PHINIA Inc. (PHIN) Earnings Call Transcript & Summary

So next up at the 2024 UBS Industrials Conference. Very pleased to have with us PHINIA. From PHINIA today, we have Brady Ericson, President and CEO. And we're joined by Chris Gropp, CFO; and Kellen from IR is in the audience as well. So first, welcome, thanks for joining us today. Pleased to have you here.

I guess to start, something I've been asking a lot of companies today sort of in a reflective end of year mood here is, and I think it's especially relevant for you guys as given sort of you're a newer public company stand-alone, right? And just to reflect on the past year. It's obviously a very challenging market in terms of some customers, some scheduled choppiness, some geopolitical elements as well. But how would you guys assess your performance over the past year? What went really well? What still has sort of areas for you to work on as a company going forward?

Sure. I mean, again, we spun in July of last year. So it was what, a year and 5 months -- and I think --

That's why I thought it was especially relevant for you to reflect on that.

Yes. It's been a great journey so far. I think the team has done a really nice job executing. I think what we communicated to folks in our Capital Markets Day back in June of last year has really kind of played out. I don't think they believe us back then because I think our communication was that combustion is going to be around for a long time, and we've got a very good plan in order to continue to capitalize on combustion being around. I think we're starting to convince folks that we're not just a light vehicle OE company, it's less than half of our business. We still see a strong growth opportunity in commercial vehicle that's not going to be affected by electrification. I think after this last quarter, people are realizing that having an aftermarket business that's over -- roughly 1/3 of our business is really beneficial when the OE markets are soft. And so I think you saw some good performance, continued strong cash flow from our business. And I think in June of last year, we finally got rid of all the transitional services agreement. This last quarter, we finalized other contract manufacturing that we had to do for our former parent. And I think we're really on a good strong position right now, and people see how we're performing, how we're applying capital and how we're being very prudent in that respect.

So now that you're -- if you think about U.S. and sort of at the crawl and walk and now maybe hopefully you're running, but where -- what are your priorities for the company going forward now that you've sort of gotten past all the spinout in transitional services?

Well, I think Chris likes to highlight it's one quarter at a time. We just want to continue to be consistent and boring. I think with our aftermarket, with the diversity of our customer base, with the diversity of the markets that we're serving in, we're going to be a lot more muted and not swing like many others may be because we have some offsetting markets that we have. And so we want to continue to execute and perform very much like an industrial company, a GDP, GDP plus type grower, strong cash flow generation and a good capital allocation policies.

Great. Going quarter-by-quarter. And so we're here in December. And you sort of gave your guidance here, a couple of, I guess, a couple of months ago or a month or so ago now, a month plus. We've obviously seen reports of some production ebbs and flows as happens every quarter, right, some pluses, some minuses. But net overall, and I know -- I don't want -- I do want to get back to sort of the other side of your business, but let's focus on the light vehicle side for now. How would you sort of say production is sort of coming in schedule relative to your expectations?

It's coming in line with expectations. So we think things are continuing to perform. We've got good, strong customers that we work closely with to get their expectation, and that was considered when we updated our guide last quarter. And so we're in general, seeing some ups and downs, but all in all, kind of in line with expectations.

It's actually been a little bit less choppy than we were seeing in Q3. And China has come back a little bit stronger. We're a little bit wary of that because we're worried about how much they're pulling out of Q1 of next year, but it's been a little bit. Now the one thing I will say is with the strong dollar, we do have some headwinds on FX, but that's going to be, I think, for everybody an issue. It's not material, but it's out there.

Translation or transaction?

Translation.

Again, 60% of our business is outside North America. Right, right.

Fair enough. So now let's sort of talk about, I guess, the business and sort of the outlook maybe a little bit more in terms of sort of how you want to talk about as sort of a collection of different assets, yes, light vehicle, but also commercial vehicle, also aftermarket. As you are thinking about '25 and you're sort of planning -- doing your internal budgeting and planning for the year ahead. Again, not recognizing you're not going to sort of give official guidance yet. But from an end market perspective, how are you sort of planning for the environment to be so you can execute your business within -- by those markets?

Yes. I think it's going to be a tale of 2 halves for '24 and '25. I think in '24, we saw a pretty good Q1 and Q2, and it really kind of softened in Q3 and Q4. We think that will continue into 2025, soft Q1, soft Q2 to pick up in the second half light vehicle.

Both on light vehicle?

Both on light vehicle. And I think on commercial vehicle from our perspective. I think with that on the light vehicle side, we also see some more of our conquest wins starting to kind of come on board and start to ramp up, whether it's the 500 bar fuel injection systems that we have in China, some of our starters in [ alternate ] new business wins, hydrogen applications, aerospace applications, E100 applications. I think we're going to start seeing those start to have a little bit of an impact mid to second half of next year as well.

Okay. And on the aftermarket, I mean, we sort of think of that as a GDP plus or minus grow? Or is that sort of how you sort of look at it?

Yes. I mean I'll kind of highlight -- I mean our overall strategy for light vehicle is that we're going to continue to gain market share to keep it around $1.5 billion, $1.7 billion of our revenue throughout the decade and we've got good visibility on that. We'll see some ups and downs depending on the flow, but I think in general, that remains intact.

That's relatively flattish LVP with some assumption of --

Yes, EV penetration continues to go up. We know that's going to continue to be a headwind, but we've got market share gains to offset it. On the CV side, we're on a down cycle right now. It will come up. We see with EPA27 coming with Euro VI coming, we see content improvements. The market continues to grow. They don't have EV penetration rates that are material. And so we see that continuing to grow for us in that 2% to 4% range. Then our aftermarket to your question is we see that a 3% to 6% grower. So it's not just GDP or GDP plus, we're getting 1% to 2% in pricing. And then we're also continuing to expand our portfolio and product offering bringing all of our product lines to all regions, and we've seen a consistent growth of our aftermarket group in that range. And you blend all those things together, and that's where we see kind of a long-term growth rate of 2% to 4%.

Yes. I know we were discussing earlier, some of the dynamics of the -- of your aftermarket business and the stickiness of that product and especially on the injection side, some of the calibration. So look, the bottom line is eventually injectors need replacement, and they've got to come to you. So that's great. That definitely supports your ability to take price. I guess, why only 1 point a year? I mean it seems like there's no other options.

Well, again, we've got a broad portfolio in our aftermarket. We do need to remain competitive in that space. We do have good margins already. Again, we've got maybe 40% of our aftermarket is commercial vehicle, 40% is light vehicle combustion related. And then we've got 20% -- a little bit more than 20% now that are steering suspension, braking, noncombustion related. So we've got a broad portfolio that we continue to grow. That is a competitive market. We also need to remember that about 20% of our overall aftermarket is going through the OEs. So about 20% of the OES that tends to be tied to the OE pricing. And so those are kind of longer-term contracts.

That's what I was going to ask. I guess I would have imagined actually this to be greater on the commercial vehicle side, maybe some light vehicle but it sounds like on both. But it sounds like seeing some of what the aftermarket pricing is, is a consideration for selecting you for the OE. Is that fair or not?

Oh yes, absolutely.

Yes. Okay. All right. Well, going back to sort of that and that was sort of a helpful backdrop on the algorithm you sort of see for the 3 businesses. One of the things we sort of discussed that there was sort of flattish light vehicles, some sort of pension of continued penetration of EVs. And I know at your Analyst Day 1.5 years ago or so, right, you did sort of lay that out. Look, nothing is official yet, right? But we're obviously sort of seeing some breadcrumbs of policy that could make EVs even at least in the U.S., sort of have a slower pace of adoption. And I would argue even irrespective of the election or policy like just consumer demand has sort of been slower. So that seems like it's a positive development for you. Now I guess, as you sort of talk to your customers, what are they -- what has sort of the tone and tenor of those conversations be in terms of how they're thinking about their portfolio? Specifically for the U.S. market, right, as with the realities of demand but also potential policy change.

Yes. I mean I think you probably heard a lot of folks saying, "Hey, we're going to bring back some plug-in hybrids and some hybrids." I think you see a lot of new of those releases coming out. That's good for us because that means the combustion engine is going to be around longer. And so -- but to be fair, we've been seeing a lot of demand increases in RFQs coming to us a couple of years ago. So we kind of saw it coming. I think the one thing that we don't know is we're not sure if EV penetration rates are going to get to 40%, 30% or 20% in the U.S. market. But at the end of the day, we'll be ready to support those customers. We continue to develop the technology that's needed whether it's 500 bar or other alternative fuel technologies that they need. And so I think we'll be well positioned to be their partner of choice for decades to come on the light vehicle side.

But outside of the U.S. market, the interesting thing is, as everybody thinks China is going so fast for EV and they are going faster than everybody else. They are still developing a lot of range extending vehicles and hybrids. And that's been the push or the pool that we've gotten from them, the customers, the domestic Chinese OEs and we need that in our portfolio because that's what our consumers demanding.

Yes. We were talking earlier, she showed me an article that says China is going all EV. They're growing like EV.

Gasoline is dead.

Gasoline is dead, and it's kind of -- we need to get a sign behind us that says EV does not equal battery electric vehicle. It goes battery electric vehicle plus plug-in hybrid plus range extender and the last 2 have combustion engine in them and as long as it has a combustion engine in it, we're happy. And so what we've seen in China to now they're over 52% or 54% EV. Well, guess what, only 20%, 25% is battery electric, and all the growth has been plug-in hybrid and range extending hybrid. And again, our -- the largest battery vehicle manufacturer in China is now launching a bunch of new combustion applications, kind of tells you something.

So it's a great point. And I think the view when there was sort of this view to sort of move to more plug-in hybrids, range extenders. That's -- you're right, that still has a combustion engine. And I think to the extent that the view before is that would sort of be pure BEV right? It changes that penetration rate that you sort of talked about earlier. But potentially even more optimistic would be, right? Because I still think you're just sort of comparing a EREV or a plug-in versus a full ICE, that is still a lower opportunity for you, right?

No, a plug-in hybrid to full hybrid is the same opportunity because if you think about it from a -- whether it's a hybrid or a plug-in hybrid, say, a plug-in hybrid. I've got one, love it. I get my 30, 40 miles of range, but then I run out of battery and I'm all on engine. So that engine still has to have the performance even without the battery in place. And so consumers still want that full performance, which means they still want turbocharging and they still want direct injection. They want a high-performing engine for their vehicle when the battery runs out. Plug-in hybrid maybe a little bit less content because that engine is designed purely just to charge a battery, so they can design that differently to operate as efficiently as possible at one data point, and they don't need that full range.

Well, I guess the reason I'm bringing it up is we had Paul Jacobson from GM earlier. And they are one of the companies in the past has sort of said we're going to look towards a plug-in range extender type vehicle. And look, they're not making any decisions right now because I think there's still sort of a lot of uncertainty. But one of the things you brought up was that, look, if the regulations really changed, right, and EPA gets pushed out or sort of California gets changed. Well, the reason we were looking at plug-in and EREVs as almost an insurance policy for BEVs. But if we -- if there's no need for that to be compliant, we can still continue to sell more regular ice for longer. So -- so I mean, I guess, either way you sort of slice it, it seems like it's an incremental positive versus what you had planned for your long-range planning versus 1.5 years ago.

But the odd thing about that is everybody leaves the consumer out of that entire discussion. Everybody talks about what the government wants, everybody talks about -- but what does the consumer want? And I think all of us wouldn't mind driving a car, SUV, whatever, that has better fuel economy, better for the -- and if you can do that in a hybrid, then I think a lot of us would do that.

Yes. So I guess stay tuned. And I guess the conversations you're having with your customers.

Yes. I mean, again, our strategy is not changing. We're still going to continue to focus and grow our commercial vehicle, industrial and our aftermarket as our primary growth engine. Whether the light vehicle OE rather than being [ 1.5 to 1.7 is 1.6 to 1.8], we can kind of handle that. And again, that's given our market share, if it grows up to 20% and rather than 40% EV at 30% EV, that might add $100 million or $200 million of revenue in 2034. On the $5 billion target, that's a little bit noise this far out. We can't forecast that accuracy next year, let alone 2030. So yes, it may give us a tailwind. We'll continue to monitor it. Once we see it becomes more realistic, we'll update our guidance.

Yes. Turning to the other election topic, du jour and trade. I know we spoke a little bit about this as well. But this is, I think, somewhat of a tricky topic because we don't have all the details, right? And it's also unclear whether a tariff on Mexico into the U.S. would actually take hold because for the industry, you're at large, it would be quite disruptive. But let's just for the benefit of people and investors sort of can we go through your footprint, your sort of exposure. I know you were sort of talking about some of the ins and outs of your Maquiladora structure as well in terms of sort of how you would dimension what could potentially be at risk to a tariff either paid by yourself or by your customers?

Yes. I think, in general, we'll start kind of globally first. And our strategy has always been to design, develop, source, produce and sell within the region. And so in general, we produce in Asia for Asia, we produce in Europe for Europe, Americas for Americas. And over 80% of our purchasing and our sales are going to be within the region. So we've tried to minimize those shipments and try to optimize component supply and common components across those regions. So in general, we're pretty good in that respect and pretty protected. I think from a Mexico to U.S. standpoint, obviously, a little bit more risk. We have pretty much all of our OE plants are being produced in -- our OE product is being produced in Mexico. We've been down there for 30-plus years, R&D centers down there, well established. But again, depending on what the structure is, the way the Maquiladora works, the material has to come through the U.S. first. Whether that's from U.S. suppliers or Mexico suppliers or European suppliers has got to come into the U.S. first, goes into Maquiladora, the value-add that we have there, whether it's 20%, 30% or so. That then comes back out of Mexico. And that's -- my assumption is that's what the tariff would be then based on that value add that we have in that country. In many cases, once we ship it back out to Laredo, Texas, it comes back into Mexico to the engine plants from our customers and their vehicle plants before then being shipped back to the U.S. And so there's just this massive web that's going to be really, really complex. And so I think the Maquiladora structure has been in place for decades now that I think it's going to be really difficult to blow that up without having a big negative effect on the U.S. economy and inflation.

Yes. But your -- the vast majority of your footprint for North America is in Mexico, correct?

For North America, it's all in Mexico except for some remanufacturing that we have in the U.S.

Okay. And is -- to the extent it was put in place. And again, I'm recognizing the challenges that would bring to the industry and maybe it sounds like you even sort of tracking it, is it -- would it be most impactful for the light vehicle business because it seems like the aftermarket would be easier to sort of push price through, maybe even with some of your commercial vehicle customers?

Well, I think in general, it's going to end up with the consumer. I don't think we or our customers can just absorb it and not pass it through because it's an industry-wide situation. So it's not as if it's only us or only one of our customers. And so all of the customers are going to have extra costs. We're going to have extra cost that's going to end up going to the consumer.

Going back to sort of your longer-term outlook, you sort of mentioned, I think, at an industry level -- I'm sorry, at a PHINIA total level, not thinking about any sort of specific one of the 3 markets that you could be more like an industrial GDP plus type company. I think initially sort of also -- sort of targeted 14% to 15% margins. You're there, right? So I mean, is there something that if you are able to grow low single digits, that would structurally prevent them from moving above that?

Yes. I think our current guide for this year, midpoint puts us right at 14.1%. So we're just kind of getting into it on the low end. I would like to see us be there a little bit more consistently. I think the increasing aftermarket as a percent of our sales is going to be accretive for us. We do expect as we continue to grow to convert incremental sales of about 20%. So that will kind of help us go from there. And so we'll kind of keep an eye on it over time to see whether we can continue to expand from there. As our mix changes, as we launch more industrial, off-highway and aerospace opportunities and increase aftermarket as a percentage of our sales. Because the one thing to also remind folks is that our aftermarket probably half probably half of their revenues in our aftermarket comes from our production plants in the fuel system side. So we're actually selling the product to our aftermarket. The aftermarket then marks it up again and then sells it to their aftermarket. So it's a good business for us because we want to give some profit to the plants to encourage them to make the product. If they're not making margin on it, they're not going to want to support the aftermarket. And so because it does have a lot of complexity, they're smaller runs, the volumes are lower, they're going to change over the equipment. So we've got to make sure they're getting compensated because that's what their bonus is also based on the performance of their location.

You mentioned aerospace. Is that a potential adjacency or is there already some business on there from the fuel injector side?

We've actually announced our first award or first or second award.

We announced the first one.

First one. And so that will launch in Q4 of next year. We've been working with those customers for 5, 6 years now. We've been supplying them the first couple of rounds of prototypes and production and their response was we've never had a supplier that actually came in ahead of schedule. And so they were impressed with that, and then we got another dozen RFQs because of that. And they see our manufacturing capabilities. They see our quality systems that are in place. They see how we manage programs, and they were very, very impressed, which is why they continue to give us more opportunities.

I just -- I'm less familiar with the market. I mean, what's the competitive set like more on the aerospace side on that?

Again, these are going to be components and injectors for the larger engines. And so a lot of the challenges they're having is similar to some of the automotive where you have these small, medium enterprises that maybe have been over-leveraged. They don't have the necessary resources to invest, and that's why they're having a lot of supply challenges on the aerospace side, both commercial and military. And so they see us coming in with good solid balance sheet, great quality systems, committed to that space, wanting to grow, and they're saying, "Hey, we really want to develop you." And so we've got a great opportunity. We're going through our aerospace quality certifications. We put the equipment necessary in place to meet it. We should be certified Q1, Q2 of next year in preparation for SOP in Q4.

But I guess it's not the sort of traditional vehicle fuel injector players?

Correct. Again, we think our core competency is our precision machining, our coatings, dealing with alternative fuels. So they're using a lot of sustainable aviation fuel. Our knowledge around ethanol and hydrogen and the effects on embedment, on the components of ceiling, fluid management, precision fluid management and controls. Those are all the core competencies that we continue to leverage.

Maybe we could turn our attention to China. Chris, you mentioned early on that there's a little bit of concern and maybe -- there may be some sort of pull ahead there. So that's obviously something to monitor. But bigger picture, you've done, I think, pretty well in China, all things considered, especially with the shift within China to NEVs, right, versus traditional ICE. Now again, as you sort of alluded to, maybe the plug-in hybrids and ERs are sort of a part of that. But I think you've also -- I think one of the unique things about PHINIA is especially relative to some of the other light vehicle suppliers, I think you mentioned about 80% of your light vehicle China sales are with domestic players. So that's a mix we don't really see a lot today. So maybe you could talk a little bit about how you got into that position, what the competitive landscape is like? And why some of these domestic players are choosing PHINIA relative to maybe some domestic competition?

I mean it's a story that's longer than Brady and I have been in place because it goes back into the Delphi days and at the time when they actually got into the business. And they did do some business with the JVs and that were both -- had some of the bigger players involved. But that business has sort of slipped away and really our niche has gone to the local players. Our teams in China are local. So they're developing relationship with those local suppliers. So we've had a lot of them come in, in the last year, some of the Li Auto, BYD, some of those players and names. We supplied a great wall. So all of it's just been a development over time, and we've become a trusted player with them and working with them. So we design, our engineers design. We have an R&D center in Shanghai that they can come to and work on. And we have a giant fleet of cars sitting in Shanghai of testing equipment sitting there to work with.

Yes. And I think as Chris pointed, the reason why we have all those vehicles is they outsource a lot of the calibration and software work to us. And so we provide a lot of what we call nonrecurring engineering costs. And so we charge our customers and get incentives close to $90 million a year for those services globally. And so in China, they give us their vehicles. We do a lot of the calibration work for them. I think the other thing to kind of build off Chris' point is that one of the reasons why we're winning is because we've continued to develop next-generation technology for GDi. So we're launching our 500 technology in China, and it's actually a cost savings for them from a vehicle standpoint because although the fuel injection system is more expensive, they're able to decontent some of the aftertreatment. And so for them, it's a cost savings. And so that first one got launched with Changan and they're all kind of jumping over each other to bring that on board as well. And so -- we've got a local team there that's empowered to make decisions and support their customers locally, and we think that's a big advantage.

There's no local competitors. I mean this is not an easy business to get into. I mean you can buy the equipment. Anybody can buy the equipment and you can assemble things. The knowledge and the know-how of understanding the fluids and the metals and how all of this work, it is not something you can just pluck out of the street. It is something that's learned long and hard.

Yes, because once you go the port fuel injection side is a lot easier. That's been around for decades now, a lot of different competitors. But once you go from port fuel injection to a direct injection, you're now assembling these things in a clean room environment. A lot of unique processes that will develop internally as well. So there's some intellectual property on the manufacturing side. And so there's really just a couple of main global competitors on the direct injection side.

You mentioned BYD and some others, and you've heard to varying degrees, but they can sometimes be more onerous in terms of some of the terms of the contract. Have you found that at all? Or is the area of the world you're operating in a little bit different because of some of that complexity to sort of compete against?

Yes. I mean, it's -- we're in a product line that you can't just swap people in and out. You can't necessarily dual source on the same application because each individual injector is calibrated differently. And the fact that we're doing the pump, the rail, the injector and the ECUs gives us a little bit more, I guess, strength in our negotiating positions. But at the same token, I mean, we still allow the team there to adapt to local requirements. But we still have, what we call, we do a DCF and economic value-added analysis. And so they have to ensure if they're going to get better terms here, they're going to give longer payment terms, they're going to give us ability on volume. They've got to make it up in price to make sure that we have a profitable program that's going to return at least 15% returns.

Let's turn the page to commercial vehicles and a couple of things here. One of the things you alluded to earlier, when I sort of asked for your high level, '25 market outlook even in CV a softer first half, maybe a stronger back half. Is that -- just to be clear, is that sort of because of your expectations of sort of how potential prebuy might flow through?

Yes. I think the -- a lot of the fleet customers have kind of taken a pause on some of their purchases. I think they got through, I guess, the COVID constraint of '22 and '23 where they couldn't get maybe as many trucks as they wanted. I think they finally got most of those through '24. I think they're now seeing interest rates are kind of higher and so a lot of them are financing their trucks. And so they're expecting interest rates to kind of come down. And so they're probably delaying a little bit. But the expectation is that the EPA27 regulations coming in, Euro 7 coming in '28. The expectation is and our customers' expectation is that we'll start to see the prebuy effect coming kind of mid-'25 and into '26 for North America and probably '26 and '27 for Europe.

I don't know how you want to sort of answer this question or talk about it in whatever terms, whether it's like North American Class 8 volumes over. But like what are you capacitized for in terms of being able to supply because for the prebuy like you might temporarily spike over that annualized rate from a capacity perspective. And I think you mentioned in one of the calls that some of your customers are helping to add some capacity to facilitate that. So can you just explain the dynamics there?

Yes. I mean through '22 and '23, we were really kind of running 6, 6.5 days a week to keep up. And so it was running kind of full till for that CV applications. To meet demand, things have softened a little bit, but they're expecting demand for CV to surge well above that 2023 level. And because it's a 1- to 2-year surge, we kind of had to ask them to, I can't price it high enough. I can't price it high enough to cover the capital that's required. And so we've come to arrangements with the customer that they're funding that capital, and they get access and they get allocated that capacity if it's needed type of thing. And so we've got deals with them that give them the capacity they need and protects us financially.

And then what happens beyond that prebuy that capital or can those lines be used to support Europe market business?

They can, yes. I think they can be -- again, we allocate them the capacity. If they don't pull the capacity, can we use that for other applications or other markets? Yes, we can.

Yes. Okay. I guess one of the things you alluded to that might be a little bit underappreciated here is some of the stability, but also the stickiness in the aftermarket. Again, maybe just for the benefit of the audience. What is -- what do you think is sort of misunderstood about your aftermarket business?

Just the size of it. One, I think it's 1/3 of our business, and it's a consistent cash-generating good margin business. And so I think a lot of folks aren't giving us credit for having that big of a business. I think maybe a little bit, we're starting to get a little bit of credit now after Q3 when they saw that when everybody -- everyone else's revenues were down substantially, we were kind of in line or kind of flattish. And it's because of that strong aftermarket. Europe light vehicle OE continues to be soft. But man, our aftermarket continues to crank away because people don't want to give up their light vehicle diesels. They're keeping them around. The average age is increasing, and guess what, that gives us a lot of great aftermarket opportunity. And so I think they're starting to realize the benefits of having a large aftermarket and then why that causes us to look very much like an industrial. So we're not -- we need the big swings that you see from a light vehicle OE or a pure CV manufacturer. You'll see ours is relatively muted. And again, from our perspective, since we've spun, we've been flat to down CV, flat to down light vehicle and the only thing that's been continuing to continue to grow for us is aftermarket. And so when OE starts coming back and growing and CV comes back and growing and aftermarket continues to grow, I think we've got some great times ahead of us.

Sorry. I think you mentioned or what percentage of the aftermarket goes back through the original equipment channel?

About 20% goes back to the OEs and 80% for the independent.

Goes to the independent. And what about -- is there a China aftermarket or will that develop?

It's still relatively small for a couple of reasons. One, the average age of the vehicles there are not nearly as high as they are in the rest of the world. A lot of the GDi technology is still relatively there. And so a lot of the aftermarket is still the port fuel injection and there's a lot more competitors out there. I think the consumers there as well, they're -- in many ways to kind of clean up the vehicle a little bit and kind of get it running. So there's a lot more repair than replacement. So it's just a very different market. I think in a lot of cases, you still have scrappage program that occasionally come out. And so some of those older vehicles will get scrapped out and they'll replace the new one. So it's just a different dynamic. I think we do have good opportunities outside of China for our aftermarket, too.

But also, I mean, Brady sort of alluded to it, but just to be very clear, the -- the majority of the aftermarket we're doing is nondiscretionary. If your fuel injectors have come to the end of life or you've used bad fuel, and they're gone, you can't wait to replace them because your car is not going to go anywhere. So it is a replacement you have to do at some point in the car or the truck.

Yes. You've already shamed me on using a lower octane.

Use the right fuel.

Or not. And you can buy our injectors.

And I have your number. I guess just to close here in the final minutes, if you could just sort of go over balance sheet liquidity, cash flow uses of cash. Just remind us again sort of how much liquidity and leverage targets you want to run the business with. I know you did do a refinancing in the third quarter, and it looks like you sort of buy back some stock of that, but it still looks like there's -- the cash balance is maybe a little bit higher than what you had. So how do we think about the cash uses going forward? Not just in the very near term, but let's say, over a 3- to 5-year period, how do you think about capital?

Yes. I think the first question you had was on the liquidity. I think in general, we've announced we want to have at least $700 million, and that accounts for a very severe 3-year downturn still being able to make all of our debt payments, still doing dividends, still doing CapEx, still doing investments. Right now, we're sitting at close to $1 billion because we have about $477 million of cash on hand. So it's about a little over $200 million kind of high. Probably $250 million is kind of a good number for us. And so we have plenty of cash to put to use. Having a little bit of extra cash on hand for a period of time, not a bad thing, in my opinion, given the dynamics of the market. We were able to upsize our last offering at a very good rate unsecured. And we figured, hey, we've got share repurchases and the M&A front is starting to pick up a little bit. So there may be some opportunities there. But there'll be smaller bolt-on acquisitions. And again, we're going to kind of continue to do this in a steady manner. We're not looking to do anything that's just grand or super all at once. We're going to continue to be consistent and steady.

Great. Well, with that, we're out of time. So Brady, Chris, thanks so much for joining us today. Really appreciate having you here.

Thank you.