported assembly rates rose in excess of 16% in the first quarter, with passenger cars up 21% and light trucks up 14%.
Shiba said GM, Chrysler and the international brands were down some in the first quarter.
Since then Ford said it planned to lift its production in the third quarter by 10% after its F-Series truck sales surged 31% in May.
Chrysler said three of its assembly plants will skip a traditional summer shutdown because of increased demand.
General Motors’ sales were mixed. Sales of Silverado pickups rose 25% and smaller Sonic and Cruze models also posted double-digit gains, while Malibu and Impala saw deep drops in the units sold.
Overall, sales last month were running at an annualized pace of about 15.3 million, according to Edmunds.com. The auto researcher expects sales this year to hit 15.5 million, a tally not seen in six years.
Superior Industry shares (NYSE:SUP) were trading about 2% higher in today’s afternoon session at $18.13, up 36 cents. For the past 52 weeks the share price has ranged from $15.75 to $22.09.