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Slowed by U.S. Automakers, Superior Refocuses Strategy

The past two years have not been kind for Van Nuys-based Superior Industries International Inc. as the company has seen its stock price drop, mirroring the fortunes of its main business partners the Ford Motor Company and General Motors. Now, in an attempt to re-focus the business, Superior has decided to sell its suspension components division, worth an estimated $44 million. Just two years ago, Superior was riding high, with its stock trading in the mid-$40 range, as it came off of a 2003 in which it claimed a robust $73.4 million profit. But as Detroit’s fortunes have waned, so has Superior’s, a major domestic manufacturer of aluminum wheels and other motor vehicle parts. As of the close of trading on January 25, Superior was trading at $22.50 a share. And the tailspin within the automotive industry doesn’t seem over yet, as just last week Ford announced plans to slice 25,000 to 30,000 jobs and idle 14 facilities by 2012 as a part of a restructuring designed to reverse a $1.6 billion loss in it North American operations. As of 2004, Ford accounted for 36 percent of Superior’s business and according to analysts, the layoffs will undoubtedly have an effect on Superior’s bottom line. “Ford’s still one of their major customers, so it will have an impact on Superior’s fortunes. However, I think just like Superior they’re refocusing their resources and repositioning themselves to do well in the future,” Doug Christopher, a senior analyst for Crowell, Weedon & Co. said. “We think that Ford and GM are both continuing to make good products and their fortunes will eventually pick up, as will Superior’s. They supply a vital product that provides a lot of added value and they’ve got solid finances.” What is clear is that in order for its fortunes to rebound, Superior had to take a pro-active approach towards reorganization, and according to Christopher the sale of the suspension components division was a positive first step. “It’s a move of inspiration and focus and not of desperation,” Christopher said. “We’re still in January and it’s the New Year, all of us in our business set some new goals and their goal is to re-focus. That’s a great thing and that’s what great businesses do. In the future, they’ll be focusing on their strengths: well-made, well-designed aluminum wheel products.” New focus Representatives from Superior declined to comment for this story, however they mentioned in a prepared statement that the sale of the suspension components division indicated a new focus for the company. “Today’s intense competition in the global automotive industry makes it imperative that Superior focuses all of its resources on its expanding aluminum wheel business,” Chief Executive Officer Steven Borick said in the statement. He also indicated that all components orders would continue to be delivered as scheduled. Currently, the firm’s management is seeking an investment banker and/or other advisors to explore options for disposal of the company’s suspension components business. Yet some analysts don’t share Christopher’s optimism for Superior. In the latest report from Citigroup analyst Jon Rogers, he cautioned investors against purchasing the stock, rating it a “sell.” “We rate Superior Industries high risk despite Superior’s market leading position in the aluminum wheel market and its debt free balance sheet,” Rogers wrote. “(They) have a high customer concentration (GM and Ford account for 75 percent of revenue), a deteriorating pricing environment, and an intensifying competitive landscape.” Domestic manufacturing In recent years, Superior has expanded the scope of its manufacturing facilities, opening manufacturing plants in Mexico and Hungary. However, the company continues to do most of its manufacturing domestically, the high costs of which are battering most United States manufacturers, including Ford and GM. Rogers also pointed out this fact in his most recent report. “Although the company’s shares might look attractive in a trading range of approximately $23 a share, that book equity is comprised of manufacturing capacity that has become fundamentally uncompetitive,” Rogers wrote. “Superior’s manufacturing facilities are based mostly in the U.S. and Mexico where labor rates remain high relative to Asian and Eastern European regions. As these regions develop competing products and continue to set industry pricing standards, Superior’s competitive positioning is unlikely to improve relative to global benchmarks.” The company has yet to report its fourth quarter results from last year. In the third quarter of 2005, Superior reported a loss of $501,000 or two cents a share, compared with 2004’s third quarter net income of $5.5 million. Additionally, its revenue totaled $187.6 million, down 6 percent from the year previous’ $199.3 million.

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