Magna International Inc (MGA) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Magna International first quarter 2009 results conference call.

During this presentation, all participants are in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded on Wednesday, May 6, 2009.

It is now my pleasure to turn the conference over to Don Walker, Co-Chief Executive Officer, at Magna International.

Please go ahead.

Thank you.

Good afternoon, everybody.

Welcome to our first quarter 2009 conference call.

Joining me today are Vince Galifi, Executive Vice President and Chief Financial Officer; Louis Tonelli is also here,Vice President of Investor Relations; and Siegfried Wolf our Co-Chief Executive Officer will also be coming in shortly.

Yesterday our Board of Directors met and approved our financial results for the first quarter ended March 31, 2009.

We issued a press release earlier this morning for the first quarter of 2009 during our annual shareholders meeting.

I would like to apologize to those of you that experienced technical difficulties with our AGM webcast this morning.

Slides and audio are now available on our website.

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

Before we get started, just 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 into these statements.

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

So we are facing extremely challenging times in our industry.

North American vehicle production declined 50% in the first quarter 2009.

That is by far the largest quarterly year on year decline that we have experienced, checking the data we have going back to 1970, which is as far back as we have the records.

The 40% decline in Western Europe is one of the worst quarterly declines in many years.

North American production also fell 37% sequentially from a very low Q4 production level.

We continue to take significant actions to combat the production declines, but to the extent of those severe rapid declines make it difficult to adjust our business quickly enough to be profitable at these levels.

As a result, we posted a diluted loss per share of $1.79 for the first quarter.

The industry challenges have taken their toll on some of our customers.

Last week, Chrysler filed for bankruptcy protection in the United States.

Importantly, not in Canada or Mexico, though.

Chrysler intends to complete its restructuring in 30 to 60 days and emerge with Fiat as a minority shareholder and partner.

Chrysler has shut down substantially all its North American assembly operations while the restructuring plan is being implemented.

We're currently unable to assess specifically what Chrysler's filings mean to our financial position and operations.

General Motors, another significant customer of ours in North America has announced certain restructuring actions.

They have a deadline to the end of this month to provide the US administration with an acceptable plan for future viability.

The US government's assessment of this plan and other factors will determine the next steps for GM.

As with Chrysler, we are unable to determine what General Motors current or future restructuring actions might mean to our overall business.

GM also recently announced extended shut downs a number of its assembly operations which will continue to impact our financial results in the short term.

We have taken a number of protective steps in anticipation of Chrysler's filing, including participation in the Canadian and the US supplier receivable protection programs, related to both Chrysler and GM receivables.

However it is too early to determine the extent to which Magna receivables will be protected.

Some of the initiatives we have been undertaking to reduce costs to combat this downturn include we have been rationalizing and downsizing facilities to improve capacity utilization which has unfortunately resulted in significant reduction in the number of our employees.

We have implemented a short workweek schedule at a number of our operations.

We have implemented a wage freeze across Magna and reduced discretionary bonuses at the end of 2008.

In Europe, a voluntary wage reduction program was implemented earlier this year, and in North America, we will be rolling out some reductions in benefit plans.

Across the organization, we continue to minimize all discretionary spending.

It is difficult across Magna to quantify the impact of all these initiatives but we believe they could easily amount to hundreds of millions of dollars in savings, some of which benefit us in this year and others benefit us next year and beyond.

Despite the difficult industry environment we find ourselves in, there are some positive signs that suggest that we may be nearing a turning point.

US auto sales while at a 25 year low appear to have bottomed.

Consumer credit remains restricted but recent data associated with the auto finance company loan rates indicates some improvement.

Indicators that North American consumer confidence relating to car buying conditions have recently turned positive and the US used vehicle pricing historically correlated with new vehicle sales has been strengthening.

European auto sales appear to be responding positively to scrappage programs implemented by certain governments, and other governments have either announced similar programs or are considering such programs.

Including the US administration.

Just this week, German new car sales in April were reported to be up 19%.

Finally, monthly auto sales in China have recently begun to grow once again.

We believe the lows that we are reaching will lead to further opportunities, including acquisition and takeover work, for companies like Magna and their financial strength.

In the quarter, we were awarded several takeover programs and we are likely to win additional takeover programs.

The near-term shutdowns of all Chrysler's plants and several GM plants may be a tipping point for many suppliers who are on the edge.

Finally, we confirmed on Monday that we are in talks with Opel, GM and German government officials regarding potential alternatives to the future of Opel which could include Magna taking a minority stake.

We will not comment further with respect to Opel.

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

Thanks, Don.

And good afternoon, everyone.

I would now like to review our financial results for the first quarter ended March 31, 2009.

Please note all figures are in US dollars.

In the first quarter, consolidated sales declined 46% to $3.6 billion.

North American production sales declined 48%, from the first quarter, to $1.6 billion, reflecting a 50% decline in vehicle production, to 1.7 million units, partially offset by a 4% increase in North American content to $909.

The key drivers of the growth in content were the increase in reported US dollar sales due to the launch of new vehicle programs, the impact of higher production and/or content on certain programs, including GM's full-sized pickups and the Ford Escape, and acquisitions completed in 2008, including Plastech and Ogihara.

New launches contributing to content growth quarter over quarter also included the Ford F Series, the Dodge Ram, the BMW X-6, the Ford Flex, and the Dodge Challenger.

Partially offsetting these increases were high content programs that experienced lower volumes and/or content, including the Ford Edge, the Chevy Cobalt, Equinox, and Impala, GM's full-sized SUVs and the Ford Fusion and Explorer, as well as the weakening of the Canadian dollar against the US dollar.

Programs that ended production during or subsequent to the first quarter of 2008 including the Chevy Trailblazer, GMC Envoy and Dodge Durango.

Incremental price concessions also negatively impacted North American content.

European production sales declined to $1.2 billion, representing a decrease of 42% from the comparable quarter, in a period when European vehicle production declined 40% to 2.5 million units.

European content declined 4% to $454.

The key contributors to content decline in Europe were the weakening of the euro and British pound, each against the US dollar, programs that experienced lower volumes and/or content in the first quarter of 2009, including the BMW X-3, the Ford Transit, and the Mercedes-Benz C-Class, the sale of certain facilities during or subsequent to the first quarter of 2008, and OEM price concessions subsequent to the first quarter of 2008.

These factors were partially offset by the launch of new programs, including the Audi Q5, the Volkswagen Golf, and the Opel Vauxhall Insignia, and increased production and/or content on certain programs, including the smart fortwo and the Volkswagen Tiguan.

Rest of world production sales decreased 11% to $108 million, primarily as a result of the weakening of the Brazilian Korean and South African currencies each against the US dollar, and a decreased production and/or content on certain programs, particularly in Korea.

These factors were partially offset by the launch of new programs during or subsequent to the first quarter of 2008 in China, increased production and/or content on certain programs in Brazil and South Africa, and an increase in reported US dollar sales as a result of the strengthening of the Chinese currency against the US dollar.

Complete vehicle assembly volumes declined 72% from the comparable quarter, and assembly sales declined 63%, or $685 million, to $401 million.

The sales decline was primarily as a result of lower assembly volumes for the BMW X-3, Saab 9-3 Convertible, Chrysler 300, Jeep Commander and Grand Cherokee, as well as the impact of the weakening of the euro against the US dollar, partially offsetting the decline was higher assembly volumes for the Mercedes-Benz G Class.

In summary, consultant sales, excluding tooling sales, declined approximately 48%, or $3 billion in the first quarter.

The primary reasons for the decline are the strengthening of the US dollar against the euro, British pound and Canadian dollar, significant declines in vehicle product in both North America and Europe, as well as lower assembly sales.

Our tooling, engineering and other sales declined $39 million, or 10%, from the prior year, to $342 million for the quarter.

Gross margin in the quarter was 6.8%, compared to 12.7% in the first quarter of 2008.

The change was substantially as a result of lower gross margins earned due to an unprecedented decline in vehicle production volumes.

In addition, the gross margin percentage was negatively impacted by incremental costs associated with restructuring and downsizing activities primarily in North America, additional supplier insolvency cost, amortization of deferred wage buy-down assets at our power train assistance facility in the United States, and customer price concessions, subsequent to the first quarter of 2008.

These factors were partially offset by the decrease in complete vehicle assembly sales which have a lower gross margin than our consolidated average.

Productivity and efficiency improvement to certain facilities, lower employee profit sharing, the decrease in tooling sales that earned low or no margins, and the benefit of restructuring and down sizing activities that were undertaken during or subsequent to the first quarter of 2008.

Magna's consolidated SG&A as a percent of sales was 8.4% in Q1 2009, compared to 5.4% in the first quarter of 2008.

This increase was substantially due to the significant decline in sales as a result of the significantly lower vehicle volumes.

Largely as a result of the lower gross margin percentage and higher SG&A percentage, lower equity income, higher interest expense, partially offset by lower depreciation expense, our operating margin percentage declined to negative 6.4% in the first quarter of 2009, from 4.3% in the first quarter of 2008.

Our effective tax rate declined to 13% in the quarter, from 28.3% in the first quarter of 2008.

The decline is primarily the result of an increase in losses not benefited primarily at our facility in US and Germany.

Net loss was $200 million in the quarter, compared to $207 million of net income in the first quarter of 2008.

Diluted loss per share was $1.79, compared to diluted earnings per share of $1.78, reported in the comparable quarter in 2008.

This decline in diluted EPS was as a result of a decrease in net income, combined with a increase in the number of weighted average diluted shares outstanding during the quarter.

The decreased number of shares was primarily due to the repurchase and cancellation of our class A shares subsequent to the first quarter of 2008, under the terms of our ongoing normal course issuer bid and to a reduction in the number of diluted shares associated with debentures and stock options since such shares were anti-dilutive in the first quarter of 2009.

I will now review our cash flows and investment activity.

During the first quarter of 2009, we generated $9 million in cash from operations, prior to changes in noncash operating assets and liabilities, and invested $52 million in noncash operating assets and liabilities.

The investment in noncash operating assets and liabilities largely reflects the decrease in accounts payable, largely offset by decreased accounts receivable and inventory, all related to the decline in production activity.

In addition, income taxes receivables increased in the quarter due to losses that can be carried back to prior years in Canada and higher tax installments in Mexico.

For the quarter investment activities amounted to $118 million, comprised of $96 million in fixed assets and a $22 million increase in investments and other assets.

Finally, our Board of Directors yesterday voted to suspend our quarterly dividend with respect to our class A subordinate voting shares and class B shares.

We believe preserving cash and maintaining a strong financial position is prudent at this time, given our reduction in profitability and continued uncertainty about the timing of an industry recovery.

We will, as always, comply with our corporate constitution which sets out minimum dividend distributions based on our profitability.

Our cash preservation actions have allowed us to maintain a healthy financial position with $1.7 billion in cash, and $1.3 billion in cash net of debt.

We also have an additional $1.8 billion in unsecured credit available to us from a credit facility that extends until July, 2012.

We have modest near-term debt repayments to make.

Under any realistic negative scenario, we are confident that we have the balance sheet to not only survive but remain strong relative to many of our competitors.

This allows us to invest for the future.

This concludes our formal remarks.

We will be happy to take some questions at this time.

Absolutely, sir.

(Operator Instructions).

Our first question comes from the line of John Murphy from Banc of America-Merrill Lynch.

Please go ahead, sir.

Good afternoon.

Just wondering, as we look at the, sort of the debt paydown that occurred in the quarter I was just wondering why you were doing that because the rationale towards the end of last year for drawing on the revolver was the uncertainty in the market particularly with large customers and now it seems like the uncertainty has at least been heightened if not gone through the roof here with some of these large customers.

I'm just wondering what the rationale was there?

I think when we looked at the end of last year, there were uncertainties in the industry, there was uncertainties certainly in the financial markets, generally.

And we thought it was prudent to draw down on the lines but quickly after we drew down, as we moved into January, we were starting to feel a lot more comfortable with respect to our financial institutions generally, and as the quarter progressed, we became more and more comfortable with the strength of our receivables on the balance sheet, as a result of the number of programs that were introduced both in the United States and Canada, to protect our receivable position.

So as we got more comfortable, we thought it made sense to repay the bank line.

As you know we were carrying a negative spread on those borrowings.

We thought it was best to extinguish that negative spread.

Okay.

And then second, I know you mentioned that you didn't want to comment much more on Opel, but in general, without any specifics, what is the broad thinking there, just the strategy that is going on?

I know you can't comment on the transaction or anything like that, but what's your thinking with Opel?

Well, we're not going to make any comments but as everybody knows Opel is -- something is going to happen to Opel, GM Europe or that portion of GM Europe, and there is a lot of parties interested in what the outcome is going to be, so we're engaged in the discussions.

If we can come up with some sort of a win-win-win then we will pursue it but we don't really want to comment any further.

It is the main point, I think that the diversification in the future in the automobile industry is driven by brands and we see that there could be a good opportunity to have a very intelligent corporation to share things as well via platforms, via major module, and there are some ideas and subject to that, we can't comment on anything.

Okay.

And then just lastly, as you're winning this takeover business, I wonder if you can give us an idea of sort of the size and scope of those wins, if they may be able to offset some of the pressure you are seeing just from the volumes at your large customers, and as you're winning that takeover business, are you getting better pricing on those deals and maybe better pricing going forward on future contracts with those automakers?

A number of questions there.

We haven't quantified how much we've got for take over unless Louis, you said something, we won some business.

I think we're -- things don't happen overnight but we're hopeful on a number of other takeover opportunities.

The margins on it really depends on is it better or worse than the companies that had it.

What we will look at typically is if it is going to go into existing operation, existing assets, we don't do it in the contribution margin, but if is an immediate cash flow, then we will be fairly aggressive on bidding it because it uses -- we do get the countries margin and it avoids laying as many people off.

I think we are going to see a lot more opportunities.

And there is downtime now at both GM and Chrysler, so -- and they know that the supply community is going to be going through some pretty difficult times.

The best assumption would be most of the tier one suppliers will be getting their receivables, I think.

Never say never.

But that's the indication, what the indication seems to be.

There would be some hit I'm sure in some areas.

I think a lot of the tier twos, the tier twos really have to depend on the strength of the tier ones, but with all of the production being down and everybody has to come back out of this at the other side of the downtime, I think a lot of car companies will take the opportunity to try and make quick decisions and move businesses so they can come back up without a lot of disruptions.

So it will be interesting to see what the activities are over the next couple of weeks, but we've had a lot of discussions already.

John, if you sort of tally up the sort of takeover business that was awarded in the first quarter, it is just under a couple a hundred million dollars, and there is, a whole bunch of other opportunities that we've identified and hopefully that is going to work in our favor.

The takeover business that we have been awarded in the first quarter, we saw a small amount of benefit on the sales line in the first quarter, but as the year progress, we will have those sales coming through the income statement.

I'm sorry, those are annual run rate sales?

Or is that actually what was achieved, a few hundred million actually achieved in the first quarter?

That is actual run rate, John.

One last follow-up and I will get off.

When you're looking at this takeover business, what parts of the car that you operate in are you seeing sort of the best -- I mean the most takeover right now, where do you foresee the most opportunity?

I think at the time being, it is mixed.

A lot of it is coming in interiors, exteriors, and a lot we see in the metal production as well.

It is something where the weakest supply base is at the time being, and what wins have to say as well.

And Don, we fight of course with prices, because a lot of those suppliers get into this financial stress, because they made a lot of stupid quotes, and that's, we have to work fine with our customers to convince them what the real price and that we don't come in the situation that the others are.

The simple answer is, if there is a mold or a die that you can move over a weekend, that is easy for the customers to move.

What we're seeing now is many failures in some suppliers where the commodities are more complicated.

Either big machine centers or very complicated processes.

That is harder to move.

But we're seeing requests to figure out how we can handle those as well.

Great.

Thank you very much.

Thank you, Mr.

Murphy, for your question.

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

Please proceed with your question.

First of all, in terms of restructuring the business, you have obviously taken out a lot of head count, and taken other restructuring actions.

I'm just wondering, would we have seen the full benefit of that during the first quarter, which implies that those restructuring activities happened early in the quarter?

Or did those restructuring activities carry on through the quarter so there is still more benefits to come in terms of results?

Peter, can I say something?

Peter, especially in Europe, the downturn came a couple of months later, and we have fully, how should I say, hit it, by the first quarter and the last months of the year [2008].

It means you don't see completely -- or you don't see the savings at the time being.

I think it will take a couple of other one, two, three months, then we are there, and all our actions have found its ground.

Peter, it is Vince.

Just elaborate a little bit more on that response by Ziggy, I think that you look at a number of ways.

There are a number of restructuring activities that we undertook in 2008, and we're seeing the full benefit of that in Q1 '09.

Obviously volumes have had a big issue in terms of overall profitability, and how you measure what your real savings are.

But the point is, at the end of last year, we had announced a number of restructuring activities, and in our MD&A's we disclosed that given the actions that we had started there is going to be an additional $40 million to $60 million of restructuring costs.

That was our estimate, our best guess that we were going to incur in 2009 and from an accounting perspective we were unable to recognize in 2008.

In the first quarter, the $40 million to $60 million, we didn't recognize any of those costs.

So we're going to expect to see those most likely, the bulk of them in the second and third quarter.

So those are activities that we identified and commenced in 2008.

Specifically in Q1, when you look at what we've done from a down sizing standpoint, there is probably about $25 million of one-time costs, whether they're severance costs, and some redundancy costs, and some lease termination costs that we've booked.

So we will start to see the benefit of those items in the second quarter going forward.

The third thing that Ziggy was talking about is that both in North America and Europe, we've got a number of initiatives to do a couple of things.

One, obviously, to improve our profitability, and secondly, is to preserve some cash.

Those activities had started in the first quarter.

We did see a small benefit of those activities on the bottom line in the first quarter.

I say small benefit because the larger amount of these programs and the benefit we're going to see are going to fall into the second and really by the time we get to the third quarter, that's when we will start to see the real bulk of those savings.

And when you lock at the initiatives that we've undertaken, just in the last quarter, if you try to annualize those savings, cash and P&L, we're looking in excess of $100 million on an annualized basis.

Now we're not going to get that all in 2009.

Some of that is going to move into 2010 but the initiatives that we're taking to really reduce our fixed cost structure is enormous.

Okay.

And one thing I don't understand, from the accounting, Vince, is when you read your MD&A, and you go into the segmented operating losses, in each of the two geographic areas, one of the reasons that's attributed to the down turn is restructuring costs, yet when you look at the -- I think you know that spread sheet that you sent around, or I think that is posted on your website, where you kind of do reconciliation of your results, from reported earnings and then it takes you down through impairment charges, restructuring charges but there is no charges in the earnings roll for it, and I was wondering if you could explain the accounting of all of this?

For first quarter, Peter?

Yes.

When we look at unusual items and we do have that reconciliation that we post, what we're backing out of there is, or identifying is impairment charges as well as restructuring charges but these are substantial activities, substantially where we're shutting down the plant, or doing a massive layoff, of 60 or 70% of the work force.

However, throughout the organization, we have been down sizing at all our plants, so there is going to be severance costs scattered across 50, 60, 70 plants, 80 plants.

That, we don't track separately and try to identify that, but that's the $25 million that I talked to you about.

So we haven't called it an unusual item.

It is an ongoing expense.

But just $25 million more in this quarter versus what the costs were in the first quarter of 2008.

And that would have come against earnings?

That $25 million was a reduction against earnings in the first quarter, yes.

A couple more quick questions.

I noticed that your depreciation, the dollar amount of depreciation declined quite substantially versus the fourth quarter.

Is that just due to all of the writedowns you took at the end of the year, and this is what the depreciation outlook looks like going forward?

Well, there's -- I would say actually two pieces that moves depreciation down.

The first is the impairments that we took in 2008.

And sort of ballpark it, that probably reduced G&A by about $20 million in the first quarter.

So that is going to continue.

The second is just pure translation with the movement of exchange rates.

We recorded less depreciation on a US dollar basis.

But ongoing, the impairment impact will continue quarter over quarter.

Right.

Okay.

And just lastly, then, I was surprised that the Company as a whole invested in noncash working capital during the quarter, given the substantial reduction in volumes versus the fourth quarter.

Could you just elaborate a little bit why you saw that effect?

Peter, sure, I think when you -- we have some businesses that operate with negative working capital, and we have some businesses, all of our businesses that operate with positive working capital.

So if you think of a situation where sales are actually coming down, we are operating with positive working capital, we actually generate working capital, and in businesses we're operating with negative working capital, as sales come down, we got to pay off our payables and it increases our working capital.

So when you add them both up, right, that is going to create an increase in working capital.

And there is one other important item, too, Peter.

If you look at inventory turns, in the quarter, inventory turns are down.

I mean absolute inventory in dollars is a little bit down, but our inventory numbers should be lower, and the reason they're not lower is that we've been working real hard to understand our tier two and tier three supply base and unfortunately we've identified a number of suppliers that have some difficulty, and that's resulted in us building inventory banks to protect our production.

So that has resulted in some areas of substantial increases in inventory.

Okay.

Thank you for your comments.

Thank you for your question, sir.

Our next question comes from the line of Chris Ceraso of Credit Suisse.

Please proceed with your question.

Thanks.

Good afternoon.

Good afternoon, Chris.

You mentioned a couple of other items, Vince, when you went through the things that hurt the gross margin.

There was the restructuring which you outlined here as $25 million but you also mentioned some supplier insolvency costs, something about buy downs.

Could you quantify some of these other items?

Sure.

We looked at several suppliers, we've been incurring costs for some time, whether that is through a combination of agreements or a number of other things that we've had to do, and the costs that we incurred in the first quarter, dealing with our troubled supply base, approximated the cost of dealing with troubled suppliers for the entire 2008.

And as I look forward, for the balance of this year, and especially with the production idling at Chrysler, as well as General Motors, we think that that is going to be a head wind that we're going to face for the balance of this year.

The order of magnitude of that is going to be less than the $25 million that I just identified.

I don't have the exact number in front of me.

But it is going to be a sort of $10 million to $15 million range additional costs in the quarter.

Some of the other items that I talked about, I'm just going to pull out my roll, Chris.

Do you have another question that I can deal with in the meantime?

Well, the next question kind of dovetails with this, which is if I look at the change in EBIT, versus the change in revenue, it was a pretty steep 33% contribution which suggests either A, you didn't cut costs fast enough or B, there were some one-time items that hurt you in the quarter and that's what we're going through with some of these other items are, but that's what I was getting at more broadly is that contribution and what should we think about in terms of that as we go forward.

Should it stay in the 33% range or will you see improvement on that?

I don't know how you're calculating your number.

I'm actually looking at decremental margin where we're looking at a change of sales and a change in operating income.

Exactly.

And I think if you look at the segments, if you look at the North American and Europe as we report so not even adjusting for some of the items I just talked about, from Q1 last year, to Q1 this year, our decremental margin in North America was 15%, and in Europe, it was 15%.

If I look at what a decremental margin was for 2008, if I back out unusual items that we disclosed, North America last year, e were 24%, and in Europe, we were 26%.

So the options that we're taking to reduce fixed costs, reduce our overheads, we're starting to see that in the numbers.

And even sequentially, I think if you look at North America, Q4 to Q1, decremental margin was 11% or 12%.

So the options we are taking are starting to show up.

And as Ziggy talked about it, in Europe, because the production volumes really dropped off late last year and continue in the first quarter, I would say Europe was probably a couple of months behind where we are in North America in terms of right-sizing the business.

So I think as you move on to sort of second and third quarter, we will continue to see improvements or reduction in decremental margin.

Okay.

I was looking at it on the total Company level.

Maybe I can review the math later with Louis.

Okay.

Great.

Last question, as you pick up new contracts, or renew existing contract, are you finding that you're able to get material cost escalators and has there been any change in your contracts on the standard productivity give-back, the 2 to 3%?

How does that evolve given that you've got a strong balance sheet and you're going to be around?

Have you found you've made some progress on that with customers?

It is interesting, the raw material went up and came back down again.

So when we are looking at quoting takeover work, we will typically look at it on what the costs are now.

Where we need to, we will ask for material escalator, especially something exotic, sometimes we get it, sometimes we won't know the determine how much we quote and whether we take the business or not.

As far as pricing pressure, we are still seeing pricing pressure, but I would say, if anything, it has waned a little bit because you can't squeeze much more out of blood out of a stone.

I think we just don't have margins to give anybody else.

I think what we're looking at is try and design costs out.

They are trying to get a supply base that will still be standing.

If they think we've got too expensive in a particular commodity the market tests us still but I'd say there is less emphasis upon that right now as there is to try and make sure there is a supply base standing going forward.

What we see in Europe, it is pretty much the same.

If you get the takeover business, you can make new rules, you try to make them, but they try to fix those new contracts based on the old standard contracts.

It means here you can really shuffle it a little bit around, but on a long-term base, I think people get a little bit more open to the supply base, because even a supplier consolidation, even hand over jobs from one company to the other makes it a lot of work to the OEMs.

Even if you go with highly integrated modules, you have to involve engineering and all of this kind of stuff, it means that internal costs as well.

And there will be -- I think they will look for more solid suppliers for the future.

Okay.

Thank you very much.

Thank you for your question.

Our next question comes from Patrick Nolan from Deutsche Bank.

Please proceed with your question.

Hi, everyone.

Hi, Pat.

Just a couple of quick questions for you.

First, can you go over the Canadian dollar impact on North America and then the euro for Europe on the top line?

When I look at content, and maybe you can work the math backwards, you look at North American content for vehicle, we went from 874 to 909 in the quarter.

We have shown some growth, but actually, the growth is a lot better, because there is a lot of translation in there going the other way.

Content growth ex-translation, was about $50 in the quarter.

We benefited from a number of new options which I covered during my formal remarks, and some positive mix on some items, offset by some negative mix.

But all in all we're up by about $50.

The acquisitions of Ogihara and the Plastech exterior business, that adds about $26 in content quarter over quarter, and the balance, which is a negative number, is just the impact of the weakening Canadian dollar versus the US dollar.

And so all in all, content per vehicle ex-translation was pretty strong growth in the first quarter.

And Europe is really the same situation.

The euro did devalue.

The US dollar, the impact on translation was a negative $50 quarter to quarter.

And our content growth was about -- just over $35 in the quarter.

And again, that is due to a number of launches that I covered in my formal remarks as well as some positive mix, negative mix, but overall, up about $35.

Got it.

Can you talk -- and maybe you can talk just a little bit about the outlook for assembly sales?

I know there is some Chrysler business in there, but then I think there is some new business that should be coming on towards the end of the year.

I mean I don't think it should be running at this level going forward, but should there be a recovery when sales recover, or is there so much business coming out that it maybe stays in this 4 million to $5 million a quarter range?

The volumes in the first quarter at Magna were 12,000 units.

Anyway, we don't expect it to stay that low.

But look what you saw, we won all the new contracts which were given out by the OEMs, there were four over the last two years, and we extended let's say the [Tiguan] for another seven years.

I personally think we start or invest in new car, with the [Peugeot], which is coming at the end of the year, very nice thing, I'm quite positive there.

But you're right, it is indeed a difficult situation, Saab is bankrupted, and with Chrysler, we have a big question mark how it is going on in the next couple of months.

But on an ongoing basis, we are still very positive, because on one hand, the car manufacturers would have to sort out or give out such assembly programs, and on the other hand, there is no competition anymore, because all our competitors are gone, Carmen, Helios, the Italians, that means it gives us a very solid position, but do we have the same 250,000, what we had, I don't think so, but will it become better?

I'm quite sure.

Pat, if you just look at the book business that we in Magna Steyr, 2009 is a transition year where some programs are going away and some new programs that are ramping up.

I think as you move into 2010, we're going to certainly see the benefit of the BMW program that -- the crossover, we're going to see the benefits of the Peugeot program, we're going to see the benefits of the Aston Martin program, but again those programs are going to be ramping up in 2010, so when you start to get to a more normal volume cycle for Magna Steyr we're out to 2011.

Again, if we're successful in picking up some additional business, our volumes today and what they may be could be higher, but we are really looking out to 2011 before we get to some pretty decent volumes.

And then just lastly, on the actual cash outlay for restructuring, what was it in Q1?

And then so if I think about it for the full year this year, you have the $60 million or $70 million left from last year, the $25 million from the first quarter, and then should I figure in another $50 million or so for the balance of the year for your ongoing restructuring?

Pat we've got another $40 million to $60 million to go from last year.

Okay.

And that will most likely be cash.

Of the $25 million in the first quarter, there is probably about $17 million to $18 million is cash.

The other part of it is going to -- it will be cash over the next several years.

And in terms of other down sizing and restructuring activities, I'm not going to even take a guess at that.

It is going to depend in part or all of it really on where production is going to be for the balance of this year.

But my best guess at this point is it will probably incur some additional down sizing cost, based on the volume reductions in North America, and some of the softness that we're seeing in Europe.

And just confirm, there was no cash out in Q1 for restructuring?

Probably about $17 million, $18 million on the down sizing costs.

Got it.

Thank you very much.

Thank you Mr.

Nolan, for your question.

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

Please proceed with your question.

Thank you.

Good afternoon.

Just a follow-up on the working capital and the CapEx, Vince, do you think that working capital could decline over the next few quarters?

And also, just your CapEx outlook for 2009, if you gave it already, I apologize, I missed it.

In terms of I guess working capital for the next couple of quarters, it is going to depend on I guess the mix of the divisions that are running a negative working capital, or are they running a positive working capital, certainly with Chrysler and GM down for a big chunk of the second, maybe even the third quarter, we're going to be receiving some payments on our outstanding receivable, but we're also going to make some payments on divisions that are running on negative working capital.

How that all balances out, I don't know.

I think if you look for entire 2009, I think if you look, we've used about $50 million in working capital, and maybe we break even, maybe we generate $50 million, but I don't suspect it to be a substantial swing one way or the other.

With respect to capital, Mike, we did not and have not given guidance on capital.

I think if you want to kind of -- if you try to frame where we think is going to be, if you look at where we were in '08, there is a big push to reduce capital and deferred capital, across the Company, and we spent about $100 million in the first quarter, and our first quarter typically is our lowest quarter from a capital spending standpoint.

With $100 million in Q1 '09 was substantially less than Q1 '08.

So if you try to do some math from that, you get probably an indication of where we might end up for all of 2009.

And then to go back to the significant decline at the assembly operations, I am just wondering how you are able to manage the costs with the downturn?

Are you close to break-even?

Or are the losses on an operating business pretty substantial there now?

I'm not going to comment specifically at any one of our divisions on profitability or nonprofitability, but I can tell you that at Magna Steyr, they have certainly done a good job in dealing with temporary labor.

They have had a program in place for about a year or so to bring down their fixed cost structure, so they have done some great things over there.

Unfortunately, this year, Magna Steyr, they will be incurring some launch cost.

We are launching some programs.

There are going to be some expenses.

We expect all that.

But I think overall, Magna Steyr, and the team over there have done a great job in trying to get some costs down for us.

Okay.

And then just last question on the restructuring, the $25 million, was that mostly in North America, or split between Europe and North America?

I probably think about that being two-thirds in North America and a third in Europe.

Okay.

Thank you.

Thank you for your question.

And our next question comes from Richard Kwas from Wachovia.

Please go ahead sir.

Your line is open.

Hi, good afternoon, guys.

I guess Don or Vince, could you comment on the takeover business, is it more weighted to a particular region, Europe versus North America, or could you give us any sense on the trend right now?

Well, it is more weighted in North America right now because we have really been going through this for 12-plus months and most recently in the last three or four month, it is really hitting home, and I think people see how drastic it is, and they have to make changes, and they've seen how much car companies can spend if they don't resolve the -- if it is not proactive in resolving the issues.

I would expect this to be more happening in Europe.

Europe production is down and as Ziggy was saying, they are a few months behind so I think you're going to start seeing it ramping up in Europe as well and you will have more supplier failures in Europe.

And how would you classify in terms of the supplier failures European -- Europe accelerating versus North America?

Or do you think it gets a lot worse there versus North America or what is your sense right now on tier twos and tier threes?

I think it is really difficult.

I'd say tier ones, tiers two, I don't really have visibility in tier threes but I would say you would expect it is going to get worse in North America.

It is hard still to get refinancing, people are getting weaker by the month.

And now you got all the shutdowns, I just don't see how you can avoid it and it is probably a little early in the cycle but I expect it is probably won't be as bad in Europe because you're not going down as far but it depends what happens to the economy over there.

And then the European business, how do you view the benefit from the scrappage program for you?

We see especially in the small cars, if you really look, the cheapest cars, win at the time being the biggest market share.

Traditionally Magna is not very strong there.

We gain from it but as not as the scrap program was expected or drives it.

Okay.

So it didn't benefit you very much?

It benefited but not in this case, but what cars did?

I think the way to think about it is that we're certainly going to benefit because sales were up, which means production is going to be up, but we will probably have negative mix on that because the vehicles that are incentivized under the scrappage program, we tend to have lower average profit per vehicle on those than some of our other vehicles that aren't moving as a result of the incentive programs in Europe.

Right.

That makes sense.

And last question.

How do we think about break-even for you in terms of industry production?

Is there a certain level in North America and Europe that you're going to right-size the business for going forward?

Real difficult question, because we don't track it.

It depends on each division, what customer they've got and what platforms they've got, and when the market drops 50%, we're consolidating but we're probably running at 50% capacity, roughly.

And it is really a best guess as to when the market comes back, what platforms come back, what the volume is going be, again, some facilities are easier to restructure and some of them are dedicated, so the dedicated ones you have to go up and down with production, and other ones, we can consolidate and move tools and moldings around, so you have to pick a production point and then give an answer, and it would just be a best guess.

Okay so I mean -- I mean if we were 15 million in North America, two years ago, 22 million in Europe, you achieved a certain level of profitability, I mean is it fair to say that to achieve that same level of profitability, the bogeys are lower?

Oh, I think with all of the restructuring we're doing, we're certainly reducing our fixed costs so our break-even is coming down.

What our break even is, we haven't done the calculations, specifically, but it is certainly coming down from where we were before.

But we still -- I think we still got to do a lot more.

All right.

Thanks.

Thank you for your question.

And our next question comes from the line of Brett Hoselton from KeyBanc.

Please proceed with your question.

Good afternoon, Don and Vince.

I assume.

Resourcing opportunities, $200 million annualized in the first quarter.

As you think about the magnitude of the opportunities going forward, would you say it is another $10 million, $100 million, maybe even $1 billion?

I mean what kind of a magnitude is it?

Is $200 million, kind of a good representative number?

Or is that just kind of the tip of the iceberg?

I'm just wondering how you might be able to frame that.

Boy, it is really difficult to say, because it depends on so many factors, but I would say it is the tip of the iceberg, but it is really difficult to say.

It is going to depend on what happens to our major competitors, do they make it, do they not make it, do they restructure, do they liquidate, do the car companies resource the business?

I think there is a lot more opportunity for us than $200 million on an annualized basis, but we've got to come out, we've got to win it and we've even got to get into our plants.

And Vince, I apologize if you mentioned this, or talked about this before, but commodities costs, tail wind in 2009?

For all of 2009?

I guess when we look at just the quarter--.

Yes, I'm thinking for all of 2009, Vince.

All 2009?

Yes.

It will probably be a slight tail wind.

But as you can imagine, the market is so volatile.

But it should be a tail wind.

A slight tail wind.

Okay.

And I guess one of the things I'm struggling with a little bit here is you're cutting your dividend because you want to save cash or conserve cash and yet there is a discussion out there that you're going to be involved in the acquisition of Opel which seems like a pretty significant use of cash, so there seems to be -- I mean cutting the dividend is kind of a drop in the bucket versus buying an automaker in Europe.

How do I reconcile that?

Well, I think we're not going to comment on Opel, but if you look at other acquisitions, there is a lot out there right now.

We are looking at them, and there's some pretty attractive prices.

You got to be careful what you're buying and when we do our pay back calculations you got to look at where the market is going to go, but we're trying to collect and we're putting insurance programs in to collect receivables and hopefully they will continue as we expect but we're getting money in from government programs, we're taking aggressive action with our employees, and from the Board's perspective, it doesn't mean we're going to cut the dividend forever, but just trying to conserve cash in all areas, that was the decision on the dividend.

I think if you think of it, there are really a couple of skills of thought.

The one school of thought, is we got to preserve as much cash as we possibly can.

We do have a very strong balance sheet.

It is a tougher environment.

The other school of thought is at the same time we do have a strong balance sheet, and we believe there is going to be opportunities and those opportunities are most likely to increase, and we want to be in a position to capitalize on those opportunities, so to the extent that we have more cash, we're going to be able to capitalize potentially on more good opportunities which ultimately is going to increase sales and profitability, and cash flow.

That makes a lot of sense, Vince.

Thank you very much.

Thank you.

Operator we're going to take one more call, please.

Absolutely.

We have a follow-up question from Michael Wiillemse from CIBC World Markets.

Please proceed with your question.

Great.

Thank you.

Just on the corporate division, there was a loss there.

Is there still funding for the Ford electric car program there continuing?

I know that was contributing to last quarter as well.

Mike, there is still funding there for the Ford electric vehicle.

The biggest impact is a reduction in affiliation fees that we're collecting from our divisions.

And our affiliation fees is a value-added fee.

So as productions decreased globally, the amount of fee that we've been collecting from our North American operating units and our European operating units has come down.

So that is the most substantial change in corporate income.

Okay.

That's all.

Thank you.

Thank you.

We will return it to you, gentlemen, for your concluding remarks.

Okay, appreciate everybody taking the time.

We've got lots going on here.

And actually we got to get to other meetings so I'm sorry we're cutting it off a little earlier, it will be an interesting week in Chrysler, it will be an interesting month with GM and it will be interesting in the next couple of months what happens with the economy and how that translates in sales in North America and Europe.

Thanks everybody for calling in.

Thank you, sir.

Ladies and gentlemen, that does conclude today's conference call.

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

Thank you once again.

Have a fantastic day.