story by Kim Souza
Superior Industries announced early Wednesday (July 30) that it would close its Rogers wheel manufacturing plant as “part of an initiative to reduce costs and enhance its global competitive position.” The closure will result in the loss of 500 jobs, with the plant expected to end operations by the end of the year.
The company’s plant in Fayetteville will remain open, with some of the work from Rogers being shifted there and to operations in Chihuahua, Mexico. Company officials said the move would result in a $15 million per year labor cost savings. Average local wages at Superior Industries range from $55,000 to $80,000 annually, according Glassdoor.
“This action follows a comprehensive review of the company’s cost position in what continues to be an intensely competitive environment,” Don Stebbins, who joined Superior in May 2014 as its president and CEO and member of the Board of Directors, said in the statement. “Our board and management team remain focused on building an efficient, operationally stronger organization that can compete effectively with manufacturers around the globe. We appreciate the contributions of our team members at Rogers and will be providing assistance to them during the transition process”
Superior noted in June of 2013 that its U.S. facilities were unable to keep pace with the demand out of Detroit. Management said the plants in Rogers and Fayetteville faced capacity restraints and ran far less efficiently than their sister facilities in Mexico.
Kerry Shiba, chief financial officer for Superior Industries, said in June 2013, the challenges in the local plants related 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.
Despite retooling the Rogers plant in 2013, and a hefty $18 million capital investment last year in the two local plants, the company said it continued to lose some marketshare because it could not keep pace with demand. The company said most of the $18 million was earmarked for the larger Fayetteville plant, perhaps another hint that the Rogers facility’s days were numbered.
In 2013, the company said it squeezed 800,000 extras wheels from the two plants but that was not enough. Soon after, the company broke ground on its fourth facility in Mexico hoping to recapture some additional market share.
At $125 million, the new plant in Mexico will produce up 2.5 million wheels a year, giving the company 20% more capacity.
The closure is a huge blow to the Northwest Arkansas employment sector that continues to lose higher paying manufacturing jobs, despite a few recent announcements related to Wal-Mart’s U.S. manufacturing jobs initiative. Manufacturing employment in Northwest Arkansas was an estimated 26,300 in June, down from 26,500 in June 2013, and well below the 33,300 in June 2004 – a more than 21% drop in the 10-year period.
Wall Street analysts said Tuesday that they are concerned about the increasing capacity in the auto industry over the past few years. Adam Jonas, auto analyst with Morgan Stanley, said that the auto market's five year run of expanding production and profits is peaking.
"We're pulling forward from the future and it's worrisome" Jonas said.
The industry has added back 120% to 130% of the capacity lost during the recession, according to Jonas.
“The current boom in auto production in Mexico is an example of the new surge in supply heading to U.S. showrooms,” he said.
Auto dealerships across the country report brisk sales that have them worried there won’t be enough automobiles coming to keep pace with the average 16.5 million units sold annually.
In the first quarter of 2014, Superior reported lackluster earnings as its biggest customers, Ford, General Motors, Chrysler and Toyota worked through unsold inventories. The company reported net income of $4.8 million for the first quarter, flat with the year-ago period.
Net sales for the 2014 first quarter decreased 11% to $183.4 million from $206.4 million in the comparable period a year ago. However, the company’s gross profit improved to $15.6 million for the 2014 first quarter from $13.5 million in 2013, while the 2014 first quarter gross profit margin improved to 8.5% of net sales from 6.5% last year.
The gross profit margin improvements were attributed to lower labor costs and improved operational efficiencies.
Superior Industries will report its second quarter earnings on Thursday (July 31.)