Magna International Inc (MGA) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Magna International Inc.

fourth quarter and year end results conference call.

(Operator Instructions) As a reminder this conference is being recorded today, Thursday, February 25th, 2010.

I would now like to turn the conference over to Mr.

Don Walker, co-CEO at Magna International Inc.

Please go ahead, sir.

Thank you.

Good morning and welcome to our fourth quarter and year-end 2009 conference call.

Joining me today are Vince Galifi, Executive Vice President and Chief Financial Officer, and Louis Tonelli, Vice President, Investor Relations.

Yesterday our Board of Directors met and approved our financial results for the fourth quarter and year ended December 31st, 2009.

We issued a press release earlier this morning for the quarter.

You will find the press release, today's conference call webcast and the slide presentation to go along with the call all in our Investor Relations section of our web site at www.magna.com.

Before we get started, just as a reminder, the discussion today may contain forward-looking statements within the meaning of the 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 the attached MD&A for a complete description of our Safe Harbor disclaimer.

The automotive industry had a challenging year in 2009.

The year began with weak global vehicle sales and production, most notably in North America and Western Europe.

In the first half of 2009, North American and Western European vehicle production declined 50% and 33% respectively, compared to the first half of 2008.

European vehicle sales and production, while down significantly from the previous year were aided by a number of scrappage programs aided by various European governments.

We began to see signs of improvement in the second half of 2009, particularly in North America.

New vehicle selling rates strengthened as consumer confidence levels increased, used car prices improved, and economic stimuli began to work their way through various economies.

By historical standards, vehicle sales and production in North America and Western Europe for the full year remained at low levels.

North American vehicle production ended 2009 down 32% as compared to 2008, making the seventh straight year of declining production.

Western European production declined 19%, compared to 2008, even after factoring the impact the various scrappage programs.

In 2009, we continued with restructuring and downsizing actions in order to mitigate the impact of continued production volume declines.

We undertook a number of other cost saving measures, including reduced discretionary spending across the organization, reductions in our work force, short workweek schedules, reduced bonuses, voluntary wage reductions and benefit plan changes.

Despite these actions, the weak production environment adversely impacted our 2009 operating results.

On the positive side, the severe industry conditions provided opportunities for us to strengthen our business relative to some of our competitors.

We were successful in securing almost $1 billion of takeover business in 2009, including sales associated with the purchase of assets from distressed companies.

We also completed selective acquisitions, including Cadence in Eastern Europe.

We've also experienced some initial success winning business outside of the automotive market.

This complimentary business allows us to better utilize our capability in terms of design, engineering, program management and manufacturing, and we see further opportunities for additional growth in this area.

Additionally we continued growth of our business and manufacturing footprint outside of our traditional markets in North America and Western Europe which contributed to a 31% increase in rest of world production sales, our eighth straight year of such increases in the segment.

During the period when several of our automotive supplier competitors ceased operations, were consolidated or experienced significant financial difficulties, our strong balance sheet, and overall financial flexibility heading into the economic downturn, coupled with our financial discipline, cash flow generation and significant cash preservation and cost cutting efforts allowed to us preserve shareholder value and position us well for the future, including, through continued investment innovation.

After very turbulent year in many automotive markets we expect global vehicle production to grow this year, led by growth in North America, provided that overall economic conditions continue to improve.

Forecast growth in North America vehicle productions would reverse the seven-year slide experienced in this critical vehicle market.

We are less optimistic about the near term growth potential of Western European markets, which will -- which we believe will lag in 2010, due to the impact of scrappage incentives which mitigated what would likely have been a much weaker vehicle demand in 2009, by pulling forward sales.

Longer term our improved global manufacturing footprint, increased business in developing markets and our emphasis on innovation should allow us to grow our business.

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

Thanks, Don and good morning, everyone.

I will start with a high level review of our financial results for the fourth quarter ended December 31st, 2009.

Please note that all figures are in US dollars.

The slide package accompanying our call this morning includes a reconciliation of certain key financial statement lines, between reported results and results excluding unusual items for the fourth quarters and full years of 2008, and 2009.

In fourth quarter of 2009, unusual items included long lived asset impairment charges, restructuring charges related to the closure of two facilities in Europe, and a loss on the sale of a facility.

Restructuring charges classified as unusual items relate to the closure or substantial downsizing of a facility.

These items resulted in $136 million reduction in operating income, $134 million reduction in net income, and a $1.20 reduction in diluted earnings per share.

In the fourth quarter of 2008, unusual items included restructuring charges associated with the closure of a number of facilities in North America, and long lived asset impairment charges.

These items resulted in a net $96 million reduction in operating income, a $72 million reduction in net income, and a $0.65 reduction in diluted earnings per share.

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

In addition to the unusual items discussed above, several significant items were recorded in the fourth quarter of 2009.

As we typically consider these items to be operating in nature, we have not classified these as unusual items; however, given the magnitude of the significant items in the fourth quarter, I want to outline the nature and the aggregate amount of these items.

Significant items amounted to charges of approximately $130 million in the fourth quarter of 2009, as compared to the $20 million in the fourth quarter of 2008.

The significant items in the fourth quarter of 2009 included downsizing and other restructuring activities which typically pertain to ongoing operations.

An accounts receivable valuation allowance, due diligence costs associated with our planned investment in Opel, which terminated during the fourth quarter of 2009, the writeoff of uncollectible preproduction costs incurred related to the cancellation of an assembly program, costs related to the delay in the start-up production of a program, and other losses on disposal of assets.

In the fourth quarter, consolidated sales increased 12% to $5.4 billion, relative to the fourth quarter of 2008.

Over the same period, we generated operating income of $11 million as compared to a loss of $69 million in the fourth quarter of 2008.

Excluding the impact of significant items for the fourth quarters of 2009 and 2008, operating income increased approximately $190 million from an operating loss of approximately $49 million in Q4 2008, to $141 million in the fourth quarter of 2009.

Diluted loss per share was approximately $0.05, compared to a diluted loss per share of $0.68 reported in the comparable quarter in 2008.

The significant items reduced diluted earnings per share by approximately $1.12 in the fourth quarter of 2009, and approximately $0.18 in the fourth quarter of 2008.

I would like now to discuss incremental margins in North America and Europe for the fourth quarter of 2009, relative to the third quarter of 2009.

In North America, total sales increased $264 million, of which $247 million relates to production sales.

EBIT improved $31 million sequentially, excluding unusuals.

Removing the impact of the significant items in both Q3 and Q4, EBIT improved approximately $45 million.

This represents an incremental margin on production sales of approximately 18%.

In Europe, external sales improved by $441 million sequentially, while EBIT declined by $50 million.

Removing the impact of the significant items in both Q3 and Q4, EBIT improved $4 million.

This represents an incremental margin of about 1%.

However, there are two important matters to keep in mind with respect to our European operations.

Firstly, Magna Steyr is launching a number of new assembly programs, as we have said in the past, launch costs are at peak levels at this point, while incremental sales are coming on.

This results in a deterioration and incremental margin.

In addition, as a result of the full cost nature of the new assembly programs, incremental margins of Magna Steyr's assembly programs will be well below the average margins in our European components and systems business.

During 2009, we were focused on cash preservation in the face of the large production declines.

I'm pleased to report that our net cash increase $290 million in the fourth quarter of 2009.

Specifically, during the fourth quarter of 2009, we generated $267 million in cash from operations prior to changes in noncash operating assets and liabilities, and $247 million in noncash operating assets and liabilities.

We typically recover in the fourth quarter of the year some of the investment and working capital that is built up prior to the fourth quarter, 2009 was no exception to that trend.

For the quarter, investment activities amounted to $251 million, comprised of $230 million in fixed assets and of $21 million increase in investments and other assets.

Despite the difficult environment over the past year, we have maintained a healthy financial position with $1.2 billion in cash, net of debt as of December 31st, 2009.

We also have an additional $1.9 billion in unused credit available to us from a credit facility that extends until July 2012.

I will now pass the call over to Louis to review the details of our quarterly results.

Thank you, Vince.

Good morning, everyone.

North American production sales increased 1% in the fourth quarter with a $2.4 billion, reflecting a 2% increase in vehicle production to 2.8 million units, partially offset by a 1% decline in North American content, to $868.

The key factors leading to the decline in content were; unfavorable production relative to industry volumes, and/or lower content on certain programs, including GM 's full-sized pickups, Chrysler built minivans, the Chevy Cobalt, HR and Impala.

the GMC Acadia and Buick Conclave, the Mazda 6, the Dodge Ram and vehicles on Chrysler's LX platform.

Programs that ended production during -- or subsequent to the fourth quarter of '08, including the Pontiac G5, G6, Solstice, Sky and GT, the Chevy Trailblazer, GMC Envoy, and Saab 97x and the Saturn Vue, Aura and Outlook, as well as net customer price concessions subsequent to the fourth quarter of '08 Partially offsetting these were new launches, the strengthening of the Canadian dollar against the US dollar, favorable production relative to industry volumes, and/or increased content on certain programs, including the Ford Escape, Mercury Mariner and Mazda Tribute and the Ford F series, takeover business awarded in 2009 and acquisitions completed during or subsequent to the fourth quarter of '08, including several facilities from Meridian.

New launches contributing to content growth quarter over quarter, included the Chevy Equinox and its variants, the Cadillac SRX and the Chevy Camaro.

European production sales increased $450 million or 35% from the comparable quarter.

European vehicle production increased 13% to 3.3 million units while European content increased 20% to $523 .

Key contributors to the increase in European content include the strengthening of the Euro and British pound, each against the US dollar, acquisitions completed during or subsequent to the fourth quarter of '08 including Cadence and the launch of new programs including the Porsche [Panamera] the [Skoda Yetti], the Mini Cooper convertible and the Audi A5 Cabrio and Sportback and favorable production relative to industry volumes and/or increased content on certain programs including the Audi Q5.

These factors were partially offset by unfavorable production, relative to industry volumes, and/or lower content on certain programs in the fourth quarter of '09, including the Volkswagen Transporter, the Smart for two, the Mercedes-Benz C class, the BMW X3, the Mercedes-Benz D class and the Volkswagen T-one.

Programs that ended production during or subsequent to the fourth quarter of '08, including the Dodge Viper, and net customer price concessions subsequent to the fourth quarter of 2008.

Rest of the world production sales more than doubled to $221 million, primarily as a result of increased production and/or content on certain programs, particularly in China, Korea and Brazil.

The launch of new programs during or subsequent to the fourth quarter of '08 in China and Japan, and the weakening of the Brazilian Real and Korean Juan.

Complete assembly volumes decreased 6% from the comparable quarter and assembly sales increased 7% or $33 million to $512 million.

The sales increase was largely as a result of the strengthening of the Euro against the US dollar, partially offset by lower net assembly volumes and Magna Steyr.

In summary, consolidated sales excluding tooling sales increased approximately 15%, or $625 million in the fourth quarter.

The primary reasons for this increase are the increases in vehicle production in both North America and Europe, higher rest of world and assembly sales and increased European content per vehicle.

Tooling, engineering and other sales declined $42 million or 7% from the prior year to $547 million for the quarter.

Gross margin in the quarter was 10.9%, compared to 9.6% in the fourth quarter of '08.

The increase in gross margin was primarily as a result of the benefits of restructuring and downsizing activities and cost saving initiatives undertaken during or subsequent to the fourth quarter of '08, productivity and efficiency improvements at certain facilities, lower commodity costs, the decrease in tooling and other sales that earned low or no margins and the benefit of cost saving initiatives.

These factors were partially offset by the impact of the significant items discussed earlier, costs incurred in preparation for upcoming launches in Europe, electric vehicle development costs, operational inefficiencies and other costs at certain facilities, increased warranty costs, costs incurred at new facilities in Russia and customer price concessions subsequent to the fourth quarter of '08.

Magna's consolidated SG&A as a percentage of sales was 7.1% for Q4 '09 compared to 7% in Q4 '08.

Excluding the impact of significant items in the fourth quarters of '09 and '08, SG&A as a percentage of sales was approximately 5.9% in Q4 '09, compared to 7% in Q4 '08.

This decline reflects our efforts to contain costs as volumes improve.

Largely as a result of the higher gross margin percentage and higher equity income, partially offset by lower interest income and higher SG&A percentage, our operating margin percentage improved to 0.2% in the fourth quarter of '09 from negative 1.4% in the fourth quarter of '08.

Our effective tax rate was not meaningful in the fourth quarter of '09, given the low level of pretax income in the quarter.

Net loss was $5 million in the quarter, compared to $76 million in the fourth quarter of '08.

The significant items amounted to approximately $125 million after tax in the fourth quarter of '09, and approximately $20 million after tax in Q4 '08.

I will now pass the call back to Vince to review our current 2010 full year

Thanks, Louis.

We have increased our vehicle production expectations in North America from our outlook last month, to 10.5 million units.

European production expectations are unchanged from our previous outlook at 11.4 million units.

Our North America content per vehicle expectations are unchanged in the range of $895 and $925 for 2010.

Since we issued our previous outlook in January, the Euro and British pound have weakened against our US dollar recording currency.

As a result, we have reduced our ranges for European content per vehicle and assembly sales.

Content per vehicle in Europe is now expected to be in the range of $510 to $535.

And we now expect complete vehicle assembly sales to be between $1.5 billion and $1.8 billion.

As a result of the reduced expectations for European content per vehicle, and complete vehicle assembly sales, partially offset by increased production volumes in North America, we now expect total sales to be in the range of $19 billion to $20 billion, which is lower than our previous outlook.

For the full year 2010, our expectations for fixed asset spending are unchanged from our previous outlook in the range of $750 million, to $800 million.

This concludes our formal remarks.

Thank you for your attention this morning.

We will now open the call for questions.

Thank you.

(Operator instructions) Our first question is from the line of John Murphy with Banc of America, Merrill Lynch.

Please proceed with your question.

Good morning, guys.

Good morning, John.

When I look at the significant items that you guys have listed here, there's certainly a question of whether they could be listed as unusual and I appreciate you guys, breaking it out in two ways for us so we can make our own decision on that.

But if I look at SG&A at 7.1% in the fourth quarter, that's the highest it's ever been as a percentage of sales and it's also the second highest that it's ever been in history in absolute dollars for any given quarter.

So, are these items really things we shouldn't -- shouldn't be repeated going forward?

It just seems like it was a pretty big inflation in SG&A.

I'm just trying to get a handle on how we should be thinking about this going forward.

5.9% sounds a lot more like what happened than 7.1%.

John, we struggle with the significant items because as I explained in my comments, what we classify as unusual items are restructuring costs that relate to the closure of a facility, or a significant downsizing of a facility.

And we've had some of those in the past and we've had some of those in 2009.

But we try to keep everything else in operating income.

That's how we look at things internally, but we certainly identify and quantify some of the -- I would say the more unusual items that we don't classify as unusual items as a result of our public disclosure.

And when you run through some of those significant items for Q4 of 2009, whether it's margin or SG&A, my view is that they are nonrecurring.

We've had some allowance for a duffel receivable.

We have some Opel costs.

We have some loss on disposals.

We do have some downsizing costs included in the numbers of significant items.

Those were substantially all in Europe.

So those may recur, John, and if you think about 2008, or 2009, we've had some downsizing and restructuring costs that we haven't classified as unusual items.

But, I would say the bulk of them are probably sort of one-time in nature, and specifically on SG&A, when you look at the significant items that are in there, whether it's some of the asset writeoffs or the due diligence costs on Opel, or the accounts receivable reserve, backing that out, you sort of come up with a normalized SG&A percent of about 5.9% on the quarter, which I think is more representative of our run rate going forward.

Okay.

That's very helpful.

Then, Vince, on the European incremental margins, I mean, you highlighted that they were very low at 1%, obviously some of these items fall into that, a lot of launch costs and that depressed that during the quarter.

You also mentioned that there were some lower systems and module margins, I think, that were coming in there.

Is there any reason that there shouldln't be maybe a recovery in incremental margins in Europe to the 15 to 20% range or should we think of that structurally lower going forward?

John, I think when you look at our European business, I think you misunderstood our comments.

On an incremental basis we're at 1%.

.

There are some significant items in there and if you take those out, just looking at sequentially -- actually, there are about 1% excluding the significant items.

So that's operations, excluding sort of the significant items, but keep in mind there's really two components to our business in Europe.

There's the assembly business, which is Magna Steyr and we talked about the significant launches that are taking place right now at Magna Steyr.

The volumes on our existing programs are coming down, they are end of life, where we are spending quite a bit of money to launch a number of new programs.

We had, significant launch costs in Q3 and our Steyr operations we have significant launch costs in Q4.

And I think they have peaked in Q4, but we will continue to have some negative numbers as a result of continued launch costs in Q1.

So we don't really see Magna Steyr turning around until Q2 of this year.

But when you look at our components business, ex-Magna Steyr, you don't have the data, but we do and we don't disclose it, incremental margins actually were acceptable in terms of change in sales.

and the change in

I'm sorry, Vince.

I thought that was just the production -- the production side of the equation in Europe on that slide.

That makes a lot more sense.

And then in North America, thinking about 20%, that seems like that would -- is there anything structurally that's changed there in North America or should we expect incrementals in this 20% range?

The only caution I would give you, John, to draw a conclusion, production sales only changed by a couple hundred million dollars in Q4.

So depending on the mix on production, what programs sold and what didn't sell, your incremental margin can still move up or down, depending on the mix of programs.

In the change in sales is $500 million, I think you can draw a better conclusion, but it's a small sample.

So just keep in mind that that could be volatile.

Okay and then this Carman Japan acquisition, are there other small bolt-ons out there that you are looking at that are really easy to pull off and is this also the strategy to potentially penetrate further with the Japanese to make these acquisitions that get you in the door?

Well, the Carman Japan roof business is -- was a small acquisition.

We are going to take on some work for the Infiniti Jeep convertible, we already have the Nissan 370 Roadster, but there's some other -- again, there's transactions related to the Carman roof business that we are working on as well.

We have signed a binding agreement, subject to your typical closing conditions, including antitrust approval, for the roof business of Carman Germany, and we're pretty close to finalizing an agreement for the Carman roof business in Poland.

So hopefully that all comes together, and that's going to give us additional business with BMW, Renault, Daimler and VW and obviously with Japan acquisition we have additional business with Nissan.

As far as other bolt-ons I don't see as many small takeover opportunities right now as we saw last year.

I think a lot of the banks, I presume are supporting some of the smaller suppliers.

I still think that we are going to see some consolidation, but we are not looking at a big number of smaller bolt-on acquisitions.

We are looking at a number of strategic opportunities as we always do, whether that be in our core markets or emerging markets, but we have nothing to report right now.

Great.

Thank you very much.

Thank you.

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

Please proceed with your question.

Oh, thanks.

Good morning.

Hi, Chris.

So even if I exclude the $70 million of significant items from Europe, it still looks like you are losing money there.

The margin is maybe improving sequentially, but what are your expectations as we head into 2010, will we get through the start-up programs and the assembly business?

Do you expect to turn a profit on a full year basis in Europe in 2010?

Chris, we're not going to give you some guidance specifically on profits.

We'll talk about revenue and content.

There is certainly substantial costs that we've incurred, ex-significant in Q4 relating to I guess, substantial launches.

We talked about launches at Magna Steyr.

But there are some other significant launches also taking place in Europe.

There are some launches in our power train group and launches in our roof business group as well.

So as we move into 2010, and production ramps up.

We're going to see a substantial improvement by way of a reduction of launch costs and generating some margins on the incremental sales.

I think part of it is going to depend on what happens to the economy over there.

We're expecting it to slow down a little bit.

Vince went through what the production numbers are.

I think there's some downside risk in the production, so it's going to be a challenge Q1, based on all the issues that Vince already talked about.

It should start coming back, but we're not sure where we will end up for the full year.

What's the timing on the launch costs going away?

Is it second half that things will start to look better?

I think, Chris, the second half, the things will start to look better.

We will see some improvement in Q1, but you are really looking at second half.

Okay.

To Don's comments, we have been sort of cautious about the European economy for several quarters, and,we continue to be cautious about, the economic environment there.

The program cancellation in Europe that you mentioned, is that something that was expected or -- and you are just booking it now, or is it something that was a surprise to you?

Chris, we -- we publicly disclosed that, the Porsche assembly program was taken back by Porsche.

And as part of sort of the arrangements with Porsche, there are certain costs that were capitalized on our books.

They are recoverable under our contract.

As I start to settle the -- settle that account with Porsche and you start to look at what's on the balance sheet, and what they're willing to pay, there is a shortfall that we took into income in Q4.

And that's when the program was canceled.

It was in the fourth quarter.

Okay.

What's -- do you have a specific Euro dollar assumption that you are using now that underpins your new guidance and what was the previous assumption?

Just bear with me for one second.

We are at about 137 right now, and, we are at about 142, 143 previously.

Okay.

And then lastly, just kind of a bigger picture question.

I know you have been doing work on electric vehicles and you have this big program with Ford.

Is this an area where we might see Magna make a bigger acquisition to become an electric car maker?

Is this kind of next foray rather than trying to buy Opel or Chrysler, you try to buy an electric car company or spend a lot of money to build yourself into an electric car company?

What's your view there?

I wouldn't say we are looking at buying an electric car company.

If you went to the auto show, there are some upstarts there, some of them very public, some of them are much (inaudible) coverage.

We are focused on electric vehicles and alternate fuel vehicles, which would be mainly hybrid because a lot of the componentry would be the same.

So we expect to generate sales and profitability and we have been spending money on R&D and buying some development expertise for all the components for electric or hybrid vehicles.

We are doing more R&D and some other product lines associated with that.

We are also spending money on the Ford Focus which we talked about before.

Hopefully that will sell when it comes into production at good volumes.

We will make a return, but we are really using that as an entry into builder expertise on complete vehicles.

And the way we want to do complete vehicles is in conjunction or for our customers.

I think the -- the amount of money it takes and the expected volume in the near term -- the near term being the next five years for pure electric vehicles is relatively low.

Most of the car makers would agree, I think, on the expected volumes.

So if we can work with two, three, four, car makers to pool our resources, pool our R&D, help develop vehicles on their platforms, if we wanted to do a unique platform with them, that's what our focus is.

But we are not looking at going out and buying an electric vehicle company.

Thanks.

That makes sense, Don.

Thank you.

Our next question comes from the line of Rich Kwas with Wachovia Wells Fargo.

Hi, good morning, Guys.

Good morning.

Vince, how should we think about the significant costs?

I know you gave the number for the fourth quarter and then the year ago comparison, but is the $20 million in '08 kind of the normal run rate that would be included in the numbers under normalized -- in a normalized environment or is it something less than that?

If I go back over the last,couple of years, and probably the biggest component that's been going into significant items has been severance costs.

As we have been downsizing some of our operations, and that's been running -- if I look at between North America and Europe probably about $15 to $20 million a quarter.

So depending on how 2010 turns out, that's probably a normal number.

There was in previous quarters, other significant items that we talked about in Q3, 2008, for example, we talked about the Syracuse buydown costs that was kind of a one-timer, which we disclosed or the asset-backed commercial paper writeoff that we took off again in Q3, 2008, that we talked about.

There are some R&D credits that we booked in 2008 in the second quarter.

But if you back out those specific items I just mentioned we have been running roughly about $20 million a quarter.

Okay.

That's helpful.

And then could you characterize how the environment is for the Tier Two, Tier Three supply base at this point and if you could give some color by region.

It sounds like North America is okay.

Europe seems like there's some pressure based on comments from other suppliers but wanted to get your take on it.

I'm more familiar with the situation in North America, but I will comment what I know in Europe.

We have been tracking for a number of years what we're doing globally in purchasing.

If we started an initiative about three years ago, just trying to understand who we buy from, get in the database because we are very decentralized and understand where we can give us some leverage and also to understand who has given us good quality products and who has a weak balance sheet.

So we saw a number of failures, specifically in North America in 2009, we managed our way through that I think well.

We don't see the number of troubled suppliers to us going down, but we have been ahead of the curve in managing through it.

So I think we will see some consolidation in the industry, which will include fewer Tier Ones to the car companies because they are all trying to reduce their supply base.

So some of those people will become Tier Two, some will be absorbed.

If you would look at specifically at what I would call Tier Two supply base, I would expect there's going to be continued consolidation, and I would expect there's going to be continued pressure from the financial institutions on their being able to access cash.

So I don't think it's going to be a massive fall out.

I think it's going to be continuing to fall out.

In North America, I don't think we're going to see huge problems just because the market seems to be recovering a bit in 2010.

So I think we'll manage our way through it.

In Europe, we haven't seen the same level of failure of Tier Ones and Tier Twos as we saw in North America for a couple of reasons.

One is because of the sheer reductions and productions over here and also GM.

and Chrysler had checked down facilities for a number of months.

which wiped a lot of people out.

It will be interesting to see in Europe what happens to the economy, the volumes and the banking situation and whether the banks put pressure on subsuppliers.

I don't have a specific answer for you, but I would expect continuing consolidation and I would expect the Tier Ones -- the healthy Tier Ones who are left to sort of try and stay ahead of the curve, which will probably keep the activity going as far as we note the weaker or un -- the ones with a weak balance sheets.

Okay.

That's helpful.

And the last question, for 2010, what's the drag coming from the alternative propulsion investment?

I think you talked about, being somewhat significant for 2010, what's that number again?

Well, we didn't give out the number, Rich.

What we talked about -- we talked about electronics, which we continue to invest, and we had talked about 2008, electronics being about, a $60 million drag on earnings.

We talked about that doubling for 2009, and it almost doubled for '09.

Being about the same for 2010 and then coming off in '11 and '12 as our revenue starts to really ramp up.

What we talked about the -- the electric vehicle and alternative propulsion systems, we said the impact for 2009 was expected to be higher than '08.

'08 really wasn't a lot, but less than what our electronics investment has been.

Less -- more than 50% less, and we see that growing in 2010, but it will be -- our expectations is it will be less than our investment in electronics at this point.

Okay.

Great.

Thanks.

Thank you.

Our next question is from the line of Himanshu Patel with JPMorgan.

Please proceed with your question.

Hi, this is [Ryan Brinkman] for Himanshu Patel at JPMorgan.

Concerning the walk between fourth quarter EPS adjusted for unusual items and the fourth quarter EPS adjusted for both unusual and significant items, I see that you provide an aggregate EBIT impact number and you even break it down by geography, but do you or could you disclose the impact by individual charge or type of charge so that we could better ourselves understand how much is truly nonrecurring?

So, for example, how much relates to the normal course restructuring you talked about earlier and how much relates to Opel, which I think everybody would want to exclude?

Yes.

When I -- I don't really want to get into sort of line item by line item.

I think the way you can sort of put your hands around that, I talked earlier about sort of continuing kind of -- or we've had downsizing costs and restructuring costs, roughly $20 million a quarter which is what we had in the fourth quarter of 2008.

And that number in the fourth quarter is probably a little bit higher.

So, if you take the 130 in significant items in '09 and fourth quarter and you look at the $20 million, the 100, 110 would be some of the other items we talked about, sort of Opel, the allowance on the receivable, the cancellation costs and so on.

Okay so the ordinary, more normal course restructuring is more than $20 million, but it's not materially more probably?

That's -- that's a good way to look at it.

Okay.

And then other question, just relating to the 2010 outlook and the -- I guess the $500 million ish reduction in the midpoint of revenue guidance, despite the increase in North America, I mean it appears that's contra to Magna Steyr and I see your European CPV also declines.

How much of that European CPV does that relates to currency and would therefore translate a lower contribution margin.

I think the way to look at the change in content for vehicle and assembly sales, it's strictly translation.

It is?

Okay.

On a Euro basis, there's no change in content per vehicle or sales expectation for Europe.

Okay.

Great.

That's very helpful.

Thank you.

Thank you.

Our next question is from the line of Patrick Archambault with Goldman Sachs.

Please proceed with your question.

Hi, thank you very much.

Can you give us -- I didn't see it on the press release.

I might have missed it, but what the revenue impact approximately of Carman Japan might be and sort of the timing of that rolling on?

We -- we issued a news release, Pat.

The number is not significant.

It's one program.

Okay.

If we are successful in completing the balance of the takeover of the Carman roof business and that number is going to be a little more significant.

Once we -- if we -- if we are successful in Germany and Poland, we'll then update you on where we think overall sales, the impact on sales may be.

But the Japan deal is closed, so it rolls on immediately.

Okay.

And did you on the CPV increases, Louis, could you provide us with just the currency impact, just for the quarter?

Yes Q4 versus Q4, in North America, the currency impact was about $38.

And in Europe, the -- in Europe, it was $45.

Okay.

Great.

And then, I guess on -- I missed -- you had given two reasons why the European incremental margin was low.

One was the launches at Steyr.

I guess the other point I think, with respect to John's question, was that,also the incremental margin for assembly would in general be lower if you include it in the mix.

Was there a third item there that was kind of unusual or were those kind of the two -- the two main things to think about?

Yes, we -- we talked about launch costs was the most significant item impacting the incremental margin, and the most significant launch costs are at Magna Steyr, but we are also launching a number of programs at our power train group, as well as our roof business groups, CTS in Europe and that's having a negative impact in the quarter.

Okay.

Great.

And I guess as we think about just moving sequentially, you clearly have -- it sounds almost like -- about 100 of sort of significant items that will not recur.

I guess, production is a little bit down vis-a-vis where we were now particularly in Europe, obviously it was a very strong quarter, but it does sound that -- I mean, the -- it paints a picture where we should -- even though your launch costs will be still high, right, they will have peaked as you said in the fourth quarter.

So if does sound like we are kind of teed up for a fairly material improvement, walking at least from 4Q to Q1, is that kind of correct?

Pat, I'm going to have you draw your own conclusions with the information that we have given.

We're not going to necessarily talk about sort of where we think profit is going to be for Q1 or for the balance of 2010.

But -- okay.

But then just sort of rephrasing, it at least am I kind of giving you the right list of items, volume is probably a slight negative because of Europe but you obviously have the non-recurrence of 100 of these -- or at least most of these special items, perhaps not all because you still have launches.

So, kind of --

I think the items that are going to impact us.

If you sort of step back for a moment, in North America, volumes really started to come down in the last half of 2008, and we have been actively looking at our manufacturing footprint our fixed cost structure and so on.

And volumes declined significantly over a very short period of time.

And you can see quarter to quarter the improvement in North America as we are getting our costs in line.

We have seen production move up and we are seeing the benefits of that.

So in North America, I think the biggest factor that will impact our profitability is going to be volumes.

In Europe, the things that are going to impact us is launch costs and how quickly we can reduce, minimize them and generate profits for the substantial launches Two, it certainly is going to be volumes.

Three is going to be exchange rates will have an impact on reported sales and reported profitability.

But, we are still a little cautious but overall Europe.

We don't know where volumes are going to end up, which can have a significant impact.

Depending on where volumes end up, that may result in some continued right sizing or downsizing of some of our operations and that's something that's just out there.

So those are the things that I think you should think about.

Volumes, you can make your own assumption on volumes.

Some of the other items we are going to have to wait and see where the actual numbers shake out.

Significant items, I agree with you, in my view, they are not necessarily recurring.

Okay.

Great.

Yes, that's helpful.

Thank you.

Thank you.

Our next question is from the line of Peter Sklar with [Nesbitt Burns].

Please proceed with your question.

Vince, I want to make sure I understand the math of the significant items.

If you look at the first table you presented on page five, there's -- there's a number that comes to $130 million, and then below it when you split it out between North America, Europe, the rest of the world, corporate, it comes to $125 million.

Is one a pretax number and one an after-tax number?

Peter, I think the way you need to look at it is that there's approximately $130 million of costs split equally between gross margin and SG&A.

And when you start to break it into the buckets we don't want to give exact numbers and so we were rounding to the nearest $5 million.

Oh, okay.

I understand.

So the $130 million, does that represent a pretax impact?

Yes.

And then when you flip over to your next table, what does the $1.12 -- so that would be the top table on page six, what does the $1.12 represent?

Peter, when you look at the -- it's the after-tax impact of the $130 million.

So the way you should think about it is, if you look through our notes, there's a lot of losses that were not benefiting.

There as a chance of reportedly significant items are in Europe which were not -- they are not (inaudible) a lot of the losses there.

So the amount of charges that we can tax benefit are not significant.

So the -- the tax impact of these unusual items is a recovery of, around 5 or $6 million.

Okay.

So -- so the after-tax impact then of the $130 million is $1.12 per share is what you are saying?

That's correct.

And you explained this a little bit, but could you explain why were the downsizing and other restructuring costs that you include in significant items not considered an unusual item as per your accounting policies?

Well, Peter, we have, 200 odd divisions across the world, and there's downsizing and severance costs and, when you start to look at them, they are -- there might be $1 million here and $2 million there and $0.5 million there, and we don't make it a habit of adding all of that up and calling that unusual, because we will never stop adding those numbers up.

So what we'd like to sort of say as unusual is complete closure of a facility, that's unusual.

That's going to be nonrecurring if you are shutting down a facility.

We shut it down once and it's a significant downsizing, like in the case of, for example, Syracuse in the past, but, everything else, kind of the onesy twosies, we've just recorded those as regular operating incomes.

We will continue to see onsies, twosies, as we go on.

You know, that's been 20, 25, $50 million a quarter.

So it really hasn't varied that much quarter to quarter.

That's why we haven't included those in unusual costs.

Okay.

And of the list of other items that you gave the accounts receivable charge, the Opel due diligence, the Porsche charges, the loss on the disposal of assets, is there any one of those items that stands out that is larger than the others?

Significantly larger or are they all about the same in terms of their magnitude of impact?

I think the -- the -- if I look at the most significant item of that, it's -- the due diligence costs in Opel.

Okay.

And if I could just change topics, on the takeover -- the amount of takeover work that you secured in 2009, I believe Don made some comments, but can you just give us an update?

I think you've -- in previous quarters, you've talked about a number of $700 million.

That's right, Peter.

If you add up sort of the quarter, we're at about $250 million of additional takeover work in Q4.

And some of that is in Europe as well.

So not all North America.

So for 2009, you secured almost $1 billion?

Yes.

Almost $1 billion.

Keep in mind, Peter, when you look at that, we have also purchased some distressed assets in the year, and we've talked about it before, that, we have put that into sort of takeover work.

Right.

There was no purchase of distressed assets in Q4.

So, remember, I talked to it about as sort of clean takeover work, but the roughly kind of 900 to $1 billion, some of that is distressed asset acquisitions.

And just lastly, Vince, what is the ramp period for this -- for this clean takeover work, both what you secured this quarter and what you secured earlier in the year?

Is this all ramping now, or when does this all fall into place?

Some of it is already ramped.

Balance -- by 2010, I'm not sure exactly which quarter, but by 2010, it will be all ramped up.

Okay.

Thanks for your comments.

Thank you.

Our next question is from the line of David Tyerman with Genuity Capital Markets.

Please proceed with your question.

Yes.

Good morning.

I would like to get an idea of what's coming and going on the assembly business at Steyr.

We have -- starting up the (inaudible) David?

-- Right now we are launching the Peugeot RCZ, and we have launching later on this year, the Mini Crossman, and the major draw loss we have this year is we are losing the X3.

Right.

And beyond this year?

Chrysler business is the most significant thing that drops off.

Beyond --

So do you lose the three vehicles, like 2011, 2012, something like that?

Yes Actually, I think it's -- (inaudible).

Chrysler?

Hang on.

I thought the -- David, we'll have to get back to you.

It's not significant.

I thought it dropped off sometime in 2010, the Chrysler business.

Okay.

First half of the year.

So where would Steyr be then after all of this is done?

It doesn't sound like the volumes are going to be particularly high in there.

In terms of the vehicle -- the production vehicles we were assembling a couple years ago,we were at 225, 250,000 units a year.

We are not seeing right now getting up to those levels in the sort of near term or medium term.

So volumes will pick up in a substantial way but we are not going to be near where we were before.

We've talked about some of the BMW program, for example, is a good success from a production stand point for us, as well as for BMW.

So it will depend on some of the programs that are launching, but our expectations are that we are not going to get to the same level of production that we have in the last -- , if you look at 2007 and

Right.

Would you be at 100?

Yes, we're going to be over 100, David, once we get fully ramped.

Okay.

And these are all full purchase, are they?

Yes, once everything is -- once everything is ramped, we will be -- we will all be full cost assembly, yes.

And David, the Chrysler business -- it's not very much.

I mean in 2009, it's only 5,000 units but it does drop off in the second half of 2010.

Oh, okay.

5,000 units.

Okay.

That's helpful.

And then there was a comment I thought I caught about Carman and I haven't seen the press release yet that you were looking at the entire Carman, so the German plant too.

Is that correct?

David, what I said was that we signed a binding agreement for the Carman roof business in Germany.

It's subject to the traditional closing conditions, including antitrust approval.

Okay.

And we're in the process of finalizing the purchase agreement for the Polish Carman roof business.

Okay.

And the German stuff, what exactly is there now?

I don't know where they are assembling anything anymore.

This is just the roof business we are talking about.

Okay.

Okay.

For Carman, we are talking about the roof business here.

Not the assembly business.

Okay.

Okay.

That's helpful.

And then two other quick questions.

Tax, any sense Vince, (inaudible) moving parts here but any sense for 2010?

David, you're right.

Theres a lot of moving parts.

There's going to be volatility in the tax rate quarter to quarter, the tax rate for 2010-- my expectation is it will be higher than what you would normally expect and it's due to continuing losses in certain operations that we can't benefit -- We start to get to a more normal tax rate once we move into 2011.

Okay.

And what would you consider normal now for you guys?

I think if you go back to kind of the -- the '07, '08 years, you know we are running at 30%.

Okay.

Plus or minus.

Okay.

And then the last question, just on the non-auto business, what is it you are doing?

How much business do you have there and what are injure expectations in terms of growing that business?

We haven't gotten into a lot of detail, but we are doing some white goods work.

We would include some heavy truck work, some that we got through Meridian.

We are also -- it's pretty early to tell what we are going to get, but there's also work we're pursuing when it comes to solar companies, wind companies as well.

So we haven't broken out the numbers.

Louis, we will take a look maybe next quarter and give you a bit more clarity on that.

Okay.

That would be helpful.

Thank you very much.

Thank you.

Our next question is from the line of Michael Willemse with CIBC Please proceed with your question.

Thank you.

On the Ford Focus electric in 2010, do you have any sense of content per vehicle or volumes when it's launched?

I don't want to comment on the volumes unless Ford has those -- has Ford commented?

10,000 is the number that's been --

Yes they are targeting -- I think -- I will give you my estimate, and Ford would have to give you their own.

If we can sell 6 or 7,000 per year, they may sell more than that, but that's sort of what we are hoping that we can sell.

It's going to depend on a lot of different things, the price of oil -- what's out there in competition, and so,that's sort of the range.

The content per vehicle, we are not breaking that out and I doubt we will just for competitive reasons, unless Ford is comfortable with us talking about it.

But the content is going to be significant, given the components that we are supplying, but think about it from a consolidated basis, the revenue number is still insignificant for us.

Okay.

And I guess what type of time frame could we think about for another vehicle with another OEM starting to pick up or do you think you might have to work with Ford for, a couple of years before you can start launching programs with other OEMs?

Yes, we -- we're working on a couple of other programs, but until -- until we get the okay from our customer, we wouldn't talk about it.

I would look at our business more in the area of components, what we -- and the components we have talked about going after would be things like transfer cases, motor, motor control units, DC to DC converters, chargers.

I would see this as a systems and component business that we're pursuing, that we can also offer our customers complete electrification of a vehicle.

So it's a component side on Ford.

We're working in a much bigger relationship with them.

We're talking about what we can do with other car companies, but because they are -- until the car company tells us we are okay to talk about it, we won't.

It's hard to -- it's hard at this point in time to really give you much more clarity than that.

Okay.

And just one more question, with the problems at Toyota right now, what do you think the opportunities could be for breaking into the supply chain there or do you think maybe Toyota might -- might be less inclined to break up their supply chain and, fix their problems first?

I don't think from a sourcing standpoint this would really change anything.

They have been relatively consistent on who they see as their core suppliers and where there's opportunities for us to quote.

We continue to win business with Toyota and other OEMs from Japan.

So I think -- I don't think it really has a material impact on what -- on the way they will look at sourcing.

Okay.

Thank you.

Thank you.

There are no further questions at this time, Mr.

Galifi, I will turn the conference back over to you.

Well, great.

Thanks for listening in to our call this morning.

I hope to see you all soon.

Thank you.

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

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