Adient plc (ADNT) Earnings Call Transcript & Summary

Welcome, and thank you for standing by. [Operator Instructions] Today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Mark Oswald, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Amanda. Good morning, and thank you for joining us as we discuss Adient's recent announcement related to the company's strategic transformation in China. The press release and investor presentation for our call today have been posted to the Investors section of our website at adient.com. I'm joined by Doug Del Grosso, Adient's President and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. Before I turn the call over to Doug and Jeff, I would like to remind everyone today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore, involve risks and uncertainties. I would caution you that our actual results to differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. With that, let's turn the call over to Doug and Jeff.

Great. Thanks, Mark, and thank you to our investors, respective investors and analysts, joining the call on such short notice. Jeff and I and Mark are excited to share with you additional details related to the strategic transformation in China Adient announced earlier today. The transactions, once closed, will allow Adient to independently manage our business in China, which is expected to result in a variety of benefits, including capturing growth in profitable and expanding segments, improving the integration of the company's China operations and allowing for a more certain valuation relative to status quo, for cash and value are generated from dividends at entities not in Adient's control. I'll dig deeper into the benefits and rationale in a moment, but let me hand it over to Jeff to walk through the specifics of the transactions.

Thanks, Doug. Good morning, everyone. Let me start on Slide 4. As announced earlier today, Adient and Yanfeng Automotive Trim Systems, or YF, will end their YFAS joint venture in China. As you know, the JV has been a tremendous success to both parties for many years. However, as we look to the future and after candid and friendly discussions, Adient and YF have jointly concluded that it would be in the best interest of both parties to end the partnership and independently manage our businesses in the China market. Essentially, this set of transactions will be executed as follows. Adient will sell its 49.99% interest in YFAS to YF for approximately $1.2 billion. Important to note that the cash proceeds discussed today are based on the current U.S. dollar to RMB exchange rate as the YFAS transactions were negotiated in RMB. Adient will acquire certain assets of YFAS, specifically its 50% ownership interest in CQYFAS, bringing Adient's ownership stake to 75.5%, and we'll also take control of the subsidiary at Langfang Seating. Upon closing, CQYFAS and Langfang will be consolidated and controlled by Adient. In total, annual sales are approximately $700 million to $800 million with historical EBITDA margins in excess of 10%. YF will operate the remainder of YFAS as a wholly owned enterprise. In addition, Adient will collect a series of cash dividends and is selling its minority interest in certain other JVs with YFAS to YF. Total cash received by Adient, net of cash needed to take control of CQYFAS and Langfang will be approximately $1.5 billion or about $1.4 billion after tax. Approximately $800 million of cash, including dividends, is expected to be received by Adient, on or before closing, which is expected to be completed in the second half of calendar 2021. The remaining $700 million of cash is expected to be received by Adient by December 2021. The transactions, of course, are subject to customary government and regulatory approvals and certain PRC state-owned asset require approvals and processes. In conjunction with the YFAS transaction, Adient has signed an agreement with Boxun, our JV partner in CQYFAS. The agreement provides Boxun with a put right to sell, and if executed, requires Adient to buy Boxun's 25% interest in CQYFAS. The put right is valued at $125 million and is contingent upon the closing of the YFAS transaction. After closing, if Adient buys Boxun's 25% interest, Adient would own 100% of CQYFAS. Separately and called out at the bottom of the slide, Adient previously agreed to sell all of its 50% interest in SJA for $58 million. This transaction, which is considerably smaller in scale, is consistent with our other strategic transactions the company has taken to further optimize our portfolio. With that, I'll turn it back to Doug, so he can share his thoughts on what Adient will look like in China post-closing and the benefits we expect as we execute these transactions.

Great. Thanks, Jeff. Flipping to Slide 5. First and foremost, let me assure you, Adient is not leaving the China market. As I mentioned at the beginning of the call, we view this move as an opportunity to independently manage and drive our business in China, which includes both consolidated business and the remaining joint venture partners. Our expertise, scale and unwavering commitment to our Chinese partners has earned Adient widespread recognition in the industry and helped Adient and our joint ventures become a leading seat supplier in China. Looking ahead, we expect to remain a leader in the China market. As you can see on the slide post-closing, Adient's China business is projected to have annual sales of about $4.5 billion, including consolidated and nonconsolidated sales. We'll have 9 major entities with extensive customer and geographic coverage. Our complete in-house engineering capabilities will be second to none, supported by 3 global tech centers with over 800 engineers in 29 manufacturing sites. This is expected to result in Adient being on par with or/and among the top 3 complete seat suppliers in the market, which based on our estimates equates to market share just under 20%. It's important to point out that we also retain our large share of the rapidly growing NEV market. Although the highlighted statistics are impressive and demonstrate our commitment to the market, our excitement and optimism is really underpinned by our ability to independently manage and set forth our own strategic course in China. As Jeff pointed out, the YFAS JV has been a tremendous benefit to both partners for many years. During those years, we were much aligned on customers' platform segments we wanted to grow with. That said, the auto industry in China continues to evolve. The mass market manufacturers that were leaders for many years are facing stiff competition on several fronts, from Japanese manufacturers to upscale luxury brands to, needless to say, battery electric manufacturers and platforms. With the expected consolidation across the industry in the coming years, its likely new market leaders will emerge. As a result, there's been a divergence between the partners, Adient and YF, on where future capital should be deployed. For example, Adient would prefer to deploy capital and continue to expand our relations with certain Japanese and luxury customers versus investing in various platforms. With the execution of these agreements, Adient will retain and, more importantly, have the ability to expand our relationships in what we believe are the highest growing segments, premium Japanese manufacturers and EVs. The table on the right-hand side of the chart illustrates this point. In the north, we'll be providing world-class seat to manufacturers such as Audi, Toyota, Hyundai, Daimler. In the South, Honda, Toyota, Mitsubishi, to name a few. And across the central and to the West, traditional customers such as Volvo, Ford and high-growth EV manufacturers such as NIO and Xpeng. Turning to Slide 6, and building on the points just made, some of our other benefits that strengthen our conviction, including the transaction outlined today aligns with the China auto industry trend in post-JV era; improves the integration of China operations, providing the potential to achieve significant synergies across multiple locations; once closed, the transformation will provide certain value realization relative to the status quo, where as you know, value today is generated from dividends at entities not in Adient's control; and last but certainly not least, we're able to monetize value that is accumulated in the JV without jeopardizing future opportunities for growth. On the topic of monetizing value, let me turn it back to Jeff to discuss the use of proceeds and what pro forma Adient will look like once the transaction is closed.

Great. Thanks, Doug. Let me turn to Slide 7. As mentioned earlier, Adient will receive approximately $1.4 billion after tax. Consistent with our near-term capital allocation plans, the majority of the proceeds will be used for debt repayment. In addition, a portion of the proceeds will be used to execute the put right from Boxun, if exercised, and for general corporate purposes. The put right is mentioned on Slide 4, and is about $125 million. On the bottom of the slide, we've included certain key financial measures to help with modeling and to better understand the impact these transactions, once closed, will have on our financial results going forward. Measures are pro forma compared to the company's fiscal '21 guidance provided with Adient's Q1 fiscal '21 earnings results released on February 5. Essentially, a look at what fiscal '21 would have looked like if the transactions were closed at the start of our fiscal year. Beginning with sales. Consolidated sales are expected to increase annually by approximately $700 million to $800 million. Adient's unconsolidated sales are expected to decline annually by roughly $3.5 billion to $4 billion. As you know, YFAS accounted for roughly half of Adient's unconsolidated seating sales. Moving on to EBITDA. Consolidated EBITDA is expected to increase between $90 million and $100 million. Equity income, which is included in Adient's EBITDA calculation, is expected to decline annually by about $155 million. A few other items to note. Given the forecasted $2 billion of debt paydown that is planned by the end of the calendar year, Adient's annual interest expense post-deleveraging is forecasted be about $100 million. This is a significant savings compared to our current guidance of approximately $235 million. The significantly lower debt levels and the corresponding benefit of lower financing costs are expected to drive improvement tied to net income and EPS. Also factored into net income and EPS improvement is a modest uptick in cash taxes, call it, approximately $10 million net. Finally, as we look to use the proceeds from the transaction to pay down debt, we were targeting a net leverage ratio between 1.5x and 2x, dependent, of course, on the level of debt that is repaid. Important to point out that Adient's current capital structure has a lot of callability embedded into the company's notes. This includes, but is not limited to, 20% of the 7% secured notes due in 2026 that we fully expect to exercise in relatively short order. Not shown on the slide, but important to call out, the balance sheets both of our consolidated and nonconsolidated JVs in China post-closing are expected to remain strong with net cash positions. In fact, as of December 2021 -- or as of December 2020, the nonconsolidated JVs that are expected to remain with Adient had a combined net cash position of approximately $325 million. As noted on the right-hand side of the page, the transactions announced today, once closed, mark a transformational change in Adient's earnings profile and balance sheet. With that, let's move to the Q&A portion of the call. Operator, first question, please.

[Operator Instructions] Our first question comes from John Murphy with Bank of America.

I had a couple. First, I mean, obviously, there's 2 sort of driving forces here. One, on the operating side to streamline the China business and really to kind of take more control of your own destiny there; but two, to delever and drive the balance sheet into a much better, more sustainable position. You're kind of achieving both. But I'm just curious, which is the greater motivating factor. You had a balance sheet that needs to be delevered. Doug, would you really be making these kinds of moves in China?

Yes, John, thanks for taking the time to join the call, and appreciate the question. To me, the answer is, yes, we'd absolutely consider this transaction. And from my perspective, it's just how I think about this particular joint venture, and I wouldn't say it's true for all joint ventures, but this particular joint venture. It's been around for a very long time. It served a very useful purpose for the company for many, many years, but the market in China has changed. And the strategy of partnering with the component group of a particular OE in these mega western JV is a different -- has a different level of appeal than what we're seeing in the market today. That doesn't mean we're not interested in doing that, but I think we had to create a level of flexibility for Adient to pursue multiple opportunities in the market. And so I would say it's the market that's changing that's driving this and our motivation. Certainly, strengthening our balance sheet is a great motivator as well, but we'd be doing it regardless.

And that kind of gets me to the second question of the why now. I mean, really, it is sort of the changing dynamics in the Chinese market where operating on your own is much more viable and open up some more avenues. Is that a fair characterization?

Yes. I think the opportunity presented itself. And to a certain degree, we executed project right last year. I would say we would -- we could have stayed with YF, but we were, over the last couple of years, reexamining our strategy in China. We divested out the interior business because it really weren't contributing in any meaningful way. And then this opportunity presented itself and we said it's the right time in the market to do it. And yes, we have an underlying need to improve and deleverage the company. So it just kind of aligned and made sense for us to pursue.

Okay. And then just lastly, Jeff, on the balance sheet, the debt paydown that's being indicated is $600 million greater than net after-tax proceeds here. So just curious why you think you have room to do that? Is this now a function of having lower leverage and just more room to deploy the cash that you have on the balance sheet in a more comfortable position? And what's the new minimum cash position you think the company needs now that you're saying that you're in pretty good shape on leverage at this point?

Yes. No, great question, John. If you recall, when we ended our last quarter, we had a bit over $1.8 billion in cash. And we had said a more normalized level of cash for us would be around the $500 million to $600 million mark. And so there was always deleveraging in the plan. So yes, it's a bit more deleveraging than the proceeds we're getting, but it's reflective of that existing cash balance. And your answer, I think expect that around $600 million-ish of cash as we complete the deleveraging and 0 draw on our revolver, which we think is plenty for us from a liquidity standpoint to operate the company safely.

So Jeff, I mean -- it means that there's probably a little bit more room to delever over time opportunistically. Is that...

Absolutely. I mean how we allocate capital, we've said that the 1.5x to 2x kind of remains our leverage target. So there will be a time where we can start to think of perhaps more shareholder-friendly activities or other uses of that capital than just pure deleveraging. But we think we'll get to that target much quicker as a result of this transaction.

And your next question comes from James Picariello with KeyBanc.

Just on Adient's JV cash dividends on a go-forward basis. I believe this year's guide that called for $200 million thereabouts. Would the pro forma impact you step that down to $75 million or so?

Yes. So I'd say, use the same sort of general guide that we've given you before, which -- I think our JV guide had been roughly 100 -- or $250 million of equity income and we'd always expect to run 70% of that on average to come through in dividends. So now we said the equity income will be down about $155 million. So I'd take the balance of that and say around 70% is a good number for your modeling.

Yes. Okay. And then just as we think about the company's normalized free cash flow trajectory from here, right, after we get through this year's elevated restructuring and deferred payments, we did have a clear look at what Adient's run rate free cash flow looked like. Does this transaction change that in any material way?

Well we'll obviously lose the dividends, at least a portion of those dividends we won't get. You have another $100 million, give or take, $90 million to $100 million or so of consolidated EBITDA that will be coming in from the entities we'll be consolidating, control that cash, and we'll have significantly lower interest expense. So on balance, it should be positive.

Right. And then just on the pro forma China revenue number, the $4.5 billion, that includes both consolidated and nonconsolidated. Can you provide the breakout between those 2? Is the consolidated piece now, what, $1.2 billion or so?

Yes, that's about right. I was going to say about 25% of that number is going to be consolidated and about 75% will remain unconsolidated. And the net cash I gave you was just for that unconsolidated portion. I mentioned $325 million of net cash in the unconsolidated portion at -- last December.

Got it. And do you have any expectation on the put option? If they could exercise, you think, or?

It would be speculative. It's okay. We're -- CQ is going to be a real -- CQYFAS is going to be a great entity for us. It has wide amount of footprint. It has -- it was very strategic for us from a customer standpoint and allows us a controlled entity to continue to develop into the market. Whether we own 75% or 100% of it, I think we're okay. Our partner has been great. The Boxun investor has been great. But we do recognize that they might also look to cash out, and that's an option for them.

Our next question comes from Joseph Spak with RBC Capital Markets.

I guess, Jeff, just now that China will be more under control and obviously, you get to make more operational decisions in the business you go after as well. What about any preliminary thoughts on how much cash you need to keep over in China versus potentially bringing it back to this States?

Well, I think we can control that more now, Joe. But we can control the stuff that's in the consolidated side. The good news is these are cash flow positive entities. So they generally have the ability and expectation to pay a dividend. So we think it will help feed the other opportunities from debt reduction to future dividends or whatever we choose to do with cash as we move forward as a company, it should be beneficial. So I think having more control over that cash is better and good cash-producing entities with high margins is helpful too.

Okay. And then maybe just a couple on the commentation. The leverage target you mentioned, 1.5x to 2x, is that on, I guess, consolidated EBITDA now? And I guess what's, like, now that -- I mean, I guess, there still is going to be an equity income portion, but, like, going forward, are you going to sort of message more on the consolidated EBITDA versus sort of the adjusted EBITDA given the shift here?

I don't think we're going to shift our definition of EBITDA, and the ratio I gave you assumes the same definitions we've had for equity income -- or I mean adjusted EBITDA, so it include equity income. I think it makes sense. It's a very material amount for us. It's something that's very strategic to us. We've -- as we've always argued, we think that there's a lot of value from those JVs. Sometimes the market hasn't always put all that value into our share price. But we do think it's a big component of our earnings and something we'll continue to measure ourselves on. And as it relates to the 1.5x to 2x, specifically, we just look at total debt minus cash divided by that adjusted EBITDA number, which includes the equity income. And that's the 1.5x to 2x that we'd be looking keeping the range of.

Our next question comes from Dan Levy with Crédit Suisse.

Two questions, I guess, just on the operational side. First, I think one of the opportunities to improve your SS&M business is to consolidate some of that business into the JV and that sort of optically help with the margins. So with the portfolio actions that you're doing today, how does this impact the planned transition for SS&M?

Sure. Appreciate the call in and the question. As we've been indicating in our earnings call, our -- what was formerly known as our SS&M business has improved greatly in the financial performance, and we're ahead of schedule on our stated objective of being cash neutral. Still a long way to go, but we're definitely on course. AYM, now known as KEIPER is important to us in the future. It is a very well-run operation, servicing not only the Asian market but the global market. And we continue to expect that it will be an important part of our portfolio. Through this transaction, we do strengthen the Adient independent metal and mechanism position in the market through the Langfang operation that remains under our control. So it's enhanced slightly. That's got a customer element to it that's very important to us. But as we move forward, again, we want to always drive flexibility into the way we think about metal and mechanism business. We'd like to have capability in every single region, but where we have capacity and assets in place that are cost-effective, even if it's to a JV, we fully intend to utilize that capability when it's appropriate. I think what we've really shifted is just how we think about supply lines and how we think about landed cost most recently in the way we think about that business. We've moved a lot of metal around in that business just from shipping component parts to other plants to be welded in the plant and then ship to some other place in the world. A lot of the improvement that we've had in the metal and mechanisms business has been kind of a more thoughtful consolidation of how we produce those products. There's a lot of common technology that goes across there, and the key to it is manufacturing in an efficient way and looking at a fully loaded cost structure, not just the labor cost structure, to make that determination where best to produce the product. I would say when tariffs hit, it created a catalyst for us to take a harder look at that. But we had to move there eventually. But now we think we have a much more balanced manufacturing portfolio of operations to utilize to support our business.

Great. And then actually related to another point you just made. So if I look at the new business that you're consolidating, the margin profile is north of 12%, almost 13%. Can you explain what's going to be structurally different about that business versus the current consolidated business, which has a much lower margin profile globally? And then is there any opportunity, and you're talking about there's a lot of optimization here and you've employed a lot of back to basics across the overall consolidated business. How much opportunity is there? Now that this is under your control and -- it wasn't being once seeing all entitlement for, now it's fully under your control. How much can you apply some of those processes to these businesses to further improve that margin growth? So why is it so much better? And is there further opportunity to employ some processes to make it even better?

Sure. I think one of the reasons why it's so much better is that region of the world has operated much more effectively than where we were in and are today in the Americas, in EMEA. But if you look at what we've targeted is adjusted EBITDA margins, it's not too far away from where China is at. So structurally, is there anything different that would prevent us from achieving that? I'd say no. But we've been very effective at execution in the China market. Our launches are more executed better. Productivity is driven very hard in our manufacturing sites. We have good relationships with our customers. And in some cases, because of the way the JV is structured, and that's why there are important customers, the question is, do we still want to partner? And do we still like our JV structures? In many cases, we do, because there's a lot of harmony in that relationship. And that allows us to resolve a lot of commercial issues much more effectively than I think sometimes that happens in EMEA and the Americas. But I would also add to that, I think we've changed our relationship in those last 2 regions. And that's been a real catalyst for us to get things done. We talk about driving cost out of our product. If you've got a good relationship with your customer, you've got credibility, they appreciate what you're doing and you're not mired in disputes over launches and commercial issues, that creates a real platform to drive cost out. I think that's been there in China for quite some time, and we're getting back to that position in the other 2 regions. So I don't really think there's a structural reason. I think it's a combination of execution and commercial relation.

[Operator Instructions] Our next question comes from Rod Lache with Wolfe Research.

Congratulations. It sounds like this is something you've been working on for a while. But I was hoping, first, maybe you could just clarify for us functionally just before and after the CQYFAS and YFAS and Boxun transactions, what's the mix before and after of the JIT and SS&M in your new consolidated and unconsolidated businesses? And related to the answer that you just gave Dan on SS&M, I just wanted to clarify, does this affect anything outside of China? Or are you saying that the tariff situation just requires that you have kind of regionally balanced manufacturing?

Yes. I'll take the latter, and I'll let Jeff answer the CQ. So what I was trying to communicate, Rod, was tariffs forced us or accelerated our reaction to how we're globally positioning our make and buy decisions on the SS&M business. As we started to peel that back more, we started to find a lot of other opportunities where our logistics costs associated with that business was, I think, if memory serves me, Jeff, somewhere in like the 4% range. That was inner spending of just moving metal around to different locations. We produce components in one, ship it to another and then ship that to somewhere else in the world before it was finally built and received. So that was just driving our bomb and looking for opportunities to improve our cost structure, independent of what we needed to do with our customer. So I hope that answers your question. And then Jeff, on CQ?

Yes, the first part of your question, maybe if you look at Page 5, Rod, of the presentation we have is the table on the right that gives you kind of our JV makeup and not just JV -- some of these are wholly owned, like Langfang. The top portion -- or I should say, where it says North, Southwest and Central, those entities from CFAA a through CQYFAS are effectively doing the complete seat for the JIT business. The component business are KEIPER, which is formerly AYM; FAA, which is the mechs JV; the trim JV, YFAT and Langfang. Those are components. That component part of the chart is a little less than $1 billion of the $4.5 billion in sales. So I think your question was the mix. So hopefully, that's helpful.

Yes. That answers that question. And just one other point of clarification. So one of the advantages that you've always had in China is that in a number of cases, your position is strengthened by the fact that you're partnered with your customers. So to the extent that some of these things are getting consolidated, does it change the competitive landscape or the business in any way long-term, just along those lines in terms of partnership with the customers?

In my mind, no, and I'll say the reason I believe that to be true is, certainly, relationships are important, but as that market becomes more competitive and the market shifts, and there's more new players in the market and that's being created because of electrification, I see that less as an advantage of where it was, I don't know, 5, 10 years ago, certainly 20 years ago. So that's not to say we don't value that relationship, but I just feel that the market dynamics are very different. We point to NIO as an example. When we see a customer like that, we have some level of confidence that their business plan is gaining traction, and that could be a lucrative opportunity. We can approach that independently, right? They don't have a component group that we have to partner with to pursue that. We do it through a JV, but that's more, I'll say, utilization of assets that are in place right now. I see that being more the norm as we move forward. And again, this flexibility, to me, is a keyword. We can do a JV, if it's appropriate, but we can go independently. But I guess, most importantly, we can do that market assessment. And we're not just forced to do something that we might not otherwise want to do just because our partner dictates that.

And on CQ, the big partners are Ford and Volvo. Volvo, in particular. And really, Adient has managed that global relationship. So this is -- by having control of the joint venture, it really has a much better integration with our global team and should help drive, I think, the relationship better going forward.

Our next question comes from Brian Johnson with Barclays.

It's great you were able to do this huge transaction without having to go to China and drink a lot of -- making a lot ties, so I remember our trip there. So I have 2 questions, 1 housekeeping, 1 strategic. The housekeeping one, you mentioned in passing minority interest, when we do or some of the parts, we take the minority interest out. Is that going to be a meaningful impact on minority interest? Or can we leave more or less as is?

Yes. Okay. I could come back on that one. We'll come back on that one next time, Brian, but I don't see it as a huge, huge piece, but we'll come back and give you better clarity on the next communication.

Okay. And second, from that trip in China, the numbers may have changed since then. It looked like -- or you disclosed that you had 76% share of SAIC, which was the primary customer -- which is the Langfang joint venture. But anywhere from 30% to -- mainly 30% or I think that'd be 60% share of those -- of the seat business coming are those OEMs. Does this mean that there's a share gain opportunity in the now largely consolidated business that you'd be looking at?

A share gain opportunity, you're talking about for the...

Ownership or market...

No. No. No. Market share. Share of seating -- passenger vehicle seating market share. The numbers you have was, say, for example, you had 78% share of the, say, seat business, but only 32% of Chang'an's business?

Yes. So we believe that to be an opportunity for us. So as part of this, yes, we exit, let's just take example, SVW or SGM and they retain YF, an 80% market share in -- and I recognize the relationship is still there, obviously. But again, I go back to the market dynamics, I think, are going to drive a more competitive model. And I think regardless of that relationship, they will look for a low landed cost. And if we can provide that, we've got some ideas of how the China market has changed and what we might be able to do with our extended capability from manufacturing. If we can come in with a better cost structure, they we'll take a hard look at it and we fully see an opportunity, particularly with our global relationship with GM, to come back in, and we enter it and regain.

And then to the other major OEMs, there's opportunity to do more of their seat business with this structure?

I think so, yes.

Our next question comes from Emmanuel Rosner with Deutsche Bank.

I was hoping to get a little bit more color on whether there is a trade-off then being made in your relationship with GM and Volkswagen on a global basis. I would assume that your capability globally is sort of a very, very strong asset at Adient. And in a lot of cases, you're actually able to sort of like supply global platforms, both in sort of like North America and in China. And so to the extent that going forward, these global automakers will essentially be serviced in China by what would be basically a competitor, is that an issue at all outside of China in your relationship with them?

Again, we don't believe so. So in the case of VW, for example, we still have that relationship with FAW. So we still maintain that went globally to the China market. General Motors is -- I just spoke to, I think over time, that's market share certainly not what we enjoyed in the past, but we can selectively regain as they look to balance their supply base and create some competitive tensions in the market as they do everywhere else in the world. You almost have to go customer-by-customer and look at their sourcing strategy. And if -- some of those customers have a very regional sourcing strategy. I think they haven't adhered to, if you had the business in EMEA or Americas, it's guaranteed that you have it everywhere else. That's a little bit how it is today with a customer like VW, for example. What's going to be interesting to see is how the whole sourcing strategy shifts on seating business as I think our customers think that old model is as applicable as it used to be, is where -- it's -- I'm not going to try and design seats myself. I'm not going to try and source all of the component bits and migrate board to full service, black box, you control the supply chain. There's been a lot of changes in that model over the last 5 years. I think it will accelerate because they have to deploy their resources in other areas, namely propulsion. So that, in my mind, works to our advantage because we are global. We've got that capability. We've got technical capability around the world. I think we're -- obviously, I think we're the best seat supplier in the world. But I think our capability is unmatched. Our technical capability is as good, arguably better than others. So all those work to our advantage. So a long-winded answer to your question, but hopefully, it made sense.

Okay. So your -- just to make sure I understood, you think there's a decent chance that going forward some of the sourcing may be a little bit more regionalized as automakers try to achieve sort of a best capital allocation, best cost? Okay.

I would say it's a little bit of that right now. What I was suggesting is that model may shift again. And when it shifts again, I think we're really well positioned.

Okay. And then one just housekeeping. So you're thinking about 1/4 of the business in China now will be consolidated as I sort of look at the breakdown of the operations going forward in China. Can you please just go back over what pieces are consolidated and what will remain as a joint venture?

Yes. If you look at Page 5. I'll walk you through that. BJA, GAAS, CQYFAS and Langfang will be consolidated. The rest will be unconsolidated.

[Operator Instructions]

Great. Amanda, it looks like we are -- it looks like there are no more questions. If anybody has additional follow ups. I'm available this afternoon, please feel free to give me a call. I'd like to thank everybody for joining us this morning. And this concludes the conference call for this morning.

Thanks, everyone.

Thank you.

That concludes today's conference. Thank you for participating. You may disconnect at this time.