Superior Industries International, Inc.

Good morning, or good afternoon, to all of you. Sorry for the little snafu in getting us hooked up here.

I'm going to apologize at the outset, I have a bit of a raspy throat, so if I pause to cough on occasion, my apologies.

I'd like to start as usual, Slide #2 and I'd 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 mix, domestic and foreign market demand, commodity prices, including metal and energy, foreign currency, manufacturing capacity and 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 those forward-looking statements.

I would like to turn the call over to our CEO, Steve Borick, for some opening comments.

Thanks, Kerry, and good morning to everybody, or afternoon. First, certainly, I'd like to -- for those of you on the East Coast or that were affected, obviously, we are hoping for a speedy recovery.

Being that I lived in Houston for 25 years, I understand what impacts hurricanes have and it's pretty incredible as to what we've been seeing, so I hope everybody fares out and we get to rebuild, probably a good thing for the economy overall, but not so good for people and I'm sorry for all of the impacts there.

For us, the third quarter was steady from a demand standpoint, and obviously, I'm going to let Kerry spend most of the time talking through some of the interesting issues that impacted us this quarter. The tax issue particularly is a strange one.

And as you know, we've gone through quite a few of these tax issues with, particularly, FIN 48 over the years. The good news is, is that we're finally getting to a point where we can't have a lot of fingers pointed to us going forward because most of the tax issues are and or have been or are being resolved with a few exceptions, but nothing significant.

And our overall FIN 48 liabilities have significantly been reduced, but it did have an interesting impact. I wish all those were earnings that I could've reported that were from our gross profit and from our margins.

But sequentially, that was not the case. But it certainly was a case that we did make money again in the quarter.

I'm not happy. We haven't been happy with, particularly, some of our issues in our operations in our Midwest.

I have to say that our operations in Mexico are performing at world-class levels, with room for improvement, but at world-class levels and we continue to create significant margins for the company out of those operations.

Saying that, I believe strongly that there are opportunities in our Midwest operations, and so number one, I'm spending more time with Mike O'Rourke in our operations in the United States, particularly, participating much more often in certain activities and becoming more involved in the details of some of the capital that's being requested that will have benefits to the future of those plants. So I feel positive about what we're doing.

I'm going to continue to spend capital that we believe is absolutely necessary for them to turn the corner, and I believe that they can. Some of the things that I'm seeing in our Rogers' operation to date are very, very positive, with some capital spend.

I was just there last week for 2 days. And in Fayetteville, I believe the teamwork, look, what does it take to run a company?

It takes leadership, and it takes leadership that changes culture and we will continue to do that. We have been making changes in our management, in the Midwest particularly.

We are driving change and we are driving cultural change at all levels. I have never felt so positive about that and I need to see and we need see some of the results that will carry forward from those changes.

And as you know, you don't turn a ship overnight and I wish I could say that we are having a better margin return in the Midwest, but not at this point in time. There are a lot of reasons, and they're reasons, excuses, none of them work very well for me, so again, my involvement and engagement to look at where those opportunities are and be honest with ourselves about what our next set of steps are with this company, we will continue to do.

We will spend capital where we need to. We have a very strong balance sheet.

We ended the quarter with, obviously, no bank or interest-bearing debt at all. We had $220 million in the cash and cash equivalents and short-term investments, so -- which was up from $193 million at the end of 2011.

We will continue to spend some of that capital. And for those that are going to ask the question, I will tell you right now that we continue to investigate the opportunity significantly to look to build additional capacity.

We have not pulled the trigger for various reasons, but we are absolutely getting quotes and getting a better opportunity and a feel for what we would want to do and how we would want to potentially build that capacity if we pull the trigger to do that. And I'm certain that if we do that, it will not be too long into the future, potentially.

With that, I know we'll have questions afterwards. I'm going to turn this back over to Kerry.

Thanks, Steve. Let's begin the detailed discussion now, and generally, we're going to follow the same format we've been using over the past year or so.

I'm going to begin with a quick overview and sometimes it's helpful if you'll look at Slide #11, which shows the condensed comparative income statement for the third quarter.

As you may have seen in this morning's press release, our third quarter net sales for 2012 were down 6% overall from the prior year, which masks an approximate 2% increase in unit volume. Gross profit increased about 19% while net income and EPS were both roughly 3.5x higher than in Q3 of the prior year.

It quickly becomes evident that relationships you see in the overview seem a bit odd on the surface, so with this in mind, I now would like to turn back to the beginning of the slide deck, and hopefully, our discussion today will help you to better understand what our third quarter financial results reflect about the business.

The majority of my comments, as usual, will be focused on a comparison of year-over-year actual results for the third quarter. If you would now please turn to Slide #3, which is titled North American Vehicle Production versus Superior Shipments, this is where we frame the market environment in which we operated during the third quarter.

The slide format is the same as we have been using in the past. The charts at the top show North American light vehicle production on the left and the company's unit sales volume on the right.

I think most of you know that our business is focused on North America, so the graph on the left provides an overall indicator of the demand driver for our products. However, you may recall from prior discussion that customer and product mix need to be analyzed to really understand our performance against the overall market, and this especially is the case in Q3 of 2012.

So I will drill down into some of the customer and product mix detail as we progress through the next 3 slides. This was going to be little bit more deliberate than I think the past couple of quarters because we have a lot of things changing in the mix.

Anyhow let's first start with North American vehicle production shown in the chart in the upper-left portion of Slide #3. The market in Q3 reached almost 3.7 million units, up roughly 15% year-over-year.

This level of vehicle production set a new high watermark for the third quarter, going all the way back to 2005. On a sequential basis, Q3 production was down from the 2 previous quarters and both, I think you'll recall, were very strong.

The trailing 12-month build rate is now at about 15 million vehicles, which I think implies that Q4 of this year should be close to the 3.4 million unit assembly rate for Q4 of last year.

Although not shown on the chart and there were some notable disparity in Q3 comparisons by product category, compared to last year's third quarter, passenger car volume this year increased almost 23%, while production in the light truck category grew at far less a rate, of about 9%.

Turning to the chart on the right, you can see that Superior's sales volume increased modestly in comparison to the market, up roughly 2% year-over-year, as I'd mentioned. The change in vehicle mix to which we sell reflects a rather stark contrast when compared to the overall market.

Our unit sales for light truck programs increased almost 16%, which is 700 basis points above the market change. For passenger cars, our unit sales declined by 26% in contrast to a 23% increase for the market.

I'll provide you more specific information regarding our vehicle mix in just a minute.

You can surmise from the summary data that we experienced a decline in market share, which we estimate a roughly 3.5 percentage points year-over-year. The share decline from Q3 of last year partially reflects the significance of Ford and GM and as you know, they're the largest 2 customers in our portfolio.

We estimate that both of these customers gave back approximately 2 share points when compared to last year. As I expect you know, the market share -- these market share changes largely reflect recovery of key Japanese brands from the impact of the 2011 natural disaster in Japan and other supply chain disruptions that occurred last year.

Slide #4 provides some detail about production rates for our significant customers. As just mentioned, Ford and GM are the #1 and #2 customers in our portfolio.

Assembly rates for both of these companies increased at substantially lower rates than for the industry overall. Compared to the 15% industry growth rate, Ford was at plus 2% and GM was at plus 3%.

Nissan, who also is a relatively large customer, was at plus 7%.

As I noted a minute ago, there was a rather noticeable change in overall vehicle mix. For example, Ford's build rate in light trucks increased 9% year-over-year while they were down 9% in passenger cars.

As I will show in just a minute, the light truck increase significantly boosted our position at Ford during Q3. The slide shows the major programs affecting the change in Ford's vehicle mix during the quarter.

GM is another example of a noticeable shift in vehicle mix during the third quarter. Passenger car build rates were plus 18%, while light truck volume declined by almost 6%.

The light truck decline reflects the changeover of the GMT900 platform.

Chrysler again was up significantly year-over-year with production of plus 20%. This growth was strongest for passenger car programs, including the Chrysler 200 and 300, the Dodge Avenger and Fiat 500, which all were up significantly.

Production of the new Dodge Dart also ramped up rather briskly.

Production for the international brands grew at a rate well exceeding the overall market, increasing almost 27% compared to last year. Toyota was the largest gainer, with plus 40%.

Turning now to Slide #5, which is titled Superior Shipments Year-over-Year Comparison. So let's take a look at what drove Superior's year-over-year volume changes in Q3.

I already have commented on some of the overall dynamics affecting our third quarter market share, and this slide will focus on a bit more of the underlying factors. But I think you will see in the details that some of the Q3 dynamics reflect shorter-term timing impacts such as for model year changeovers.

However, there also are changes that result from competitive turnover. Depending on the aggressiveness of competition and in the context of our high capacity utilization, we directionally are being more selective regarding our position when new programs come to the market.

While you should not read this as a sea change in our positioning, we are being very mindful of the balance between available capacity and needs in the marketplace.

With regard to the details, 2 very bright spots in our Q3 sales volume were at Ford and Chrysler. We were up very strongly at Ford, about 10x in excess of their production rate increases.

We also had strong double-digit growth at Chrysler. More specifically, our penetration at Ford was driven by the light truck category.

Most notable was our participation on the Escape program, a new program for us when compared to the same time last year. We also had nice increases in the F-Series, Explorer and Flex.

In passenger cars, we continued to see a nice increase on the Taurus. Shipments for the Fusion were down significantly as this vehicle is going through a major model changeover.

Shipments to Chrysler were up 18%, driven by several programs, most notably the Jeep Compass, the Dodge Journey and Caravan and the Chrysler Town & Country.

Our Q3 volume with GM declined 16% when compared to the same quarter last year. Let's start with the GMT900, the T900 is by far our largest single program with GM and shipments were about flat for this program.

With several ups and downs in other programs, the overall decline at GM can be explained by the Malibu, a program we are ramping down on.

We were plus 8% with Toyota with increases occurring on the Camry and Highlander, and volume with BM -- BMW continues to grow nicely with our position on the X3 program.

Our shipments to Nissan were down significantly, a minus 26%. The largest decline was for the Altima due to a model changeover, with a volume pickup expected to occur in the fourth quarter.

We also are ramping down on the Sentra program. Volume growth from Maxima did absorb some of the declines.

If you would now turn to Slide #6, we can look at the sequential comparison. The changes going from Q2 to Q3 of this year tell a bit of a different story for both the market and for Superior.

Let's start in the context of what happened in the market. As I mentioned earlier, third quarter assembly rates were down from a very strong Q2.

The sequential market decline was almost 8 percentage points overall, with decreases in both light trucks and, to a lesser degree, in passenger cars.

The domestics collectively lost more in share point in the industry production mix. Chrysler's production was minus 11% while both Ford and GM were down about 9%.

Production for the international brands declined 6% in aggregate. For our 2 largest international customers, Toyota's production was down 13%, while Nissan declined 4%.

For Superior, unit shipments in Q3 were 11% lower than for the preceding quarter. Keep in mind that our shipments for Q2 of this year were at the highest level for any single quarter since the second quarter of 2007.

In relation to the overall metrics, the Q3 sequential comparison for Ford also was positive. Although our shipments were down 2%, this compares to a 9% decline in Ford's assembly rates.

Shipments in the light truck programs are plus 8% overall, again, driven by the Escape and the F-Series. A decline in passenger cars relates to the Fusion, which, as I mentioned previously, reflects some impact for significant model year changeover.

We were minus 3% at Chrysler versus their 11% production decline. The largest decline was in shipments for the minivan, but we also saw a nice offsetting increase for the Dodge Ram truck as -- there's a new program for its ramp up.

For GM, we are about -- down about 16% sequentially. The decline primarily reflects the ramp down of the Malibu program, which I mentioned just a minute ago.

We were up very slightly in the GMT900. For the international brands, we were down about 23% overall.

Our largest decline was for Nissan, with the Altima changeover and the Sentra ramp down being the major factors. A reduction of shipments to Toyota was in line with their overall production decrease.

I next would like to turn to Slide #7, which focuses on net sales dollars and a year-over-year comparison for the third quarter. We also have included year-to-date data for your reference but my comments today will specifically focus on the Q3 comparison.

This slide is in the same format we have been using for the past few conference calls, so I believe our call participation has been relatively consistent, so I'm going to skip the definitions and just move on to the data.

At the top, you quickly can see the modest 1.9% unit volume increase contrasted with a 6% decline in sales dollars. On the next slide down, you can see the unit volume increase translates to roughly $4 million in sales.

If you jump down 5 lines on the schedule, you'll see that a decline in the underlying value of metal drives the decrease in sales dollars. The total metal impact combining price and weight was a negative $17 million for Q3 of this year.

Just as a reminder, changes in the price for aluminum flow through net sales based on the nature of our commercial agreements. These agreements provide for the periodic pass-through of aluminum fluctuations based on changes in published prices for commodity aluminum.

I'm not going to address most of the remaining line items on the schedule because the monetary impacts during the quarter were relatively small. But I would like to spend a minute on the line labeled price mix at the bottom of the schedule, which was a positive $700,000 for the quarter.

I point this out because you may recall that price mix impacts have been negative, I believe going back to the beginning of 2011. But while the positive financial impact in the quarter is not large, Q3 of this year does represent an inflection point consistent with our being more competitively selective.

If you now please turn to Slide #8, we can take a look at gross margin. As you can see from the table at the top of Slide #8, we produced slightly more wheels than we shipped in Q3 of this year.

While it doesn't show on the slide, this production rate was about 10% lower than for the preceding quarter. Because of the volume decline, we were able to take Q3 maintenance shutdowns at all but one of our factories.

We continue to run our plants at very high rates outside of the scheduled shutdowns, but it was important for us to take the maintenance downtime when we had the opportunity.

On the lower half of the slide, is the year-over-year gross margin comparison in the format we have used previously. In this analysis, we try to point out the key items affecting the comparability of reported results from period to period, so we show the incremental impact of certain key items as we compare one period to the next.

Starting with the first item, we already discussed the impact of changes in aluminum value on sales. Because aluminum carries no margin and changes in value basically are passed-through to the market, the Q3 price decline for metal had the effect of adding 60 basis points to the gross margin percentage when compared to last year.

Keep in mind, the slide shows a negative 60 basis points, as we are removing this impact for the purpose of period-to-period comparison.

The next item is labeled plant performance, fundamentally measuring the change in cost performance from period to period. This item excludes the impact of any operating cost items listed separately, for example, shutdown expense or repairs and maintenance as shown further below.

In aggregate, we estimate that plant performance was at a negative $2.9 million, similar to last quarter. Underlying this net total are rather disparate comparisons between operations of our 3 plants in Mexico and our 2 plants in the U.S.

While we do not disclose cost data specific to each location or country, I will say, we remain very pleased with overall efficiencies being achieved in our Mexico operations. Similar to last quarter, this performance is being achieved despite having, in some cases, our product mix, which increasingly is more challenging to manufacturer and also in the midst of implementing our relatively high number of program launches.

We continue to face a difficult set of challenges with respect to our U.S. Operations, as Steve Borick mentioned.

We have spoken previously about these challenges which fundamentally include the age of our facilities, equipment reliability and product mix. We remain committed to address these challenges with urgency and commitment.

Over 60% of our 2012 capital appropriations through the end of the year are focused on the U.S. facilities and there is more to come.

While our year-to-date cash flow does not yet reflect this, our pace of approving capital investment overall should exceed last year by about 2/3. In the time involved with capturing benefits from fixed capital, our continuing investments reflect the commitment we have made to customers served from these facilities.

In the meantime, the management team in our U.S. operations is executing on a large number of non-capital initiatives, projects which are focused on continuing to stabilize near-term operational and financial results for these locations.

We also are reallocating product mix to our factories where possible to better match process capabilities with technical product requirements, with an objective to improve efficiencies and reduce scrap and rework expense.

At the same time, our organization in Mexico stays focused on continuing to deliver and to improve the already high level of operating performance in customer service, which is becoming a hallmark of their operations. We are very proud of what is being accomplished in these plants.

Next on the list is shutdown expense. As I noted earlier, we were able to take full week maintenance shutdowns at 4 of our 5 plants during the quarter.

In the prior year, our shutdown schedules were more abbreviated. While these shutdowns resulted in more unabsorbed factory costs this year, the maintenance performance is very important.

The next item is repairs and maintenance. This cost ran $1.1 million higher in this year's second quarter, which shouldn't be a surprise, about 1/2 of the total cost for the company was incurred in our 2 U.S.

plants. The difference in our net wheel development expense was minimal year-over-year.

And lastly, as we called out in our press release, we recorded a $3.5 million benefit in gross profit due to an audit settlement that eliminated potential exposure in Mexico for consumption tax, in other words, a tax on goods and services consumed. This benefit results -- or I'm sorry, reflects reversing of an accrual and, therefore, was noncash in nature.

Turning next to Slide #9, I have a few further comments regarding income performance when comparing Q3 of 2012 to the same period last year. At this point, you also may want to refer again to Slide #11 the third quarter income statement.

I just commented on the first item on this slide. SG&A expense was down about 10% in the amount -- in about year-over-year and 10 basis points lower when measured as a percent of sales.

There were a variety of items leading to the decline, most of which were pretty much episodic in nature and do not point to a systemic change in expense levels.

Foreign currency transaction adjustments were a $500,000 gain in the current year quarter, which compares to a $1.4 million loss for Q3 of last year. The peso sequentially strengthened about 7% this year compared to a 17% weakening in the prior year third quarter.

The effective income tax rate for Q3 of 2012 was a negative 52%, reflective of a $5.2 million net benefit recorded for the quarter. In the prior year, there was a net tax expense of $900,000, which represents a 17% effective tax rate.

With what seems at times to be the norm, there were a variety of discrete items affecting Superior's effective tax rate in the quarter. As Steve mentioned, a lot of these items are getting cleaned out, so hopefully the tax rates should begin to stabilize more as we go forward and into the future.

For the current year, an income tax audit for 2004 was concluded and settled. The settlement triggered the reversal of the related FIN 48 liability and certain offsetting deferred tax assets.

Without the impact of the settlement, the effective tax rate for the quarter would've approximated 30%. The relatively low effective tax rate in 2011 primarily was caused by the release of about $1 million of valuation allowance during the quarter.

Please now turn to Slide #10, which addresses the balance sheet and cash flow. As Steve had mentioned, cash and short-term investments reached $220 million at the end of Q3 of 2012, which was $27 million over the balance at the end of 2011.

Net inventory is up about $5.5 million. The increase doesn't pop out when you look at the balance sheet because of a reclassification of a portion of our MRO inventory to other long-term assets, which occurred in Q3 of this year.

Underlying the reclassification, both finished goods and work-in-process inventories were up. We've been trying for some time to build some buffer stock, which we were unable to accomplish during the first 6 months of this year due to very high demand levels.

1, respectively. Slide #11 through 14 are the various data tables we referred to.

So finally, and in conclusion, on Slide #15, to quickly summarize today's discussion, Q3 vehicle production was the strongest third quarter since 2005. The Q3 decline in our market share primarily reflects a variety of factors, including our customer mix, program timing and, to some degree, more selective quoting.

Plant utilization remained very high, although we were able to take maintenance shutdowns at most of our facilities. Our operations in Mexico continue to run very smoothly and provide stable and strong results, while operating challenges in the U.S.

plants continue to pressure overall margins. And finally, liquidity remains strong to support continuing investments and the payment of dividends.

I'll comment very quickly that the last page of the presentation addresses the non-GAAP financial measure we have presented today and our third quarter 2012 report on Form 10-Q will be filed later on with the SEC. Once filed, the 10-Q also will be available on our website at www.supind.com.

In closing, I again would like to take a minute to thank our employees everywhere for their continued hard work and the incredible commitment they continue to give to the company and our customers. We remain pleased about the overall strength of the market and our commitment to improve financial results remains unwavering.

So with that, we'd like to open it up for questions and, of course, we thank you for attending our conference today. So I'll turn it back to our monitor to open up the lines.

Just want to talk about your -- what is the minimum cash that you need to run the business?

Minimum cash?

Yes.

If you ask me what I would want to see as far as available liquidity, I'd pick probably in the $50 million to $60 million range. That does provide some buffer over and above kind of the normal monthly amplitude of high and low.

With a few numbered customers -- customer payments come in kind of in a lumpy manner, with 2 major suppliers, really one major supplier for aluminum payments tend to go out in sort of a lumpy manner sometimes. But, so we have a pretty good high and low range during a month, $50 million to $60 million, I'd be comfortable with.

Okay. So I mean, if you've got $60 million to $70 million in EBITDA and only really $20 million in CapEx and -- of which $18 million goes to the dividend, you're throwing off a good amount of cash but you've got a lot of excess cash in the balance sheet and you're not buying back stock or investing in new capacity to get you to an area where you can get to $17 million, if that's where North America goes.

I just -- I'm trying to understand what your thought process is on your cash, with the $150 million of excess cash, it's not earning you anything on the balance sheet.

So you're going to put that on me again, Brian? Haven't you asked that question before.

We're getting to a point where that question is constantly on my mind. So 2 things are going to happen.

One is, that I'm going to continue to commit capital where needed to our existing operations in the United States, particularly, but also in Mexico, because you have to remember that some of our facilities, particularly plant 7 is heading toward the 20-year mark pretty soon, even though it does very well. And if I look at the EBITDA numbers in Mexico, they're terrific, pre -- obviously, cap.

But -- so that's one thing, but that doesn't spend the money, so as I said at the outset, we're very diligently looking at a new wheel plant concept, harder than we've ever looked at it. We believe that there is opportunities that are taking place worldwide and in, particularly, North America, specifically in Mexico that look very, very opportunistic.

We're being very cautious because we want to make sure that our pricing gives us the kind of ROIs that we need. I'd rather spend the capital in building additional capacity than buying back stock.

But I also want to continue to share with our shareholders in our dividends and so we're looking at all of that also as we move forward. And so I can't tell everybody to stay tuned, but I have to tell everybody to stay tuned, but I can promise you that there will be some significant decisions in the not-too-distant future.

Okay. All right.

That's good to hear. Is there any concern that given your capacity constraints, as we're heading into what's likely to be better years for production, that you may end up putting yourself at risk to lose programs because you can't hit demand numbers that the OEMs are looking for?

I think, for the next couple of years, if the market continues to have the legs everybody thinks, we are prepared to recognize that we're going to lose some share over that period. We have been pleased by the fact that it's especially evident by the first 2 quarters, the first half of 2012.

When we came into 2012, Brian, quite honestly, we're kind of like a deer in headlights, worried about how we were going to actually meet the demands of our customers out of our 5 factories. Our people at operations did a superb job of dealing with the significant increase and, remember, we ran about 4 million -- it was a market that was building about 4 million autos per quarter in the first half of this year.

So that's the kind of demand level that we were running up against. So if you annualize that, so it's a 16-million build rate year, I think that -- I think most people were speculating that sort of represents maybe the upward boundary at this point in time as they look at the North American market.

Nonetheless, as Steve has offered, we are looking at more significant investments with an eye towards capacity. So we may lose some incremental share along the way.

It does give us an opportunity, as we had mentioned, to look at opportunities more selectively than maybe we have in the past, which hopefully will have some benefit for our financial performance.

My questions are regarding your Mexico operations. In the last year or so, several and especially international automakers have announced significant capacity increases in Mexico, especially in the Bajío, or central region of Mexico.

Could you tell me just how are you expecting these to impact your volumes or what are your expectations in light of these plans?

Well, first of all, we recognize there's been quite a bit of activity change and some great movement in Mexico on the OEMs side. And we have, in fact, been heavily in dialogue with the OEMs in Mexico that are planning on building, where there've been request for us to participate as a supplier.

I have to caution everybody that Superior's taking a strong position that pricing is as important in our future as anything. And if there is a desire by OEMs to believe that they can continue to commoditize this particular market any further than it already has been, we feel it's important that we not participate in that and so we have made that very clear.

Saying that, we are getting a lot of opportunities and we're looking at them, and thus, that's why we're talking about the additional capacity that we're looking to potentially add to the company. And that decision, again, should be forthcoming soon when we finish up some further information to get pricing, et cetera, on the opportunity where it's going to be built, et cetera.

So we're not announcing that today, but obviously, what I'm stating is that it's an opportunity that we're very hard looking at. And we think it's a great opportunity for Mexico and we're going to continue to work well with the OEMs that are, in fact, building facilities in Mexico and/or contemplating.

We certainly feel very positive about where our existing capacity is located at this stage based on what is happening to the market there. I think we're in as strong or a stronger position, quite honestly, than any of our competition with regard to where we're at geographically.

I mean, you're in the northern part of Mexico, correct?

That's correct.

I mean, most of this increased capacity, it's planning being on the more like southern, central region.

Right, and we believe that where we are located vis-à-vis transportation, at this point, it makes sense to stay right where we are because we have a great team of management. We have a capability to add capacity without having to add a certain layer of management.

We believe financially it makes sense and we work very well with the state of Chihuahua, from the governor on down. It is a very positive -- and we have the land availability.

So all of those things state that it's better for us to stay close to home than to endeavor too far south or into Central Mexico.

I think, the transportation corridor is very reliable going south and I think the wheel industry overall has proven you don't have to have a plant sitting right next to an assembly location to be able to compete effectively.

Okay. And then just a follow-up on capacity.

Is your capacity in Mexico broadly in line with your overall capacity, in terms of utilization rates?

Mexico is running at high utilization rates, in the upper 90s. So we are obviously very tight on capacity, but we always are looking for ways to decrease our scrap rates and increase our productivity to increase our overall capacity and we're doing that in a really well-organized manner, strategically throughout our entire company.

Okay. And if you do this decide to add on capacity in Mexico, how long does it usually take in months terms to...

Well I'd like to say that we can get it done in 1.5 year. I think that's stretching it, but we have a good knowledge base.

It depends on the supply base of equipment and the capital. That's the big key.

And one of the things that we're trying to ascertain with meetings, actually, next week, is some of the longest lead items and what it really will take. Once we know that, then we'll have a better handle on it and certainly prior to our next meeting on the phone or by press release, if it gets to that, we'll have a handle and be able to tell you what it is.

Is the reason you're not buying back stock because you have another transaction that would -- and the lawyers tell you not to buy stock back, where you would either use currency or sell the company?

Well, Mario, come on, what kind of question is that? Are we on CNBC now or what?

Well I should have it that way but you are in front of your shareholders. We own 2.5 million shares and we work for our clients and we have to ask these questions.

On the other side of the coin, from my point of view, I think that it was a very good response that says, "Hey listen, you've gone through these economic cycles in the auto industry. You wide build capacity if you're going to get squeezed 2 years out."

We had a company come in to the meeting yesterday from China that's building a -- finished a giant aluminum plan. They're going to start shipping wheels into the United States, aluminum wheels, initially not for the OE passenger car market.

And the answer is you've got to make money for your shareholders. You don't have to -- if you lose a little share, that's a good trade-off.

What do you think?

I think that's appropriate and I think that there's no question there's going to be continued pressure to some degree on this industry. When you look at China, you've got to decide whether or not the build capacities that they're talking about are going to materialize.

And if they don't materialize, with the amount of capacity you have at the OEM level, not on cars, but on wheels, there are going to be additional pressures that will be applied, either vis-à-vis pricing or volume, and that are going to try to be moved into the U.S. The only thing that will change that significantly is if that the price of oil goes up and logistics becomes somewhat of a difficult part of the equation.

So we have to balance that out and that's why Mexico continues to be very opportunistic for us when you look at it in the broad picture where our gross margins are. We understand that very well.

We also understand that in our Midwest operations or U.S., that there are opportunities. Some of our OEMs want and desire for us to have a presence in the United States.

So when we look at those volumes, we have to decide what that balance is to our margin and that's why the discussion is ensuing about whether or not we build an additional facility in Mexico to facilitate margin growth and facilitate that market and continue to give us a leg up over some of the Asian suppliers when it comes right down to bringing a product in, either to North America or specifically to the United States, and that's what we're doing. And maybe we've been a little bit slow on our toes.

I'm a conservative CEO. We're one of very few companies that's sitting on $0.25 million and no debt and we realize, and I realize it all the time, that we need to spend some of that capital.

And as Brian asked me, we don't need all of that capital, but I want to do what I believe is best for the shareholders and I believe buying shares back at 27 million shares and buying 5 million or 10 million shares does not benefit really the company long term.

We don't need to pontificate. We can vote against or for the Board if that's how they feel.

I mean, that's clearly from our point of view as owners and surrogate owners. We may elect to take a different tact and so you'll see more activity in that regard as time goes on.

Absolutely.

We'd be delighted to be cheerleaders, but the name of the game is as long you're working for shareholders and not the OEs.

And that's what we're doing.

I hope some of the OEs are on the call.

Mario, when I talk about what's most important number one is shareholders and don't forget that I represent the family that owns 5 million shares. And secondly, most importantly, is our employees and I represent, as the CEO, the leadership.

I agree, but it's not the future. If the car companies are going to squeeze you in 3 years, and locating in Mexico is like locating in Hungary.

It's not going to help necessarily.

And I hear that and that's part of the dialogue that we're continuing to have.

But if they want to give you the money to build a plant, then you guys just use your knowledge, that's not a bad deal.

Okay, good. It's a good ending with Mr.

Gabelli. He always has nice things to say to us and he's been a staunch supporter as have all of you that own our shares.

And we appreciate that very much and we understand some of the quandaries and we're working hard for the benefit, as I say, our shareholders and our employees. And I thank everybody, including our employees, for all the hard work they continue to do.

Have a nice day and we look forward to talking to you at the next quarter. Have a nice holiday season and Thanksgiving.

Thanks.