American Axle & Manufacturing Holdings, Inc. (DCH) Earnings Call Transcript & Summary

Okay. Great. We're live. Thank you so much as we continue day 1 of the Barclays Global Autos and Mobility Conference. I'm Dan Levy. I lead U.S. autos research coverage and very pleased to have with us American Axle Manufacturing, mainstay at this conference, leading driveline supplier in the U.S. and now expanding globally quite dramatically with some transformative M&A. So very pleased to have with us David Dauch, the company's CEO and Chairman; as well as Chris May, CFO. So we're going to do a series of fireside chat style questions. And then we'll go into any audience Q&A. But I think first, David, you have some opening remarks.

Yes. Just to make a couple of brief remarks. First and foremost, good afternoon, everyone. It's an honor and a pleasure for Chris and I to be with you here today. We're having a very good year this year as a company. So we're very pleased with the performance that we've had year-to-date. We just came off a very strong quarter in the third quarter. And we also had the opportunity to upgrade our guidance as it relates to the midpoint of our guidance, where we're expecting our sales for the full year now to be between $5.8 billion and $5.9 billion, our EBITDA to be in the $710 million to $745 million and our adjusted free cash flow in the $180 million to $210 million range. So again, very pleased with how the company is performing right now. Clearly, a lot of activity, a lot of excitement going on within our company with respect to the transformational deal that we announced in January with the acquisition of the Dowlais Group or GKN Automotive and GKN Powder Metal. Our teams are working exceedingly well in regards to the integration and preparing ourselves for day 1. And we're also making meaningful progress in regards to working towards the close. I think all of you have now seen that we got shareholder approval in the July period of time. We got all of our financing put into place in the September, October period of time. We've got 8 of the 10 jurisdictions from a regulatory approval standpoint in place. The latest one that just happened was Brazil. The only 2 holdouts right now are Mexico and China, but things are moving and progressing favorably with both of those countries at this time. We're expecting Mexico here in the fourth quarter, and China will either be in the fourth quarter or the first quarter of next year. And based on China being the long pole in the tent, we now expect the closing to take place in the first quarter of next year versus the fourth quarter of this year, which is what we guided -- the Street to a press release back on October 27. But overall, we're super excited with the performance of the business today. The interaction with the Dowlais team. There's a very talented team there. There's a lot of chemistry there. There's tremendous synergistic opportunity with our business. As we said, we're going to add size and scale. We're going to generate $300 million or plus in regards to synergy opportunities, a more expanded product portfolio that's more agnostic to the marketplace, ICE, hybrid as well as electrification. In addition to that, we'll get stronger diversity with our customers, with our geographic footprint and that product portfolio, and we'll be positioned to generate some very strong margins and cash flow performance, which is going to allow us to be able to service the debt load that we'll have as an organization, and we can talk to you more in regards to what our goals and objectives are on the debt as well as our capital allocation. Again, honor and a pleasure to be with you all here today and just excited to take on your questions. But most importantly for us, we're excited to wrap up this year and get this deal done early next year and start working together and integrating this business and taking it to a whole another level. So thank you.

Okay. Great. Let's just kick off first. One of the questions we've been asking all the suppliers is there's been a number of supply disruptions out there between Nexperia, Ford, Novelis, JLR. I think your exposure on these is relatively limited, but maybe you could just give us a sense in the fourth quarter, how that might be weighing on the results?

Yes. Maybe, Dan, this is Chris. I'll start with that. Those -- as you have mentioned, we don't have broad exposure to those issues. We do ship a little to JLR. We do ship some to Ford. Our predominant exposure to Ford is on the Super Duty as well as their small compact SUV. But broadly speaking, I would tell you, it's some pressure on production, but we've not experienced a lot in terms of downtime or impact associated with that. So -- they've been protecting some of the key platforms we support such as the Ford Super Duty, which has been great. But I would expect just a little bit of impact from that, but at this point, not a lot.

And from the Nexperia issue trickling into nothing...

Nothing of consequence in the fourth quarter at this point.

Yes. On the Nexperia. side of things, and we've obviously been in close collaboration with our customers. We've built inventory to protect for continuity of supply. We're looking to see what else we need to do to continue to expand maybe that inventory coverage that we have to protect that continuity of supply, but we're also looking at alternatives, anticipating that things will get worse before they get better.

Okay. So carrying that out as we're looking into next year and as we're shaping -- let's just start with the broader macro environment. I think we've seen a North America environment that's been fairly resilient, healthy volumes. Some question on SAAR, whether there's been pull forward or not, but mix has been healthy. What are you looking at next year from a macro perspective as sort of the broad setup? And I know on some of the key platforms, both are roughly flattish, T1XX and RAM HD. How are you looking at sort of the macro setup for yourselves next year?

Yes. Just -- when you look at things globally, I mean, we're expecting that 88 million, 90 million units on a global basis. China clearly makes up about 29 million to 30 million of those units. They're going to continue to build in China. They're getting to a point that they're actually starting to plateau in China as far as the demand itself. So they're looking to export product globally around the world. Clearly, they're targeting Europe. They're targeting Latin and South America are the main areas that they're focusing on right now. So there's some concerns about what's going on in those markets and do the traditional OEMs in those markets, the Western OEMs, can they protect their market share? Or do they lose it to some of the C OEMs on a go-forward basis. Clearly, Europe has gone from 22-million-unit market to roughly a 17-million-unit market. We still think it's going to hover down in that range, but again, with more intense competition coming in there. So that's something that we're keeping a watchful eye on, especially as we're going to increase some of our exposure to Europe. But then in North America, we see a pretty steady market in regards to North America, especially for the platforms that we're on, that being the truck and the crossover vehicle and SUV type platforms that we have. So Chris, I don't know if you want to add to that.

Yes. No, I mean, it's obviously a little early to make a call for '26. We look at a lot of the same data points that you and others look at. The GM truck franchise has been strong for us here this year. It will be strong next year, though they will begin to go through some conversions to their next gen. RAM, we experienced that conversion about 12 months ago, and it's been running very strong, meaning the heavy-duty RAM have been running very strong for us here in the balance of the back half of this year. We would expect that strength to continue into next year as well.

Okay. We just had S&P come up here and a very interesting slide on the impact of what's been happening with EVs, where EVs have all been heavily delayed. We're talking about delays all the way up to 36 months, including some cancellations. And then you look at -- there's a slide on ICE extensions and the number of ICE extensions you've seen have been quite significant. So knowing that the backlog was primarily a North American backlog, but global. And we've seen some changes in the product cadence. Is there a potential for a backlog air pocket? This is, I think, a question for all suppliers.

It applies to everyone for certain. There is definitely an air pocket going through the auto space right now as customers are resetting it. So I really believe the whole automotive industry is resetting itself right now because everyone was pushing towards the adoption of electrification at these accelerated rates, which quite honest, we never totally believed in. Now they're having to fall back. The market has spoken and said, listen, we want ICE and we want hybrid vehicles. Most importantly, we want affordable vehicles, okay, is the big thing that's there. So customers are having to reassess their long-range product plans right now. They're having to fall back on their existing engines and transmissions because they weren't really working on advanced or new ones because they were focused on electrification. So where electrification was forecasted to be 50% in the U.S. by 2030, now they're forecasting somewhere in the range of 20%. We even think that might be a stretch going forward, especially when you look at trucks and SUVs and the big users or the big product that's being produced here. We're a big believer in electrification, always have been. We just don't believe in the adoption rate that the prognosticators or the forecasters were projecting or predicting. Now in China, absolutely believe in it. That market is 55% electric and hybrid today. It's only going to grow going forward. Europe is going to be behind them, significantly behind them, but ahead of the U.S. and the U.S. is going to lag considerably, especially with all the policy changes that have taken place under the Trump administration with the $7,500 credit going away, regulatory changes taking place, EV tax credits and all that being adjusted as well. So we truly believe that ICE and hybrid are here for a long time. And when I say that I mean decades, not just years. The ICE or EV will continue to grow in the U.S. It's just not going to grow at the accelerated rate that everyone was projecting. And that's where a lot of companies have overextended themselves. OEMs as well as Tier 1s. You don't see American Axle going through a lot of restructuring because we are very selective about what business we went after. We also announced earlier this year that we won the Scout award, both the front axle and the rear axle. It was the largest electrification program being sourced this year, and we were the winners of that. So we're very proud of that. All we want to do is demonstrate our capability and our [indiscernible]. We're going to continue to make investments in electrification. We have been making investments in electrification since 2010. The market wasn't ready. But now the market and the strategy has to be different between China, Europe and North America completely. So -- but we feel very good about where we are from an overall product portfolio standpoint with the Dowlais acquisition, we will actually strengthen our electrification capability, a more well-rounded capability, especially in the EDU or Electric Drive Unit area. On the beam axles, they're not in the beam axles. So we're leaving that initiative ourselves. But as I said, that's pushed out based on what the market penetration will be.

Okay. How are you looking at the opportunity as -- so you talked about some air pocket...

Yes.

The reshoring opportunity. How much in terms of incremental capacity coming to the U.S.? And we know, obviously, GM is expanding its capacity on the large truck side and adding capacity in Oryon and whatnot. How much of an opportunity is that for you?

Well, I think a few things. First and foremost, to the earlier question you were talking about, every OEM is reaching out to their supply base, but no different in our case than asking for extensions on their existing programs. That's a positive for us. Longer ICE, longer hybrid, great for American Axle. And for the most part, runs across the existing installed infrastructure that we have with the exception where we have engineering changes to address customer desire specific designs. On the reshoring activity to the U.S., that's a big benefit and a big opportunity for us, especially on the metal forming side. The driveline side will take a little bit longer to put into place, much more capital intensity there. We're not just sitting on a lot of idle capacity. We've always tried to have a policy of buy and build local in the local markets that we serve, that serves us well, especially with the tariff issues that are going on today. For a company our size, we're not paying the amount of tariffs that you would expect. But at the same time, we're working with our customers to mitigate those tariffs that exist out there today. More importantly, we're seeing tremendous opportunities on our forging side of our business because a lot of companies, Tier 1s as well as the OEMs are looking to onshore that work or reshore that work back to the U.S. to mitigate those tariffs going forward. We're the largest steel forger in the world, and we think we can not only benefit on that activity, but also benefit from the Dowlais acquisition where they buy a lot of their forgements as well. And then on the in-sourcing side, we buy a lot of powder from Dowlais today, but we can buy more powder from Dowlais in the future as part of the synergies of the bigger deal.

So -- and I don't know if you've disclosed before, GM, you historically had roughly 2/3 or 3/4 something thereabout of that T1 volume. Is there a sense with the incremental capacity coming online, can you maintain that mix?

Absolutely. Absolutely. We're in concert with General Motors in regards to what we need to do. All we're working on with General Motors right now is as they're addressing their plant loading needs to address what their commitments are to the U.S. government; we're reevaluating what our manufacturing strategy will be to be in close proximity to them.

Okay. Let's also understand the margin side because you've had really good performance, really good tailwinds on the net performance side in your EBITDA bridge. Can you just talk about what's going on there and maybe how sustainable that is?

Yes. We've shown, I would say, year-over-year positive performance now over the last almost 8 quarters. So it's been a great trend for the company. But I would say what's driving that, if you think -- if you break it down into our 2 segments, our Driveline segment and our Metal Form segment, what you've experienced, first of all, at a macro level, right, if you go back a couple of years, there was a lot of, I would call it, extreme volatility in the marketplace with production schedules, et cetera, which that does not allow you to operate in the best environment. So that has sort of stabilized some, still volatile, but that stability has allowed, in particular, our driveline business unit to continue now to perform very strong, very steady, very focused on productivity, offsetting inflation. So they've been able to gain in terms of margin over that period of time. The metal form operation has been, I would say, a margin recovery story. And now we've seen now over the last, call it, 3 to 6 quarters, continuous improvement in their margins and the focus has been inside their 4 walls on operational efficiency. Probably didn't have the strongest third quarter here this year, but we still project that to continue to improve into next year. So we got some -- hopefully, some margin upside and lift from our metal form operation. But I would say the macro, a little more -- or I should say, a little less volatile has allowed us to focus on productivity and a self-help story on metal form. So are they continue to be resilient margin performance? I would say, yes.

And that driveline, which in 3Q, that was like your best result in 4 years?

Yes, they had a great quarter.

What happened?

Yes. Well, some favorable mix. RAM continues to run very strong. As I mentioned, they came out of a model changeover earlier in the year. Star's aligned on strong performance for the quarter. But you really have to be careful. You got to look at the sort of the trailing 4 quarters always when we look at these margin performance because each quarter has a little bit of its own story. But again, Star's lined up really nice from a performance, strong mix product that they supply into from a driveline perspective, especially inside of North America, allowed them to have a great quarter.

And metal forming, you used to be at a mid-teens margin, and you're now running at 8-ish percent. Is there a path to getting back to that mid-teens level?

Yes. I mean that's certainly our objective. We sort of, I would say, bottomed out maybe back half of the third quarter, back half of 2023, I should say, a lot of self-help, a lot of efficiency improvements. We struggled with some labor challenges back then. We've been putting in remedies and fixes and working on each of these issues. Our goal is absolutely get back into double-digit margin performance. That's where we're driving them towards in our planning process and our actions. And yes, we believe we have a pathway back.

Okay. I want to go back to an earlier point on the EV environment and how that's factored into your backlog. And I know we've seen a very, I'd say, balanced effort from AAM as far as focusing on Core ICE, but at the same time, expanding the EV portfolio and you won Scout and there have been some other wins as well along the way. North America, I think we can all agree, is probably much more muted. But what is the presence right now in Europe and China where that EV uptake is still on track?

Yes. Remember, we started our electrification business in Europe, supplying [indiscernible] with JLR on the I-PACE program, and then we expanded that into Mercedes with the AMG and the 6 or 7 different variants that we're doing for them. So that's where that business originated from. We then took that technology over to China. We're doing a lot of work in China today for both domestics as well as Western OEMs. Over there, that volume only continues to grow. Our penetration continues to shift more towards the China OEMs, which is a good thing because they're realizing the growth within China, but then also outside of China. So we can follow them and they can help lead us in some of the other global markets. And then here in the U.S., like we said, we properly positioned ourselves to benefit from electrification going forward with various customers, and we won multiple different awards in the component state, the subassembly state and even in the full system state as evident by the Scout. It's just a matter of what the customer long-range product plans are going to be going forward. What we're going to continue to do is we were working towards putting a bookshelf technology together so that the -- whenever the -- whatever the market wanted, we would have available to us, whether it's ICE product, we already have 100% complete. Hybrid product, essentially 100% complete, but we're rereviewing that. And then in EV, we are short to some of the products. That's where we'll continue some of our development. The acquisition of Dowlais allows us to close that gap a little bit quicker. There's still some work that needs to be done in regards to some beam axles, but we'll do a lot of that with the Scout development. And then we'll continue to work on an inverter and motor capability, but we'll be picking up some extended capability on that with the Dowlais acquisition. So again, we're just trying to be agnostic to the market when it comes to the propulsion system, let the market be the boss and we provide the products required by the market.

How do we look at the resource allocation at AAM given this change? Meaning I think your R&D had been -- had ticked up because you were putting out more spend, application engineering for these programs. That's obviously down. How do we think about the R&D profile going forward and sort of the broader resource allocation?

Well, I'll start first, and I'll add to it.

Yes, absolutely. So obviously, with the macro trend as we stepped into this year, meaning 2025, we sort of reevaluated our spend in that area to sort of mirror what the market was trending towards. And as we -- we are trending very close to about $40 million a quarter of R&D spend over the last couple of years. This year, we stepped in now. We made some reductions, kind of recalibrated where our spend is to optimize that area of our business. We're down to about $35 million a quarter. So $20 million year-over-year savings as it relates to R&D spend. I would expect that evaluation to continue as we go into the future, meaning into '26 into '27 to continue to mirror some of the market trends and really kind of squeeze out some cost opportunities in that area.

Yes. And as I said earlier, there's an air pocket going through the industry right now as well. Just in regards to there isn't new programs that are being actively quoted. Most of what we're working on right now is extensions to existing business. So we're going to reassess all of our SG&A requirements, including the product engineering side as to what we need to do. And then also remember, when we bring Dowlais, and they'll bring a certain level of capability as well. So we'll assess both organizations from a synergistic standpoint to see what we can do to try to beat the synergy target number that we originally put forward.

And if we tie into David's previous comment about that bookshelf technology for electrification, that investment has been made. It's on the shelf. We spent it previously. So I think we're in a really good spot.

Yes.

How do you think about fixed cost in this environment, be it capacity that you've devoted to your EV product? Is it fungible with ICE? And then for programs where clearly the volumes haven't materialized, how much runway is there on commercial discussions to recoup some of that incurred cost?

No. I mean, listen, if you don't have the right capacity utilization, you're going to hemorrhage, especially in a capital-intensive business like ours and a heavy fixed cost business. And volume is the critical part of that. Now we try to design our systems to be as flexible as possible that can run different technologies across them. So to your point, it's fungible from a capacity allocation standpoint. But there are certain pieces of equipment that are more dedicated towards electrification applications, think like in ICE in a hybrid, you're working more with hybrid gears, where in an EV environment, you're working more with helical gears, okay? Two different technologies, two different heat-treating applications. We got to make sure that utilization is being properly utilized based on the volume. So as we're quoting business, we're putting volume protection clauses in our quotes today to make sure that no matter what the volumes are, we're getting the returns on those investments. At the same time, we are having commercial discussions and we're getting resolution with those customers in regards to where we put a certain amount of capacity in place that didn't materialize. Now we were very disciplined and selective about what investments we put in and how we put it in on a staggered basis to minimize that exposure, which now is left in that commercial discussion, but it's still an issue that's on the table, but we are bringing resolution to those matters.

Yes. And it's not just an EV ICE -- sorry, Dan. So it's everything across the business. Go back to your previous question, you said how will -- can metal forming get back into double-digit margins? Yes, we absolutely said we can. But part of that story is also optimizing that fixed cost element of that side of our business. We've been closing some factories. We've been optimizing our capacity from that standpoint as well on our traditional ICE and hybrid book of business. So it's across the whole business, not just the ICE, EV situation.

Okay. Let's pivot to the Dowlais deal. Big picture. Last really large deal you did was Metaldyne in 2017.

2017.

Yes, '17.

What are some of the lessons learned from that transaction? And how has that shaped the contours of the Dowlais deal?

Yes. I guess, first and foremost, I'll start with the synergy side of things and the MPG deal, we targeted 3% of sales, roughly $90 million to $100 million. We delivered over 5% of sales from a synergy standpoint. So the playbook that we utilize, we're utilizing much of that to lay out -- to lay out the original plan from a synergy standpoint with Dowlais or GKN that has now been audited by an outside third party that gives us a strong confidence level that we can achieve the $300 million that we've committed to that way. At the same time, we learned some lessons in regards to double checking their base business plan, meaning as we're going into Dowlais, we're reviewing their base business plan. When we took over MPG, they had certain programs that they committed in the plan that didn't materialize. We're also reviewing and double-checking certain quotes and also capacity against -- installed capacity against schedules. Those are some areas that we were caught short based on just the planning and some of the diligence of the MPG side of things. So we're factoring all that in. The other side, as I mentioned to you earlier, there's a tremendous talent level also that we're picking up on the GKN side, much stronger than what we got from the MPG side of the business. And the teams are working very well together in regards to all of our day 1 readiness, day 100 and even full year 1 and full year 2 from a planning perspective standpoint. So we feel very good about where we are. I mean, obviously, we got a little extra time because of the slight delay in regards to getting the regulatory approvals. But we'll be ready for day 1, and we're really leveraging and leaning on the lessons that we learned from our previous acquisitions, whether it be Metaldyne in 2017, but we've done 8 or 10 other ones in that period of time as well, much smaller, but this will be the largest acquisition that we as a company have done, meaning the Dowlais acquisition.

Can you talk about the path of unlocking your synergies? So you guided $300 million purchasing, SG&A, ops, 60% by the end of year 2, full run rate by year 3.

Yes.

What are the things you need to achieve to unlock those synergies? What's lower-hanging fruit? What's tougher?

Yes. The lower-hanging fruit is more of the SG&A and the engineering side. It just -- it's going to come down to the organization design, how do we optimize that design, be efficient, address the air pocket going through the industry today. At the same time, make sure we have the right resources and the right capabilities to support not only what the needs are today, but also looking ahead to what the future requirements are going to be. But we think there's an opportunity to beat the SG&A target as well as the engineering target that we put forward. There's purchasing benefits that we'll realize. Some will be low-hanging fruit, like you say, well, just leverage our economy of the scales that are out there. Other things will take a little bit of time to get through. One of the big benefits that we're seeing is in-sourcing opportunities, both in the metal forming side, really on the both the steel forging side as well as on the powder side. So that's a positive. And we think that we can quickly get after office consolidation based on the offices that we have and offices that they have. The heavy lifting, which will take the most amount of time, year 2, year 3 will just be the manufacturing improvements. And Chris already indicated, we're going to look at and already are identifying plants that we can consolidate to drive up that fixed cost utilization and drive up the overall capacity utilization. And then the other part will just be we need to put our operating systems in. They have some good operating systems. Together, we have very strong operating systems. We got to put the unified operating system into place and then hold the teams accountable to drive that manufacturing performance at the plant level that will generate greater margins, greater cash flow for the overall business. So we feel very good about where we are on the synergy planning, our ability to hit the $300 million, our ability to hit what we committed to in the 60%, like you mentioned in year 2, 100% by year 3. If anything, we're trying to raise that number and [indiscernible] what we're trying to do.

And the opportunity for revenue synergies?

We did not build any of that into our synergy calculation, so that's upside potential. We didn't build that in, one, because it takes time, especially in driveline products, you're not going to get slotted for a program probably out for 3 to 4 years, where on the metal form side, we did build some of that in based on an in-sourcing opportunity, but we think that opportunity is greater than maybe what we originally thought it would be.

Okay. Maybe just one more on this. You're expanding -- you're going from a North America-centric business to one that is more globally diversified with a more significant European footprint. We know that Europe LVP was once 22 million units and today is running at 17 million units, and that's before we even talk about the whole question of what's happening with Chinese coming into Europe, Chinese OEMs coming into Europe, taking share and potentially further changing that picture. What makes you comfortable taking on this European footprint?

Yes. I'll just talk geographically around the world first. I mean, American Axle stand-alone is 73% concentrated in North America. With the Dowlais acquisition, that goes down to 57%. In Europe, like you said, today, we're about 15%. That will go up to 22%, 23%, and then in Asia is essentially -- in the Rest of the World is the balance of that. The big Asia jump is really through the joint venture that they have is what it is. And that's a very strong joint venture that has much stronger and much -- more capable than I originally thought it was going to be. So we'll look to say how do we get synergies in China between our wholly owned business versus the joint venture business that exists there today. But back to your question on Europe, we're going to go from that 15% to roughly that 22%, 23%. As I mentioned earlier, we'll still be lower than any other Tier 1 in that market. But that market has gone and will continue to go, not just next year, but the next several years through restructuring. And that restructuring is going to be a challenge for everyone that's there. What I like is the fact that most of the Dowlais restructuring was concentrated in Europe and the U.S. the last several years. So we're actually going to hit it when a lot of their restructuring in Europe is done. The initial restructuring is done. Now as we come together as 2 companies, we're also going to look is there are ways that we can further optimize that and get ahead of things, knowing that the pressure that's out there at this point in time. And clearly, Dowlais was spending a lot of money, and it was impacting their cash flow reporting. We're going to hit this market -- this deal is going to close at the right time where most of that's behind us when we can enjoy that free cash flow ride.

Okay.

So I don't know if there's anything else...

[indiscernible] spot on.

So what's the plan?

Let's wrap up with some questions on balance sheet cash flow at that point. So leverage. So you're targeting net leverage at close to be neutral just under 3x net debt to EBITDA. Target over time, you said is 2.5 and eventually to get to 2. So what's the path to getting there? Is it just synergies, EBITDA expansion?

Yes, I think it's a combination of, [indiscernible], synergies, which will drive your EBITDA expansion, but those synergies as well as the base business will also drive cash flow. So you'll really sort of attack it from 2 angles. Number one, as you generate that cash flow, you'll continue to pay down debt. And as you grow your EBITDA through synergies and company performance, you'll lift -- hopefully, the plan where you lift your total EBITDA. So therefore, your leverage continues to come down. And you say a target of 2.5x, I would say that's sort of a point number one, and that's really to focus our leverage reduction through 2.5x, meaning almost exclusive use of our free cash flow to do that. But once we get to 2.5x, I would expect us to continue to reduce the leverage of the business, but also then open the playbook for capital allocation to more shareholder type activities once we cross that threshold. But still, as Dave mentioned, driving towards 2x or below would be an ultimate goal for us, not just to stop at 2.5x. So strengthening the balance sheet, but it's going to come through EBITDA growth, which synergies will be a main driver and that free cash flow generation.

But we'll have a much more robust business model with the combination of the 2 companies that we can rebalance the whole capital allocation across organic growth, debt paydown, strategic growth and then shareholder-friendly activities, stock buybacks or debt reduce.

And how does the CapEx profile should -- you've actually been really good on CapEx. CapEx relative to historical levels have been low.

Yes, the last, call it, 3 or 4 years at American Axle stand-alone, some of the lowest capital that we spent in the last 20 years as a percent of sales. This year, we're about 5% as we're going through some of the cycles of the next-gen trucks that are launching. Dowlais has spent in sort of the 4% to 5% range. I would say as a combined company in the near term, we're in that 4% to 5% range. But our goal, and we've articulated this as a stand-alone is try to stay at that 5% of sales or below. And I think we can accomplish that in the near term for sure.

And the free cash flow because I think we see the adjusted numbers, but there can frequently be a lot of onetime expenses, restructuring, et cetera. So how should we look at the actual free cash flow in the early part post deal?

Yes. I think immediately post deal -- so the language we speak about is adjusted free cash flow, I think, is what you're referring to, which is excluding restructuring charges. I would say in first year of 2026; Dowlais will complete their restructuring element that David referred to. We have a little bit of restructuring that we talked about in our fixed cost elements. But then you'll have sort of the, call it, the one-timers to launch and get your synergies up and running. So we had said that we would expect to spend, call it, approximately $300 million or $1 per dollar of synergy savings to get those costs up and running into your P&L. That will be front weighted towards, I'll call it, year 1 and year 2 of the transactions post close. But the thought process is we're generating positive free cash flow in all these scenarios.

Questions? Okay. Why don't we just go back to EV. And maybe you can give us a sense of how the emphasis on EV perhaps changes with alkali if at all?

Well, I mean, it's naturally got to change just because the market isn't there, the demand and the pull isn't there. But at the same time, as I said, I mean, they've made a lot of investments in electrification. Back in the day, there was only really 2 companies that were competing in the early days for the electrification business with us. So Dowlais with us and GKN. Then all of a sudden, everyone started to believe this prognosticator that the volumes are going to spike up. And then everyone that was doing inverters and motors try to get into the driveline space. Everyone in the driveline space was trying to get into the inverter and motor space because we're trying to protect content per vehicle and also manage the margins, okay? As I said, this is going to allow us to put a bookshelf product on the shelf quicker based on -- we already had certain things developed and certain things in the pipeline to be developed. They've already done some of that development, and we've already done some of what they were going to put. So that's why I think the engineering dollars can come down. There's still e-Beam work that will need to be done to make it all bookshelf. And then there's clearly a certain amount of work that needs to be done to deliver the Scout program, both the front and the rear axle there and then other components. And then we also have really focused heavily on the component side and the subassembly side, so things like differential sides, think gearboxes themselves, as the OEMs are trying to figure out what their strategy is going to do. All we want to do is be a full-stop shop for them that we can give you the full entire system or we can give you the individual components that you need, and we're going to balance that with the proper R&D investments and the proper capacity installation to make sure we can get the right return. So we actually think that we've really strengthened our position and put ourselves in a position from being a product-agnostic standpoint in a much better light.

And maybe just to wrap, your China exposure pro forma is going to be -- it sounds like it's going to be sub 20% roughly.

Yes.

Can you just talk about your pro forma mix of domestic versus multinational OEMs? And as you're getting on more of that domestic mix, is that in line with margins? Or is it dilutive? Because I think that's a question.

Yes. The margins are in line. So we started with a heavy emphasis on the Western OEMs are the ones that originally brought us there. But we've converted a lot of our business going forward to the Chinese OEMs. And when you look at the joint venture because I said I just visited them this summer, they did the same thing. So they probably have 60-plus percent, maybe 70% of their business today has already shifted over to the China OEMs. And both our stand-alone wholly owned facilities as well as their joint venture are profitable. And that's not true for all suppliers in China.

Okay. Great. We'll leave it there. Great, David, Chris, thank you so much.

Okay. Great.

Thank you.

I really appreciate it. Thank you.

Yes. Appreciate it. Thank you.