Gas crunch has wheels coming off at superior.

The travails of the Big 3 U.S. automakers are hitting home for Van Nuys-based wheel supplier Superior Industries Inc.

Superior makes aluminum wheels for sport utility vehicles and light trucks and its primary customers are Ford Motor Co. and General Motors Corp. Both automakers have been under siege as high gasoline prices have prompted consumers to abandon big gas-guzzling vehicles in favor of more fuel-efficient cars. Both Ford and GM have announced massive production cutbacks in recent months; Daimler-Chrysler's Chrysler Group announced cutbacks just last week.

Now, as these auto makers have cut their production, Superior has been forced to cut its own production.

Already this year, Superior has announced three rounds of layoffs totaling 1,100 workers at three plants around the nation, topped off with a Sept. 15 announcement that it was closing a plant in Tennessee and eliminating 500 jobs--its biggest single cut yet.

"We're sizing the company better to meet the current demand," Superior chief executive Steven Borick said in announcing the Johnson, Term., plant closing.

These cuts, along with the announced sale of its suspension components unit, leave Superior with about 4,700 employees at 11 plants in the U.S., Mexico and Hungary.

But as consumers continue to leave gas guzzling sport utility vehicles and light trucks sitting on dealer parking lots, Superior must now scramble to penetrate new markets or risk even more deterioration of its customer base. Superior now has about 30 percent of the aluminum wheel market in the U.S. and about 20 percent of the nation's overall wheel market.

What's more, as the automakers try to cut costs, they have been seeking cheaper overseas suppliers of critical auto components such as wheels. That is taking even more work away from such domestic suppliers as Superior.

These twin challenges have soured investors on the company. Over the last two years, Superior's stock price has slid from $45 a share to a Sept. 21 close of $16.75 a share, a five-year low. And several analysts tracking the company have issued "sell" ratings, meaning they expect the stock price to head even lower, to around $15 a share.

"We have become increasingly concerned ... given our view of weakening end-market demand and continued share losses at the domestic OEMs (original equipment manufacturers such as Ford and GM) and among SUVs," said analyst David Leiker of Milwaukee-based Robert W. Baird & Co. in a report issued last week. "Earnings have been flat-to-down in eleven straight quarters with any recovery likely pushed well into 2007 and maybe 2008."

Indeed, last year, Superior reported an earnings loss of $5.8 million on $845 million in revenues. So far this year, Superior is in the black, but just barely, with net income in the first and second quarters at $1.1 million and $2.1 million respectively.

Strategic plan

Superior executives acknowledge they have their hands full but contend they have a two-pronged strategy to attempt to lift the company out of its current difficulties and avoid further layoffs.

First, the company is looking to design wheels for cross-over type vehicles, which are sport utility vehicle frames on top of passenger car chassis, such as the Toyota Highlander or the Subaru Tribeca. "We are following our customers' lead in terms of migration of their product lines," said Mike O'Rourke, senior vice president of marketing for Superior.

But to really reverse the declining customer base, O'Rourke said the company is going to have to step up efforts in an area where it's had mixed results to date: penetrating the supplier chains of major Asian automakers such as Toyota Motor Corp. and Honda Motor Corp. Ltd. As gas prices spiked earlier this year, American car buyers flocked to Japanese automakers, especially Toyota, which earlier this summer for the first time ever outsold each of the U.S. auto companies in the U.S. auto market.

"This rapid trend towards Toyota puts a lot of companies like Superior at a disadvantage," O'Rourke said. "It's hard to break in with Toyota because they make a lot of their wheels in house."

Indeed, Japanese automobile companies are notorious for having very limited supply chains, and mostly in Japan. And when it comes to wheels, they tend to offer less in the way of options, meaning less need to design multiple wheels for each model.

Nonetheless, O'Rourke said, it's now Superior's top priority to diversify its customer base. He noted the company has made progress in supplying wheels to Nissan Motor Corp. But breaking into these very tight supply networks is likely to take years and is unlikely to offer any quick remedy for Superior's current troubles.

That's why several analysts expect further cutback announcements. Back in February, the company announced it was cutting 375 jobs at its Van Nuys facility, leaving a total of about 500 workers there. That was followed by a June announcement of 225 layoffs at its Fayetteville, Ark., plant. And then came the announced closure of the Johnson, Tenn., facility within the next six months. That closure is expected to cost the company about $1 million.

Some of these production cutbacks are being offset by the opening of a production plant in Chihuahua, Mexico, where costs are significantly lower than in the U.S. But even these lower costs are not enough to compete with wheel factories that have been opened up in China.

"We believe Superior continues to face mounting competitive pressures going forward, which over time will likely result in additional erosion to sales, wheel shipments, margins and earnings," wrote Brett Hoselton, an analyst with KeyBanc Capital Markets, a division of McDonald Investments Inc., in a report last month.

The only thing that has slowed this trend has been persistent quality problems at Chinese factories, something that most analysts expect will eventually be worked through. Meanwhile, Superior executives said last week they are not expecting to make any further production cutback announcements, at least in the near future.

"We believe we have now gotten our capacity in line with demand and we've told our remaining production facilities that we believe we are done for a while with production cutbacks," said chief financial officer Jeff Ornstein.