Magna International Inc (MGA) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Magna International third quarter 2008 results.

During the presentation all participants will be in a listen-only mode.

Afterwards we'll conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, Tuesday, November 4, 2008.

I would now like to turn the conference over to Don Walker, Chief Executive Officer.

Please, go ahead, sir.

Thank you, and good morning, welcome to our third quarter 2008 conference call.

Joining me today are Vince Galifi, our Executive Vice President and CFO; and Louis Tonelli, Vice President of Investor Relations.

Yesterday our Board of Directors met and approved our financial results for the third quarter ended September 30, 2008.

We issued a press release early this morning for the third quarter of 2008.

You'll find the press release, today's conference call website and the slide presentation to go along with the call all on the investor relations section of our website at www.magna.com.

This morning I'll start with our thoughts on the current environment, our positioning and some of the actions we are taking to offset the severe downturn we are facing.

Finally, I will briefly discuss the termination of the arrangement with Russian Machines, Vince will then review our financial results for the quarter and discuss our updated outlook for 2008.

Upon completion of our formal remarks, we'll be pleased to answer any questions.

Before we get started just as a reminder, the discussion today may contain forward-looking statements within the meaning of applicable securities legislation..

Such statements involve certain risks, assumptions and uncertainties which may cause the Company's actual or future results and performance to be materially different from those expressed or implied in these statements.

Please refer to today's press release and attached MD&A for a complete description of our safe harbor disclaimer.

Conditions in North America in automotive industry continue to be extremely difficult.

Third quarter auto sales continued to weaken and North American auto production declined 18% from Q3, 2007.

Detroit 3 production was worse, down 25%, and mix continued to hurt the Detroit 3, but the Detroit 3 light trucks, excluding crossovers, down 45% compared to the 27% in the first half of the year.

Fourth quarter vehicle production is not expected to be meaningfully better in North America at approximately 3 million units.

It is clear today that fourth quarter US auto sales got off to a very week start in October.

The economic woes and credit crisis that have impacted the North America economy has spread globally.

In western Europe, the automotive industry has deteriorated rapidly with declines in vehicle sales and production.

Third quarter vehicle production declined 8% year-over-year and fourth quarter production is expected to be down approximately 19%, after being relatively flat for the first half of the year.

The conditions in our two primary markets left their mark on our third quarter results.

Q3 total sales declined $544 million, including $558 million in North American production sales.

Based on the negative economic and other factors affecting the industry, in Q3 we reported long-lived asset-impairment charges of $258 million and a $123 million charge to establish valuation allowances against all future tax assets in the United States.

In addition to the weak production environment in the third quarter, we experienced a year-over-year increase in commodity costs, and while commodity costs have softened recently, we expect them to remain a headwind in the fourth quarter as a result of the normal lag between spot and contract prices.

Despite the negative macroenvironment we are facing, there are a number of positive points I would like to highlight.

We have been taking actions to streamline our costs and improve our competitiveness.

I'm going to elaborate this a little bit later.

Over the past 15 years, we have diversified our geographic sales and manufacturing footprint to reduce our dependency on North American market for our consolidated sales and profits.

We have succeeded in these efforts largely as a result of diversification in western Europe and we intend to continue to grow our manufacturing presence in new markets, including Asia, eastern Europe, particularly Russia.

In the third quarter rest-of-world sales grew by 43% year-over-year.

We continue to make acquisitions that improve our capabilities.

Last month we announced the acquisition of BluWav, a developer and supplier of electric and energy management systems for alternate propulsion vehicles.

BluWav will enhance Magna's position in developing and supplying components and systems in the emerging automotive market for electric and hybrid vehicles.

Our financial condition remains strong with net cash position of $1.7 billion and unused committed credit facilities of $1.9 billion, both at the end of the third quarter.

This should help us withstand the severe downturn we are facing and continue to invest in our future, including innovation and selective acquisitions that improve our business.

We also believe that our strong financial position allows us to win takeover business from financially and operationally weaker suppliers in the market.

Finally, I want to revisit the actions that we are taking to offset the severe downturn we are currently facing.

We continue to consolidate, close, and/or sell facilities to improve our capacity utilization and footprint to insure we remain competitive and win future business.

We have restructured a number of facilities to operate at reduced capacity as a result of the lower customer volumes.

Each operating unit is reviewing all discretionary spending to lower operating cost and capital spending is being delayed, reduced or eliminated to the extent possible in the short-term.

We expect to incur additional restructuring rationalization charges in the range of approximately $70 million to $80 million related to activities initiated in 2008.

And we anticipate fairly quick payback on our actions.

We are preparing ourselves for a sustained downturn.

We want a lean and efficient operation, while not sacrificing our future, so we are stronger when the automotive market recovers.

Early last month we announced that the lender to Russian Machines had realized against the 20 million Class A subordinate voting shares pledged as security for the financing obtained by Russian Machines for its September, 2007 investment in Magna.

Accordingly, Russian Machines' participation in the arrangements entered into with Stronach Trust in connection with this investment has terminated.

The strategic alliance with Russia Machines assists us in accelerating our growth in the Russian market.

We continue to work closely with Russian Machines and it's controlled subsidiary, Gaz Group, Russian's second largest automotive Company.

We believe that the Russian market holds significant opportunities for us and we intend to continue to pursue joint operations with Russian Machines and GAZ, as well as other opportunities to advance our position in Russia.

I would now like to turn the call over to Vince.

Thanks, Don.

Good morning, everyone.

I would like to review our financial results for the third quarter ended September 30, 2008.

Please note all figures are in US dollars.

Appendix A, in the slide package acCompany our call today includes a reconciliation of certain key financial statement lines between reported results and results excluding unusual items for the third quarters of 2008 and 2007 respectively.

In the third quarter of 2008, we recorded certain items resulting from a net $146 million reduction in operating income, a $234 million reduction in net income, and a $2.10 reduction in diluted earnings per share.

In the third quarter of 2007, we recorded certain items resulting in a $23 million increase in operating income, a $15 million reduction in net income, and a $0.13 reduction in diluted earnings per share.

The following quarterly earnings discussion excludes the impact of unusual items.

I would like to briefly comment on our Q3 asset impairments, which make up a significant amount of the unusual items I just noted.

Periodically, we are required to assess the value of our long-term assets and take charges when it becomes clear that asset values are impaired.

In North America, the combination of mix shift, market-share declines experienced by some of our largest customers, continued and expected losses at some of our division, and the overall significant decline in current and expected vehicle production necessitated our taking these impairment charges, including both fixed assets and future tax assets.

As Don noted, we have been taking a number of actions to ensure that we remain competitive and have a right-sized footprint, particularly in North America and western Europe.

However, in 2008, it has been difficult to keep up with the pace of change in our industry.

In the third quarter, consolidated sales declined 9% from the third quarter of 2007 to $5.5 billion.

North American production sales declined 18% in the third quarter to $2.5 billion, reflecting an 18% decline in vehicle production to 2.9 million units and essentially flat North American content at $860.

Factors that positively impacted North American content were the launch of new vehicle programs, acquisitions, including a substantial portion of Plastech's exteriors business and the former Ogihara facility in Alabama, as well as increased production and/or content on certain programs, including GM's land of crossovers, and GM's small cars, the Chevy Cobalt, and Pontiac Pursuit.

New launches contributing to content growth quarter over quarter included the Ford Flex, the Dodge Journey, the Mazda 6, Chrysler's and Volkswagen's mini-vans, the Chevy Malibu, and the Cadillac CTS.

Offsetting these factors were high-content programs that experienced lower volumes and/or content, including GM's full-sized pickups and SUVs, the Ford F Series SuperDuty, the Ford Edge, the Dodge Nitro, Ford's full-sized SUVs, the Chevy Equinox, and the Ford Explorer, as well as lower Dodge Ram and Ford F Series volumes in part as a result of the changeover to the next generation of vehicles in Q3 and the related ramp up.

Programs that ended production during, subsequent to the third quarter of 2007, including the Chrysler Pacifica, and incremental price concessions also negatively impacted North American content.

European production sales grew to $1.7 billion, representing an increase of 2% over the comparable quarter in the period when European vehicle production declined 8% to 3.2 million units.

European content increased 10% to $528.

The key contributors to content growth in Europe were the strengthening of the euro against the US dollar, increased production and/or content in certain programs, including the MINI Clubman and the Smart For-Two, and the launch of new programs, including the Volkswagen Tiguan, the Jaguar XF, and Audi Q5.

These positive contributors were partially offset by programs that experienced lower volumes and/or content in the third quarter of 2008, including the BMW X3, the sale of certain facilities during or subsequent to Q3, 2007, the end of production of the Chrysler mini-van at Magna Steyr, and incremental OEM price concessions.

Rest-of-world production sales increased 43% to $143 million, primarily as a result of the launch of new programs in South Africa, Korea, and China; increased production and/or content on certain programs in China and Brazil; as well as the strengthening of the Brazilian and Chinese currencies each against the US dollar.

These were partially offset by the weaken of the Korean won against the US dollar.

Complete vehicle assembly sales declined 40% from the comparable quarter and assembly sales declined 20% or $172 million to $687 million.

The sales decline was primarily as a result of a decrease in assembly volumes on a number of vehicle programs and the end of production of the Chrysler Voyager at our cross facility in the fourth quarter of 2007.

Partially offsetting the decline were the impact of the strengthening of the euro against the US dollar and higher assembly volumes for the Mercedes G class.

In summary, consolidated sales, excluding tooling sales, decreased $656 million in the third quarter.

the primary reasons for this decrease are the decline in vehicle production in our two principal markets, North America and western Europe, as well as lower complete vehicle assembly sales partially offset by higher average content per vehicle in Europe and an increase in rest-of-world sales.

Tooling, engineering, and other sales increased 30% to $487 million for the quarter, in part as a result of the strengthening of the euro against the US dollar.

Gross margin in the quarter was 10.9% compared to 13.2% in the third quarter of 2007.

This change primarily relates to -- lower gross margin as a result of the significant decrease in production volumes, in particular, on many high-content programs in North America; accelerated amortization of deferred wage buy-down assets at our Syracuse facility in the United States; operational inefficiencies and other costs at certain facilities, in particular at certain powertrain and exteriors facilities in North America; costs incurred at preparation for up-coming launches; an increase in tooling and other sales that are [at low] or no margins; increased commodity costs; and incremental customer pricing concessions.

These factors were partially offset by the decrease in assembly sales, which have a lower gross margin than our consolidated average, productivity and efficiency improvements at certain facilities, lower employee profit sharing, and the benefit of restructuring activities during or subsequent to the third quarter of 2007.

Magna's consolidated SG&A as a percent of sales was 6.7% in Q3 2008, compared to 5.9% in the comparable quarter, reflecting the $24 million write-down of our investments in asset-backed commercial paper as compared to $7 million in Q3, 2007; net foreign exchange losses incurred in Q3 2008 compared to FX gains in Q3 2007; and the overall decline in sales quarter-over-quarter.

This was partially offset by lower incentive compensation and employee profit sharing.

Largely as a result of the lower gross margin percentage, higher SG&A percentage and lower interest income, partially offset by higher equity income, our operating margin percentage declined to 0.6% in the third quarter of 2008, from 4% in the third quarter of 2007.

Our effective tax rate increased to 46.9% in the quarter from 30.3% in the third quarter of 2007.

The increase is primarily due to losses and other items not benefited for tax, partially offset by change in mix of earnings whereby proportionally more income was earned in jurisdictions with lower tax rates.

Net income was $19 million in the quarter, $151 million decline from $170 million in the third quarter of 2007.

Diluted earnings per share were $0.17 compared to $1.51 reported in the comparable quarter in 2007.

This decline in EPS was a result of the decrease in net income, partially offset by decrease in the number of voided average shares outstanding during the quarter.

The decrease in the number of shares was primarily due to a reduction in the number of diluted shares associated with stock options, debentures and restricted stock, which were antidilutive in the quarter.

I will now review our cash flows and investment activities.

During the third quarter of 2008, we generated $275 million in cash from operations prior to changes in non-cash operating assets and liabilities, and invested $25 million in non-cash operating assets and liabilities.

For the quarter, investment activities amounted to $236 million, comprised of $150 million in fixed assets, an $82 increase in investments and other assets, and $4 million to purchase subsidiaries.

Next I will review our current 2008 full year outlook.

We have once again lowered our vehicle production expectations in North America by more than 400,000 units since our last outlook to approximately 12.8 million units.

The lower production reflects the weakening automotive sales market we are currently facing in North America.

We have also significantly reduced vehicle production expectations in Europe.

Volumes in Europe are now expected to be approximately 14.9 million units, down approximately 700,000 units from our previous outlook.

This reflects deep recent declines in vehicle sales and production in Europe.

We lowered our range for expected North American content per vehicle to between $835 to $860 for 2008.

We also lowered expected content per vehicle in Europe to between $475 and $495 for 2008.

The lower North American and European content per vehicle essentially reflects the recent declines in the Canadian dollar and the euro respectively relative to the US dollar.

We have also reduced our expectations for complete vehicle assembly sales, reflecting our reduced assembly volume, expectations and certain programs accounted for on a full-cost basis, as well as the lower-expected euro, US dollar exchange rate.

We now expect complete vehicle assembly sales to be between $3.25 billion and $3.45 billion, down from the $3.5 billion to $3.8 billion range in our previous outlook.

We expect total sales for 2008 to be in the range of $23.2 billion to $24.3 billion.

This is down from our previous outlook, reflecting the lower expectations for North American and European vehicle production and content per vehicle, as well as the lower range for vehicle assembly sales.

For the full year 2008, we now expect fixed asset spending to be in the range of $700 million to $750 million.

This is down $150 million from our prior outlook.

The reduced outlook for capital spending reflects the continued efforts across our business to reduce spending to the extent possible, program delays, and lower foreign exchange assumptions.

As Don noted earlier, we are preparing ourselves for the continued downturn.

And across the Company we are taking actions to reduce or delay cash outlays and improve operational efficiency.

We expect to weather the storm and be in a strong position as automotive markets around the world recover.

Our Board yesterday declared a quarterly dividend of $0.18 per share payable on December 15, 2008, to shareholders of record on November 28, 2008.

This represents a 50% reduction from our previous dividend rate.

As Don and I have been -- both noted, given the significant challenges we are currently experiencing in the automotive environment, we are reviewing all uses of cash with an eye to maintaining our strong financial position and allowing us to weather this downturn.

Our Board's decisions to adjust our dividend as a result of our reduced profitability reflects this view.

Notwithstanding the adjustment in the dividend, we will continue to meet or exceed the dividend distribution required under our corporate constitution.

This concludes our formal remarks.

Thank you for your attention.

We will now open the call for questions.

(OPERATOR INSTRUCTIONS) And we do have a question from the line of John Murphy from Merrill Lynch.

Please proceed with your question.

Good morning.

Good morning, John.

If we think about the scope of your restructuring and what is going on right now, I was just wondering if you think that that is enough, given all of the pressures that you are seeing and facing in the macroenvironment and Company specific?

And also, as you go through that rationalization or restructuring, how much of your capacity is fundable and might be transferable or usable as you win takeover business?

Yes, John, it's Don here, I'll answer that.

It's been an ongoing exercise over the last four or five years.

We have seen more and more production being shifted to other areas of the world, so we have been rationalizing a number of facilities.

Obviously, we stepped that up.

Is it enough?

It depends on where we think the market is going to go.

We are taking actions that we think are necessary to make sure we can support future launches and the production volumes we expect to see.

If the volumes continue to weaken or stay down, then we might have to do more restructuring actions.

We're trying to be as proactive as we can.

As far as open capacity, we still have significant open capacity and every year you can improve operations and we focus heavily on improving our operations.

If there's more opportunities like Plastech, where we can takeover business, stamping business, molding business, assembly business, then we can certainly take that on and we expect that there is going to be opportunities.

If the downturn stays as difficult as it has been, I think we are going to see a lot of failures in the supply industry.

Our customers will be looking for well-financed, strong, operational companies like Magna to take over business.

So we're going to make sure we have the ability to take over business.

We'll have to see going forward whether we have to take more dramatic action.

But what we have just outlined, the actions we have announced will be another, probably, $70 million, $80 million of P&L hit in Q4 into early next year.

Hopefully that will be enough, but we'll keep on reassessing it.

Don, sort of just to follow-up on one of your comments earlier, about making selective acquisitions, where do you think you would focus or sort of what part of the vehicle and sort of in your business where you would focus on making those acquisitions?

Is it in the powertrain, is it more structural parts, where would you focus?

Depends what the opportunity is.

If we can get a good opportunity to buy production in our -- in any one of our product areas to give us quick payback then we would pursue it.

If we look at strategic acquisitions, it is going to be where we have technology or new customer penetration or gives us a better global footprint, but the product areas we would be looking at powertrain, I think is going to continue to be a growth area.

I think alternate fuel vehicles will be -- it will be a little bit slower, but I think that is going to be a great opportunity going forward, so we'll keep our eye on that.

If we can increase our market share in areas exterior stamping business, we would look at that as well.

So we'd look at all areas.

However, anything to do with the powertrain, I think there is going to be great opportunities as the high barrier can increase, so that's one area we'll keep our eye on.

Would you put axles and drive shafts into that power train category?

Is that fair?

It's not a high priority.

If the technology changes as we move to alternate fuel vehicles, we'll look at that.

There is going to be different drive systems, obviously, as we move away from convention internal combustion engine technology, but axles are not high on our priority list right now.

This last week, in North America, you guys didn't cite the F-150 as part of the launches in your slide deck.

Has something changed there?

Or you are sort of the next wave of production there or what is going on with the F-150 with you guys?

No, there is no change, John.

We're going to be launching on the F-150.

We estimate [claim] for content on the frame.

Okay, but production has already started, it is -- are you not on the in initial phase of the production launch or --

No, we do have that as part -- we're launching on that program.

Currently, as we speak?

Yes.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from the line of Chris Ceraso from Credit Suisse, please proceed with your question.

Thanks, good morning.

Hi, Chris.

Couple of items here.

Just to clarify, the charge that you took for the commercial paper, you left that in, right?

That's not part of the unusual items?

That's correct, Chris.

We left that in.

We didn't consider that a an unusual item, so it is included in normalized operating income.

And you said it was in SG&A?

It is in SG&A.

And remember, quarter over quarter, the net number is $17 million, because we had a $7 million charge a year ago in the third quarter included in SG&A.

Okay.

How did you take a tax benefit on these impairment charge, if you have written down the deferred tax asset?

Was it a timing thing or what is the story there?

Well, when you -- you look at the impairment charges, they are not all in the United States.

As you know, we have written off our tax assets in the United States.

So where we have taken the tax benefit is for impairments in Canada., where we are still taxable.

All right.

The -- that 40% decline in volume in the assembly business is pretty severe.

How much of that is demand for the products versus programs that ended like the mini van?

Let me just pull that in.

Part of it is just demand and really, it's end of cycle.

If you think about the X3, which is one of the key programs for Magna Steyr, the program is getting older, so as a program gets older, volumes are going to decline.

With respect to the programs that ended, when you look at the Voyager, year-over-year that's about a 4,000 decline in overall volumes.

But there's also been declines in some of the other Chrysler programs, where we participate in the Jeep Grand Cherokee, the Chrysler 300 and the Jeep Commander, as well as the Saab 9-3.

For 2008 in the third quarter, except for the Mercedes G-Class, volumes were down and the most pertinent one, as I talk about, is the X3, but that's kind of gets to the end of life, we're expecting volumes to tail off.

Right.

What is the cash portion of the charges that you expect in Q4?

Chris, we're looking at, as you know, total charges of $70 million to $80 million.

The -- and that's going to be cash.

Oh.

In terms of write-downs, non-cash, we have already taken those.

Now whether that cash is going to be incurred in sort of Q4 or Q1 or Q2, or whether we book it from an accounting perspective, it is all going to depend on what the accounting rules allow us to do and require us to do.

But I would think if you are looking at it in the next sort of several quarters, think of it $70 million, $80 million of cash coming out of the system for a restructuring charges.

And the Q3 charges were all non-cash?

There was -- the -- there was about $4 million of cash charges in the quarter, so we have identified as unusual items, but the balance of them were non-cash charges.

And then just the last one, if you could just remind us of your current mix in terms of how much sales do you have with -- in North America with GM, Ford, Chrysler, respectively?

Business facilitates on 80% to 85%.

I'm sorry, what was that Lou?

It's on 80% to 85% of our North American business.

All right.

I'll follow up with you after.

Thanks.

Our next question comes from the line of Peter Sklar from BMO Capital Markets.

Please proceed with your question.

Good morning.

Vince, one of the items you talked about at Syracuse -- or sorry, that was in the disclosure is accelerated amortization of deferred wage buy-down.

Can you explain what that is, what was the magnitude, and how long this amortization period extends for?

Right.

It -- think of it -- the buy-down offer that we made to our employees earlier on this year, when you look at the total cost of the buy-down, it was about $114 million.

And we were initially amortizing -- or we are amortizing that over the expected benefit period.

And when we look at the prior quarters, the benefit period is the turnover remaining UAW contract, which was 42 months, and we had a number, I think we had about 1260 odd qualifying employees.

But as a result of the rapid decline in the truck market, it became apparent that the employee base that (indiscernible) was going to be reduced, so we had to look at the amortization of that buy-down cost and we had to accelerate that, based on the number of employees that are currently there and some that have gone.

Based on that, the accelerated amortization in Q3 was $23 million over what it would have been if we hadn't changed our amortization period.

Obviously, that's going to impact us going forward, as well, into Q4.

If things don't change, we're expecting an additional amortization of these buy-downs cost of about $14 million.

And -- (multiple speakers )

We look to have close to 2011 -- 2010 to 2011 CE, because we're advancing the amortization.

The amortization expense in future years is going to be reduced accordingly, Peter.

When is the crossover when you start -- when you see less versus more?

It is going to cross over in 2009, Peter.

Okay.

And this -- this incremental amount you incurred during the quarter of $23 million, as well as the $24 million write-down you took on the asset-backed commercial paper, are those two items, do you tax-affect that or just the gross amount impacted your net income?

Well, with respect to the accelerated amortization, remember, from a US perspective, we have written off all our US tax assets, so you are not getting a benefit from that.

Right.

With respect to the asset-backed commercial paper, we are benefiting that.

Okay.

Okay.

And lastly, Don, if the speculated merger between GM and Chrysler were to occur, can you talk a little bit about how you see that impacting Magna?

Obviously -- the obvious things are combined volumes would come down, but there may be other impacts we haven't thought about?

Can you talk a little bit about that, if you are going to see that merger or other OEMs merge, how Magna would react to that?

First of all, I haven't really heard too much about what is going on other than speculation in the paper, but who knows.

I guess we will know one way or the other in the (inaudible) near-term.

Assuming the combination of GM and Chrysler or any two customers, it's pretty difficult to determine the potential impact, and we have thought about it, but there's not much we can do, so we'll wait and see what happens.

I think all of the supply base, you are going to have to look at a number of things.

One of the most important is probably what is the potential overlap of their product portfolios and that would ultimately determine if they discontinue any products.

If they discontinue the product, then obviously we have to look at what our -- our content on that vehicle is and that would have an impact.

You then have to look at if a product is taken out of the market, what products are likely to replace it and what is the relative content in those vehicles?

So that's probably the biggest impact.

If they simply move a product from one location to the next, typically we retain the contracts on that.

So that would be less of an issue.

Then we need to look at what is the time period over when they would ramp something down, if they are going to close it?

In some cases it could be pretty quick, other cases it may be at the end of the model life.

The -- I don't know that it has much impact on pricing.

Everybody is already squeezing as hard as they possibly can.

I think the supply industry will continue to shakeout to get higher volumes on -- on product because somebody is going to enter the market, then obviously we can share in some of the savings there, but I don't think it has a significant impact on pricing.

And longer term, I guess, the real impact is the combined entity stronger because they are -- have higher volume, they have more efficiency, they have less overhead?

Is there cost savings to them?

So I don't know what the answer is, but I -- I can tell you in my opinion, combination and orderly optimization of what they are doing is definitely going to be better for the economy and the employees and the supply base than a failure of one in the companies.

So we'll have to wait and see what happens.

Okay.

Thanks for your comments.

Our next question comes from the line of Itay Michaeli from Citigroup.

Please proceed with your question.

Good morning.

Wanted to ask a couple of questions on cash flow.

It looks like in the third quarter, the outflow from working capital wasn't as severe as we typically see it.

How should we think about Q4?

Are we going to see a generally lower inflow working capital than you typically experience and would you expect, I guess a better way to ask it maybe is what do you expect the full year working capital user source to look like?

Well, a big part of that, Itay, is going to depend on sales in the fourth quarter.

There is a whole bunch of volatility on sales.

Those are really hard numbers to predict.

But just going by history, typically in the fourth quarter, we have been generating cash from working capital and the reason for that is we typically have stronger sales in the months of October and November.

Your sales drop off in December as a result of the Christmas shutdown, so you are actually collecting your October receivables.

Your November receivables typically stay outstanding and December receivables are smaller, so you benefit from that.

But given the environment today, it's really hard to product where working capital is going to end up.

Right.

And then on CapEx looks like you brought it down pretty substantially.

If volume worsens globally again next year, how much lower can you really cut that number?

Is there quite a bit of flexibility or is 700 to 750 a good number to think about even if we see another letdown in volume next year?

We're -- right now we're going through our business plan review.

700 and 750 is substantially less than we would have been spending had we been in a strong market.

I would hope that that would be the upper end.

A lot of it, I went you to remember very clearly what we went through in Magna in the industry back in '89, '90 when we had the slowdown.

And when there is a cash crunch, one of the -- obviously, volumes drop, which means you can use other assets which helps reduce capital.

The other thing which typically happens is for conservation of cash, a lot of the programs will be delayed.

They may not be cancelled, some cases they are, but they are delayed, which means we delay some of our capital expenditures and I think collectively, the management team believes when we come out of this downturn, however long we think it is going to be, we want to be sitting on a fair amount of cash, because when we went through this back in '90, '91, we were at the opposite end, we had to sell operations off that were good, had good long-term potential, at $0.15 on the dollar, and we want to be in a position of take advantage of that.

So we're looking at all of our current business we're quoting to see how strategic it is and to scale back on major new capital programs, because we think there is going to be a better opportunity for that cash in a year, year and a half.

So I guess round about way of answering your question, I think 700, 750 would be the maximum we are going to be at, but we're going to have to wait and see what happens over the next couple of months with program delays.

We are also -- we will have a better idea once we get through out business plan process, we can give you an update then.

Great.

That's helpful.

And then just finally a question on just decremental margin North America relative to Europe.

With Europe volumes coming down pretty sharply, can you provide any parameters on how we should think about the modeling decremental margins in Europe relative to the North America, what some of the key differences we might want to think about as we go along there?

At this time, Itay, it is -- truly, Itay, we're sill in the middle of our business plan process and we're playing catchup, because we actually gave Ed some assumptions on production for North America and Europe for 2009 and given what's happened over the last little while, we are reducing those assumptions to -- it's best to look at where the plans are going to be before I comment on that.

The biggest part of margins in any jurisdiction it is going to be what are the volumes, how steep are they going to decline, is going to be one impact.

The other impact is going to be the assembly sales, Magna Steyr, how big of that -- is that over all Magna, because that will have an overall impact on margins.

And clearly, another important factor is going to be the mix of business.

Are higher-content vehicles hurt as a result of declining productions or do they maintain the levels that they are at.

When you add all that up, we'll see where margins are going to be, but it's too early for me to have a view on that.

Sure.

Thanks a lot.

Our next question comes from the line of Michael Willemse from CIBC World Markets.

Please proceed with your question.

Thank you.

If you look at your cash position, outside of the asset-backed commercial paper, what is the rest of the cash held in?

Mike, I just want to make clear, the asset-backed commercial paper is not classified as cash on the balance sheet.

Okay.

It is classified as investments.

So the cash component -- actually we have been changing our investment strategy, we're looking for now at about 30% of our cash being invested in government paper or T-bills.

And the balance of it is going to be in short-term bank deposits.

And what we have been doing from a risk perspective is putting our cash or investing our cash in a number of banks globally.

So we have been reducing our exposure to any one counter party and trying to spread the cash over several banking institutions across the world.

Okay.

And is most of the cash held in US dollar denominated assets?

No, most of the cash is held in Canada.

We have some cash -- I would say Canada is sort of the primary place we hold cash, substantially all of our cash.

We have some US dollar cash and we have some euro denominated cash, so the one thing that will impact our reported cash balances is foreign exchange.

If the Canadian dollar weakens and the euro weakens, as you can see even in the third quarter, we had a reduction in US dollar reported cash of about $50 million.

And the Canadian dollar was at $0.97, so yesterday, I think the dollar was $0.83, $0.84, so as you can looking at pure translation, we reduce our reported cash balances.

You also have to net in the debt, too, which is dominated in Canadian dollars, US dollars, and euros.

So you really got to look at our net cash position to determine the impact that that will have on our US dollar reported cash balances.

Okay.

Thank you, and just on the production, if you look at the fourth quarter, right now you are looking at about flat, quarter over quarter, but after looking at auto sales last night, how much do you think that you could actually see on the downside rather than flat?

I don't know, Mike.

Every morning I get up and I read the paper, I look at my e-mails and there's always bad news, so I -- if sales in November are very disappointing, I guess it is going to impact production, but at this point, it's just too early to tell.

Right.

Okay.

Thank you.

Our next question comes from the line of Patrick Archambault from Goldman Sachs, please proceed with your question.

Hi, yes, good morning.

Good morning.

Just a quick question or follow-up on the asset-backed CP, how much of that in your investment accounts do you have in terms of just the overall balance?

And how do we think about sort of if the problems persisted with that asset, how much could it be further written down, I guess?

Well, we have -- the face value of the asset-backed paper is $135 million Canadian and we have made provisions over several quarters as we continue to revalue the paper, so the book value of the ABCP in our investment account is $79 million Canadian.

How much more can it be written down?

Our view is that we're going to collect not the $79 million, but more than that over time and the reason that we have been writing down the ABCP, is that credit spreads have been widening and we essentially are market to marketing that paper.

So the interest rate we expect to receive on that paper is fixed and spreads increase, you have got to write down the carrying value of the investment.

Just in terms of our calculation, in the second quarter the spreads on this paper that we were looking at for a AA rated paper were 400 basis points.

Credit spreads in the third quarter were 750 basis points.

So if you just take the 350 basis points and present value that, that resulted in the additional $24 million write-down in the quarter.

Okay.

Thank you.

That's helpful.

And I guess one other question, just on commodities.

Clearly with everything going on, you have seen a pretty big downturn in steel prices and potentially some of the feed stocks for resins as well, and I just wanted to get a sense -- well, A, how much did that impact you negatively in the quarter; and B, if these declines persist, how long might it take for that to sort of turn around and actually benefit you guys, maybe not Q4, but maybe in '09?

Really difficult to tell, so I can't quantify it.

and just trying to track within our Company is extremely difficult.

But if you look at the -- commodity prices have been declining.

But in Q3 we actually experienced a net year-over-year increase in commodity costs, largely due to resin, but there's a big delay factor from the time the commodity costs change to the time we actually get production, or get -- we buy the material and then we get it into production.

Much of our steel is contract out to the end of 2008 or -- and beyond that and we have got some -- some pressures with surcharges from our suppliers over and above the contract prices.

I would expect that we're going to start seeing some decline in resin and steel prices, but it's very difficult to tell when it comes down and it's hard to tell specifically in steel, because you have got not that many players trying to control the cost now, so I expect they are going to start coming down, pretty hard to quantify what it is going to be, but hopefully we see that impact more in 2009.

And then, I guess, also, right, there's a lot of your steel that's probably directed source, right?

Just for the assembly stuff?

That may not have an impact either way?

Is that -- is that correct?

If you think of our steel buys, more than 50% of our steel buy's on customer resell programs.

Right.

So that hasn't impacted our overall commodity cost, but what's impacted us is things on a shorter-term contracts and items where we don't have contracts.

Okay.

Just to put it into perspective, we are talking about the first half of this year has been -- first half of '08 versus first half of '07, commodity costs were fairly neutral, there were some ups and downs, but on balance it was pretty neutral.

But in the third quarter, we did see a surge overall in commodity costs across the Company.

That's likely to continue in Q4, as Don talked about, and if there's any moderation it is going to be in 2009.

Okay, got you.

Any chance you might be able to just quantify what it was for 3Q?

I would rather not talk about the specific number.

Okay.

Fine.

And I guess my last question was just on -- can you -- can you just give us a sense of what your exposure is to western versus eastern Europe in terms of your product platforms and -- I guess if you can just share it with us a little bit of the outlook, you're -- in terms of the slowdown for west versus east, that would be helpful.

Well, I -- when you look at our overall product portfolio today in Europe, I would say that substantially all of that is for western Europe consumption.

As you know, we have been focusing on growing in eastern Europe and Russia has been a big part of our focus, so I think if we look at over the next couple of years, I think that's going to change, but right now I would say eastern Europe is probably maybe 2%, 3% or 4%, moving up to 5%, but it's not substantial at this point.

Okay.

Great.

Thank you very much.

Our next question comes from the line of David Tyerman from Scotia Capital Markets.

Please proceed with your question.

Good morning.

Within your North American EBIT discussion you indicate that net foreign exchange losses had a negative impact in the third quarter.

I was wondering if you could describe what those are and the magnitude of those losses.

Sure, David.

What they represent is as we record sales we'll record an account receivable, or as we receive in supplies we'll book an account payable.

From the date that we actually book an account and the time we pay it, it may not be absolutely perfectly hedged, so there's a difference between the date you record it and the date you pay it, and that will trigger, from an accounting perspective, a foreign exchange gain or foreign exchange loss.

When I look through the $200 divisions that we have across the Company, the amount aggregates to probably year-over-year about $20 million swing.

But it's not in any one particular area.

It just depends.

Can't really pinpoint on anything other than foreign exchange fluctuations.

So should we expect that kind of change if the Canadian dollar is swinging one way or the other?

Like normally the Canadian dollar would have been, what, going up in that quarter?

David, it's going to -- it's hard to tell.

Remember this is going in SG&A, so it really depends at the spot rate that things get recorded when we put the revenue in and then when we pay it off.

Remember, that swing that I talked about, it's '07 to '08.

Right.

So hard to tell.

Hard to predict.

Okay.

200 divisions across the board.

Every one of them has got $100,000 or $200,000, it's going to aggregate to a bigger number across the Company.

It is hard to find that out exactly.

Fair enough.

Just related, can you give us a rough idea of the annualized revenues and costs in Canadian dollars?

David, I don't have that.

I think what's, for us, more relevant is we look at our overall exposure and have we got hedges or not, what's our input.

I think the best thing you might want to do is look at our segment number in the statements that give you some sort of flavor for that.

I don't have an exact number for you.

Okay, but how much of the stuff out of Canada is exported, I guess?

It could be exported, but it could still be denominated in Canadian dollars.

That's what I'm driving at.

I'm trying to figure out what your exposure is here.

Some of my other companies do a lot of exporting so they have large Canadian dollar costs against US dollar revenues.

I'm trying to understand where you are on that.

I'd say a lot of our Canadian dollar sales are denominated in Canadian dollars.

Again, it's a combination of a couple of items look at overall.

I think what you're trying to figure out is what's the impact on profitability as a result of movement in the currency.

We've talked about previously, David, when the Canadian dollar was strengthening against the US dollar, we said that we believe that that's positive to bottom-line, but it's really hard to remember it because of foreign exchange contracts that are in place and the ability for divisions to look at where they're buying, whether they're buying in US or Canadian dollars.

Likewise, when the Canadian dollar is weakening, I don't believe that's going to hurt us, but the exact impact is going to be difficult to pinpoint, again, because of the hedged contracts that we have in place.

Just want to clarify.

Vince is talking from a financial reporting standpoint.

As the Canadian dollar weakens, obviously it allows us to be more competitive in our quoting from our Canadian plant.

So it's been a welcome relief from our Canadian operations to have the Canadian dollar weaken.

We were seeing a lot of pressure to move products that are produced in Canada, either in the US or into Mexico.

The US dollar was weak, then it obviously made US operations more competitive and allowed us to move, at customers' request, product that was produced in euros back into North America.

So just want to make sure there's no confusion from a competitiveness point of view from our Canadian operations and our Canadian employees, the weaker the Canadian dollar, the more ability we have to keep the business we've got and win new business.

And it's a critical decision point I've got to believe for the OEMs in determining where they're going to produce vehicles.

They look at our -- the competitiveness in Canada but also where the dollar is going to be in the overhead costs, and I think that has been a huge negative in the past number of years.

So hopefully the Canadian dollar stays low and we can look at trying to have competitive rates, whether it's tax or energy or anything else in Canada.

David, if you look at Q4, I would say that the movement in the Canadian currency versus the US dollar are not going to have a significant impact on bottom-line.

It will have an impact on reported sales, but not a significant impact at the pretax line.

Okay, that's helpful.

Just one last question.

Also on the North American EBIT number, you indicated that profits were negatively impacted by increased downsizing costs.

Can you give us an idea of the rough size of that?

David, when we start looking across the Company, we've identified a number of facilities that have been impaired and the $70 million to $80 million in restructuring costs reflects some of those impaired assets as well as some other facilities.

But across the Company in North America, we have been looking at right-sizing the operation and we have been taking some severance and restructuring costs.

But they're all sort of onesies, twosies's.

They add up to more than what they were a year ago, but the exact numbers are very hard to quantify, because when you start looking at divisions, they like to throw in some numbers in there that, from my opinion, sometimes don't belong in restructuring, they're just operations, but overall it's higher than where we were a year ago.

Could we be looking, though, a year from now, if this was all done, at a significant turnaround there?

Well, certainly -- the restructuring activities, David, that we're taking, we're right-sizing our operations.

Obvious we'd rather keep the capacity in place and run sales.

There is something we need to do.

But as you look at from a pure financial perspective, certainly the actions we're taking are going to have a payback.

Whether that's one or two years out is going to depend on the particular situation and it's also going to depend, obviously, on vehicle volumes.

If you do analysis today on certain assumptions and those assumptions change tomorrow, it will impact our payback.

May accelerate our payback, in some cases may delay the payback.

But ultimately we believe that by right-sizing the Company, we are making ourselves more competitive and improving overall profitability.

Great.

Okay, thank you.

Our next question comes from the line of Rod Lache from Deutsche Bank.

Please proceed with your question.

Good morning, everyone.

One of the factors that you typically count on to offset your price declines to your customers is the price declines from your suppliers and I was hoping you could just give us some color on whether that in recent times is more or less offset price deflation that you are giving your customers and whether you're expecting that to change just given the severity of the downturn.

Yes, we look at two areas to us at price reduction requests from our customers.

One is -- actually, there is three areas.

The best is if we can redesign product.

We call it VAVE.

So there may be a price reduction, but the same functionality or the same part.

So we work hard on that.

Second area is continuous improvement inside our plants, and I think one of the opportunities we have, given the downturn, is to get everybody extremely focused on optimizing throughput, cost of quality, capacity utilization, make improvements.

The third area, as you just asked, is what can we get from our supply base.

A lot of what we buy is raw material.

We talked about that earlier.

It's actually been a lot in our global commodities, steel and resin base, so hopefully we'll see that come down.

We just commented on that.

As far as our supply base, we buy things decentralized.

It's hard to get an exact dollar amount, but over the last couple years, Magna in Europe and North America and also in our Asian operations, we have been taking a look at our overall buy trying to leverage who we buy from to make sure we're giving more concentration to specific suppliers who are healthy, who aren't going to go under, and also they can give us better pricing.

So we are seeing some improvement in that area.

One of the risks, obviously, going forward is if the industry continues in this downturn, it hurts everybody, including the small suppliers, and we've just got to make sure we understand are they going to stay in business or not.

We have opportunities right now to in-source.

We have open capacity, which obviously we're pursuing, but I would say overall, I can't quantify it, but I would say we are continuing to get slightly lower pricing, but that may be more than offset by failures of the tier 2 supply base and the cost impact to us to move tools that have to deal with their bankruptcy situation.

So I think we're doing all we can, but it's going to be a balancing act going forward.

Are you expecting the decremental margin to actually be a little bit higher in the near-term as a result of that?

Any way to put some parameters around that?

It would be a wild guess.

I would say to assume it's neutral, so we continue to (inaudible) that contribution margin, negotiate price reductions, if we consolidate our supply base and probably offset roughly by any of the disruptions we're going to have in the supply base, so I would say, I have no idea, but I would say it's going to be relatively neutral from a modeling standpoint.

Okay.

On the SG&A, it's historically been pretty flexible.

It's up year-over-year.

You mentioned FX.

You mentioned the ABCP charge.

Was the accelerated amortization, was that also in there in that number this quarter?

And is there any color you can give us on the outlook for SG&A just going forward?

Rod, the accelerated amortization was in margin.

It wasn't in SG&A.

Some of the other activities going on in SG&A, we do have a number of initiatives on -- in a number of areas, and some of those costs are being booked in SG&A.

Certainly our expectation is with our focus on discretionary spending, we expect to see a reduction overall, not only in cost of sales and what we're doing on the capital side but also on SG&A.

Keep in mind from a percentage standpoint, on the SG&A side, you need to think about the vehicle assembly business.

If you go back a number of years, as our vehicle assembly business started to grow, we had a couple of impacts on the income statement.

We had gross margin percentage coming down and we had SG&A as a percentage (inaudible) coming down as well.

Remember, we purchased a lot of the components and assembled the vehicle ourselves for the customer.

So as we've noted in our comments today, with a decline in overall vehicle assembly sales, it had a positive impact on margin.

However, on the SG&A line, I expect that's going to have the inverse with SG&A as a percentage of sales increasing, everything else being constant.

Right.

I was thinking about it more on an absolute basis.

Can you give us an estimate for -- with these restructuring charges what is the magnitude of the structural cost savings that you are looking at '09 versus '08 as these things are implemented?

Well, Rod, if we're looking at, let's say, a one or two-year payback and we're looking at a $70 million, $80 million cash expenditure, you can make some assumptions from there in terms of what the structural savings are going to be.

The difficult thing in all the restructuring is that there's a whole bunch of moving pieces, too.

Volumes are steady.

If they keep on fluctuating so as we come up with a plan, a lot of times we need to reevaluate that plan and make changes to it.

But there will be, with our assumptions, there is going to be a structural cost savings that should carryon.

All right, thank you.

Our next question comes from the line of Brett Hoselton from KeyBanc.

Please proceed with your question.

Good morning, gentlemen.

Hi, Brett.

First quick question, Vince, contribution margin, how do you think about the contribution margin on a, let's say, lost dollar revenue and is there a significant difference between your European contribution margin versus your North American contribution margin?

If I look at overall North American overall Europe, there certainly is a difference on contribution margin percent.

Remember, we do have a different mix of sales in Europe with the complete vehicle assembly business.

So it's lower in Europe, it's higher in North America overall.

I guess the way I quickly look at it is, when production is down and sales are down, quick and dirty, you can look at overall sales, make whatever assumptions you want on contribution margin because mix is going to have a big impact by product area, because the contribution margins are different in each one of the product areas and they have different levels of capital intensity across the business units.

But that sort of gives you a number, but what we've been focusing on as a team is just having a reduction in contribution margin impacting bottom-line isn't good enough, and the actions we've been taking is actually to reduce our fixed costs.

So we're trying to move more of our fixed costs into variable costs and eliminating some of those variable costs.

That's been our strategy for the last little while, given the decline in production in North America and what we're starting to see in Europe.

Is that similar to what Vince just said?

The best way for us to address cost or any supplier or any OEM, for that matter, is to figure out what the sales volume are and match the production cadence to the sales volume.

If you have fluctuations rapidly up and down you lose contribution margin.

What we've done is we are taking our best guess where we think the industry sales are going to be in relative production all through 2009.

I think it's going to -- this will last into 2010, personally, so we are re-adjusting our capacity utilization and our overhead to match what we think the market is going to be.

That allows us to not have the full impact of contribution margin at the bottom-line if we can restructure.

So that's a best guess from anybody's point of view.

However, our view as a Company is this is not a short-term dip, so we are going to have to realign our overhead and our capacity utilization to match the market.

And that allows us to competitively quote going forward, win new business, and hopefully keep a healthy Company.

And switching gears to maybe a couple of more strategic longer term questions.

Have you seen any material increase in automaker outsourcing, giving some of the capacity constraints at the automaker level?

For example, and I know you mentioned axles was not an area of specific interest, but Chrysler agreed to spend $700 million to build a new axle plant.

It seems like now they may change their mind.

So as we look at your automaker customers, are they taking a harder look at incremental CapEx expenditures and possibly looking to you to pick up some of the additional burden to maybe get some outsourcing opportunities for yourself?

I think it's a mixed bag depending on which car Company you talked about and depending on whether there's management changes inside the car Company.

Right now in North American, I suspect in Europe as well, all of the OEMs, if they had freehand, would outsource as much as they could because they get a more competitive wage and cost by going on the outside.

If they are fixed into labor contracts, then they will do their best to try and utilize the workforce they've got.

But I think when you look at the reality today, the car companies have to take on the challenges and right size their business, and if they're doing something that's not competitive with what they can get on the outside it's got to be a short-term Band-Aid, because long-term it just hurts their overall Company.

So I would expect we'll see the trend for outsourcing to continue over the long haul.

It always goes through fluctuations.

It always has, it always will, but I think the opportunities for the supply base to get larger content in areas like powertrain and in almost all areas will continue.

There will be slight variations, but it's simple economics.

They may have their hands tied by contracts, but ultimately they have to outsource more or they're just not going to maintain their competitiveness.

And then finally, let's say over the past five or ten years you've moved in the direction of not only producing more of the car, but actually adding some assembly capacity and so forth.

So there's been a clear trend at Magna to move in that direction.

My question is, as you look at what's taking place, not only in North America but also in Europe, is that still a strong pursuit of your Company or is there any reason to believe that that strategic direction may change?

You are talking about the -- our assembly?

Yes.

I mean, just in general, in the 10 years that I've covered your Company, you've consistently moved in the direction of assembling vehicles, or moving in the direction of not only making more and more parts for the vehicle, but actually assembling derivatives and so on and so forth.

So that's been a strategy of yours for a long period of time.

Is there any reason to believe that that's changing given the current environment?

No, if you looked at our Steyr operations, they are, I think, they're the best in the world outside the car companies at designing vehicles and being flexible in low volume assembly, which benefits the car companies.

Right now, when we see the downturn in the industry, there's open capacity, then there's obviously analysis has to be done to car companies, can they do those products in-house.

But from a vehicle engineering, we're seeing higher demand than we've probably ever seen in the past because there's more variance coming to market.

The car companies are trying to downsize and off-load their off-peak engineering and development of new vehicles, so we're seeing a lot of opportunity there.

We're also -- we have a lot of expertise and we're seeing a lot of requests and opportunity in alternate fueled vehicles because they typically tend to take a lot of resources and they're lower volume.

Our number one priority is to keep our operation in Austria full because we have the assets in place there.

There is a lot of requests to look at some of the emerging markets, where the car companies want to enter but they are going to enter at relatively low volumes, so they will look to us to see if it's a cost effective way to enter a market.

North America right now wouldn't be high on our priority list to put a lot of assets in the ground, just because there's open capacity, but if there's a restructuring of capacity utilization and capacity and assembly over the next couple years, which I tend to think there will be, and if the market comes back again there may be an opportunity at that point in time to get into contract assembly.

So we're certainly pursuing it.

We're being careful on any capital expenditure, but I think there's going to continue to be a demand as long as we're cost competitive in the area.

Great, thank you very much, gentlemen.

Operator, we are going to take one more call this morning.

Our next question is coming from the line of Nick Morton from RBC.

Please proceed with your question.

Good morning.

Wanted to ask you about how you are managing your risk with your receivables in light of what's going on.

Well, Nick, we're doing a couple things.

First of all wanted to state that with respect to production receivables, that we have contractual terms with our customers and they're paying based on the contract.

So we just monitor, make sure that that continues to happen.

And it has been happening.

The second part of our receivables relates to tooling or engineering receivables.

And tooling and engineering receivables don't necessarily follow the same process as the OEM and have a different approval process, different payment process, so what we've been doing is making sure with respect to tooling and engineering that we're billing on time, we're not falling behind from a billing procedure.

So that we don't bill on time, it's going to take us longer to collect.

We're working with our customers on tracking where the tooling or engineering payment is within the OEM process.

So that's what we're doing.

We have not seen any change in OEM practices with respect to paying either production or tooling or engineering receivables to us.

Great.

Thank you very much.

Okay.

Just a quick wrap-up.

We're obviously going through extremely difficult times and certainly North America.

I think we can see the market dropping off in western Europe as well, just given the realities in the financial market right now.

Also having to make some extremely difficult decisions.

We -- after having gone through the downturn in early 1990, we have been relatively careful in how much capacity we put in place.

However, nobody anticipated this quick a drop in the sales and production, certainly in North America.

So we are doing everything we can to reduce spending to intelligently look at restructuring to make sure we're competitive going forward.

I think if you look -- you can always look at the half empty or half full.

I think from the car Company standpoint, they also understand what's going on.

They are dependent on the supply base and I'm hoping that they will continue to look at the healthy suppliers with healthy balance sheets that have the ability to continue to spend in innovation, which we are doing, to keep engineering program management so we can launch new programs and try and move as much as they can to the healthy suppliers, so when the inevitable restructuring comes in the supply base, they're not caught with horrendous costs to move tools around.

So I think that's a big opportunity.

We want to make sure we continue to keep a strong balance sheet, so whenever this turns around, I think there's going to be great opportunities for acquisitions to increase our market share and hopefully buy up good companies that may be extremely undervalued.

So it's obviously an extremely difficult time when you are looking at restructuring and we have dedicated employees and we're doing the best we can to try and mitigate any impact on employees, but we need to make sure we're competitive going forward.

So appreciate everybody's time calling in today.

I know there's a lot of news on the elections right now.

It's going to be very interesting with the government in the US and the recently reelected government in Canada to try and figure out what they can do to keep a healthy manufacturing base and a healthy automotive sector.

I think they're -- obviously there's -- you can't change trade rules around the world, but I think there's more and more focus understanding that the loss of manufacturing jobs is having a significant negative impact on the economy of Canada and United States and so we'll see what happens going forward.

So appreciate everybody joining us this morning.

Enjoy the rest of your day.

Thank you.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.