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Superior Industries International (NYSE:SUP)

Q3 2013 Earnings Call

November 01, 2013 1:00 pm ET

Executives

Kerry A. Shiba - Chief Financial Officer, Executive Vice President and Director

Stephen J. Borick - Chairman, Chief Executive Officer and President

Michael J. O'Rourke - Executive Vice President of Sales Marketing and Operations

Analysts

Brian Sponheimer - Gabelli & Company, Inc.

Jimmy Baker - B. Riley Caris, Research Division

Jeff Linroth

Operator

Good day, and welcome to the Superior Industries Third Quarter 2013 Earnings Teleconference. For opening remarks, I would like to turn the conference over to Mr. Kerry Shiba. Please go ahead.

Kerry A. Shiba

Thank you, Zach. Welcome, everyone, to our third quarter 2013 earnings call. During our discussion today, I will be referring to a PowerPoint presentation, which is available on our website at www.supind.com.

Joining me on the call today are Stephen Borick, our Chairman, Chief Executive Officer and President; and also, Michael O'Rourke, our Executive Vice President of Sales, Marketing and Operations. I will start, as usual with Slide #2 of the presentation, where I would like to remind everyone that any forward-looking statements made in this webcast, or contained in this presentation, are subject to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook.

We assume no obligation to update publicly any forward-looking statements. Conditions, issues and uncertainties that may be discussed from time to time, include, but are not limited to, global competition; product pricing and mix; domestic and foreign market demand; commodity prices, including metal, energy and foreign currency; manufacturing capacity, including plans to construct a new manufacturing facility; productivity; capital investment; operating and manufacturing challenges; and our strategic and operating plans. Please refer to the company's SEC filings, including our annual report on Form 10-K for a complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements.

So before we begin with a formal presentation, I would like to turn the call over to Stephen Borick for some opening remarks. Stephen?

Stephen J. Borick

Okay. Kerry, thank you, and good morning to everybody or afternoon. So as all of you have heard or read, and for those that didn't pick it up, I have officially announced my retirement from Superior as the CEO effective March 31, of 2014. And basically, it's for personal reasons. Thank goodness, not health-related, to start to pursue some other opportunities that have been brewing in my life for many, many years. I plan to remain on the Board of Directors. And moving forward, I plan to, at least, play an integral part in the future of Superior from the board seat versus the CEO seat.

I believe that the company is in very good financial condition and we have a strategy in place to move forward, as you know, with our building of our new facility, which we'll speak about a little bit further in the presentation. And also from the standpoint of looking for my successor, the board has begun a search for that process, which will both be internal and external in nature. From the standpoint of what the quarter looked like and the 9 months, Kerry will review that. But I do continue to see that the company is moving in the right direction with all of our facilities, improvements and the usage of our capital expenditures this year are starting to show through.

There are many things that are trying to be finalized prior to year end, in the capital arena that I believe will have positive impacts on all of our plans going forward and as we integrate those in 2014 also. One -- a couple of other quick notes. One, is that we celebrated our 20th anniversary of our Mexico operations. The first plant, being Number 7, built and operating starting in 1993. And secondly, the new facility, Plant 15, as you'll see in the presentation, is moving very rapidly. I'm very, very pleased with the execution and I'm also pleased with how we're keeping a good solid control on the cost side.

So with that, Superior continues to be favorable. Things are moving in a positive direction. As you know, this industry has always got its difficulties, like any business, but I feel very positive. And on the standpoint of me eventually leaving from the seat of the CEO, I feel very positive with the condition and financial stability that this company has.

So, Kerry, I'd like to send it back to you, please.

Kerry A. Shiba

Thanks, Steve, for your comments. As usual, we'll address questions at the conclusion of the formal presentation. So let's go ahead and begin the detailed discussion.

We'll begin by using the same format as last call. So let's start with an overview to set overall context. If you would like to refer to the data, Slide #14 shows the condensed comparative income statement for the third quarter.

Revenues for 2013 declined 1% from the same period last year on what basically was flat unit sales volume. Despite the flat volume, gross profit improved close to $400,000 or 30 basis points when measured as a percentage of sales. What isn't apparent on the surface is that gross profit in 2012 included a $3.5 million benefit from the reversal of a consumption tax reserve due to a tax audit settlement in Mexico. This benefit was equal to 1.8 percentage points of net sales, and was recognized in gross profit due to the nature of the tax involved.

The net income and EPS comparisons were affected further by another reversal of tax reserves, in this case, on the income tax line, which also resulted from the Mexico audit settlement in 2012. These reversals resulted in a $5.2 million net tax benefit for Q3 of 2012. When compared to the current year, the $7.7 million unfavorable swing in income tax was worth $0.28 per diluted share.

With this overview in mind, let's turn back to Slide #3, where I will begin the detailed discussion. Slide #3, which is titled North American Vehicle Production versus Superior Shipments, frames the market environment in which we operated. For anyone new to the call, North American Vehicle Production is a good overall indicator of the demand driver for our products. I will provide some information on customer and product mix in just a few minutes, which are important to help you understand distinctions between the overall market and our specific performance. But, first, let's start with a broad market view.

So looking at the red line on the graph, you will see the market was roughly 3.8 million units in the third quarter of this year, which represents a 5.1% increase over a strong Q3 of last year. Although the data isn't shown on the graph, this year was the strongest third quarter production rate for the last decade. As is typical, the third quarter of this year was down on a sequential basis, declining 9% from Q2, due to shutdowns and models changeovers. The trailing-12-month build rate increased very slightly to 15.8 million vehicles.

Superior's unit shipments are shown in the blue line. Second quarter unit sales volume basically was flat, both year-over-year and sequentially, while our year-over-year market share was down about 1.4 percentage points. We recovered 2.1 share points sequentially. I will talk more about this in a few minutes.

If you would now please move to Slide #4, we will peel back the production analysis by major customer. Let's review the format briefly. The chart on the left shows our top 5 customers individually, with the remainder of the OEMs grouped together in the last set of bars. For each customer, we provide year-over-year production volume comparisons for the quarter, including a product category breakdown between light trucks, which is shown in blue; and passenger cars, which are shown in red.

Just to confirm, recall that the light-truck category includes SUVs, vans and crossover vehicles in addition to light- and heavy-duty pickup trucks. We also show the aggregate -- I'm sorry, industry comparison by vehicle category in the chart on the right, where you can quickly see that virtually all the industry growth came from the light truck category, with passenger cars declining slightly. As we look at the data on the slide, keep in mind that total industry production was up 5.1%. So here are a few key observations.

Ford is the #1 customer in our portfolio. Assembly rates for Ford were a plus 11% for the second quarter in a row, substantially higher pace than for the industry overall. The increase drove about a 1-percentage-point gain in market share for Ford. In contrast to the industry, Ford's increase was substantially larger in the passenger car category, although light truck production still grew at a nice pace.

Commentary on the slide provides some details about the major programs driving the change. Of the vehicles noted, both passenger car and light truck, we participate on all but the Focus.

GM is our second largest customer. Their Q3 production rate was slightly below the industry rate at plus 4.5%. And overall share of the market was flat. The change in vehicle category mix directionally reflected the overall market, with light trucks at plus 13%, and passenger cars at minus 7%. Of the programs noted, the GMT900 K2XX is, by far, the most significant program in our sales mix with GM.

Chrysler's rate of production was up about 7% overall. Product mix continued to shift with light truck production at plus 22%, versus a 25% decline for passenger cars. Light trucks comprised about 78% of Chrysler's total vehicle production for the quarter, which also is where our business with Chrysler is concentrated.

Production in the international brands, in aggregate, was up only 2%. For the OEMs affecting Superior, Toyota increased 4%, while Nissan was at about plus 13%. BMW and Volkswagen were at minus 12% and minus 28%, respectively.

Turning to Slide #5, which is titled Superior Shipments Year-over-Year Comparison. Let's now take a look at what drove the company's volume changes for the second -- or I'm sorry, for the third quarter. We are using the same format as just shown, except that the focus is now on Superior shipments to our customers. I mentioned previously that our flat year-over-year volume resulted in a 1.4-percentage-point decline in market share. Underneath the surface, there were some unusually large changes in customer mix this quarter. Before discussing individual customers, let's start with the overall comparison by vehicle category, which is shown in the chart on the right.

A slight unit volume increase in light trucks basically offset a decline in the passenger car category. Although difficult to discern from the chart, our sales increased 1 percentage point towards the international brands and away from the domestic brands. However, as I mentioned, there were some large shifts by individual customer. With our largest customer, Ford, our aggregate volume was up 4%. While unit growth was very similar in passenger cars and light trucks, the percentage increase was higher in passenger cars. The principal passenger car gains were for the Fusion and the Lincoln MKZ.

In light trucks, growth for the F-Series, the Flex and Explorer more than offset declines on the Escape.

At GM, our #2 customer, we were up 2% overall. We still are seeing the year-over-year effect of loss of the Malibu program, which we have talked about previously. And this largely will disappear from the rearview mirror in the fourth quarter.

Shipments on the Cadillac ATS program mitigates some of the passenger car decline. You can see from the graph that our business at GM, primarily, is focused on the light truck category where we were at plus 12% in unit volume for the GMT900 and K2XX programs. We also saw a nice increase for the Buick Enclave.

Similar to GM, you also can see from the graph that our business at Chrysler largely is focused on light trucks. We were down 28% year-over-year, as our exit from the Jeep programs and the ramp-down on the Dodge Journey [indiscernible] increases for the Dodge Ram truck and the Chrysler Town & Country Van.

Moving to the international brands. A large 37% gain at Toyota continue to keep this customer in the #3 position in our portfolio, surpassing unit sales to Chrysler by a relatively wide margin for the third quarter of this year. The growth at Toyota is highlighted by big gains on the redesigned Avalon, where our volume was up almost 2.5x over last year. We also saw nice increases for several other programs.

The rate of decline in Nissan was at minus 25%. We have talked in previous calls about the ramp-down on the Sentra. A decline on the Maxima program somewhat reflected the change in vehicle production rates. Partially offsetting these declines were increased volume on the Note program.

Finally, we also experienced declines at BMW and VW, although these changes were relatively small when measured in number of units.

If you would now turn to Slide #6, we can look at the sequential sales volume comparison where I briefly will comment on the market, as well as Superior sales. From a surface view, Q2 to Q3 changes for the market tell a different story than is reflected in the year-over-year change. As I mentioned earlier, Q3 assembly rates were up 5% year-over-year, but were down 9% on a sequential basis. But this is due to customary maintenance shutdowns and model changeovers. The decline for light trucks was 6%, while passenger car production was down 12%. The overall mix between domestic and international brands shifted 1 point to the domestics.

While we have provided some details on the slide addressing individual producers, I'm not going to go over them individually, as the overall sequential comparison isn't very meaningful due to the Q3 shutdowns.

When looking at Superior, our shipments were about flat sequentially. Against the market decline, our stable shipment rate translated into an increase of about 2 points of market share. Our mix between domestic and international brands was unchanged. I, again, will leave most of the individual customer-related comments for you to read on your own. One thing to point out though is the GM growth due to the ramp-up of the K2XX program.

I next would like to turn to Slide #7, which focuses on net sales dollars and provide the year-over-year comparison for the third quarter and year-to-date results. This slide is in the same format as used in the past, so I'll move right to the data.

The volume impact was minimal for the quarter, but is still relatively noticeable in magnitude for the year-to-date. Moving down 3 lines on the schedule, you can see that our volume of cladded wheels is declining. And this mix change took about $4 million out of sales for the quarter. Keep in mind that cladding is applied to the wheel by a Tier 2 supplier, so the upcharge for cladding fundamentally is a pass-through item in sales.

Moving on to the bottom section of the schedule. The value of aluminum was down for the quarter as it has been for all the year-over-year comparisons in 2013. Lower aluminum value took an additional $4 million out of the sales line for the quarter and about $11 million, thus far, for the year. Again, as a reminder, changes in the value of aluminum, generally are passed through to the market, although there can be some timing differences involved.

The price mix change, again, was positive at plus $4.6 million for the quarter. The price mix impact has been a favorable factor all year. We may begin to see the positive variance decline in magnitude, as previous -- previously launched programs continue to mature, but we also have some favorable mix changes beginning to enter the portfolio. As we have noted in the past, we continue to be selective with regard to new program opportunities.

If you now would please turn to Slide #8, let's review the year-over-year comparison of gross margin for the third quarter. As expected, the volume impact is negligible. When you look at the sales data, that translates through the gross margin. The next item is mix rate, which again addresses product mix improvement as discussed on the sales slide. The only difference when compared to the sales analysis, is that product cost, also, was considered in the gross margin analysis.

The next 3 items are not large individually, but they do add up to just over 75 basis points of gross margin erosion when measured as a percentage of sales. Higher depreciation reflects the capital reinvestment in our factories, which we have discussed for several quarters. The aluminum pass through impact is a matter of timing.

Moving to the next item labeled Plant performance. This item fundamentally measures the change in manufacturing cost performance from period to period. As just noted, the impact of the change in depreciation is shown separately. In aggregate, we estimate the change in plant cost performance of roughly $1.6 million positive. We are pleased to see year-over-year improvement and a continuing trend of better cost management overall.

Cost performance in our Mexico operations was modestly improved and was affected negatively by increased maintenance downtime in 2013. We will continue to focus on creating operating flexibility to optimize capacity loading with the goal to leverage the lower cost improvement operating efficiencies in Mexico to the greatest extent possible.

The third quarter saw continued signs of improved stability being achieved in both of our U.S. manufacturing facilities. When compared to the prior year, Q3 of 2012 was a very difficult quarter for both of these plants. However, we are pleased to see that benefits are continuing to accrue for making key capital upgrades in 2012 and into this year.

We have discussed in past conference calls that we are committing capital to address several issues and make continual improvements in all of the manufacturing facilities. Excluding spending for the new manufacturing facility, which I will discuss separately, our capital spending for the first 3 quarters of 2012 -- I'm sorry, 2013, was about $24 million, which is about $10 million over the pace of last year.

Moving to the next line item on the graph, I spoke earlier about the $3.5 million reversal of a non-income tax accrual that occurred in Q3 of last year. As mentioned this item was worth 1.8% of net sales.

As a final note on this slide, capacity utilization in the third quarter still remain high at 100%, albeit lower than for Q3 of last year. The utilization measurement does remove planned shutdowns from the computation, which was about 1 week in the current quarter.

Turning next to Slide #9. Please allow me to address a few more items with respect to third quarter 2013 income performance. At this point, you also may want to turn again to Slide #14, which is the comparative income statement for Q3.

I previously described the favorable consumption tax adjustment in the third quarter of 2012. SG&A expense for the quarter was $2.3 million higher when compared to last year. The largest difference reflects an accrual for executive severance costs. Self-insured medical costs also was higher, and there was an unfavorable comparison for a couple of modest accrual adjustments made last year. The minor foreign exchange loss reflects modest devaluation of the Mexican peso. And finally, I discussed previously the settlement of a Mexican income tax audit in 2012, which is reflected in a $5.2 million net tax benefit for the prior year. The current year effective tax rate was about as expected.

The next slide, Slide #10, addresses the balance sheet and cash flow. These statements are shown on Slide numbers 16 and 17, respectively.

Cash and short-term investments ended the quarter at close to $187 million, which is $21 million lower than at the year end of 2012. The largest impact on cash is the higher level of capital investment in the factories. As I mentioned previously, we have spent about $24 million on our existing facilities during the first 3 quarters of 2013. In addition, spending on our new manufacturing facility in Mexico was just under $20 million, all of which occurred in the third quarter.

There are other changes on the balance sheet that affect cash flow that are timing related. For example, an accounts receivable increase. This increase was over $21 million, but compares to an unusually low balance at the end of 2012. Lower values at the last year end largely reflect the impact of taking maintenance shutdowns at the end of the year, during which very little shipping occurred.

The inventory investment is down slightly from the prior year-end, with some shift between finished goods versus raw materials and work-in-process. We continue to use finished goods inventory to buffer the impact of short-term fluctuations in customer demand.

I discussed capital spending previously, so I won't read the bullet points, although they do provide you a bit more perspective. There was a relatively large increase in accrued liabilities, which results from the accounting methodology applied to the new manufacturing facility. About $16 million was accrued in the PP&E over and above the $20 million of cash spent for the new plant. You will recall that at the end of 2012, we accelerated and paid a lump sum for dividends that typically would have been paid out in 2013. We announced in September of this year, a 12.5% increase in the common dividend, which raises the quarterly dividend from $0.16 to $0.18 per share. The incremental increase was paid on October 18.

Working capital in the current ratio both remain very strong despite the increase paid for capital investments.

If you turn now, please, to Slide #11, I'll provide a brief update on our new manufacturing facility. Since the last conference call, we continue to make substantial progress on our new plant in Mexico. The building construction is well underway. We've included a few photographs on the next page of the presentation, which quickly show how far the building has come long. Many of the machinery and equipment decisions have been made. We have done a lot of assessment regarding equipment in order to balance needed capability and available improvements with startup and operational risk. In total, approximately 75% of the total project budget now has been translated into purchase order commitments. Our cost estimates remain in the $125 million to $135 million range, as originally announced.

And so finally, in summary and conclusion, please turn now to Slide #13. North American vehicle production remains strong. And while our market share declined in this growing market when comparing year-over-year, our share did improve sequentially. Our factory utilization rates have declined, but they still remain at relatively high rates. Although a more extensive maintenance shutdown period affected cost efficiencies in the current year, operations in Mexico continue to run smoothly overall and we continue to focus on optimizing capacity loading to keep our low-cost facilities fully utilized.

Cost performance in the U.S. improved as capital investment has addressed many equipment reliability and process issues. As just discussed, we continue to make good progress with our new wheel plant in Mexico. We increased the dividend by 12.5%. And, finally, our liquidity remains strong to continue to support our investments.

Our Form 10-Q for the third quarter of 2013 will be filed later today with the SEC. Once filed, the 10-Q also will be available on our website at www.supind.com.

So with that, I'd like to thank each of you for attending our conference call today and for your kind attention. We'll now open the line to take your questions, so I'll turn it back to you, Zach.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Brian Sponheimer with Gabelli & Company.

Brian Sponheimer - Gabelli & Company, Inc.

Stephen, I wish you best wishers on your future endeavors. We'll miss you in Las Vegas.

Stephen J. Borick

Yes, I appreciate that very much.

Brian Sponheimer - Gabelli & Company, Inc.

Couple of questions here. One, we'll start with the Chihuahua facility, which is now mid-2015. When do you start going to the OEMs and bidding on platforms to fill out that building? Is it ongoing now or does the building have to be fully operational before you start adding there?

Michael J. O'Rourke

This is Michael O’Rourke, I'll go ahead and address your question. Actually, the process, that's ongoing now, will target certain segments of the business for the new facility that fit with the strategy that we've developed. And work with customers as we get closer to a manufacturing process development to secure approvals and so on. But it is a process starting pretty much now.

Brian Sponheimer - Gabelli & Company, Inc.

And the OEMs are comfortable with commitments into a facility that is being built?

Michael J. O'Rourke

Based on our track record, really no issues at all with our customer base. I don't anticipate really any issues, whatsoever.

Brian Sponheimer - Gabelli & Company, Inc.

I appreciate that. And the next question is about the balance sheet and cash flow. You instituted a buyback program, or at least announced it in late March, and at least as far as from the disclosures here, haven't repurchased any shares as of yet. Has there been anything that's changed in your own valuation of the stock that would lead you not to have repurchased any shares yet?

Kerry A. Shiba

Bryan, I don't know that there's been any, quite honestly, change in view. If you recall the timing of our announcement of the repurchase program, was pretty close to when we announced that we are going to be constructing a new plant and spending out quite a bit of liquidity to do that. There's always been a substantial amount of cash in our market valuation. Mario has spoken about that on more than 1 occasion and pointed that out. So we wanted to be prepared, I guess, opportunistically and proactively in case the share price reacted negatively to spending out the cash. That hasn't occurred at this point in time, I'm pleased about that. So we continue to have that repurchase program kind of parked at the stage in case the opportunity arises. That's really kind of the philosophy over what we were doing here.

Brian Sponheimer - Gabelli & Company, Inc.

Is there a particular level of share price or perhaps price-to-earnings or even EBITDA multiple that you would look at as a place to start repurchasing?

Kerry A. Shiba

No, we kind of have our own views, but I think you'd appreciate the fact that I'd rather not explicitly talk about that to the market.

Operator

And we'll go next to Jimmy Baker with B. Riley & Co.

Jimmy Baker - B. Riley Caris, Research Division

First on -- just on the K2, I think production was slow there due to some capacity constraints at another supplier. Can you just talk about any impact to your business? And I know the combined light truck shipments were up 12% year-over-year to GM, but can you, maybe, just frame how your business to K2 is fairing versus your expectations, given the significance of that platform?

Michael J. O'Rourke

This is Mike again. Basically, I'd say it's one of the -- from our standpoint, one of the smoothest launches that we've had with GM. We've gone through this, I think, about 3 different times on the full-sized trucks. And we've seen some fluctuations in terms of part number changes and wheel diameters and so on. But for most part, there's little glitches along the way -- for the most part, it's been extremely smooth from our standpoint.

Jimmy Baker - B. Riley Caris, Research Division

And if you thought about it sequentially, I guess, that would be T900 combined with K2. What was the volume benefit to you there?

Kerry A. Shiba

K2 was about 2/3, roughly, of our third quarter mix of the truck shipments.

Jimmy Baker - B. Riley Caris, Research Division

Right, okay. So of that 9% sequential gain, I guess, how should I think about that being driven by K2 versus other items?

Kerry A. Shiba

A happy drive from the K2XX side.

Michael J. O'Rourke

I believe the SUV component, which was still kind of under the GMT900 has basically been pretty steady through the quarter. We're seeing that in fourth quarter as well.

Jimmy Baker - B. Riley Caris, Research Division

Okay. So just switching gears and looking out, say, post the completion of the new facility. When we think about the business in 2016, what would be an optimum level of capacity utilization that you'd be striving for at that time?

Kerry A. Shiba

Are you asking around our entire system in aggregate?

Jimmy Baker - B. Riley Caris, Research Division

Right, system-wide.

Kerry A. Shiba

I don't know. Conventional wisdom would say, you don't want to keep running at 100%, and we would agree with that. I don't know that we have a magic line to say it's 95% or 93%, but we prefer to be several percentage points lower than where we have been for the last, basically, 3 years now.

Jimmy Baker - B. Riley Caris, Research Division

Okay. And then I think you noted that just under $20 million in CapEx in Q3 was related to that new facility. Are you incurring any unusual operating expenses with that -- with the new facility at this point? And then, I guess, how should we think about the cadence of the remaining spend in the budget spread across Q4 in 2014?

[Technical Difficulty]

Stephen J. Borick

So, Zach, if we have any more questions, I'll try to answer them. I don't know what happened with the line in Van Nuys.

Operator

And we will go next to Jeff Linroth with Leaving it B.

Stephen J. Borick

I don't know, something happened with Kerry's line in Van Nuys. I'm not in Van Nuys right now, but let me see if I can help you out on anything.

Jeff Linroth

Okay. Yes, I appreciate it. The main question I have is in the rising interest rate environment. I mean, do you have in mind, some level at which you would start to see some significant effect in terms of the demand -- your forecast. I mean, is that a consideration when you think about forecasting demand and when that might -- at what levels that might start to be significantly curtailed?

Stephen J. Borick

I don't think that there's anything -- certainly, in the near future, based on an interest rate environment that may change. Of course, we're all scratching our head about when we might start seeing an additional change in the tapering. All of the indications by the OEMs, including just a recent trip that I had to Detroit, still even with some kind of a movement rate, continue to move the SAAR numbers up close to the 17.5 million, 18 million number by 2017 or '18, depending on how you look at it. So I think that the volume side continues to materialize at a decent, but not extraordinary pace. And so I believe that with the pent-up demand and so forth, unless we get a significant spike in rates that brings the cost of borrowing on an automobile either at leasing or otherwise, significantly higher, I don't believe we'll see much of an impact from that. I think we're going to still continue through the cycle.

Unknown Executive

Steve, and everyone, you have Mike and Kerry back on the line now.

Stephen J. Borick

Okay, good.

Kerry A. Shiba

Jimmy, it must have been that question you are getting ready to ask, I don't know.

Stephen J. Borick

So we've got Jeff Linroth right now. I've just answered a question to him and we'll see what else is up, Kerry.

Jeff Linroth

Do you want to go back to the other gentleman? I just had one more question.

Stephen J. Borick

No, go ahead, Jeff, please.

Jeff Linroth

Okay. The next question is not unrelated to that, but if you think about where we are in the cycle in terms of the average age of an automobile and obviously, this is really more about your suppliers. But you guys have plenty of experience looking at this. Where do you see we are in this cycle when you look at the average age of vehicles and the consumer behavior right now -- and the behavior of your customers?

Stephen J. Borick

I think I'll let -- see if Mike wants to take a stab at that.

Michael J. O'Rourke

Jeff, I would say, at this point, the markets may be a little different than it was before the financial crisis in terms of maybe a more steady demand level. We're keeping these increases and SARs and so on, it's somewhat measured and balanced. So I would hope that from an industry standpoint, we continue to see that steady pace kind of continue. There's a lot of things that keep driving it: age of vehicles, and certainly one great new products that are out there that are enticing people as well. But I don't think we're going to see what we saw, maybe, a decade ago where there was just a live demand driven by, I got to have that pickup truck or SUV or I got to have a third car or whatever it might be, I can take out another home equity loan to fund it. I don't think we're going to see those kind of things that drove the market in the early part of the last decade.

Jeff Linroth

Well, that's certainly likely to make it to whatever happens more sustainable anyway. Steve, I just want to wish you very well in your next endeavors.

Stephen J. Borick

Thanks, Jeff, very much.

Operator

And we'll go next to Brian Sponheimer with Gabelli & Company.

Brian Sponheimer - Gabelli & Company, Inc.

With capacity still at 100% and probably ticking up a little bit higher in the fourth quarter, what are you seeing as far as your own product delays and how are you managing that? Are you having to use any premium freight to get to your OEMs? I guess, talk about whatever product delays you may have had.

Michael J. O'Rourke

Really none at all. Year-to-date in '13, a lot of it had to do with planning for K2XX building a little bit more inventory to give ourselves some flexibility. But we've had really no issues as far as delivery of the product at all this year.

Brian Sponheimer - Gabelli & Company, Inc.

We've been hearing anecdotal issues with Cadillac, but if it's not the case, it's not the case.

Michael J. O'Rourke

No, not the customer on the ATS. [indiscernible] It's been pretty steady, really no issues.

Operator

[Operator Instructions] We'll go next to [indiscernible] with B. Riley & Co.

Unknown Analyst

It's Panka Chandrak [ph]. I'm asking question on behalf of Jimmy. So he wanted to know, you noted $19.7 million in CapEx for Q3 related to the new facility. Now are you incurring any unusual operating expenses associated with the new facility?

Kerry A. Shiba

At this stage, not yet. There's going to come a point in time where we're going to have expenses as we start to put people on the facility, start to incur costs for getting the production equipment up and running. And then ultimately, then to start to qualify a specific wheel programs on that. But the start-up costs, really, are very, very, very minimal at this point in time.

Unknown Analyst

Understood. And I know you re-traded the guidance for spend on building the new facility. But how should we think about the cadence of remaining spend for Q4 and 2014?

Kerry A. Shiba

Yes, I'm not going to give you specific numbers, but I'll give you just kind of a directional feel. Compared to where the third quarter was, I think the fourth quarter of 2013 and the first quarter of next year will be the heaviest spend rates. It will be at a higher rate than what we incurred in the third quarter of this year. And then it should start to drift off in Q2 and Q3 of 2014, but they'll still be relatively substantial spends. We would expect to stop writing checks for the construction in -- of the plant and installation of equipment by about the end of Q3 of next year.

Unknown Analyst

End of Q3 next year. Got it. And we wanted to say congratulations to Steve and good luck for his next endeavor.

Stephen J. Borick

Thanks very much.

Operator

And we'll go next to Morrie Simpson[ph] with UBS.

Unknown Analyst

Is getting more business a problem of being at full capacity?

Kerry A. Shiba

I'll take...

Unknown Analyst

Are you capacity restrained from getting additional business?

Kerry A. Shiba

There's, I think, 2 things to consider at this point in time. With a capacity constraint, can one say clearly we could have chased some more business in the market if we had more room to produce it? The answer is obviously yes, that is the case. Are we unhappy with where we're at, at our position in the market and where our market share is at? I think the answer is no. We've mentioned before, Morris, that we have been more selective, and I'll say it, Mike might not, but more selective than our competition. And how far we're willing to go to compete for new business out there, but what we're seeing as far as improvement in our product mix and better fitting wheel programs to the process capability that we have, we're fine with how things are working out right now. So yes, theoretically, could we chase more volume? Yes, but we're not unhappy that we didn't run out there and try to buy more volume off the street at this stage.

Unknown Analyst

Can I ask a follow-up question.

Kerry A. Shiba

Sure.

Unknown Analyst

Considering looking at the performance of the stock from an investor's standpoint, it's been somewhat a little disappointing. In your -- looking at making it a obviously personal change, would you entertain being acquired or merged in with another company?

Kerry A. Shiba

First off, I think, and Steve, like, I'm sure wants to say something here, but the decision that he's made and the change we'll go through at the company should not be read as any signal of any big shift in the direction of where Superior is going. The decision, as Steve had mentioned, was made on a personal level and kind of that's it. As far as whether or not we would entertain being acquired, the Board of Directors, management of the company will always continue to look at the landscape as strategic initiatives for this company as we always do. So I don't think there's a specific answer to say, yes, all of a sudden, Steve's gone and we feel a whole lot different about the company. This is still the same Superior Industries and we'll still keep doing the same.

Unknown Analyst

Well, it's been part of the Borick family since it was founded, so that's why I'm asking the question.

Kerry A. Shiba

I understand that.

Stephen J. Borick

Let me just respond, Stephen Borick here, for a minute further. It's a very fair question when you look at the continued ownership the family has. But when you look at the landscape of life and when you look at legacies and controlling interest, things have changed a lot since my father's era and I've been blessed with a lot of other opportunities. And I believe the stewardship that I've led the company on over the past 15 years and certainly, the past 7 or 8 as CEO and Chairman, have been positive in light of a very difficult environment. And as I look forward, I believe that we strategized the company for the growth that is allowed in this particular industry. And the opportunities that will continue to unveil themselves as a board member will be certainly different than being the day-to-day CEO. But I believe, directionally and strategically, it's the same. And as Kerry said, we're certainly a company that's always open to opportunities as we go forward. And this has not been an easy decision, but it's an exciting decision for me as I travel down the next book, as I say, in my particular life. So I'm excited about that and I believe we have management in place that will continue to allow this company to have the stability it's had for the past 50-plus years.

Operator

[Operator Instructions] And it appears we have no further questions at this time.

Stephen J. Borick

Great. Kerry, you want to close it up?

Kerry A. Shiba

I guess, just thanks to everyone. As always, we appreciate your attending the call and your interest in Superior and your questions were good ones and we appreciate you joining us today. Thank you.

Stephen J. Borick

Thanks, everybody. Kerry, if you guys will sit tight in the conference here, I'm going to call in there in a minute, if you will, please.

Kerry A. Shiba

Yes.

Operator

This does conclude today's conference. You may now disconnect and have a wonderful day.

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