Magna International Inc. (MG) Earnings Call Transcript & Summary

Great. Well, thanks, everybody, for joining us again. Next up, we have Magna, which is depending on the year, the #3 largest supplier in the world, plus or minus, depending on the year. Magna has always been a tech leader in developing and manufacturing numerous parts of the vehicle. In fact, they actually assemble full vehicles and help design and engineer them for a number of manufacturers. One of the high lines there is the Fisker. Right now, Fisker Ocean, which is actually an unbelievable vehicle. If you get a chance to drive it, it's not just because it's a Fisker, but a lot of that has to do with design engineering assembly by the folks here at Magna. Today, we're happy to have Pat McCann, CFO; and Louis Tonelli, Head of Investor Relations. Both of which are always incredibly helpful to us all the time. So thank you so much for joining us, guys.

Maybe just to kick off and get through some of the mundane sort of macro stuff here to start with. I mean as far as the 2023 kick off over the year, maybe even finishing 2022, sort of some of the actuals that you might be able to talk about more clearly. How are you seeing schedules develop? I mean are we seeing better fulfillment, less volatility? Or is it still sort of more of the same of the volatility we've seen for the last 2 years?

Go ahead.

Yes, I can jump in. So we're seeing -- we were hoping we'd be further along with the stability, John. And it seems to be persisting. So what we're seeing is still some ups and downs, not as we would have expected. It's much better than what have been this time last year, and it's just going to be a steady improvement. Our forecast, we're expecting to get through it by the end of this year.

But no major surprises. I don't think on the volume side at this point.

Okay, and then one of the other things is you guys have gotten pretty good recoveries last year. The industry seems to be a little bit more collaborative or at least your customers seem to be a little bit more collaborative with you than they have been in the past. I mean, how is that -- has that anything that changed? Or do you see sort of pretty good recoveries this year, more collaborative environment? Are we back to sort of the brass tax of back and forth on negotiating inflation and recoveries and the like?

Yes. The discussions are always hard and jump in Louis, the discussions always hard. They're not an easy discussion. They're binary, right? And being said, I agree with you. I think the discussions were collaborative last year. They're difficult. But we look at the whole commercial piece, it's our net leakage last year, net of inflation and recoveries was about $530 million. We're expecting about $100 million to leak in this year on a net basis. But it's -- I think the discussions are collaborative. They're hard. What we tend to do, John, is we want to go in with data and show, your earlier question, what's the volatility look like? We can go in with data and say, you told us you're going to produce this, you produce that. How many hours were lost? And now we're having more factual discussions, whether it's on energy, labor rates, stop/starts. So they're much more focused. Obviously, they're trying to delay them. We've been in since before the year started as we went into it. But at the end of the day, it's -- I think we're going to get there, and it really varies based on type of commodity and type of not commodity, but inflationary piece of it. So I think it's -- I think the toughest one right now is the labor piece.

So I mean, what we've heard is that automakers have pretty good models part by part for a lot of suppliers and understanding sort of all the input costs, whether it be raws labor overhead, R&D costing and they have a good handle on that, probably better than you might like as a supplier, right, in a lot of cases. And I think with Cosma, they might not have all of that in a good way for you guys as far as profitability. But as they see these things changing, are their models more refined? Are you helping them understand sort of the different steps of what's going on in your cost structure and they have now become better understanding of that? Or some of this just that they're able to pass through pricing in a way that they haven't in a long time for that reason, they're being more collaborative? I mean what's -- what's kind of the driving force in the change here?

I think it's probably a combination of the 2. So you're talking like the [ 1804s ] that the customers will be using for quoting. So we've actually taken the [ 1804s ] and you turn them and say, "This is what you know what our fixed costs are" And now if we've lost these hours, you know what we're absorbing because of your production volatility. So you can use that -- when we talk about data, that's an example of data we can use. So they have such a breakdown of how you quote a part and then it carries for the life of the program. So you can take that data, go back to the customers and have a discussion with their data and how it's impacting us. The other piece of it, I think on the pricing, I think they have been to come out the profits are strong. But at the end of the day, I think fundamentally, Louis jump in is I think they really need a strong supply base and to have inflation costs in Europe at 7% to 10% depending on type of commodity, it's just not sustainable. Because it goes below us, right? You just keep going down the change, John.

I mean and as this sort of modeling this fact-based discussion changed versus where it was maybe pre COVID or even pre-GFC? Or is this sort of just a more -- I mean, just generally more collaborative, something functionally changed in the way that these discussions occur?

And I think it's -- personally, I think it's because we've been in a 2% environment for 20 years. And it's just been a part of business and used to doing and now what -- when I say 2%, we've had these hard discussions before, if you look at some of the higher inflation areas, Brazil, Argentina, Turkey. So it's not a new process, but it's just more broad across the globe discussion.

Okay. There's some things that you can get out of the automakers or work with it to get, but there are certain things that you're not going to be able to get and there's pressures that you're not going to be able to pass through. What are you doing on the cost side to deal with this on a micro basis? And I think your target by 2025 is 7% adjusted EBIT, I think, is the number. So I mean, to get there, how are we going to get there? What kind of cost actions you need to take? What are you assuming to ultimately get to that 7% margin?

A couple of questions there. So what do we do? And I agree with you 100%. The first obligation to Magna and every supplier is how do you reduce the cost? How do you take the cost out? And -- so a few things. If you look at what we've done on our cost base, we -- just in December, we closed a deal to sell a manual transmissions facility. So that's a place where you're reducing cost. But if you look at it on a program-by-program basis is how much more automation is. So you tackle it, John, by -- if you look at the labor, our business cases for automation have improved, because labor rates are up. So how do you automate, take labor out of the system. You have labor availability issues, you've labor pricing issues. So your first solution has to be hard coking automated. And some of the automation we've come up with is much more sophisticated than the pick and place you would have had over the last 20 years. So that's number one. Two, we talked about some of the restructuring and our outlook reflects restructuring actions outside of the EBIT margin. And some of it would have incurred in '22 and some continuing. But I think when we go out to the 7% margin, number one driver is going to be revenues. So we have significant revenue growth we're growing $8 billion in sales, about $3.5 billion of that is in megatrend areas, which is going to come back into where our capital spend is coming from. Two, is we have part of the automation, but we also have just more broadly, we have some underperformance that we've struggled with in '22 in particular. And we're seeing improvements in those facilities. They're stabilizing. They're improving. And then what we're also seeing is growth in equity income. So outside that $8 billion of revenue growth, we have growth, particularly in our LG joint venture and HASCO joint venture for eDrives, I would say. And then the last piece is we're -- we've been investing in mega trends to support that $3.5 billion of sales, and we're holding that megatrend piece. So we're getting leverage on the revenue. So you're getting contribution margin dropping down to the bottom.

We think about that contribution margin, what sort of a rough rule of thumb we should be using? I know it's probably different depending on what revenue is flowing, what the business segment is flowing in. Obviously, complete -- let's leave complete vehicle assembly out for a second, Incremental margin on the core business outside of -- but like outside of complete vehicles .

So if you think about the systems groups or the component groups, I would say BES and [ PMV ], you would see pure volume change incremental/decrementals, 20% to 20-plus percent in BES and [ PMV ]. And the Seating group, it would vary again depend on how much vertical integration or a region, but 15% to 20% is what we would -- rule of thumb what we would look at, John.

Got it. That's incredibly helpful. And then also just on the IRA, I mean, there have been some changes here. You have customers around the world, right? And it sounds like there's an opportunity to ship more vehicles or EVs into the United States, particularly some of your customers in Europe are going to be benefited from this in a very significant way. Is there anything that you guys have read or how do you think about the changes with the IRA implementation, the rules that have just been set or interpreted at this point, they may change over time? What does that mean for your business, particularly in the battery enclosure side?

I think on the battery enclosures, our biggest -- we have -- we're going to have about $1.5 billion of battery enclosure sales in '25 from about 100 last year. So you see significant growth, and the majority of that growth is coming out of North America, John. So I think by default, I don't want to focus just on battery enclosures. So if you think about the IRA, it's going to drive production into North America. We're the biggest supplier in North America and 85% of our product is agnostic. So just higher volumes in North America, and we're really operating at a very low level, really for the last 3 years, right, in particular, actually since in Q4 or Q3, Q4 of '19, we've been operating below subprime levels. So as those volumes come up, I think just by default, we're going to be able to sell more seats, more fascias, more whatnot. So I think it's beneficial.

Got it. And if you think about the outgrowth for that you kind of talked about, I think it's 6% outside of through 2025.

4% to 6% complete vehicles.

Okay. So what do you think are going to be the key product areas that drive that growth above market?

If you look at the megatrend and you talk about kind of growth in megatrend areas. So talking a trend areas, you're mainly talking about ADAS, powertrain electrification and battery enclosures. That group of product areas, capabilities. Our sales last year would have been less than $1 billion. And we're expecting by 2025 for those to be over $4 billion of sales. So I mean volumes are growing. All of Magna's growing across all of our product areas, but those areas in particular are really growing very rapidly.

And the total growth through 2025, I think, it was $7 billion to $8 billion. So what's the other half coming in? Is this really kind of across the board?

It's just the impact of higher volumes generally, because we've been running at recessionary levels of volumes overall being higher. And then seating is growing, latches are growing, mirrors and growing, the non-megatrend areas where we are aligned with the car of the future, those are also continuing to grow.

And the profitability on the megatrend areas versus your core, right? So if we split that, how should we think about margins on the sort of these new megatrend areas? Are they corporate average, give or take? Or lower from now as they're starting to grow or higher potentially? How should we think about those?

When we look at it, John, we're always based on returns. So if you think about -- like if you compare our contrast or Steyr business and our pick whatever our Cosma business, our metal forming business, they would have very different margins, just given the nature of you're buying a tire for a G-Wagen. Whereas in the other case, but the return on your invested capital is similar. So it's how many dollars were dropping out. So that is a backdrop. I would say margin is important to us because it's a great program management tool. So if I quote something with a contribution margin of X, how am I managing after it's been awarded. So that's how we think of it. As far as margins on these newer programs, I would say, in the battery trays, it's a very consistent business. It's body in white type business. It's just going to continue on. I think when you look at some of the other ones, there's a little bit more of a purchase components type business. So if you -- on an eDrive, for example, you're going to have to buy an e-motor of some sort or an inverter. But that's why we got into the LG acquisition that it's almost a vertical play. So our margins -- some of that margin benefit is going to come through equity income, for example. So a little bit of -- it's really going to depend on which product you go by.

And the past part of your point about the investments in megatrend areas, we have a high level of investment per dollar of sales, so it's going to have an impact. But in other areas where we already have scale we don't have that burden of the engineering costs in the overall product area.

So can you talk about the LG JV and how that -- what that product actually really is and what it means for Magna?

Yes. So I guess, there's -- they produce -- LG produces -- that joint venture produces motors, inverters, onboard chargers. We think about what it means to Magna. I think, first of all, it further strengthens our capabilities in the eDrive area, I mean, with those components. But -- and we're winning business on eDrives and we going to -- we're launching business in that area. But not every OEM is going to necessarily outsource that, some of them are doing it in-house -- if they're doing it in-house, they're buying components. And so we get the benefit from that growth in overall electrification where our customers are going to do the eDrives, but they're still buying components and LG has a tremendous growth rate at earlier -- as a result of that.

So if we think about eBeam axles, I mean, how big a play -- part of that product do they play with you? I mean of the components in that?

They could play -- if they could, it would be the motors and inverters.

Okay. But I mean are they in your eBeam axle? Or are you doing your own -- they're the motor and inverter portion of that eBeam axle?

Got it and motor for sure. Not the inverter, motor for sure.

Inverter might be sourced by the customer. It might be directed.

Got it. But that's part -- that's something that you're packaging in the eBeam as opposed to manufacturing.

Correct.

I just had a question on EV. We had the luxury of hearing a lot from the OEMs about their $30 billion, $50 billion, $80 billion new CapEx programs. And as the supply base player so large as yourself, looks at the next 5, 10 years out, how are you thinking about the investment in EV relative to a lot of the fixed income investors looking at your single A rating and they consider with the balance sheet, like support some of that your capital investment? Or can you do it through the $1 billion-plus free cash flow you may be looking at by 2025?

Yes. I think, Doug, when you -- when we start thinking about when we're doing a program investment, it's going to be how do you derisk it right out of the gate. So the number one piece is going to be, are we on the right platform and at the right volume set, right?

So you don't want to make an investment if it's going to be the wrong.

You're smart. And then -- and you're going to -- you're not always going to be right, right? That's the reality. But you want to -- so how do you derisk it? You can do -- first thing you could do is there's pricing, there's commercial ways of doing it. There's how do you use existing capacity or existing assets, so that you're not reinvesting true dollars. So what we've been trying to do strategically is how do we fill open capacity. So if you think about a battery tray, John was mentioning earlier, how do you not put a new press in. So you don't want to put a tandem line in so you fill your existing tandem lines. And then you just build an assembly facility, and you have flexibility in that manufacturing facility, then you get into discussions with your customers on recoveries, because it is a new area. That being said, we think it's an exciting area. When you look at -- it's opportunity because when you look at a lot of these battery trays, it's effectively a structural component of the vehicle, the more complicated ones. We don't want to be doing me-too products. That's not where you're going to be successful. You want to build more complicated structural pieces of the vehicle. So when you think about the Silverado, the Hummer, the battery tray we're building is actually the floor of the vehicle. So it's the whole floor. So that's where you want to play and -- but you still want to have that flexibility work commercially.

I was going to say keep in mind that the vast majority of our product portfolio, whether it's an EV or hybrid or engine, we're going to build seats, some latches and mirrors and all that. So it doesn't require a massive amount of incremental investment just -- about battery enclosures here and powertrain components and that. But a lot of it is going to apply and we're doing that right now.

Agnostic to the EV.

Correct.

But to your second part of your question of how do we want to fund that? I think it comes back in our whole funding strategy that we've been talking about for at least a decade, which is we want to self-fund. And if we get into a situation where we're seeing right now with an opportunity to grow above market because of even if it wasn't EV, but we have an ability to grow in an area, whether it's traditional business, could be seats, could be whatever, or we want to do an acquisition in the Veoneer case, we're not afraid to go into the market or money, which we've literally just finished, that borrowing, maintain that high investor that solid investment grade rating. And then use the cash flows over the next 18 months, 2 years to pay down to maintain that rating. So there's -- you can either do it upfront or you can do it after the fact. But we're at a bit of a lull, but we're using the big base of Magna cash flows to fund that growth. So we're growing in ADAS, for example. A lot of that grows being funded by fascias or the funded by seating, Steyr, right? So that's the way when we put it together. So Magna is a bank and then it's just spread out to the growth areas.

So I want to get to the portfolio stuff and just -- or management in a second, but back to just -- because we keep talking about battery enclosures. There's a big step up in CapEx that you guys just announced, and that's denting free cash flow for the next few years quite a bit. Battery enclosures are part of that, but other investment is in there. So I mean, as you think about this, one, how big an opportunity is there in battery enclosures? How big is there an opportunity on ADAS and then other parts of -- and then electrification for you that really is where a lot -- it seems like a lot of this CapEx is going? And do we get to a point in 2025 plus, where there's kind of this payoff pitch that comes from this period? And I mean, I know you kind of analogize this with what was going with hydroforming in the late '90s into the GMT800 launch and [ CK800 ] in '98, '99. I mean can you just kind of give us -- I mean, because this is some of the things that people are really concerned about here in the short run is all of a sudden, there's massive spending on future payoff pitches, but the payoff pitches is 2025-plus? So battery enclosures, ADAS and then electrification.

Thanks for making me feel old to start with. If you think about the battery tray one, so in 2023, we're going to spend about $500 million of capital on battery tray specifically. So traditionally, we're running $1.7 billion of capital, let's say, per year, and we're going to step up into the $2.4 billion range. And we're spending $500 million just for perspective on battery trays. But there's growth. And as Louis said, a lot of the growth we're talking about where we're outgrowing markets beyond just ADAS or battery trains in that number. So we're investing in seating. We're investing in powertrain. Powertrain not as much, because a lot of it's engineering, but pay shows, for example. So that's where -- but when you think about that when we do compare it to the [ T800 ] and the reason being is it's not necessarily what does it do in the first year, but it's -- we're still building that frame. The second -- the statement is we invested once you have these big architecturally sophisticated programs, customers don't necessarily want to resource them. It's not a simple me-too product. It's too risky to take it and move it. So our view is you have to get on these platforms on Gen1. And then once you get Gen 1, our experience has been, if you do a good job, we do a good job, you're going to continue to have them. So if you think about that [ T800 ], we're on the third generation. And the fourth is going to be coming up and the probability of it being resourced is probably not very high, just because it's just such a broad capital. But if somebody is going to want to move it, they're going to be spending hundreds of millions of dollars to do that.

And taking the risk of launching.

And taking the risk. So I think that's kind of our process when we go through it. Subject to volumes, those returns -- everything is subject to volumes, John. But once those programs launch, they should be returning the appropriate capital on our business.

And volumes in EVs are just going to grow, and it's an area that we expect to go going to $1.5 billion in '25. That's not the of the top end, we can -- with substantial growth potential beyond that.

So just to be clear, I mean, so on the battery tray side, just to keep coming back to this because this is something that you guys are asked in a way if you ask me. That is 4 programs on large trucks at the moment? Or does that go into crossovers and maybe passenger cars if they still buy in there? Or is this more of a structural truck battery enclosure that will span a lot of the D3 trucks?

The answer is going to be it depends. So every EV is going to need a battery enclosure of some sorts. Generally, what we're seeing is there's 2 paths to go. The OEMs can do just a simple -- so if you contrast the lightning -- the lightning is a non structural component that sits inside the frame.

On Gen1?

On Gen1.

Okay.

Gen2 is going to be a different type of frame, but it's going to be a specific frame and it's all going to be combined. But it's still going to be -- if you contrast that with the Silverado/Hummer, that is the actual structural piece. So it's going to take side impacts, all the crash cans and whatnot. So it's a different -- it's almost like a unibody versus on-frame type discussion. And then the last one is where you just have a unibody and -- on the smaller cars, you'll have a floor with a battery tray attached to the floor itself.

Also a structural component though?

Not necessarily. You can still -- the floor, you'd still have rails and you would sit inside the rails. So we're seeing all -- every customer, depending on the class of the vehicle and their own design strategies, we're seeing all pieces of it.

If I think about -- I mean, not to beat this is like the $2.4 billion, I think, in CapEx is what we we've stepped up to -- so $1.7 billion, $1.8 billion typical run rate, $500 million go into battery enclosures. That's a big chunk of the step-up, right? There's some other stuff in there, which is not important, but this is the big change. So the payoff pitch on this is coming in '25 plus. And it's not just on truck programs, it's potentially a technology that's available to all vehicles. All segments and all structures.

And in fact, we have been -- we've talked about the Hummer and the Silverado and Lightning, but we have additional programs awarded, just not -- we're not able to talk about them just yet.

Okay. Those are the core and what's going on right now. Okay. Got it. Okay. Then if we think about sort of the portfolio, just more broadly, you mentioned you got rid of or sold manual transmission plant. Are there other actions that you think you need to take or programs or plants that you might get rid of over time? And then are there other things in addition to what you're doing organically that you might need to add to the portfolio over time, I'll lob Veoneer, right? Maybe we could talk about what you're selling, what you've just bought and what you might buy Aerocell going forward?

I can start, and Louis can jump in. When I think -- when you think about our portfolio, Louis, is saying 85% of it's agnostic. We do have a sliver at the bottom that our it's a shrinking market, let's say, and you're talking about manual transmissions. So that's the one we sold one of those facilities in December, but they're just shrinking. They just not get there regardless of EVs, nobody wants a manual anymore.

I do.

I do, me and my son want one, impossible to find. But then you have fuel tanks. So if you think about a business, fuel tank, you're not going to need a fuel tank on an EV, but that's a small business, it's maybe $300 million. And then we have all-wheel drive and four-wheel drive systems that are mechanically driven that are going to be transitioning into an eDrive. And this is where Louis was talking earlier about our LG, HASCO type strategies, systems, components. And then you have 85%. So I would say -- that's the piece of it. The other question is, would we consider pairing more of our portfolio? The answer is yes. I think we have a history of showing. We sold our interiors business just because we weren't competitive, it was commoditized, and we sold it. There was a consolidation play at work. Our fluid pressure and controls, we sold that business again type thing. But that was a little bit more of a different situation where you're looking forward of where the architecture of the vehicle was going to go. Could you -- and we made a decision to exit that product. If we look at the other ones, would we consider selling? It's always going to come down. I'm a finance guy, right? So it's going to be what does it come down to what's the price. And the other question is, how does -- you don't want to carve too much apart, because we honestly believe when you put all the various pieces together, you get synergies. So even if you think about our financial strategy and our high investment-grade rating. Part of that's because seating and Steyr and all of the various pieces are contributing to it. And because of that flexibility, I don't have to go borrow money, because I can generate free cash flow from various pieces of the business to grow ADAS or if I want to grow battery trays. So that's kind of the way we think of it. We have sophisticated management teams in each of the groups. We have 7 groups that come up into the segment. So I think that's the way we break it down.

And I just -- I would just add on the [indiscernible] side. I mean a lot of the same capabilities and processes that we're using in those businesses are going to be -- are transferable to eDrive and the capabilities of people that we have there, we're going to be -- we have eDrive businesses, our programs awarded, we're going to launch them in facilities, for instance. So we're just going to transition those plants over time.

Yes, the torque management transfer to the electronics side. Okay. One other thing on that. I mean what we've seen, and I think Tesla showed this, but we're hearing this from other folks, the sort of the full systems of potentially a battery, battery tray and seating and structures coming into the vehicle is sort of one very large system is something that actually may become a reality as we see more and more EVs launched. I mean -- and historically, that's the kind of thing. I think the Lear a long time ago was going to get a fully integrated interior and it's going to get dropped into a vehicle and then GM stopped that at that point, because then they start breaking up the parts and trying to get stuff cheaper. But this whole idea of actually delivering sort of the middle structure of the vehicle that comes to an assembly facility in a way that is sort of like our, who makes car in the box analysis like they would come in and just be put into the vehicle. Are you seeing anybody bidding anything in that way, because you guys would be sort of a natural and all the stuff that you do for that kind of structure or system, if you will?

Like on the system sourcing by far, Teslas, the leader in that space, I would say there's still the traditional customers that want to break it down and give you appeal for a nut in a bolt. And -- but we're starting to see more customers move towards the Tesla space. I think we have one successful example of in a DMS or driver monitoring system where we sell a mirror and the customer is looking for a DMS solution, and we had a solution where we could put it into the mirrors. So we actually went to the customer, 3 purchasing groups at that customer. The ECU purchasing group, the mirror's group and the ADAS group, and we got all 3 of them together, and we've been effectively system sourced a solution on a driver monitoring system as opposed to breaking in a mirror. So it's a one-box solution instead of 2. So you drop a chip, you had come up with a mirror, has ECU in it and in behind as the camera with the ECU that does the mirror, the rearview camera and the driver monitoring.

Okay. We're going to open it for questions in just a second here. Can you just talk about the Veoneer acquisition and what you've bought at this point? And sort of where you sit on ADAS, potential Level 4 or 5 capability and sort of the competitive position of Magna versus some other players out there?

Yes. On the Level 4 and 5, we're not playing in that space. So I would say our -- we're up into the level 2 plus maybe 3. We have lighter capabilities. So it depends if that's a 2.5 or 3. I think when we looked at the Veoneer acquisition, we looked at it in '21, there was 3 pieces to it. So there was the [ arriver ] piece, the actual perception software. There was our strain controls business, then there was the active safety business. What we were -- we purchased most of it, still waiting to close, right, but we purchased the active safety business. That business, when we looked at it was attractive to Magna because it was, I think, immediately a broader scale. And if you look, it's going to -- it's roughly going to double our size, whether it's in '22 or '24. And then what it also has that was really beneficial to us as it had product overlap. So when we have a strong camera business, but they have a strong radar business. We have digital. They have analogs. They produce millions of radars. They have a thermal camera business, and they have more ECU business or experience, I would say. Second is there's a significant amount of customer and geographic overlap, so very different customers. So we think that's another opportunity. And then the last piece is the engineering talent is fantastic. But if you go back to DMS example we had earlier, we have our one-box solution for DMS. Veoneer, for example, would have a different DMS solution. So now we can go to the customer, and if they want to source it in the A pillar or the mirror, we can do both. So that's really the way when we were thinking about it. So it's scale and then customer geography and product overlap.

Do you have any questions in the audience.

Thanks for the commentary. Your light vehicle production assumption, looking through the potential recession risk in the next year or 2, 2025, what do you think is realistic based on what you're bidding on, given the breadth of what you do with your OEM customers, you know what they're kind of planning on building 3 years out? And what we're hearing from every OEM is price discipline, keep high ATPs and so I don't quite show how the math works in terms of affordability and getting back to like a $90 million plus global light vehicle production without pricing or mix coming down. So can you kind of share with us your visibility or confidence that we will be at a 90 million unit global number 3 years out? Where do you think actually you better be rightsizing for 85 million, because the OEMs are not going to provide affordable vehicles for the mass market, $30,000, $25,000 price points? Just do you have any thoughts on that, it would be helpful given the sensitivity to volume for you.

I can start. When you look at our volume sets, so a couple of thoughts in there. I think there's going to be a mix change for sure. If you wanted a vehicle over the last 2 years, you wanted to buy a whatever A, B or C vehicle, guess what you're walking away with a truck fully loaded with every feature you had. So that was a big driver of the average selling price. But when you look at our volume sets that we have in our system, we -- as Louis said earlier, we've been running at a recessionary levels. Inventory levels have started to tick up. But when you look out at our 2025 guidance numbers, Europe is not even back to 2019 levels. We're not even seeing recoveries in Europe. They're significantly depressed even out into 2025 and I'm not going to talk a little just because our main markets are Europe, North America and China and even in China, it's fragmented. So China is going to continue to grow. Europe is going to be 3 million to 4 million units below expectations, if you look year-over-year. A big driver of that is Russia, one, but we're just seeing significant -- everything you spoke about in Europe, we're seeing that come to fruition. So I think it's more of a demand side. In North America, we're at -- we're just getting up over 16.5 million. Right? So we're not up into that 17.5 number you would have seen at peaks. It's more -- it's a combination of inventory rebuilds, but we're not seeing this really big uptick. It's a very different recession than we would have seen in the last 3 or 4 where you have this big push into the system of vehicles. And then there's a glut of demand. We're just seeing -- we've been operating at such a recessionary level. Inventories are down. Our expectations, we're not seeing this big uptick. So that's what we're reflecting in our outlook. So I think, a long story short, I think I agree with a lot of your comments.

Yes. I mean '19 was GM strike and then '20 was COVID and the couple of years of supply constraints. So we've been running at recessionary levels in North America, I mean we can debate whether 16.5 million is reasonable or not reasonable. But certainly is anywhere near peak, we think that's a pretty reasonable level to expect.

Maybe if I can -- do you want to add anything [indiscernible ]? One last one. I mean, as you just kind of mentioned the '19 strike at GM and this was kind of off-script question, but -- Yes. The -- if we think about what might happen later this year with the UAW negotiations, how do you guys game plan for potential extreme disruption a key customer here in North America? I mean I know -- I mean it's not something you want to set up for be exactly ready for, but it may happen. I mean how do you handle that?

I don't know if you can gain a plan. It's so binary, right, John. It's -- I think our game planning for a situation where you just shut down effectively, if you get into a situation, all 3 will go. And if you dial it back to where we were as far as game planning, we almost have a game plan in our COVID book. So when you think about we went dark in April and May, we were completely dark in North America. So realistically, we would come back to that exact same situation, how to bring the plans down, what do you keep running, who do you send home -- so that when eventually when it does restart, like we were so efficient. We turn the lights off, left maintenance. All the maintenance was pulled ahead and then as soon as when production started, we flip the lights on and it was ready to go. So I think we've done a lot of the game planning, but effectively, it came out of COVID, so.

Yes. The only complicated factor is you may have a plant that has multi-customers and it's a little more tough to manage.

Yes. Okay. Great. Well, guys, thank you so much, Pat and Louis, I really appreciate the time. Good luck with the rest of the day. Thank you so much for coming.

Thank you.

Thanks.