Dana Inc (DAN) 2008 Q3 法說會逐字稿

Good morning, welcome to Dana Holding Corporation third quarter 2008 webcast and conference call. My name is Ashley and I will be your conference facilitator. Be advised that our meeting today, both the speakers remarks and Q&A sessions, will be recorded for replay purposes. (OPERATOR INSTRUCTIONS)

At this time, I would like to begin the presentation by turning the call over to Dana's Vice President of Investment Management and Investor Relations, Steve Superits. Please go ahead, Mr. Superits.

Good morning, everyone and thank you for joining us today. You should now be on slide number three in the presentation deck. As referenced on this slide, I would like to remind everyone the topics discussed on this call will include forward-looking statements. Please take a moment to review our Safe Harbor Statement. The call is being recorded and the conference call and supporting visuals are the property of Dana Holding Corporation. They may not be recorded, copied or rebroadcast without our written consent. Our webcast system allows you direct questions to us via the internet. We will answer as many questions as time permits.

If you move to slide 4, today's call will feature remarks by Dana's Executive Chairman, John Devine, and Chief Financial Officer, Jim Yost. John will begin today's presentation with an update on some key issues and initiatives. Jim will follow with a review of our quarterly financial results, liquidity, and a financial outlook.

Our call will conclude this morning with a question and answer session. Now please move to slide number 5 and I will turn the call over to John Devine.

Thanks, Steve. Good morning, everybody. We were on slide 5. Just wanted to give you a brief update on key issues before we get into the financial data that Jim will cover.

First of all, and maybe most importantly in this call, third quarter obviously very difficult for us for getting a confluence of peaking steel prices. I will talk about those in a moment. And lower North American production volumes. We will talk about those well. We were getting a quick reaction plans to this. We have to move a lot faster. We are looking at a number of restructuring actions. Our plan, now, is an additional 10 plant closures. We are look at for '09 and 10'. I will show you a slide on that in a moment.

We had to increase the workforce reductions this year from the announced 3,000 that we did last quarter to 5,000 by the end of this year. These are difficult actions. We don't like doing them, but the industry situation right now forces us to move as quickly as we can in this environment.

The third point on pricing is important as well. Obviously this is a difficult environment to get pricing done. It has been for years. But we were getting good traction here and we tried to address two important areas. One, as we talked about before, we have to get better price recovery on steel. And I will give you a chart of that in a moment.

Also, we had upside down contracts we have been working on very hard with a range of our customers. Again, our customers are very important for us but making money by customers is also very important for us. I would say our progress is good. We aren't done in this yet, but we are getting good reaction and, most importantly, getting things done. Not a surprise, there is a bit of a lag in these things. The primary impact will be in '09. The actions are getting done and we are getting progress made here.

The other good news, which is few and far between in this environment, is commodity prices have come down very rapidly including steel. Again, I will show you a chart later. And, again, because of lower volumes this year, the impact will be felt in '09 and it will be very welcome. And I'm not sure we are done with the reductions, yet. They seem to be still coming.

We announced last quarter, as well, that we had decided that 3 of our 7 businesses would be reviewed for evaluating our strategic options in terms of what we can do with them. Those include sealing, thermal, and structural products for a variety of reasons. We are still looking at that. We are making good progress in that evaluation. We expect decisions either by the end of this year or early '09. And we will tell you more on that as they come to fruition.

The last point in this page that we talked about Operational Excellence in the past. And that's proceeding and I will show you a slide in that and we were continuing to build a strong management team. I will show you a slide of that in a moment as well.

I did want to mention before I leave this page last point on the management team, you may have missed the announcements we made on Monday and if you have just update you. Gary Convis is traveling this week and is not on the call this week, and I have extended our contracts over the next year. Important for both of us. We are both motivated and excited about that. And I think it will be important for the Company. And we also had a role change where I become CEO and Gary becomes Vice Chairman. You should not read too much into that. Just so you know what's going on.

This was done at Gary's request. Reflected both a personal business decision so Gary could spend less time here in Toledo on running the Company issues and more time in operations on a global basis. We have accomplished a lot this year and Gary accomplished a great deal. But we have more to do and we need Gary's hand in driving that process right throughout the world. So this should not affect the team. Gary, as an aside, is very healthy. Very motivated. Very critical to this team. He will remain an integral part of this team. Gary and I had not worked together, I think as I mentioned in earlier calls, before we came to Dana. We developed a fast friendship and I can't imagine running Dana without him. Very important his leadership will continue. I realize that the change in titles created some questions for you, but I would tell you that the impact on the Company internally and externally will be zero. We are both healthy, motivated, and our focus is very much on fixing Dana.

On the next page, couple of additional people that we brought into the management team since we last talked. Three members of the senior team here, Mark Wallace, who just started this week, will be running our Operational Excellence group. We're working very closely with Gary. Great background. Young guy. Come out of Webasto Products in North America. We were delighted to have him.

Ken Cao, as well, is running Asia Pacific as of the last couple weeks. Came out of GKN. He will be located in Shanghai. And Jacqui Dedo, who many of you know already, came most recently out of Timken, but a long experience in a number of companies in the business. We are delighted to have all three.

And beyond the senior team here, there is probably a dozen people we brought into plant manager jobs or operational jobs. So, upgrading the team continues and I would tell you it's a very important part of what we have to do.

On page 7, just a quick update in Operational Excellence. First of all, on the left a little more background about the continued workforce changes we have to do to respond to what is a very difficult industry. Beyond the announcements we made on plants, we are looking for changing that by another 10 facilities, primarily in the US and Canada. Most of move we made in '09 with a couple probably in 10', we think the one-time closure costs of these, and there is still quite a bit of range here, is $100 to $150 million. That obviously depends on a number of factors including discussions with the unions which are underway. We expect to generate annual operating savings of $40 million once these actions are done. We think these are important. They are going to have to be done. They are difficult but things we have to move forward on.

Of that up to 10 facilities, we announced one of those, Magog near Quebec. It's a driveshaft facility. We expect that to close in '09. You can see there is one-time closure costs and improvements related to that. The additional plants will be announced as they are agreed and as they are completed on a rolling basis as we proceed in '09.

On the right hand side, we are continuing to get good progress in the Dana Operating System. As Gary and I both talked about in the past, this is a very important initiative to us to jumpstart our operational capability. It's walking to every part of the business. The rollout is continued. We will have 70% of North American plants done by the end of '08. And with a formal rollout, we have started in South America and we were just beginning in Europe. So more work to be done here and obviously Gary will it continue to spend a lot of time in that. This is going to give us big dividends in both cost and quality and productivity.

On page 8, steel prices continue to be volatile. Volatile is probably an underestimate. We talked about this. You can see this line in the bottom of the page. You go back to '07, which is not shown on this page, steel prices are about $307 on an average year basis and we walked in with that assumption for 08' and we obviously got a rude surprise. The numbers in the middle of the year peaked about $850 a ton. I would remind you that this is scrap steel.

Also remind you that we use a variety of different kinds of steel in different parts of our business. We were are using scrap steel as a good illustration of what's happening with steel prices. They peaked about $850. The most recent quote is down to about $275. It's been a very rapid decline and we are hearing some discussions, these numbers aren't formal yet, but the numbers will go below $200 a ton. It's been an incredible ride in steel. You seen it in other commodities, as well. I have to say I haven't seen something like this before. This rapid up and rapid down.

The impact for us is shown in that box in the top of the page. You can see the third quarter. What's happened on steel, we do have a lag and with the decline in volumes that lag has increased. So, we have had increase our steel costs by $65 million in third quarter. The recovery is ramping up. There is a lag in that as well. So the net hit in the third quarter was $20 million. We will narrow that down to about $15 million in the fourth quarter and getting recovery up to 79% with the decline in steel prices. We are obviously shooting to get that recovery into the 100% territory for next year. So, it's been an incredible roller coaster and this is a good news item as we go next year, but it's still been a painful ride.

Page 9, I think you know these numbers so I am not going to go through them all. But you can see what's happened year-to-date production. This is North American production. And, in particular, third quarter which has been especially difficult. You can see full- size light trucks with a long shut downs by some of our customers to really adjust inventory as well as reflect the lower demand numbers. But full-size light truck down 50% from the third quarter last year. And third quarter, as we all know, is already a fairly depressed number. An incredible reduction during this period of time. But one that we could have to live with for sometime.

Page 10, I wanted to give you a quick update before I turn it over to Jim on our priorities. Just as a reminder. We set these priorities as we walked in in February. There are still the priorities in '08. We wanted to give you an update how we were doing in recent events. Rebuilding the team is an important piece of it. We aren't done yet. I showed you some of the people coming in in this round. This is critical. I can't tell you how important it is to have the right team with the kind of changes in disruptions and difficulties this industry is facing today. I think we are getting a very strong team. We will make it stronger going forward.

Jumpstarting the operations, I think good progress here. I am pleased Gary Convis gets the credit for really leading this whole focus on Operational Excellence, focused on cost quality productivity. We set three priorities. Common metrics, Dana Operating System that goes across seven businesses for us which is never been done before. And footprint optimization that we talked about before. We are rolling that out globally. Very important - - this is an important driver of cost in '09.

Addressing strategic issues again. We talked about this the last time. We had an announcement - - we are looking at strategic options on three businesses. As I mentioned earlier, we will make those decisions by year-end early next year. I would say the biggest issue for all of this is fixing North America. Clearly the biggest issue we have - - the auto business continues to be weak. It has been weak and with the decline in volume it's even more so. We have to get this business profitable and cash flowing and that's our primary focus right now.

On the financial performance and plans, obviously with steel and lower volume our profits have taken a big hit. The good news for us is our strong liquidity and strong balance sheet. This is a strength for us. Walking into the year - - and I think it's obviously a very important strength for us as we go through what could be a long downturn.

Our focus on the financial side right now - - we are not going to talk about the '09 plan in detail today. You will see that later, but we will give you indications of what we are thinking about, but our focus today for the rest of this year and '09 is on two things; pricing and cost. We are not expecting volumes to recover. We expect volumes next year actually to be down from what the full-year '08 will be. Jim will give you some indications of what we are thinking of that in a moment.

With that, let me turn you over to Jim for the quarterly review.

Thank you, John. On slide 12 is a summary of our third quarter financial results. As John said, it was a difficult quarter for us. Sales were $1.9 billion and that's down $200 million from last year. The next slide will give you more detail on that. EBITDA which excludes restructuring and reorganization charges was about $15 million. A significant decline from last year. We will also cover this in a subsequent slide. The net loss for the quarter was $271 million. This loss includes $123 million of impairment charges. And of those charges, $105 million represents the write-off of the remaining goodwill in our drive shaft business. That leaves goodwill only in our off-highway business. And about $15 million represents a write-down of our equity in our joint ventures with GETRAG.

Capital spending totals $72 million in the quarter and that's up $18 million from last year. But basically in-line with our spending of about $250 million for this year. Free cash flow ,which we will also cover in a subsequent slide, was negative by $151 million. It's about the same as it was last year on - - and you will see the year -to-date data coming up.

Turning to slide 13, you can see our sales comparison with last year. As I mentioned, sales were a $1.9 billion, down $200 million. That was more than explained by volume and mixed reductions of $318 million. Pricing essentially all from material costs recovery that John discussed, was favorable by $45 million.

Currency translation also improved sales by a total of $72 million. Not shown, sales in North America more than explain the overall reduction in sales. Outside of North America, sales were up about $20 million, excluding currency effects. All product segments were down excluding concern currency with the exception of our off-highway business which was up slightly. Given the global in automotive industry, our sales for the fourth quarter are expected to be in the range of about $1.6 billion for a total in 2008 of $8.2 billion in sales.

Page 14, summarizes our EBITDA for the quarter compared with 2007. As I mentioned for this metric, we have excluded restructuring and reorganization expenses. For the quarter, we earned $15 million in EBITDA compared with $126 million for the same period last year. The EBITDA impact of lower volume and mix, that I mentioned on the prior page, was $75 million. Steel-related costs, as John mentioned, were about $20 million net of the pricing recovery. And this represents a significant improvement in recovery compared with our second quarter and indicates we are successful in increasing our cost recovery agreements with our customers to better hedge our profit from metal market variances.

Excluding the lag effects of pricing recovery agreements, we are now more than 80% covered in our sales base with either pricing recovery agreements with our customers or operating in markets where cost recovery is a standard practice. So, we are in pretty good shape for next year and ongoing.

Cost savings and operational improvements were about $12 million net for the quarter. Efficiencies and other savings were about $30 million. It's a little bit lower in large part due to lower volumes and some of the nonlinear impacts of short notice customer plant shutdowns. We also had slightly higher warranty cost for a couple of isolated incidents.

Finally, the other impacts totaled about $28 million unfavorable, primarily due to exchange impacts which resulted from unfavorable mark to market effects on our inner Company loans in quarter three in 2008 compared with favorable impacts we had in the third quarter of 2007. So, overall, year-to-year we are about negative $24 million for those exchange impacts.

Slide 15 shows our year-to-date free cash flow. Year-to-date we used $331 million of cash which is a little bit better than last year. The working capital usage year-to-date of $172 million was driven by normal seasonality of our business as well as higher material prices and the difficulty of reducing our inventories and rapidly declining volume environment. We do expect a significant reduction in absolute working capital in the fourth quarter as is normal for the Company. And as a result of significant work by our operations to reduce inventories, overall we expect working capital to be about breakeven for the full year. And we expect fourth quarter cash flow also to be breakeven.

Turning to slide 16, you can see here our cash and debt positions at the end of the third quarter. We ended the quarter with about $1 billion in cash. And this is down $300 million from the start of the year due to the cash flow that I mentioned on the prior slide. It's about evenly split between the US and the rest of the world. As you can see on the bottom half of the slide, debt totaled $1.4 billion. So, our net debt was only $380 million.

On slide 17, you can see our global liquidity position. As John mentioned, this is a key focus for us to maintain adequate liquidity and we are in very, very good shape in this regard. We ended the quarter with over $1.3 billion of liquidity, including available cash of $856 million and available credit lines of almost $500 million. These numbers do not include the cash from our revolver draw that was completed after the close of the quarter. As we announced at that time, and you can see from our cash and liquidity position, this action was not due to a need for cash, but was undertaken due to the turmoil in the credit and banking markets at the time. Assuming continued improvement in the financial markets, we would expect to repay the revolver before the end of the year.

As of September 30, we were in compliance with our loan covenants. However, with the weak results in the third quarter and our outlook for the remainder of the year, we will need to modify our key covenants of interest coverage and leverage for the period ending December 31 to remain in compliance at that time. We have been in discussions with the agent of our facility and are planning on launching an amendment next week. We expect to complete the amendment in the next few weeks.

And finally on slide 19, we provided our financial outlook for this year and some selected targets we are working towards for 2009. In 2008, we expect sales to be about $8.2 billion as I mentioned earlier, with an associated EBITDA of about $300 million. The volatile automotive markets make any projections difficult and we are closely monitoring both industry volumes and customer schedules. There is still some risk in these sales and EBITDA numbers as we close out the year.

As discussed earlier, capital expenditures will be about $250 million and free cash flow will be about $300 to $350 negative, depending upon on how we do on our inventory reductions. We have not yet completed our plans for 2009 and industry volumes globally are still very volatile. Nevertheless, we are targeting sales in the range of $7.2 to $7.3 billion. We are targeting an improvement in EBITDA of at least $150 million. And this is based on expected customer pricing of $200 to $250 million year-over-year and cost savings of $100 to $200 million. Clearly, volume remains the biggest question mark for us.

On pricing, we have already reached agreement with our customers for over $200 million of this pricing. The team has done a great job in addressing a significant number of our underwater contracts and very difficult environments. We have also identified over $100 million in cost savings including MFO and other operational excellent plant initiatives as well as material cost savings. We are looking for more. Capital spending will likely be similar to this year and we will be driving to breakeven or better cash flow by continuing our efforts in reducing inventory and managing our capital spending as necessary.

With that, I say thank you very much for your attention.

Ashley, I think we are ready to go into the Q&A now.

(OPERATOR INSTRUCTIONS). Our first question comes from Himanshu Patel with JP Morgan.

Good morning, guys. Two questions, on the off-highway unit, I think you guys mentioned revenues were up a little bit, but it looks like earnings declined. Was that mainly driven by steel?

There was a fairly large impact of steel in there, that's correct.

And how should we think about that going forward? Historically has that been a - - I thought that was a unit where steel recoveries were fairly easy to get. Is it more just a timing issue there?

Yes, it's largely a timing issue. That's the discussion John had which is we saw the increases coming up and it does take us a little while for us to get recovery from our customers. As we mentioned, we are going to be largely covered for next year.

Okay. And then what are you seeing there in terms of end market? Obviously it's a European focused business and the economies are slowing there. Are you seeing a precipitous falloff in production for the fourth quarter? Or, how would you characterize the top line outlook there?

We saw pretty rapid decline beginning in August, Himanshu, in Europe, in particular, led by construction. We had already seen construction weaker here in the US and that's been increasing. Question that we are debating now is what happens to the agriculture business. So far it's held up okay, but our expectation is it could fall more. We will have to watch it. We are watching it very closely.

Ag has held up better than construction. Other parts of the business that are smaller for us, like mining, are okay. But 70% of that business is either construction or agriculture. And our expectation is that probably agriculture will slow. I wouldn't want to over-promise for next year on that.

Okay. And should we think of decrimental margins in that business in the $0.20 to $0.25 on the dollar range?

I think that's probably about right.

And then last question, Jim, on slide 19 for the '09 outlook - - and I'm just looking at a high level, you have a EBITDA improvement of $150 million flat Cap Ex year-over-year and a free cash flow improvement implied there of $325 million or better. Are you expecting further working capital improvement in '09? Is that most of that difference there?

Yes, we are looking for further reduction in working capital. Correct.

Very good. Thank you.

Our next question is from Brian Johnson with Barclays Capital.

Good morning. A couple questions around 2009 - - could you give us some sense by segment of the production assumptions in your guidance US light vehicle, Europe light vehicle, trucks in both markets and off-highway? In terms of the core market as opposed to your market share and so forth.

Let me ask Jacqui Dedo to give you a little more data, Brian.

Was the question with regard to Europe?

The question is overall the production assumptions by region and segment that you're assuming for 2009 behind your guidance.

We are seeing production in the US next year, light vehicle down to about the 11.8 to 11.6 range. Obviously we have take than further to a platform by platform look which is more important for us. On the commercial vehicle side, we were looking about 160,000 vehicles in North America for class 5 through 7, and about 220 to 226 for class 8. In Europe, we are right now we are working through platform by platform because the market isn't as relative as with a we are seeing a lag slow similar to what we are seeing in the US, but timed off by about six months. And in the European off-highway piece, we are seeing a total combined segment decrease of about 10% to 12%.

Okay. And in terms of the pace of restructuring cost and costs saves over the quarters, rest of '08 in the quarters and perhaps in '09, how can we expect the cash and then the cost saves to flow out?

I guess in terms of restructuring, we are probably going to end up the year at probably close to $100 million of restructuring costs. And it's pretty evenly paced throughout the year. And the savings - - there won't be a lot. Some savings already in the numbers. Not huge. I think the big impact of some the plant restructuring that John talked about is going to be '09 and beyond.

Okay. And that $100 million is cash costs?

Yes, that's correct,

For '08.

And so is the plant closing benefit, is the $40 million, is that for 09'? Is that the run rate?

That's a run rate, Brian, so you won't get all of that in 09'. And the actions in 09', the plant closures we are talking about, will be during the year. We obviously have more discussions to do with our unions to make sure we all agree on that.

Right. And now what happens with steel next year? Are you locked into contracts?

No. No. I would say the issue for us now is that we can't get rid of the high cost steel fast enough. We like to be in a position to buy the cheaper steel and lower volumes have given us a bit of a backlog. We will get through that by the end of the year. And I don't know whether steel is going to go back up or down further, but I have to say I was amazed in the way up and I'm amazed how quickly it's coming down. We will get that benefit next year.

The good news for us is that we have agreed with the bulk of our customers an agreement. So, we will share steel costs ups and downs. Not every customer, and we think that's a much better scheme for the Company, so we take that risk not off the table entirely, but we can deal with a lot better than we did this year.

In terms of those agreements, is there risk that you are going to have in terms of timing of recoveries lagged in recovering as steel goes up, but then half the pay up instantaneously as steel goes down?

No. Our view is a two-way street. I can't speak in a general sense because each contract is individually done. But obviously, it has to work for us. It has to work for our customers. No, it's not instantaneous. We have adjustment periods which we think we worked out with our eyes open. It won't hit us all at one time.

Okay, finally in terms of the amendments, what's the range of the cost if any of those amendments that we can expect to see as it rolls out?

We are not going to talk about that at this point in time. Once we launch the amendment, we will let everybody know what our proposal is.

Okay. Thank you.

Our next question is from [Robert Crowley] with Fortress.

Good morning.

Good morning, Robert

Couple questions. I guess regarding working capital, I just didn't quite catch it. Did you say you expected, was it the fourth quarter of '08 to be breakeven or was it the full year?

The full - - we expect working capital full year to be about breakeven, substantial reduction in the fourth quarter, just like we saw last year in the fourth quarter - - largely due to seasonality.

Okay. So through nine months you are at negative $172, so you expect working capital will be approximately a source in that magnitude in the fourth quarter?

Yes, that's correct.

Okay. And then just regarding - - a follow-up question on steel again. In the past you mentioned that it's been more of a timing issue. Obviously the last time we spoke steel prices had already begun to come down. But you mentioned that some - - because of the lag, what this really is was a shift -- the way you characterize it is some kind of a shift. It becomes what is a hit in a way, but it should become a tailwind in 2009. Do you still look at steel the same way? In other words, given the lag, your passing on for some of the contracts that you have you will be passing on that price increase successfully in 2009 instead of did actually it becomes a benefit in '09. Is that the way you are looking at that?

On a year-to-year basis, Robert, it should help us next year. Obviously, it varies by customer. We are transparent with our customers how it works.

And one of the issues we had this year, and the team has done a nice job on this, is to negotiate agreements that work for both of us because we found early this year as steel spiked up that we had some agreements that were in-place, but a lot of these were not. So they took a lot of time and effort, on our part and our customer's part, to get something that works for both sides. That's largely in-place now. And that will roll out next year.

The lag factor, you are right, should work in our benefit as the steel prices come down. Who knows, they are coming down right now. Who knows what will happen next year. Given the current economic scenario, I would expect commodity prices and steel prices to be weak.

Okay. And so your assumption for 09' is the $300 (inaudible) is also your assumption for 09'?

It is right now. Say the market price on those scrap steel. I would have to take you through the whole gamut of various steel products. But on scrap steel, the market price is lower than that, $250. We wanted to be cautious. And we are hearing, as I mentioned before, that the market price might actually be below $200.

Okay. And my final question is regarding the plan to close down the 10 facilities - - just looking at the headline numbers, $40 million of savings, costing you $100 to $150. Again, just on the face of it doesn't seem so great in terms of payback period.

The payback I will assure you, something both Jim and myself spend a lot of time on, the payback will be a good return by the time we do it. We obviously have legacy costs to deal with. These plants are in the US and Canada, so legacy costs are there. But we spent a fair amount of time making sure that any action we do, or will do in this case, has a good payback. If it doesn't, we will have to do something else.

Okay. And then the $10 million, the 10 plants, that's, I guess, based on your (inaudible) assumptions and your heavy truck assumptions for next year. And that's - - there shouldn't be any further footprint reductions beyond that?

No, and I wouldn't say that. And in this market, who the hell knows? This is our best estimate today. We think we are being conservative. We're being very transparent with our union friends so they understand exactly what we have to do.

There is obviously a fair amount of discussion we have to have with them before we do these things so we are started on that and we will let you know. We will come up with a plan. And frankly, part of our other initiatives is to improve our productivity and our existing plants improve our flexibility. So as the market comes back, we want to be a lot more efficient. We produce product. And that will give us a heads up as the market comes back to make more profits in the plants that we keep open.

Our next question is from [Eric Hinian] with Raffles Capital.

I just wanted to touch on the sealing and thermal products - - you mentioned strategic initiatives and you expect more information at year-end. I want to know if you can give us an idea of some of the things that are under consideration?

Eric, I can't tell you much more than I announced. As we looked at our strategic direction earlier this year, we concluded among other things, that we wanted to focus on driveline products going forward. We think that's the heart and soul of the Company. And two, we had three businesses tha,t for a variety of reasons, didn't fit in that structures business, thermal and sealing. We liked all three. Good businesses. The issue for us was fit. And how many mouths we had to feed and how we want to run the Company.

Obviously, a very difficult market to do anything - - to sell or do anything in this market. But we are proceeding. And we will let you know as soon as we have something. We haven't made any decisions yet. As I mentioned before, I would see those decisions toward the end of this year, early next year. As soon as we have done something, we will announce it.

Okay. And with regard to the seal, the cost recovery looks good at this point, but wanted to know if to give us an idea of what proportion of the revenues are in the contracts that are somewhat locked up, and to that extent, are you considering any further hedges? I know you mentioned you believe that softening is going to continue through '09. But would it be something you would consider?

We actively look at the opportunities for hedging. Because of the fact that most of the commodities viewing are difficult to hedge, like scrap steel's impossible, there are limited opportunities to do that other than getting agreement with our customers. And as I mentioned, approximately 80% of our sales revenue and cost base is essentially covered by contracts or customary adjustments with our customers for which we would expect recovery. And obviously our goal was to get even higher as we move forward.

Okay. And you mentioned covenant changes looking for year-end. I wanted to know if you can detail what you are looking to have in terms of the changes?

We will provide a bit more clarity on that when we launch the amendment next week.

Fair enough. And the announcement - -the Chrysler contract to end at year-end - - I could have missed it, but do you have an update on that by chance?

At this point in time, we have nothing more to say. We will - -given that it hasn't been resolved yet, we will let you know as soon as it is.

Okay. Thanks very much. I'm set.

Ashley, I have a question from the internet I would like to read. Given Dana's strong balance sheet and liquidity, is the Company open-minded about attractive consolidation opportunities that may be available in the current difficult environment?

I would say our number one focus this year is to make sure we fix the Company, rebuilding the Company, really all parts of it has been important for us. As we look forward, and we get some of those things under our belt, there will be consolidation opportunities. The only focus we have in those, I would say, is really how to drive shareholder value. Earnings are the biggest part of that.

So, we spend the bulk of our day thinking being how do we improve earnings from dismal level this year and how do we improve that. Beyond that, there will be opportunities opportunities. We have an open mind and I say the focus we have, the management team and the Board, is really how to drive shareholder value. And I don't want to say any more about it other than that.

Ashley, that's all we have.

And I'm showing there are no further questions from the phone line at this time.

Thank you for joining us this morning.

Thank you all. Talk to you soon.

This concludes today's conference call. You may now disconnect.