Colin Langan

Colin Langan from Wells Fargo & Company followed up on the sequential margin increase in Q4 despite lower sales, asking to confirm the key factors like incremental cost savings, EV headwinds recovery, and mix, and expressed surprise at continued sequential actions. He also inquired about the status of the $300 million backlog for next year, specifically if it had changed due to EV cancellations and what ICE launches would contribute.

Answer

Timothy Kraus (Senior Vice President and CFO, Dana Incorporated) confirmed that incremental cost savings, additional plant-level performance actions, and improving product rationalization (which was a headwind earlier) would drive Q4 margin. He clarified that while sequential savings might be lower, they are on track for a $310 million run rate exit. Regarding the backlog, Kraus stated it has been impacted by program delays and cancellations, particularly in EV, and a full review would be provided in January. Bruce McDonald (Chairman and CEO, Dana Incorporated) added that the proportion of ICE in the backlog would be higher.

Colin Langan sought to understand the factors driving the sequential margin increase from Q3 to Q4 2025, including incremental cost savings, EV headwinds, and mix. He also asked for an update on the $300 million backlog for next year, specifically regarding EV cancellations and planned ICE launches.

Answer

Senior Vice President and CFO Timothy Kraus explained that sequential savings, while slowing, continue into Q4, contributing to the $235 million full-year target and $310 million exit run rate. He also cited additional plant-level performance actions and improving mix from product rationalization as drivers. Mr. Kraus confirmed that the backlog has been impacted by EV program delays and cancellations, and a more detailed review of the revised backlog, including a higher proportion of ICE, will be provided in January.

Colin Langan of Wells Fargo questioned how Dana expects to achieve a $100 million EBIT improvement in the second half on slightly lower sales and sought to reconcile Dana's sales outlook with more pessimistic third-party market forecasts.

Answer

Senior VP & CFO Timothy Kraus attributed the second-half profit lift to better sales mix, accelerating cost savings, and improved tariff recovery. He and Chairman & CEO Bruce McDonald explained that Dana's sales outlook is less dependent on broad market forecasts and more on the specific production schedules of its four to five key high-volume truck and SUV programs, such as the Ford Super Duty and Jeep Wrangler, which have favorable second-half comparisons.

Colin Langan of Wells Fargo questioned the light vehicle production assumptions embedded in Dana's guidance and how they align with recent S&P forecasts. He also asked if the $6 million tariff impact recorded in Q1 should be considered a representative run rate for future quarters.

Answer

SVP and CFO Timothy Kraus clarified that the Q1 tariff impact is not a valid run rate due to the staged implementation and evolving nature of the rules. Chairman and CEO R. McDonald stated that the company's light truck production forecast has not changed significantly since February and that the accelerated cost savings provide a sufficient buffer to maintain guidance even if more pessimistic S&P forecasts were to materialize.

Colin Langan from Wells Fargo & Company asked about the drivers behind the significant increase in EPS guidance relative to EBITDA, questioning the role of tax valuation allowances. He also sought clarity on the light vehicle forecast, specifically the assumptions for the Ford Super Duty program.

Answer

CFO Timothy Kraus explained that a U.S. tax valuation allowance is causing EPS volatility by taxing new U.S. income at a near-zero rate, a situation expected to continue until the off-highway sale closes. CEO R. McDonald added that the cost-saving program is boosting U.S. profitability. Regarding the Super Duty, he noted Dana's forecast is based on its specific model mix and is offset by strength in certain Jeep programs.

Colin Langan questioned recent media reports about Dana potentially selling its Off-Highway division and asked about the high decremental margin conversion implied in the Q4 guidance.

Answer

James Kamsickas, Chairman & CEO, declined to comment on media reports but stated that spinning off any division is always possible in any business. Timothy Kraus, SVP & CFO, attributed the Q4 margin performance to ongoing company-wide efficiencies, normalized OEM production schedules enabling plant-floor improvements, careful overhead spending, and some one-time items.

Colin Langan sought clarification on the Q4 EBIT implications, given the tariff refund and Novelis impact, suggesting a potentially negative underlying performance. He also asked for more color on the 2026 outlook, specifically regarding the $1 billion positive cost, $1 billion Novelis help, regulatory costs, and potential inventory destocking.

Answer

Sherry House, CFO, clarified that the $1 billion tariff benefit, a receivable from a recent proclamation, would be recorded in Q4, making Q4 positive for tariffs and bringing the full-year net tariff impact to $1 billion. She explained that the $1.5-$2 billion Novelis impact is for Q4 2025, with the $1 billion makeup in EBIT occurring in 2026. For 2026, she outlined tailwinds (Novelis makeup, likely EPA compliance headwind removal, continued cost savings) and headwinds (investments in Marshall and Louisville launches, cycle plan investments), promising more texture at Q4 earnings.

Colin Langan sought clarification on the Q4 EBIT guidance, specifically how the $1 billion tariff refund and Novelis impact reconcile with the implied Q4 EBIT, suggesting a significant underlying drop from Q3. He also asked for more color on the 2026 outlook, including cost improvements, Novelis recovery, regulatory cost tailwinds, and inventory destocking.

Answer

CFO Sherry House clarified that the $1 billion benefit from the recent tariff proclamation, allowing greater MSRP tariff offset, will be recorded as a receivable in Q4 2025, offsetting Q4 tariff costs and resulting in a net $1 billion tariff impact for the full year 2025. She explained that the $1.5 billion-$2 billion Novelis impact is for Q4 2025, while the $1 billion Novelis recovery is for 2026. For 2026, Sherry House outlined tailwinds (Novelis makeup, likely removal of EPA compliance headwind, continued cost savings) and headwinds (investments in Marshall and Louisville launches, cycle plan investments), promising more detailed guidance at Q4 earnings.

Colin Langan asked what is driving the implied improvement from the first half to the second half in Ford's guidance. He also questioned how underlying costs could be improving amid record recalls, seeking specifics on the cost-saving drivers.

Answer

CFO Sherry House cited second-half material cost improvements, the rollout of warranty-reduction initiatives, and favorable volume comparisons due to prior-year plant shutdowns. CEO James Farley clarified that recall costs are not directly tied to the number of recalls, as many are inexpensive software fixes via OTA updates. He identified manufacturing efficiencies and better supplier negotiations as key drivers of cost improvement.

Colin Langan sought clarification on the accounting for a parts rebate within the tariff impact, asked if two years is sufficient to mitigate tariff risks, and inquired about the cash flow impact of the tariffs.

Answer

CFO Sherry House confirmed the rebate is in the $2.5B gross figure and estimated the cash impact would be similar to the EBIT impact, plus a hit to CapEx. CEO James Farley stated it's too early to know if two years is enough time to adjust, given the dynamic situation and upcoming USMCA negotiations.

Colin Langan sought clarification on the various factors influencing Visteon's growth outlook for next year, including the drag from battery management systems, the reversal of JLR and aluminum disruption impacts, and the contribution from two-wheeler and commercial markets. He specifically asked about China's role as a growth driver and its drag on this year's growth. He also inquired about the expected 'normal' level of one-time recoveries for 2026 and other margin expansion drivers beyond volume.

Answer

CEO Sachin Lawande identified China, commercial vehicles, and two-wheelers as key growth tailwinds for next year. CFO Jerome Rouquet quantified the JLR and Novelis disruptions as a $30-$40 million headwind this year, expected to reverse, and estimated China's drag on this year's growth at approximately 5%. Regarding margins, CEO Sachin Lawande suggested a normal run rate for recoveries would be about half of the $30 million seen this year. CFO Jerome Rouquet emphasized continued margin improvement through productivity in engineering and manufacturing, product costing, and accelerating vertical integration initiatives into 2026 and 2027.

Colin Langan from Wells Fargo asked for a breakdown of the major puts and takes driving the change in full-year sales guidance from the initial forecast. He also requested context on the relative size of the China and BMS businesses to better frame the impact of their respective headwinds.

Answer

SVP and CFO Jerome Rouquet confirmed the sales guidance increase was primarily due to favorable currency movements and a minor contribution from a recent acquisition, partially offset by slightly lower growth over market due to a more conservative BMS outlook. He and CEO Sachin Lawande clarified that China now represents about 9% of sales, while the global BMS business is in the mid-to-high single-digit percentage of sales. Sachin Lawande added that after several quarters of decline, the China business is stabilizing and beginning to turn a corner.

Colin Langan asked for a breakdown of the one-time items that boosted Q1 margins and inquired how potential tariffs might shift the competitive landscape based on where suppliers manufacture.

Answer

CFO Jerome Rouquet confirmed a benefit of nearly $15 million from one-time commercial items, primarily related to cost recoveries for prior-period program changes, which resulted in a normalized margin of just over 12%. CEO Sachin Lawande noted that not all competitors manufacture in Mexico, and those shipping from Asia would face a disadvantage, which could benefit Visteon.

Colin Langan from Wells Fargo & Company asked for a breakdown of why the 2027 sales target is over $1 billion lower than the prior Investor Day forecast and inquired about the current and future mix of business with local OEMs in China.

Answer

President and CEO Sachin Lawande and SVP and CFO Jerome Rouquet identified three main drivers for the lower 2027 sales target: underperformance in China due to global OEMs losing market share, a slower-than-expected ramp-up of EVs impacting BMS and other electronics content, and a general reduction in customer production expectations. Lawande added that Visteon's China revenue is about 10% of total sales, with a 60/40 split between global and domestic OEMs.

An associate for Colin Langan asked for more details on the Q3 restructuring actions and expected savings, questioned the potential downside risk to Q4 guidance from elevated Detroit 3 inventory, and inquired about the pace of share repurchases.

Answer

An executive explained the restructuring aims to rebalance resources toward growth areas like 2-wheelers and specific Asian markets, in addition to cost savings. CEO Sachin Lawande confirmed the Q4 guidance already factors in current visibility into customer production. Regarding capital allocation, an executive stated the company aims for a balanced approach between M&A and buybacks and remains committed to its share repurchase program.

Colin Langan inquired why Autoliv's organic sales guidance remained unchanged despite an increased light vehicle production (LVP) forecast, and sought clarification on any unusual factors, such as supplier settlements, contributing to the strong Q3 margin.

Answer

Fredrik Westin, EVP Finance and CFO, explained that the unchanged organic sales guidance was due to past quarter LVP adjustments, a larger negative market mix, and delayed product launches in China. Mikael Bratt, President and CEO, confirmed that a $50 million supplier compensation was a one-time event for historical costs, also attributing the strong margin to higher sales and robust internal efficiency improvements.

Colin Langan of Wells Fargo asked for clarification on tariff cost recovery, questioning why only 80% was recovered in Q2 and if 100% would be recovered by year-end. He also asked what offsets were keeping the margin guidance unchanged despite favorable FX and raw material trends.

Answer

CEO Mikael Bratt attributed the 80% tariff recovery to a simple timing effect from a full quarter of higher tariffs, expressing confidence the remainder would be recovered. CFO Fredrik Westin clarified that the organic growth guidance was raised due to tariff pass-throughs, which also create a 20 basis point margin dilution, and noted that the raw material outlook has actually improved, with these factors being balanced within the stable margin guidance.

Colin Langan inquired about the financial exposure from non-USMCA compliant sales and the expected profit trajectory for the year, questioning why it would deviate from the recent pattern of sequential quarterly increases.

Answer

CEO Mikael Bratt explained that the USMCA compliance situation is fluid and providing specific figures would be confusing, but reiterated that tariff costs were successfully passed on to customers in the quarter. He clarified that the profit trajectory is returning to a more normal pre-inflationary seasonal pattern, with a weaker Q1 and stronger Q4, rather than the steady sequential growth seen in the past three years.

Colin Langan inquired about the size of Autoliv's exposure to non-USMCA compliant sales and asked for clarification on the profit trajectory for the year, questioning why it would not follow the sequential quarterly increases of prior years.

Answer

CEO Mikael Bratt explained that the USMCA compliance situation is fluid and providing specific figures would be more confusing than helpful, but confirmed that related tariff costs were passed on to customers in Q1. He clarified that the profit trajectory is returning to a more normal pre-inflationary seasonal pattern, with a weaker Q1 and stronger Q4, rather than the steady sequential increases seen over the past three years which were driven by a different inflationary environment.

Colin Langan inquired about the key factors influencing the year-over-year margin outlook for 2025, including the expected impact from foreign exchange, labor inflation versus customer recoveries, and benefits from restructuring. He also asked about the potential financial impact of tariffs on goods from Mexico to the U.S. and Autoliv's strategy to mitigate it.

Answer

CFO Fredrik Westin stated that while specific FX guidance isn't provided, certain currency pairs should remain a positive contributor. He confirmed expectations for approximately $50 million in incremental restructuring savings in 2025. Westin noted that the company aims to fully offset ongoing labor and supplier inflation with commercial recoveries throughout the year. CEO Mikael Bratt added that any potential tariffs would be passed on to customers through immediate negotiations, as Autoliv would not absorb those costs.

Colin Langan asked for clarification on a $14 million supplier settlement, questioning if it was a one-time event, and sought details on the key drivers behind the significant step-up in the Q4 margin guidance.

Answer

CFO Fredrik Westin explained that the supplier settlement cost will gradually decrease to near zero by Q3 of the following year and is related to a single supplier. For the Q4 margin improvement, he cited higher volumes, seasonal engineering income, customer cost compensations, structural cost savings, and favorable currency effects as the primary drivers.

Colin Langan from Wells Fargo asked for the rationale behind the sequential revenue decline implied in the Q4 guidance and questioned the company's capital strategy regarding its cash balance and future debt plans after a recent paydown.

Answer

CEO Brian Krzanich explained the Q4 guidance reflects a pull-in of OEM production into Q3 ahead of tariffs. CFO Tony Rodriguez added that the forecast is also conservative on currency rates and does not assume the same level of revenue true-ups. Regarding capital, Rodriguez stated the company is comfortable with its $79.1 million cash balance, expects continued positive free cash flow, and has no plans to add new debt, with a goal of building cash to address its 2028 convertible notes.

Colin Langan asked for clarification on the one-time items contributing to Q1's outperformance, the company's potential exposure to tariffs, and the expected adoption ramp for the Cerence XUI platform.

Answer

Executive Antonio Rodriquez confirmed that a $2 million royalty true-up and a $2.5 million international R&D tax credit were the primary one-time positive factors in Q1. CEO Brian Krzanich clarified that tariff risk is indirect, relating to potential impacts on customers' vehicle sales volumes, but noted the situation is currently paused with no expected Q2 impact. Regarding XUI adoption, Krzanich explained that projections are based on the high connection rate of new cars, which typically come with 2-3 year connectivity contracts.

Colin Langan asked for an explanation for the double-digit decline in vehicle shipments and what is driving underlying revenue growth despite this underperformance. He also questioned the shrinking 5-year backlog and asked CEO Brian Krzanich to outline his primary strategic priorities for fiscal year 2025.

Answer

Interim CFO Antonio Rodriquez explained that growth is driven by a higher average price per unit (PPU) and a mix shift towards connected services, which grew 12% YoY ex-legacy. He noted the backlog remains healthy at nearly $1 billion. CEO Brian Krzanich outlined his FY25 priorities as: 1) Executing on cost-cutting to return to profitability, 2) Finalizing the Gen 2 AI platform to simplify development, and 3) Exploring expansion into non-automotive markets.

Colin Langan of Wells Fargo asked for clarification on the low EBITDA conversion from the raised revenue guidance and inquired about the Ford F-Series JIT bid process, noting a competitor had won the structures business.

Answer

Mark Oswald, EVP & CFO, explained that the low conversion on the guidance increase was primarily because the revenue uplift was driven by foreign exchange translations, which have a low margin pull-through. Jerome Dorlak, President, CEO & Director, addressed the F-150 bid by emphasizing Adient's focus on providing value-driven solutions to Ford. He also corrected that Adient has not held the F-150 metals contract for nearly seven years, and stated that winning the metals business is not a prerequisite for winning the JIT contract.

Colin Langan from Wells Fargo & Company asked about media reports of Adient's interest in acquiring ZF LIFETEC and the strategic fit of passive safety. He also sought more detail on the tariff mechanics, particularly the 145% rate on China parts.

Answer

President and CEO Jerome Dorlack declined to comment on specific M&A but acknowledged the strategic overlap between seating and safety. He clarified that the 145% tariff on certain China parts results from a 'stacking effect' on components not listed in Annex-1, which represents Adient's largest exposure, while high USMCA compliance mitigates tariffs from Mexico.

On behalf of Colin Langan from Wells Fargo, an analyst asked how Adient's current tariff playbook compares to its 2017 strategy and questioned the company's updated growth-over-market outlook for China.

Answer

President and CEO Jerome Dorlack explained that while the 2017 playbook was effective, the key difference today is the need for much greater speed in implementing solutions. He noted the prior experience prepared the entire supply chain for such events. EVP and CFO Mark Oswald clarified that the China sales outlook is now flat to down year-over-year. He attributed this to the broader market's growth being concentrated in exports and with OEMs like BYD, where Adient has less consolidated content, effectively making Adient's addressable market smaller.

Colin Langan of Wells Fargo Securities asked why Q4's strong annualized results are not reflected in the fiscal 2025 guidance and questioned the reason for delaying further restructuring in Europe despite its persistent weakness.

Answer

Mark Oswald, EVP and CFO, attributed the strong Q4 to the timing of commercial recoveries and operational performance, cautioning that lower volumes in fiscal 2025 prevent a simple annualization. Jerome Dorlack, President and CEO, explained the 'measured approach' to European restructuring is to align actions with the natural roll-off of bad business and roll-on of profitable programs in 2026-2028, avoiding unnecessary spending. He clarified the issue is industry overcapacity, not an uncompetitive footprint.

Colin Langan from Wells Fargo questioned the comment about stronger H2 margins, noting that pre-COVID seasonality was typically the opposite. He also asked for a reconciliation of the sales outlook with sharply lower production forecasts in key markets and inquired about the timeline for reaching the company's leverage target.

Answer

CFO Patrick McCann acknowledged the historical seasonality but explained that the post-COVID environment, with inflation, supply volatility, and now tariffs, has shifted cost recovery negotiations to be more back-half weighted. He also noted FX, mix, and launches contribute to the sales outlook. CEO Seetarama Swamy Kotagiri confirmed that Magna is on track to get back within its target leverage ratio of 1.0-1.5x in 2026, consistent with the plan outlined in February.

Colin Langan asked for clarification on the drivers behind the large $2 billion FX headwind in the 2025 outlook and the currency sensitivities. He also sought to confirm his understanding of the major components in the 2025 EBIT margin walk.

Answer

CFO Patrick McCann explained the FX headwind is primarily driven by the U.S. dollar strengthening against the euro and the Canadian dollar. He clarified that the EBIT impact from this is below the corporate average due to the business mix in those regions. He confirmed the general understanding of the margin walk, where decrementals on lower core sales are offset by operational performance, commercial recoveries, and lower warranty costs.

Colin Langan of Wells Fargo questioned why the 2024 sales guidance revision was minimal despite significant industry production cuts, and asked about the puts and takes behind the modest change to the EBIT guidance midpoint.

Answer

Executive Louis Tonelli explained that Magna's prior outlook was already more conservative than IHS forecasts, so recent cuts brought third-party views closer to Magna's. He also noted that positive currency translation provided an offset. CFO Patrick McCann added that while Q2 had negatives like warranty and FX costs, these were balanced by positives, primarily favorable commercial items, leading to a quarter that was broadly in line with expectations.

Colin Langan of Wells Fargo asked for clarification on the high incremental conversion margin implied in the updated full-year guidance, especially since much of the sales increase was due to FX. He also asked about the expected growth trajectory for e-products for the remainder of the year.

Answer

CFO Craig Aaron detailed the guidance walk, attributing the strong conversion to mid-teens conversion on higher revenue, favorable FX conversion, and the flow-through of Q2's operational outperformance. CEO Joseph Fadool noted that while first-half e-product growth was strong (39% vs. 21% market growth), the company's goal is to consistently outgrow the market, and the updated guide reflects their current outlook.

Colin Langan asked about the expected trend for China's growth over market for the remainder of the year and questioned the confidence in the full-year market outlook, which appeared less conservative than in prior periods.

Answer

Executive Craig Aaron declined to comment on the rest of the year but highlighted strong Q1 outgrowth of 3.7%, driven by a 47% increase in light vehicle eProduct sales. CEO Joseph Fadool added that his recent trip to the Shanghai Auto Show confirmed strong demand for BorgWarner's technology and speed. Aaron clarified the updated market outlook reflects a more cautious view specifically on North American production, now forecast to be down 7% to 12%.

Colin Langan inquired about the 2025 performance outlook for eProducts, particularly the battery business, and why the growth-over-market forecast is lower than historical levels.

Answer

CFO Craig Aaron stated that eProducts are expected to grow year-over-year, though the battery business has softened. While battery unit sales are flat, revenue is down due to passing through lower cell prices. He attributed the lower 2025 outgrowth guidance primarily to a previously disclosed delay in a North American EV program and the battery pricing impact.

Colin Langan questioned BorgWarner's long-term margin outlook, noting that the company is approaching its 10% margin target for 2027 already in 2024 and asked what factors might prevent margins from exceeding that level in 2025 and 2026.

Answer

Craig Aaron, an executive, attributed the strong Q3 margin to operational performance, restructuring, and a one-time customer recovery, but guided for a Q4 margin of around 9.6%. Frederic Lissalde, an executive, deferred providing a longer-term outlook, stating the company is focused on 2024 and will address 2025 during the Q4 earnings call.

Colin Langan of Wells Fargo inquired about the timeline for Aptiv's China performance to normalize relative to the market and asked to frame the risk from the newly announced copper tariffs.

Answer

CEO Kevin P. Clark noted that while progress is being made in China, recent production cuts on specific vehicle programs with local OEMs created a temporary setback. On tariffs, he stated the announced copper tariffs would not impact wire harnesses and that the overall financial risk is manageable and can be passed through to customers if necessary.

Colin Langan requested confirmation on the tariff impact, suggesting that with 99% of its $5 billion in Mexico imports being USMCA compliant, the direct cost should be minimal. He also questioned the sales outlook, which seemed to imply a significant growth acceleration in the second half despite worsening market commentary.

Answer

CEO Kevin P. Clark confirmed that Langan's assessment of the tariff exposure was fair, describing the direct impact as 'de minimis' for Mexico-U.S. trade flows. He reiterated that the company is not providing second-half guidance and that the figures discussed were part of a framework for analysts to model their own scenarios, not an indication of an expected acceleration.

Colin Langan asked for clarification on the drivers of the FX headwind in the margin walk and questioned the profitability of business with local Chinese OEMs due to their short product cycles.

Answer

CFO Varun Laroyia and CEO Kevin P. Clark clarified that FX headwinds are mainly from the Euro and RMB, with peso and copper risks being largely hedged. Regarding China, Clark stated that while pricing with local OEMs is lower, they maintain profitability by being selective with partners, focusing on exporters, and aggressively managing costs through footprint consolidation and shifting engineering to lower-cost regions with government support.

Colin Langan sought to confirm if Aptiv's prior long-term targets for growth and margin remain achievable if OEM production volatility subsides, and asked about the performance and outlook for the EV-related business.

Answer

CEO Kevin P. Clark affirmed that the underlying business performance is strong and previous targets are achievable absent the extreme volatility, which is the sole reason for their current caution. CFO Joe Massaro reported that the EV product line was down about 20% in the quarter and that a recovery depends on when OEMs meaningfully resume EV production.

Colin Langan of Wells Fargo sought to confirm the key figures driving the change in operating income guidance, laying out his calculations for the impacts of performance, FX, and volume. He also asked about the potential impact of a hypothetical 15% tariff rate on the competitiveness of Lear's operations in Honduras and whether it would necessitate relocation.

Answer

CFO Jason Cardew confirmed the directional accuracy of the guidance walk, clarifying the volume headwind was approximately $90 million in operating income on a $475 million sales reduction. CEO Ray Scott asserted that at a 10-15% tariff rate, Lear's Honduras operations would remain highly competitive. Jason Cardew added that the administration appears to understand the importance of low-cost component sourcing for the competitiveness of U.S. vehicle manufacturing.

Colin Langan from Wells Fargo questioned why Q1 operating margin came in significantly higher than the "low 4%" figure the company had indicated shortly before the quarter's end. He also asked if the strong net performance in Q1 meant Lear would have raised its guidance if not for the tariff uncertainty.

Answer

CFO Jason Cardew attributed the Q1 margin beat to two main factors: production holding up better than expected, especially in Asia, and the pull-forward of about 20 basis points of commercial performance from future quarters into Q1. He acknowledged that while Q1 performance was strong, year-over-year comparisons get tougher in the second half. CEO Raymond Scott added that without the volume uncertainty from tariffs, the company would have been very confident in its full-year outlook.

Colin Langan from Wells Fargo asked for clarification on Lear's 2025 market assumptions, incremental/decremental margins, and the expected cadence of margins throughout the year, noting Lear's differing view on GM SUV and Land Rover volumes versus S&P.

Answer

CFO Jason Cardew clarified that Lear is more optimistic than S&P on GM full-size SUVs and JLR programs due to recent performance and design changes. He stated decremental margins are around 20%, but the company is offsetting volume impacts with automation and restructuring. Cardew confirmed that Q1 2025 margins are expected to be the trough for the year, with steady improvement thereafter as cost-saving initiatives gain traction.

Colin Langan of Wells Fargo asked about the drivers behind the implied Q4 margin decline and the path to margin recovery in 2025. He also inquired about the outlook for labor cost inflation and customer mix headwinds.

Answer

CFO Jason Cardew attributed the sequential Q4 margin decline to lower sales and the timing of commercial settlements, which pulled about $15 million of profit into Q3 from Q4. He advised using the full-year 2024 run-rate margins (approx. 6.5% for Seating, over 5% for E-Systems) as a better starting point for 2025. Cardew also noted that while wage inflation is expected to ease modestly next year, it will remain a factor.

Colin Langan from Wells Fargo asked about the organic growth in the Auto business, noting that performance seemed to be in line with the market rather than achieving the long-term target of 4-6% growth over market, and questioned if EV pushouts were a factor.

Answer

CEO Terrence Curtin clarified that TE achieved about 3% growth over market in Q3, slightly below the 4-6% target. He attributed this to the unevenness of the global market, where strong outperformance in Asia (11% growth vs. 4% production growth) was offset by weakness in Western markets, where TE's content per vehicle is higher. He expects to be around 400 basis points of outperformance in Q4.

Colin Langan asked if TE Connectivity's localized manufacturing footprint could be a competitive advantage regarding tariffs, or if competitors have similar global setups.

Answer

CEO Terrence Curtin affirmed that TE views its significant investment in localization as a distinct competitive advantage. He explained that some smaller and mid-sized competitors are more concentrated in single regions, giving TE more flexibility and options to help customers navigate supply chain and tariff challenges, which can strengthen customer relationships.

An analyst from Wells Fargo, on behalf of Colin Langan, asked for color on how the weak commercial vehicle market will impact the Transportation segment's margins for the full year 2025.

Answer

CEO Terrence Curtin first noted that the commercial transportation market has weakened but TE is outperforming the decline. CFO Heath Mitts then explained that while the highly profitable commercial transportation business does pressure margins when soft, this headwind was already present in the FY24 run rate. He clarified that the assumption for Transportation margins to remain at 20% or better in FY25 is not contingent on a significant recovery in the commercial vehicle market.

Colin Langan sought clarification on whether the 15-16 million SAAR estimate was a full-year forecast and if tariff-related price hikes would be shared between automakers and dealers. He also asked about the pace of share buybacks and the M&A outlook given the current market uncertainty.

Answer

CEO Mike Manley clarified he was not providing a specific full-year SAAR forecast but believes some external forecasts are overstated due to the cushioning effect of cross-shopping. He reiterated that dealers would likely participate with OEMs in a balanced way to manage costs. CFO Tom Szlosek stated that capital allocation decisions, including buybacks, are driven by returns and that they view the stock as undervalued. He affirmed they have stress-tested various scenarios and are confident in their ability to generate cash for both buybacks and M&A.

Colin Langan from Wells Fargo asked for more detail on the expected normalization of new vehicle GPU, including the pace of decline and whether the comparison is to historical percentages or dollar amounts. He also asked about the potential risk from tariffs on vehicles imported from Mexico or Europe.

Answer

CFO Tom Szlosek noted that the pace of new GPU decline moderated significantly in 2024 and that future levels are market-driven, with the company's focus being on the other 75% of gross profit from F&I and After-Sales. CEO Mike Manley addressed tariffs by referencing the 2018 experience, where initial price impacts were eventually mitigated by manufacturers to maintain volume, and he would expect a similar dynamic to play out again.

Colin Langan of Wells Fargo sought clarification on the $0.21 per share CDK outage impact, asking if it was solely from lost sales. He also asked for an outlook on where new vehicle GPUs will ultimately stabilize and if some brands have already returned to pre-COVID levels.

Answer

CFO Tom Szlosek confirmed the Q3 CDK impact was entirely from lost business, split between used, after-sales, and CFS, with no one-time costs like in Q2. CEO Mike Manley addressed GPUs, stating that while the decline is moderating, he expects further downward pressure in Q4. He noted that while some OEMs are back to 2019 margin levels, he does not see a complete return across the industry and expects more stability in 2025.

Colin Langan questioned if the company's mid-single-digit new vehicle growth guidance incorporates potential tariffs and what SAAR level this assumes. He also asked why Lithia's same-store new vehicle sales growth of 3.6% underperformed the broader U.S. market.

Answer

President and CEO Bryan DeBoer expressed confidence in the low-to-mid-single-digit growth target, believing the company's diversified brand mix provides resilience. He projected a full-year SAAR in the 16-17 million range, not 14-15 million. DeBoer attributed the same-store underperformance to geographic mix, noting that the Northwest and Southwest regions had lower revenue growth but stronger gross profit, indicating a positive rebalancing across the country.

Colin Langan pointed out that new vehicle GPUs were down sequentially while peers were flat to up, and asked for the drivers behind the guided improvement in used and F&I GPUs from Q4 levels.

Answer

President and CEO Bryan DeBoer took ownership of the new vehicle GPU underperformance, attributing it to an internal 'mindset' issue and viewing it as a future opportunity. For the guided improvement, he stated F&I gains will come from better performance management, while used car GPU recovery will be driven by seasonality, market normalization after a long trough, and better internal execution on pricing and sourcing.

Colin Langan questioned the sustainability of the high 56% aftersales margin against the company's long-term target and sought clarification on the components of the normalized combined vehicle GPU forecast.

Answer

CEO Bryan DeBoer explained that margins are expected to normalize lower (to 51-54%) as the business mix shifts towards lower-margin parts with the rise of sustainable vehicles. However, he noted that overall gross profit dollars should still grow due to the higher cost of these repairs. He also clarified that the combined new/used GPU target of $4,200-$4,500 anticipates a future recovery in used GPUs.

Colin Langan questioned Tesla's vision-only FSD approach, asking how it handles issues like sun glare, fog, and dust. He also sought clarification on reports that the affordable model was delayed and would simply be a cheaper version of the Model Y.

Answer

CEO Elon Musk explained that their system uses direct photon counting, which bypasses the image signal processor, allowing cameras to see effectively in direct sun and darkness. Executives Ashok Elluswamy and Lars Moravy clarified that the focus for new models is affordability, utilizing existing production lines. Moravy confirmed the new models will resemble the form of current cars and will not be 'worse' than any car Tesla has produced.