American Axle & Manufacturing Holdings Inc (AXL) 2005 Q4 法說會逐字稿

Good morning.

My name is Felicia.

I will be your conference facilitator today.

At this time I would like to welcome everyone to the American Axle & Manufacturing fourth quarter and full year 2005 conference call. [OPERATOR INSTRUCTIONS].

I would now like to turn the call over to Mr. Chris Son, director of Investor Relations.

Please go ahead, Chris.

Thank you, Felicia, and good morning, everyone.

Thank you for joining us today and for your interest in American Axle & Manufacturing.

This morning, we released our fourth quarter and full year 2005 earnings announcement.

If you have not had an opportunity to review this announcement, you can access it on the aam.com website, or through the PR Newswire Services.

A replay of this call will also be available beginning at noon today through 5:00 p.m. eastern standard time February 10th by calling 1-800-642-1687, reservation number 3863879.

Before I turn the call officer to our co-Founder, Chairman, and CEO, Dick Dauch, let me take a few minutes to read a brief statement.

This call is intended to be in compliance with Reg FD, and is open to institutional investors and security analysts, news media representatives and other interested parties.

I would like to remind everyone that the matters discussed in this conference call may contain comments and forward-looking statements based on current plans, expectations, events and financial and industry trends, which may affect the Company's future operating results and financial position.

Within the meaning of the Private Securities Litigation Reform Act of 1995, forward-looking statements are not guarantees of future results or conditions, but they are subject to risks and uncertainties, which cannot be predicted or quantified, and which may cause future activities and results of operations to differ materially from those discussed today.

The historical results achieved are not necessarily indicative of the future prospects of the Company.

For additional information, we ask you refer to the Company's filings with the Securities and Exchange Commission and the investor presentation on the aam.com website under the investor link.

During the call, we may refer to certain non-GAAP financial measures.

Information regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information is also available on the aam.com website.

We are also audio webcasting through our website, aam.com.

This call will be archived in the investor section of the website and will be available there for one year.

Over the next several months, we will be conducting investor trips to Minneapolis and to the West Coast.

We'll also be attending the Prudential 2006 automotive values chain conference on February 15th, Smith Barney industrial conference on March 8th, the Smith Barney small MidCap conference on March 15th, and the Morgan Stanley global automotive conference on April 10th and 11th.

We look forward to seeing many of you at those conferences and investor trips during the quarter.

In addition, we are always happy to host investors at our facilities either here in Detroit or at our other locations.

Please feel free to contact me to schedule a visit.

With that said, let me turn things over to the host of our call, AAM's Co-Founder, Chairman and CEO, Dick Dauch.

Thank you, Chris.

Good morning, ladies and gentlemen.

I would like to thank you for having a chance to discuss American Axle's financial results for the fourth quarter and full year of 2005 with you.

Today, I am pleased to be joined by our President, Yogendra Rahangdale, along with our Chief Financial Officer, Michael Simonte, along with our Executive Vice President, Commercial and Strategic Development, David Dauch.

After I provide a brief overview of our financial results for the quarter, I will review brief highlights of AAM's achievements for 2005 and then finish up with some comments on 2006 as an outlook.

I'll then turn things over to Mike to discuss the details of our financial performance.

After that, we'll open the call to you ladies and gentlemen for any questions or comments you might have.

Let me start off by stating that in 2005, as in every year of our existence,AAM delivered positive operational and financial profits. 2005 was a year of significant challenge and change for the domestic automotive industry.

Despite these challenging conditions, AAM is on course, has made considerable progress on critical operating performance, product technology advancements, customer diversification, and strategic objectives in the year 2005.

For the fourth quarter, our sales were approximately $853 million.

Net income was $4.5 million, GAAP diluted earnings per share were $0.09 , and that was for the fourth quarter of '05.

Included in these results is about an $8.7 million charge equivalent to about $0.12 per share in the quarter, which related to lump sum separation payments accepted by approximately 160 men and women of our hourly and salaried rank.

AAM's customer production volumes for the major North American light truck programs that we serve were down approximately 4% for the quarter.

Our results for the quarter reflect the impact of lower production volumes, scheduled by our customers, higher energy, steel and material costs, along with increased costs associated with providing healthcare, pension and supplemental unemployment benefits.

For the full year '05, AAM sales were $3.4 billion.

North American light vehicle production was about flat in 2005, as compared to the previous year 2004.

GM light truck production was off about 9% in 2005.

AAM sales to customers other than GM continues to increase, this time by $26 million to over $750 million, which represented 22% of total sales in 2005.

This compares to non-GM sales of 20% in '04, 18% in '03, nice, steady progression.

Strong demand for Ram products, supporting the Chrysler group programs, including the Dodge Ram heavy duty pickup trucks and major derivatives was a primary driver of our non-GM sales growth in 2005.

For the full year 2005, AAM's net income was approximately $56 million.

GAAP diluted earnings per share would have been $1.10 per share.

As we reported on January 12th at the 2006 Auto Analysts of New York conference, which we were pleased to participate in, during the North American International Auto Show week, we said we had met our free cash flow expectations for 2005.

After incurring approximately $306 million in capital expenditures and paying 30 million in dividends of 2005, our free cash flow resulted in the year of a use of $55.7 million of cash.

Let me now provide you with some highlights of AAM's accomplishments in the year of '05.

First, we continue to increase our investment in R&D to expand our product portfolio and advance our product process and systems technology.

In '05, the R&D spending rose 7% to nearly $74 million.

AAM's R&D efforts have resulted in the development of new products, targeted for gross segments of the global automotive industry, especially rear wheel drive and all wheel drive systems for passenger cars and cross-over vehicles.

This emphasis has contributed to the growth in our new and incremental business backlog to approximately $1.4 billion for programs launching from 2006 through 2012.

Some highlights of our new and incremental business backlog include the following.

Seven drive line system awards for passenger car and cross-over vehicle programs that are being developed by three different global OEMs.

Two of these seven awards support global rear wheel drive passenger car programs and five are for global cross-over vehicle programs.

Our newest rear wheel drive and all wheel drive technologies will be featured on these seven programs.

Once they are fully launched, our company expects to generate sales in excess of $600 million from those programs each year.

Our company has earned over $200 million of new business outside of North America.

These awards provide the catalyst for AAM to construct a new regional manufacturing facility in Changshu, China.

We expect to announce a facility, also in Eastern or Central Europe in the very near future.

Our company also earned approximately $150 million of new business with Asian OEMs and their affiliated suppliers.

Another key highlight of our backlog includes the following.

Our first high-volume application of the smart bar electronic stabilizer bar system for the 2007 model year Jeep Wrangler Rubicon.

AAM will launch more than half of our new and incremental business backlog this year and 2007-8 calendar years.

The balance, of course, will be done between 2009-12.

We're extremely pleased that AAM's R R&D efforts have resulted in these new business awards, with our newest technology and good pricing.

We're also working hard on several additional opportunities to secure new business from existing and prospective customers.

Currently, we are actively quoting on new business totaling $1 billion.

Nearly all of this activity is with customers other than the General Motors corporation.

The production launch timing of these programs ranges from 2006 through 2010.

My second major point on this is we are making progress in diversifying our customer base.

In addition to the growth in our sales for customers other than GM in 2005, our new business backlog demonstrates our significant efforts to diversify and expand our customer portfolio.

Such as expanded customer bases with Nissan, Audi, Ssangyong, Hino, Jatco, Koyo and the Harley-Davidson corporation.

Third point, ladies and gentlemen, is that we continue the strong quality performance in '05, which is our Legacy.

Our quality performance is a key differentiate, along with warranty performance, to support our OEM candidates.

We are the benchmark of the industry globally.

We continue to target Six Sigma, high quality advanced technology products for our customers, as measured by our largest customer, AAM continues to attain that world class rating with a 12-month rolling average of under seven discrepant parts per million.

This performance provides us with a very major competitive advantage over our competition for winning new business.

It also provides our customers with excellent warranty performance and customer satisfaction.

Fourth, we accelerated our strategic expansion efforts in 2005.

We recently announced that we will build this regional manufacturing facility in Changshu, China just north of Shanghai.

The groundbreaking for this facility will occur in the spring of '06, with preliminary production builds planned for December of '06.

This is an extremely tight and balanced, but doable program.

In addition to eventually supporting several global vehicle programs with the General Motors corporation, our facility will launch first with two new Asian-based customers for products of the Asian market representing different Asian countries that we'll export to.

We're also in the final stages of site selection for the regional manufacturing location in the eastern or central European Corridor.

We expect the launch of that vehicle to be with a non-GM program also.

I'm highly confident that through the execution of our total business growth strategy, we'll move quickly, aggressively, efficiently, and effectively into these two new regions.

This will further expand our global manufacturing footprint,-- with a profitable business performance and plan.

In 2005, we relocated our European headquarters to Bad Homburg, Germany, just outside of Frankfurt, Germany.

This move establishes our second technical center, centralizing our European operations related to manufacturing, product engineering, purchasing, supplier development, business planning and other engineering and technical functions.

Our plan for expanding our global presence are moving at an aggressive, but controlled pace.

We have successfully completed the construction, expansion and production launches at our manufacturing facility in Araucaria, Brazil.

We've also made significant investments over the last year at our vital operations in North America, including the following.

Our technical center in Rochester Hills, Michigan our Three Rivers Michigan driveline facility, our Guanajuato-- manufacturing subsidiary in Minerva, Ohio.

A fifth point is we successfully negotiated favorable steel and metallic supplier agreements with our global supply base.

This will ensure our continuity of supply, as well as efficient, effective way of meeting competitive pricing structure.

In summary, ladies and gentlemen, our company's accomplishments in '05 indicate our progress in long-term profitable growth strategy and diversification of our company.

The major components of that strategy are as follows.

First, to secure our current book of business, we have successfully accomplished that with nearly 80% of our current top line book of business secured through 2014 on long-term lifetime program contracts, with solid pricing.

Second, we would grow our AAM new business backlog.

That backlog grew by nearly $1 billion in 2005 and the current backlog, as I told you earlier, is now standing at 1.4 billion from programs from '06 to 12.

We have been disciplined in our financial approach to earning this new business while we continue to do so.

The third point is to expand our product portfolio through our continued investments in applied product processing systems technology, our company has added exciting new products to passenger car and cross-over vehicles and our customers are responding accordingly.

As a result, we have tripled our served market from an $8 billion served market to well over 27 billion on a global drive line market capability.

Fourth is to diversify our customer base.

In '05, we broke through in earning business with major customers such as Nissan, Audi, and affiliated Asian suppliers,Hino, Koyo, and Jatco and American-based transportation company Harley Davidson and a Korean OEM, Ssangyong.

As we further develop these relationships and compete in our current new business backlog of over $1 billion, we are confident that we will continue to reduce our concentricity with GM, whole growing the business with GM.

Fifth point is to expand our geographic reach and consideration of recent announcements, our global footprint now includes offices and facilities in the United States, Mexico, Brazil, the United Kingdom, Germany, India, China, South Korea and future sites in Changshu, China and Central and Eastern Europe.

And finally, sixth, the key, we want to become globally cost competitive and we're focusing on all segments of cost.

Before I turn it over to Mike, let me make a general comment about the auto industry and what lies ahead for AAM.

Over the next several years, the domestic auto industry will ensure an unprecedented industrial change and consolidation.

We've seen it.

We're prepared for it and we'll enjoy doing it.

Those suppliers who will be successful, such as AAM, will focus on the most critical elements of establishing global competitiveness, while increasing value to their key stake holders.

Some critical elements would include the following.

First, effective management leadership that understand the auto industry globally.

Two, flawless quality warranty and delivery performance.

Three, the ability to generate consistent productivity gains.

Fourth, discipline programmed management and launch expertise in the ability to execute precisely.

Next, to effectively utilize the work force and the installed capacity.

Finally, to innovate product process and systems technology, which we're excellent doing and to get our financial integrity and performance in line with a strong balance sheet like we have today.

We are confident that our company is well positioned to lead change in this most challenging domestic automotive environment.

We look forward to doing it.

The unprecedented, yet necessary structural transformation occurring in the industry presents the opportunity for leading change now, and that's what we are good at, at AAM.

We're focusing on becoming a stronger, more diverse, more agile, flexible competitor with continued profitability and positive cash flow in '06.

We have well defined strategies and a very strong backlog of business.

At this time, ladies and gentlemen, I want to thank our stockholders for continued support in '05.

The focus will be on product, our customers, market performance and financial integrity.

We'll continue to press forward with our vision and strategy to ensure a sustainable and profitable future for our company.

While doing that, we'll enhance stockholder value over a long-term view.

I thank each and every one of your attention today and your interest in our company and let me now turn the call over to our Vice President and Chief Financial Officer, Michael Simonte.

Mike?

Thank you, Dick, and good morning, everybody.

Today we reported full-year 2005 earnings of $1.10 per share.

For the fourth quarter on a stand-alone basis our GAAP earnings were $0.09 per share.

As compared to our expectations heading into this quarter, production volume was off about 35,000 units in November and December.

That alone cost us about $0.30 per share versus our plan for the quarter.

A fourth quarter results also include an $8.7 million charge, or approximately $0.12 per share related to lump sum voluntary separation payments accepted by approximately 160 associates in late December.

Excluding the impact of this charge, our fourth quarter earnings would have been approximately 21 per share.

In the fourth quarter 2005, AAM generated $67.2 million of free positive cash flow.

That's right in line with our expectations.

That helped us to end the year with a net debt to capital ratio of less than 33% and more than $600 million of available, committed liquidity to fund our working capital requirements and growth initiatives in 2006, and remember, that's after making $300 million of CapEx investments to support our new business backlog in 2005.

With that behind us, now we're looking forward to reaping the returns on those investments, especially in the GMT-900 program.

For the full year, AAM's 2005 earnings of $1.10 per share, compared to GAAP earnings of $2.98 per share at 2004.

As we discussed previously, the change in our earnings in 2005 is due primarily to the impact of three items.

First, lower production volumes scheduled by our customers.

Second, higher energy, steel and material costs, and, third, the increased costs of providing healthcare, pension and supplemental unemployment benefits to our hourly associates.

Now, let's get to the details.

AAM's sales in the fourth quarter of 2005 came in at $853 million and that compares to $876 million a year ago.

For the full year 2005, our sales were approximately $3.4 billion, and that's down from $3.6 billion last year.

For the full year, our volumes, talking now about the production volumes in the programs we support, were down 250,000 units, or approximately 10% in 2005 as compared to the prior year.

In the fourth quarter, our volumes were off about 4%.

Sales mix was favorable for us in 2005.

For the full year 2005, four-wheel drive, all-wheel drive penetration in our programs increased to approximately 63.7%.

That's up from about 62.5% last year.

AAM's sales content per vehicle was $1201 in 2005, and that's up from $1173 last year and about $1140 two years ago.

With the launch of the GMT-900 program and the continued growth of four-wheel drive and all-wheel drive systems, we expect further content gains in 2006.

Another big area of emphasis in improvement for us is in customer diversification.

AAM sales to customers other than GM increased to $754 million, or 22% of total sales in 2005.

Third straight year of about 2% increase each year.

And over three years, that's an increase of $250 million from where we were in 2002.

In the fourth quarter, our non-GM sales grew by about 12% on a year-over-year basis to $193 million, or just about 23% of our total sales.

We're very pleased with this growth.

And by the way, if you're looking at our fourth quarter and comparing that to our third quarter, the third quarter was benefited in this area by some retroactive metal market adjustments, which come through price.

And so our sales in the fourth quarter benefited by a little more than $10 million.

If you take a look at that and reconcile on an apples and apples basis, we're up a little bit less than $5 million in the fourth quarter versus where we were in the third quarter.

As Dick mentioned, the key driver behind this growth in our non-GM sales is a continued increased demand for products supporting our products, supporting the Chrysler group program, specifically the Dodge Ram, Heavy Duty Series pickup trucks and derivatives.

New orders launching in the next few years from Nissan, Audi, Ssangyong, Jatco, Koyo, and Harley Davidson will help us further improve the diversity of our customer base.

We're on track now to exceed $1 billion in non-GM sales by around the year 2010 and that's if we win no new business from here.

For the full year 2005, our gross margin was 9%, as compared to 13.2% in 2004.

Our EBITDA margin in 2005 was a little less than 9%, and that compares to 12% last year.

Gross margin in the fourth quarter was 7.5% versus 11.1% in the same period a year ago.

In that fourth quarter, the V chip charge reduced our margin by approximately 100 basis points.

The impact of lower production volumes scheduled by our customers, which means lost contribution margin and higher layoff costs for us, together with material cost increases and increased depreciation and launch costs, were the primary reasons for the decrease in our margins in 2005.

For the full year 2005, our SG&A spending was about $200 million and that compares to almost $190 million a year ago.

In the fourth quarter of 2005, SG&A costs were $55.6 million, as compared to $49 million last year.

Half of this SG&A increase in 2005 relates to an increase in R&D.

R&D spending was up 7% in 2005 to $74 million.

The other major driver of our increased SG&A spending, particularly in the fourth quarter, is the establishment and growth of our new overseas business and technical offices in Pune, India, Seoul, South Korea and Shanghai, China.

In the fourth quarter, we opened our new office in Bad Homburg, Germany the relocation of our European headquarters and we had some startup costs there as well.

We'll continue to make strategic R&D investments, that's going show up in SG&A to develop new products targeted to key growth segments of the drive line system markets.

This is in line with our strategic objectives to expand our product offerings, especially in all-wheel drive systems for passenger cars and cross-over vehicles, where we now have about $600 million of business in our backlog.

We're going to be diversifying our customer base and expanding our global manufacturing footprint.

The advancements we're making in product technology and the credibility we're earning in the marketplace also made it possible for us to grow new business backlog in 2005 by $1 billion.

From a finance perspective, that's great payback.

For the full year 2005, AAM's net interest expense was $27.2 million.

That's up from $25.5 million a year ago.

The weighted average interest rate on our borrowings in 2005 is approximately 5%, and that's just a little bit higher in the fourth quarter.

Net interest expense in fourth quarter was $7.2 million, as compared to $5.3 million a year ago in the same quarter.

For the full year 2005, our effective tax rate was 30% as compared to approximately 32% in 2004.

Because we had accrued the provision at a 33% estimated rate during the year, we adjusted our provision in the fourth quarter to get to 30%.

This was a nickel pickup for us in the quarter.

By the way, this was largely offset by some other asset disposals we took in the fourth quarter.

Based on operating decisions that we made in the fourth quarter, mostly related to equipment that doesn't fit into our launch plans anymore, we took a hit.

So in my mind, these things offset.

These factors, three factors drove the reduction in our effective tax rate.

Number one, our foreign low tax earnings continue to grow as a percentage of our total.

That's going to continue in 2006.

Our subsidiary in the UK had a darn good year.

As a result, we were able to use some capital allowance carry-forwards that had previously been reserved.

Third, we settled some prior year state tax liabilities.

I think we talked about this earlier in the year and ended up paying less than we had previously estimated.

So the bottom line for 2005 is that our net income was $56 million, or $1.10 per share, and in fourth quarter, our GAAP earnings were just a little bit less than $5 million.

Let's talk about our cash flow.

In the fourth quarter, of 2005, we generated $67 million of free cash flow.

For the full year, we generated net cash from operating activities of $280 million after deducting CapEx of $306 million, and dividends of 30.4 million, our free cash flow was a use of $56 million.

Three factors dominate the comparison of our free cash flow with the prior year.

First, earnings were lower.

That's clear.

Second, we did not have the opportunity to defer as much tax.

And third, our CapEx was about $65 million higher in 2005.

So our cash flow for the year, right in line with our expectations, a little bit better, at $56 million use.

Let's go through some of the balance sheet items.

Accounts receivable were a little lower in 2005 mostly due to a lower selling rate at the end of the year.

Quite frankly there's not much to talk about there.

Our inventories were up $10 million to about 207 million at 2005 year end.

As we discussed in recent calls, our inventory in transit has increased in 2005 as a result of global sourcing initiatives.

We're also carrying more spare parts and consumable tools.

This is what we refer to as indirect inventories.

These inventories tend to increase in periods of heavy capital spending.

We're able to reduce our inventories by almost $7 million in the fourth quarter of 2005.

I think that's the most important thing I could say today, and we consider this a working capital reduction opportunity in 2006.

Our current liabilities are down about $36 million at year end 2005, as compared to the prior year.

Here are three reasons why.

We had lower sales activity in November and December, so just like that had an impact on receivables, we saw a reduction in our trade accounts payable at year end.

CapEx receipts were lower in November and December, and so that means we had less CapEx and accounts payable at year end.

And third, our accrued compensation and benefits, they were lower in 2005 and a big chunk of that had to do with lower profit sharing accruals.

Long-term liabilities are post retirement benefits and other items, and that line item up $82 million at 2005 year end as compared to the prior year.

The non-cash portion of our OPAB expense explains most of this increase.

Our book expense for OPAB was approximately $70 million in 2005, but we paid less than $5 million of these obligations.

The other increase in that line item is pension and this has to do with the actual evaluation at the end of the year.

AAM's net debt at 2005 year end came in at $485 million.

Stockholders equity was at 995 million.

So our net debt to capital ratio is up only slightly to 32.8% at 2005 year end.

That compares to 31.2 in the prior year.

Our EBITDA coverage, and that is our net debt to EBITDA ratio is approximately 1.7 times.

We're in good shape here.

Let's turn to our expectations for 2006.

Earlier in January, we released earnings guidance of $1.20 to $1.30 per share for the full year of 2006.

We also stated that we expect to generate approximately $40 million of free positive cash flow in 2006.

From a production volume standpoint, our 2006 outlook is based on what we know today about our customers' build plan and the timing of new product launches.

Overall, we're expecting production volumes for the programs we support to be down about 5%, as compared to 2005.

Substantially all of that reduction is due to the reduction in the size of GM's rear-wheel drive, mid-size SUV program.

We are now informed that GM will cease production at Oklahoma City in mid February.

That means the supply base for that program, including us, will see a notable decline in orders in just a week or so.

After that, Marin will be the only GM facility producing the Trailblazer and Envoy products.

In total, we see this program down about 150,000 units.

That's almost 40% on a year-over-year basis.

This will be a key issue we discuss all year when we compare our sales and earnings performance in 2006 versus 2005 and prior years.

Based on what we see in first call, I'm not sure whether the analyst community has formed a consensus on the impact and timing of this issue.

As we discussed with many of you a couple weeks ago, our 2006 outlook also reflects increased non-cash expense associated with our stock-based compensation programs, pension and post retirement healthcare, depreciation and amortization.

Effective 1-1-06, we adopted FASB statement 123R.

This new accounting standard requires expensing of all stock-based compensation.

In 2006, we see our stock-based compensation increasing by about $10 million.

Based on the timing of when we make these grants, a disproportionate share of this increase will hit us in the first half of the year, especially the first quarter.

Pension and OPAB expense will also increase by about $10 million, a reduction in the discount rate used in the actual evaluation of our liabilities is a key driver of that variance.

G&A will increase by about 15 to $20 million, simple lit result of launching the new equipment we purchased in 2005.

Moving from our earnings to cash flow, 2006, I told you we expect to turn the corner.

As we already said, free cash flow guidance, About $40 million, will if achieved, will be an improvement of approximately-- over 2005.

With most of that GMT-900-- existing capacity in the midsized rear wheel drive SUV to redeploy, CapEx should be about $260 million in 2006.

That's about $50 million lower on a year-over-year basis.

From a working capital perspective, we may very well put receivables back if volumes pick up in the second half of the year as we expect.

But that should be offset by higher trade payables, inventory reductions, and benefit payment reductions.

We think 2006 could be another year of head winds for the automotive industries, but I think we'll get ready for the sun to make an appearance as well, particularly for our company.

We're encouraged by the success we've had building our business backlog to $1.4 billion in future annual sales through 2012, which is going meaningfully help us improve our operating leverage in the coming years.

Backlog will also significantly diversify our product mix, our customer base and also our global manufacturing footprint, as you have heard earlier today.

We're ready from a financial perspective to handle this and look forward to stepping up to further commercial and strategic opportunities as well.

Thank you for being with us today.

I'm going stop here, turn the call over to my friend Chris Son and we'll get into the Q&A.

Thank you, Mike, and thank you, Dick.

We've now reserved some time to take some questions.

I would ask that you please try to limit your questions to no more than two.

With that said, please feel free to proceed with any questions you may have.

[OPERATOR INSTRUCTIONS].

Your first question comes from Darren Kimball with Lehman Brothers.

Hi, everybody.

I'm wondering if you can amplify a little bit on your comment, Mike, that the Street may not have fully comprehended the timing of some of these volume issues, particularly the mid-size.

Sounds like the cadence to your earnings is somewhat loaded in the front end of the year.

Can you elaborate on that?

Yeah, sure, Darren.

I think the 360, 370 program is going to be cut significantly in just a couple weeks.

So we'll be dealing with that for just about half of our first quarter, and on a year-over-year basis, we expect the first quarter to be a little slow from an earnings perspective.

I mentioned that the fixed cost increases, pension, OPAB, stock-based comp and particularly stock-based comp, is going to be up meaningfully year-over-year and from an operating leverage standpoint, with that cut in the 360 program and the launch, where that launch of the 900 program is very successful and going very well, it's still going run at lower volumes in the first quarter than any other quarter this year.

So those are the head winds that we're looking at, and we're not going to provide quarterly guidance today, Darren, but, you know, the first quarter's probably going to get off to a slow start.

First quarter's going to get off to a slow start, okay.

I was under the impression that the head winds would get bigger over the course of the year because the, there's some downtime in the fourth quarter related to the full-size pickups and obviously after February, you lose the mid-size.

So you're saying it's more, more-- I mean the first quarter is usually about 25% of your full year.

I was just playing around with the numbers this morning.

How would-- is it sort of expected to be better than that or worse than that now?

Darren, this is Dick.

Good morning.

Good morning.

First of all, I think Mike just told you exactly how we feel about the first quarter.

It will be tough, but we'll make it through okay.

And in the second quarter we'll pick up significant momentum.

Then of course you get into model change and third quarter will probably be a little softer and fourth quarter will probably go strong again.

It's going to be sort of an up and down year for the market, because of launch timing and volume and mix swings, and adjusting to some of the decisions of our OEM customers.

Okay.

I'll have to take a closer look at my volume numbers.

I appreciate it, guys.

You're welcome, sir, have a great day.

Our next question comes from John Casesa with Merrill Lynch.

Thanks very much.

I appreciate your permitting me one last question.

At what point, Dick, or Mike, would the volumes from the 900 start to overwhelm the difficulties in the 360 and 370?

I mean just how do you sort of see directionally the year going?

I mean is it a straight line up after the first quarter?

Yes, John, this is Mike, and, again, congratulations on your decision.

You know, John, the 900 launch curve is going very well.

We're going start to see some overtime built into those schedules and it's going to pick up nicely in the second quarter.

Whether that sustains in the third and fourth quarter ultimately would be dependent on what they sell.

Looks like now it's going to be a pretty darn good program.

So we would expect meaningful improvement in the second quarter on those 900 SUVs and that will begin what you said of overwhelming or at least countering the weakness we see in the 360 program.

And have you said or can you say when the pickup truck production begins?

They have pulled it ahead, as has been announced.

Right.

And that is absolutely on schedule.

I think it may even have a chance for a little bit of opportunity to advance even more than that.

We feel very strong about it, so the third quarter will be definitely doing our component and subsystem preparation, and fourth quarter will be rock and roll.

Thanks very much.

Okay, John.

Have a great day.

Thanks, Dick.

Your next question comes from Michael Bruynesteyn with Prudential.

Talk a little bit about what needs to be done on the labor side over the next year or so?

Labor is an issue that we constantly have daily discussions and when we have discussions like that, Michael, with stake holders, those are private and confidential nature and that's exactly where that will be right now.

Okay, would you be able to tell me the four-wheel drive penetration in the quarter?

I think you gave the year number, but not the quarter.

Yeah, Mike, give me just a minute and Chris is getting that number.

We'll get it for you, Michael.

Finally, on the other income line there, was a several million dollar swing that worked in your favor in this quarter.

Is there anything in that number you can point out?

Yeah, Mike, first of all, let me deal with your four-wheel drive question.

In the fourth quarter-- right, right.

We're about 63.7%.

Okay.

That was the same as the average for the year?

Yeah, coincidentally, Michael, that's accidentally right.

Okay, great.

Then the other income, can you give us some color what went on there?

Yeah, the other income, what typically is running through that line item are going to be foreign exchange gains and losses and during the course of this year, we had some ups and downs there.

In the fourth quarter, we got a return or turnaround of some of the losses we saw earlier in the year and that's the primary issue running through that line item.

Okay, great.

Thanks for your help.

Thank you, Michael.

Your next question comes from Brett Hoselton of KeyBanc Capital Markets.

Good morning, gentlemen.

Good morning, Brett.

How are you?

I'm doing great.

How are you?

Thank you.

The $1 billion in business, Dick, that you talked about quoting on, I think you said if we win it, we could see that launched somewhere between 2006 and beyond, if I remember correctly.

All of it was non-GM business, if I was -- recalled correctly.

Do you have any sense of what your typical win rate might be on that type of business?

Is it fairly high? 25%? 50%?

What are your thoughts there?

Just a second.

I'll open a comment or response to your question.

Then I'll pass it over to David Dauch for continuation of response to your question.

Great.

Normally, we have around in North America 35, 36% market penetration in our segment of business, and of course we're just growing our gross segmentation into penetration in the offshore different regions of the world.

So we would expect to get at least our market penetration when we have those kinds of contracts to bid on, and we've got them, and with that, I'll let David give you a better flavor as to how he wants to respond to the specifics.

Brett, this is David Dauch.

As you mentioned, our backlog of bidding activity is essentially $1 billion.

It's substantially non-General Motors business.

It's got global ramifications or global reach and to your point in regards to our hit rate, it's going to be somewhere between the 25 to 35, 36%.

All right.

Great.

And then if you think about that business, just your overall backlog, as well as the stuff that you're bidding on here, can you talk a little bit about what do you see American Axle looking like three, four years from now in terms of customer mix, geographic mix?

What are your goals and objectives there?

Well, I'll take that.

Let's say 2010, we would expect our company to significantly grow at the top line level, significantly expand geographically, and diversify consistently with, as we've already told you, we've got the great base with GM, significant growing base with the Chrysler group and other divisions of Daimler-Benz-Chrysler.

Third, the Nissan we've discussed with you.

Fourth, with the others, Ssangyong, et cetera and I would presume that we'll be approaching more of a 60/40 mix in that area.

Okay.

60 being the GM, 40% being non-GM by 2010.

Okay.

Very good.

Thank you very much, gentlemen.

Have a great day and a great weekend.

Thank you.

Thank you, Brett.

Your next question comes from Jon Rogers with Citigroup.

Yes, good morning.

Good morning, Jon.

I just wanted to just talk about your capacity and utilization.

It seems that it's probably logical to think that once the China plant gets up, that the Ssangyong business gets moved over there and I mean, Dick, how do you feel about your capacity and your utilization now and as you launch your new business, does it go to Mexico, does it go to Detroit, does it go overseas?

Jon, that's a very hard question.

It's a very fair question.

I'll start and then my president will have some additional comments when I'm done with my initial response to you.

We know what our installed capacity is, we know what our installed flexibilities and capabilities are.

As you mentioned, Mike indicated that starting later this month, one of our major customer segments has reduced and eliminated one plant, that beg the mid-size SUV at Oak City.

There we obviously have some underutilization for a period of time on installed capacity, on equipment and process capability that was installed for that product segment.

We have some ideas of how to utilize that, which I'm not going discuss right now with you, but we already have positive plans on that.

So it would not be a long-term issue on capacity utilization.

Next, whenever you're installing capacity, you have to obviously get it built, then get it ramped up through launch curves.

That takes a period of time, be it either China or over into the European segment and I would say as the overall market has segmentally shifting in the truck segment from still a good solid body on frame, but declining level of volume and a growing-- cross-over utility on the pass car, those will take us a while to get our capacities switched over.

We fully understand that, and we think by 2008 or '09 we'll be in excellent shape on capacity utilization, but we're in about a 24-month transition period here and we're up one or two too many axle plants, as far as beam axle and maybe even in that near category on a forge-type plant location.

So these are structural.

They are capacity-focused.

They are capability.

They are mixed swing-overs, and with this new business coming on, we'll start to redeploy, but fortunately we've been designing flexibility, as we've talked to you guys, for eight or ten years.

We have a lot of flexibility and can do things quicker than you might think.

Yogendra, do you want to add anything?

Key thing here is capacity, which means starting last ten years is very flexible capacity and what that allows us to move from, let's say the beam axle to independent axle are able to move the machines from one place to the other, we can do that.

That's why Dick is saying 2008-9 when we launch this product capacity utilization, more in line with what we have.

We are perfectly placed with a new product portfolio coming in with the capability of our capacity and then we just may have to flex it into different locations and go from there.

I would say in relationship, our CapEx to our future will be able to come down significantly because of what we have done in the past, so you have to balance all those into an overall business equation, Jon.

Great, thank you.

Then Mike, this SG&A run rate of about 6.5%, is that what we should expect for 2006 and should we expect about a 30% tax rate as well?

Couple things.

Let me deal with the tax rate because that's easy.

The answer is yes.

On the SG&A stuff, no, you should not expect a 6.5% run rate.

It will trend down closer to 6% and it may be a little less.

The R&D spend's going to be up for sure.

Stock compensation, some of those things go up.

But we have really taken a close hard look from what we're doing from an SG&A standpoint pretty much every functional area in our company with the exception of product engineering and our foreign sales offices are taking cuts next year and we're not diminishing what we're doing.

We're just finding better ways to do it, leveraging our IT resources in India, that type of thing.

So, no, we would expect this fourth quarter to be a little bit of an anomaly as we opened up some facilities and incurred one-time costs and just charged ahead with our R&D plans.

Great.

Thank you, guys.

Thank you, John.

Your next question comes from Ron Tadross with Banc of America Securities.

Thanks.

Good morning.

Good morning, Ron.

The raw material costs hitting the quarter, can you just give us an idea of I guess what the raw material cost hit was and then, were there any launch-- you mentioned launch costs.

Maybe you could just quantify this and any of the other items that you kind of put in the negative cost bucket, pension, healthcare, can you give us an idea how big these numbers are?

Good morning, Ron.

Let's deal with a couple of those things.

On the material cost side, we've talked many times before that the metal market price adjustments are fairly flat once we get to the second half of the year.

So the material cost increases that we're dealing with in the third and fourth quarter of 2005 were largely our tier 2 and tier 3 supply base looking for some relief on their own metal market exposures.

And for the year, our total hit in that area was close to $40 million, just between, say, 35 and $40 million.

Okay.

And the fourth quarter was a reasonably flat share of that, close to about 8, $9 million.

Okay.

The other costs, the things like pension and stock comp and this kind of thing, they are up.

The pension wasn't up much in 2005.

That's going to be a bigger issue for us in '06.

Stock comp's up a couple million.

D&A is up a little bit.

That fourth quarter I mentioned on the call, we had some asset disposals.

That was close to when you couple that with accelerated depreciation that we started taking even earlier in the year, you're talking probably $5 million there.

That's just all those items?

On the asset disposals.

Oh, okay.

On the asset disposals.

That pretty much offset the tax benefit-- compared to the tax piece--

Just look at the balance of the different things--

That was a loss on sale?

No, asset disposals are just the write-off.

Oh, okay.

Okay.

Then the other question was launch costs, and when we talk about launch costs, we talk about two buckets of cost.

One is this thing we call project expense.

Project expense is the non-capitalizable portion of a capital project.

You know the accountants have pretty tough rules on that.

We've, we just expense everything that we don't capitalize or we can't capitalize according to the rule book.

That's up about $2 million in the fourth quarter.

Okay.

In terms of other launch costs, we did launch the 900 in the fourth quarter.

It's going pretty well.

We've got a lot of new equipment.

Some cases, we're running parallel with previously existing operations.

We've got some training costs in there.

We're clearly not getting the operating leverage because the volumes are low and yet our fixed costs are as high or probably a little higher than they are going to be going forward once we work out all the bugs.

You know, our estimate on that is somewhere in the range of $0.10 to $0.15 per share, Ron--

In the quarter?

In the quarter?

-- based on what we see happening in our plans.

That's in the quarter?

In the quarter.

And that includes the capitalized issue thing?

Yes, sir.

That's only about $2 million, that piece of it.

All right.

Okay.

Going into '06, the-- what do you guys think happen with raw material costs?

Are they flat for the year?

We-- I'm going let David Dauch add a little color here.

From a financial perspective, we're counting on the metal market pricing environment to be reasonably flat this year.

That's one of our base assumptions, and from a net cost standpoint, David and his team have quite a bit of opportunity to be more efficient there.

Let me just add a little color to that.

We're taking some very hard initiatives within the purchasing ranks to better manage our material costs going forward here.

It's really kind of a four-step plan that we're pursuing.

We're in the process of diversifying our supply base from a domestic supply base to a global supply base, as we expand our geographic footprint and international reach.

At the same time, we're working with second point, some very key and strategic suppliers that head up the majority of our commodities.

We're working with them in regards to economies of scale and what we can do to support each other on a global basis.

Third, we're also looking to reduce the total number of suppliers that we're working with in regards to the direct side and the indirect side of our business so we can do work, or dot same amount of work, if not more, but with fewer suppliers on a global basis.

And then, fourth, we're also, as Mike alluded to, working with our various suppliers and our customers in regards to how we manage this metal market issue and cost issue.

And we feel very good, Ron that, we're getting good performance on that.

So just this is just a follow-up.

I guess, David, you're kind of just trying to get back the negative cost performance you had in '05 hopefully?

We're trying to improve upon that.

Yeah, okay.

But you had-- it was a little negative in '05 because of all the things we talked about, so you're trying to get that back, some of that back at least?

Absolutely.

Okay.

Thank you.

Thank you.

Have a great day.

Your next question comes from Himanshu Patel with J.P. Morgan.

Hi, good morning, guys.

Good morning.

I think, Mike, you mentioned this earlier.

On the T900, I think you said there's some overtime beg added right now.

First of all, is that in the first quarter?

Yes, sir it, is in the first quarter.

Matter of fact, we're supporting volume tomorrow.

They will be running production tomorrow in Arlington.

Okay.

We'll be doing it probably every other Saturday there and Jamesville is way ahead of their launch and I would expect overtime coming in there.

So, yes, it will have some impact on first quarter and that's why we said to the earlier discussion that the second quarter looks very favorable to first quarter, as Mike said, had some head winds, but it's going to start abating in the month of March.

Okay, and then maybe you could just give a little bit of color on how that overtime ended up transpiring.

Was it because the ramp curve was a little bit flatter than expected initially and this was kind of catch-up, or is it just that demand, GM's demand is proving to be a bit stronger?

Not at all on the flatness of a launch ramp-up.

It means all the stars point in the right direction, the launch is going very well, point one.

Point two, the demand is there, and you already saw the sales for the first month in January up 53% on the new GM 900 Tahoe, so we see first inning of the game looks very good for GM and for us on that segment.

Okay.

Thank you.

And then second question is you know, when you think of contribution margin, if you go back and do a post-mortem on sort of fiscal '05, was the contribution margin just a lot worse than the levels you guys were expecting?

And when you look forward to 2006, is there a reason to think that those numbers would actually look a lot different as the T900 ends up ramping up?

Yeah, good morning.

Couple things there.

I mean we've talked about this extensively. 2005 was impacted obviously very severely by these reduction in production volumes and particularly in the first half of the year, because they happened at a very quick interval.

We didn't have much time to plan for them.

So that was, by far, the number one reason why we saw this problem.

Secondly--

In other words, it was very erratic scheduling, whereas there's not erratic scheduling and therefore you can plan, it helps on you efficiency, flexibility, and overall optimization of margins.

the other couple factors that play into that very prominently, obviously our layout costs up substantially in 2005, and that's a combination of both, again, exacerbating the volume issue, but also because we continue to become more productive in our plants and that puts more people in our layoff status.

Thirdly, and this is another major impact, the metal market and material cost increases cost us a lot.

We had about 12 to $15 million of hit in the first half of the year relative to the metal market price adjustments, and then in the second half of the year, well, really all year, but especially in the second half of the year, we saw these material cost increases to our tier 2 and tier 3 suppliers, another almost $40 million of impact.

When you peel back the onions and look at the impact of those three items, there's really not much more to the story.

Right.

So I guess for us, when we're looking into '06, you know, the production schedules, you know, there's some ups and downs there, but it seems like the volatility in those schedules is a little bit reduced now.

Raw materials hasn't gotten better, but clearly it's much more discounted now and it's a widely telegraphed issue presumably in your forecasting.

So when you put that all together, I mean shouldn't we be thinking about a much better contribution margin as on the T900 as we go into the ramp now?

Yes.

The answer is yes.

The answer is yes.

Okay, thank you.

Okay.

Have a great day.

Your next question comes from Rich Kwas with Wachovia.

Good morning, guys.

Good morning, Rich.

Good morning, Rich.

Mike, I want to ask you on the launch costs, as we move through '06, I imagine it's going to be weighted towards the first half of the year, with the second half kind of tailing off, is that how we should think about it?

Absolutely.

The-- and the reason for that is many of the processes, manufacturing systems that we got put in place are going to be there for both the SUV and the pickup launch.

Once we work out the bugs now, it's going to be, as Dick said, rocking and rolling later in the year.

Okay, and then the increase year-over-year, 6.6 million increase in the SG&A on absolute dollar basis.

Can you just give us the buckets between what was the overseas expansion versus what was launch costs and maybe the third bucket, other type of stuff?

Yes, sir.

R&D spending up just a little bit less than $2 million.

Stock comp up, about $2 million.

We had-- the costs of our foreign offices made up most of the rest of it.

There was some one-time issues associated with starting up some offices, paying some recruiting fees, getting some people moved around that, kind of thing.

We also had $500,000 of our layoff costs, or I'm talking about now the severance costs, the $8.7 million charge.

About $0.5 million of that was SG&A costs--

The layoff costs, those should start to subside here as we move through the first couple quarters of the year.

How are you looking at that for the full year?

Is there going to be a ramp down and a ramp back up when they start to cut 800 production of the pickups?

Rich, in total, the layoff cost is not ramping down in 2006.

We're going put more people back to work on the 900 program.

That's clear.

We've got some new business launching, the Dodge Ram program, very strong, but the 360 program's going to put a lot of people on layoff status in Buffalo.

So when you look at all the [inaudible] we do not see that cost receding in 2006.

Thanks so much.

Have a great day.

Thank you, sir.

Your next question comes from Chris Ceraso with Credit Suisse.

Thanks.

Good morning, everyone.

Good morning, Chris.

Good morning, Chris.

I think we've hit most of these items, but if I'm thinking in terms of sort of a high level profit loss from '05 to '06, we covered the pension and healthcare goes up, the stock option expense goes up.

You're not going to incur the V chip charges, so that's a plus.

Do you expect any kind of a benefit from the people that you have taken out or did you just kind of cover that by saying that the people you're losing on the Oklahoma City sort of overwhelmed that?

Yeah, Chris, we will see a benefit associated with the people that we took out, but you're right, that's going to be at least matched and maybe even a little bit overwhelmed by the people we put out this year.

Okay, and then the thing-- this is, I think, an issue for a lot of these companies.

Maybe you can help me get a better feeling for it.

You've got obviously one very important program where volume's coming down sharply.

So there you're going to have a big loss of revenue and your typical loss contribution on $1 of revenue is around $0.30 on the dollar, right, as revenues go down.

That's going to hurt, but then on the way back up, you have got the GMT-900 trucks coming in.

Now, typically on a dollar of incremental sales on the way up, it's $0.20, $0.22, $0.23, for you guys.

Is that going to be the same for these new trucks, or is it lower than that because it's the first year of the program?

How does that net out when you've got an established program going away and a new program ramping up?

Chris, couple things.

First of all, the loss margin on the sales going down, remember, you got to factor the layoff costs on top of the regular contribution margin.

So 30% is probably a pretty good on average across our market basket of programs for the contribution margin, but then the layoff cost burden is pushing that closer to 40 to 45% on a net basis and that's come through loud and clear in terms of our results here this year.

Right.

You're right on the 900, because we've got to have some launch costs in the early stage of the program, and, remember, launch costs is something as simple, too, as just you don't have the operating leverage if the volumes are running at 60, 70, 80% of rate for a couple months until they get up to 100%.

You've got to deal with that cost as well.

We'll see that in each facility that we support in that 900 program.

There are seven total facilities we'll be supporting.

So the first year, you're right.

We probably will not see a contribution margin on a net basis up to that 20, 25% level, but we do expect that to build reasonably quickly and we have no reason to think that the profitability of this program's going to be less than our historical performance.

Okay.

That's really helpful.

Thanks, Mike.

Thank you, very kindly.

Your next question comes from Rod Lache with Deutsche Bank Securities.

Good morning.

Good morning, Rod.

Hi, Rod.

Most of my questions have been answered, but I was hoping just two things.

One is, obviously recognizing that the labor costs, the labor discussions are sensitive, could you talk about the areas that you're focusing on for cost savings and if there was to be something that would break your way, what would it be?

Is it sort of flexibility?

Is it sell?

Is it retirements?

And then secondly, can you talk about were there pension contributions made in the quarter that effected cash flow, and what's the expectation for 2006?

This is Dick again.

I mentioned earlier on the labor issues when we deal with, the stake holders, those are confidential discussions and we'll leave it at that.

Rod, on the pension, yes, there were contributions made in the fourth quarter.

Total contributions for the year were about $35 million and that's pretty close, maybe just a little bit less than our book expense, and, our general posture is to fund close to our book expense on that item and we enter 2006 with that same idea in mind.

Okay.

Thank you.

Thank you, Rod.

Thanks, Rod.

We've got time for a couple other questions.

Okay.

Your next question comes from Jonathan Steinmetz with Morgan Stanley.

Thanks.

Good morning, everyone.

Good morning, Jonathan.

Good morning, Jonathan.

A few just to add on here.

You've spoken about the launch of the 900 going reasonably well from your perspective.

Just to clarify, you spoke about it a month ago and you're thinking about this in your guidance when you thought things through about a month ago.

Relative to that time period, are things going better than you expected either from a logistics angle with the launch itself or from the volumes that you're seeing in the forward schedules?

It's going better on both counts.

Okay.

Any quantification?

Nope.

Okay.

Secondly, you have sort of kept the SG&A and the R&D up there, trying to take the long view of things, but what would have to happen in the external environment for you to want to start to ratchet things a little more tightly on those angles?

Is there any scenarios where you would sit there and say we're just not getting the the returns we need on some of this and we need to dial it back?

I'm not sure I understand the question, sir.

Could you please repeat it?

Sure.

Is there anything that you can see in the external environment that would cause you to want to rethink the SG&A and the R&D spending and start to bring some of that down at all?

Jonathan, this is Mike.

You know, that's an excellent question and it's a tough question, because we do have a very optimistic attitude about the progress we're making, diversifying our customer base, expanding our product portfolio.

We're seeing payback on those investments.

At the same time, we are cutting back in our expenses in areas that are not related to that.

For example, in Finance and HR and even in purchasing in terms of the costs that it takes for us to administer that function, so, are there scenarios?

Sure.

With respect to 2006 we got a big kick in the ass with the 360 program, and we've taken out a substantial amount of our SG&A.

So I think we'll have to manage that as we go.

We feel we're in balance now and know what we have to do.

Last question, you talked about the initiatives on the purchasing side.

Any number that you can attach to that in terms or percentage in terms of projected savings?

Jonathan, what we're trying to do and I think one of the earlier questions spoke to it, we're trying to get back what we've lost ground here on in 2005 and it's probably going to take us a couple years to do that.

Okay.

Thank you very much.

Thank you, Jonathan.

And thank you, gentlemen.

Your last question comes from Rob Hinchliffe with UBS.

Thanks.

Good morning, everybody.

Good morning, Rob.

Good morning, Rob.

Dick, I understand you want to leave the UAW talks the way they are, which is fine.

I'm thinking about the '06 guidance.

Are you baking in any positive contribution from the current talks into the guidance right now?

We'll have no comment on that.

Okay.

So the current guidance, I guess, could include something, okay.

No, no, Rob.

I think what Dick meant to say is we have no comment on what the potential impact that that could be.

Our 2006 guidance is based upon all the commercial agreements, labor agreements, any other agreement we have today--

It's just business.

Our business is there.

We've given guidance and we've answered every specific question today that you men and women have assisted and asked, but again on the state quarter questions as it relates to labor, I've made my comment.

Those are private discussion.

When we're prepared to discuss it, we will.

Thanks, Mike.

I think that answered that question there.

Looking at the debt to cap, I know it went up slightly because of the cash burn.

You're looking for positive cash flow next year.

Are there-- is there any kind of big cash payments we could think of, though, that could overwhelm the positive cash flow and push this net debt to cap up a little bit further in '06?

No, not really.

The debt maturity schedule is out several years in substance.

There are a couple of operating lease EBOs that we have to look at here in 2006 and we'll take a look at the best way to finance that.

I really consider that debt, so we'll look at the proper way to refinance those EBOs, perhaps even just renew the leases and that's the only thing that comes close to what you're saying.

Okay.

You talked about new business, Nissan, Audi.

You've named the customers.

Can you name the products as well?

No, we can't do that at this time based on customer direction.

We would like to, but we just aren't empowered to, Rob.

Okay.

Then the last one's on four-wheel drive penetration with the launch schedule, you said it's going to be up next year largely because you're getting a full year of the H 3 or do you actually think four-wheel drive penetration will be up on the 900?

Rob, the increase is what I would refer to as incremental.

You're right about the H 3.

There's no question about that.

The growth in our Dodge Ram heavy duty series program also heavily contented, and then I would say that the, the increase in any other program, including the 900 would be incremental.

Okay, thank you, everybody.

Thank you, and have a great weekend.

Thanks, Rob.

And we thank all of those who have participated on this call and we look forward to meeting with you in the future.

And thank you for participating and you may now disconnect at this time.