Well, thanks, everybody, for joining us for the next session. We're very happy to have Adient, a leading seating supplier, that over the years has gone through some major improvements from missteps from a long time ago. There's still an opportunity to make some fundamental improvements. There's some opportunity for some old contracts to roll off and sort of the new price and much better contracts to roll on. You know, and I think the current management team has designs on doing even more over time, which we're gonna get into in this session. We're very happy to have Jérôme Dorlack, President and CEO, as well as Mark Oswald, the newly appointed CFO.
Guys, thank you very much for joining us today. We've got a whole host of questions, but I think we'll turn it over to you, Mark, to kick off.
Perfect. Thanks, John, and, and thanks for having us today, and thank you guys for joining us this morning. So we just wanted to open up with one, you know, quick slide. We're getting a lot of questions, and typically do at this time of the quarter, just in terms of, you know, what we're seeing play out in fiscal year 2024 versus expectations heading into the quarter. And, and we're not here to talk financials. We'll obviously report our second quarter financials first part of May, so we're not gonna talk about guidance, reaffirm, or, or change guidance at this point. But wanted to give a little bit of background, a little bit of color, just in terms of the expectations heading into the fiscal year versus where we stand at, let's just say the midpoint.
You can see on the far left side of the slide, you know, the expectations, right? We knew that we're gonna have a heavy launch load this year. We just knew there was certain of the high-volume platforms that we had that we're gonna be launching, you know, whether that was Tacoma, you know, General Motors, the Traverse, Acadia, Ram. Those are, those are in launch as we expected. Volumes were expected to grow, and then we called out a certain of what I'd call the headwinds, whether it was the FX, you know, with the peso, whether it was the footprint changes that had an impact on equity income.
And then we also said that business performance was gonna be a key driver as we went through the year to offset certain of those headwinds to give us the margin improvement this year as we went through 2024. And for the most part, if I think about, you know, what's changed, it's really been volumes as being the key driver. And as I spoke about the launches and the heavy cadence of launches, what we're seeing, and you've seen it on certain of the, you know, S&P production, you know, forecasts, certain of those launches are taking a lot longer to run up their launch curve. So the customers are running at a lower rate than expected. So, you know, as we look at the second half of the year, we're anticipating them to get up to rate, start to run.
But again, it's been a, what I'd say, a very challenging period, having them get to where they are today. And then, as you've seen the different articles, you know, on EV production, obviously EV demand, EV volumes, you know, if you know, sort of what I'd say, plateaued, they've been coming down. You've noticed certain of the vehicles, whether it's the Mustang Mach-E, you know, taking production out, high inventories, Blazer EV, Lightning, right? So again, it's those impacts that, you know, are different from the expectations heading into the year. I will say, on a positive note, business performance continues to track ahead of schedule, right?
So things that we, Adient, can control within our four walls, whether it's, you know, business improvement, whether it's, you know, continuous improvement, whether it's, you know, the modularity type programs that we've talked about over the past, you know, quarter, two quarters, we continue to drive the process internally to help mitigate certain of those volume headwinds that we're experiencing. So again, just a level set of where we are today versus expectations then, John, and, you know, more than happy to take the conversations anywhere you want to go at this point.
Sure. I mean, and maybe to follow up on some of that, Mark, I mean, the you know, the one thing that you know, we're hearing is that EV volumes are obviously a little bit slower. You know, are those launch... You know, the slower launches than expected, EV specific, or they kind of across the board?
They aren't. They're, they're more focused on the ICE platforms, right? So if I think about, you know, certain of the high-volume platforms that were impacted by Traverse, Acadia, for example, with General Motors, that's their ICE. If I think about Tacoma, it's their ICE. If I think about Ram, ICE, right? So you've got this, what I'd say, you know, double-edged sword with, you know, certain of the ICE, you know, platforms not getting up the launch curve as anticipated, as well as the headwind now from the EVs that have been slowed or at least, you know, stalled in terms of, you know, where that production is heading.
Okay. And then maybe a second sort of even, you know, next follow-up to that. As the EV volumes are being, you know, pushed down into the right, that might be on programs, and that might be on launches-
Mm-hmm.
You know, over time. You know, there's an expectation, at least, that we have, that the market in aggregate holds in, which would dictate that you'd have to have something backfill there, which would be, you know, existing ICE, you know, ICE programs. As you're seeing, you know, schedules, you know, 13 weeks out or, you know, whatever you guys are seeing, are you seeing any of that backfilling come in or the discussions from the automakers, "Hey, you know, we're not making these EVs," or, you know, "the Blazer EV is getting pushed out, or down," I should say, "You know, we're gonna make more, you know, of the ICE vehicles that would satiate demand." Is that happening at all?
Yeah. Maybe certain platforms, and it's very lumpy, I'd call it, right? So if I take, you know, saying specific, right? If I take the Lightning, for example, as demand for that has fallen, you know, Ford has said they'd like to drive and produce more of the ICE, but they're having problems with their 2024 launches-
Mm.
For their ICE, right? So we're not seeing that benefit offset that, right? If I look at General Motors, for example, just with the Traverse, Acadia, you know, that's a nice platform. They don't have something else that they could backfill into that, right? So I'd say it's in pockets, but from the Adient-specific and what's impacting us right now, we're not seeing that, what I'd say, that offsetting benefit from coming from another platform.
Yeah. I mean, and maybe to broaden it out, though, a little bit, I mean, you know, we are running with our penetration forecast for EVs in the U.S. this year is 10%.... Early in the year, it's running at seven, you know, it's running at 7%.
Mm-hmm.
So, let's say we kind of end the year, and we, there's risk that, you know, it's at 7% or maybe even lower. We'll see what as the year... So that gap of three points, it was pretty significant, you know, in the market, and we're talking about 500,000 units. Do you think the industry, and this may not be something you're seeing in the schedules, it might be, you know, based on experience, would be backfilled for ICE ve- with ICE vehicles? And then, once again, it's not one for one replacement and the like-
Mm-hmm.
But the consumers, you know, are asking or demanding, and wanting to buy these vehicles, that that would actually come in, or is that something that's too, too early to call? And that, you know, that's-
Right.
you know, based on more, probably more experience than even what you're seeing.
Yeah, I mean, I think at this point, I think the consumer demand is, is there at kind of a 16 million SAAR. But you also have to look at days on hand and how much of that would be pulled also from days on hand, potentially, versus vehicle production. And so that's. And we don't necessarily see that at the moment in what we're being called off on. You know, to Mark's point, we only see what's kind of in the Adient production schedules as well. So if you look at, you know, some of our days on hand on the platforms that we service, they're pretty significant, you know, 100 days plus on some of them. And so some of that could be satiated out of days on hand as well versus actual vehicle production.
So I think that half a million gap can absolutely be filled. It's just a question, will it be filled from days on hand versus the actual production numbers?
Got it. Okay. And if you think about sort of the mix here, maybe short run and long run, on the ICE versus EVs, as we're thinking about maybe EV programs being delayed. Generally, you know, what kind of content delta do you guys have between ICE and EVs, or is that an oversimplification, that there might be sort of a broad swath way to think about that?
In terms of content per vehicle?
Yeah.
I mean, our content per vehicle. So, you know, it's interesting, when we used to have these discussions 3, 4 years ago, there was a pretty large discrepancy in terms... You know, the EVs generally had much higher content per vehicle. But as we've seen the next generation EVs come into the market, you know, whether that's Blazer EV or some of the other platforms we participate on, those levels have now really started to normalize in terms of EV content per vehicle versus ICE content per vehicle in the United States or in the, call it, the Americas market. In Europe, again, I'd say you see those levels starting to generally normalize now between EV and ICE content per vehicle.
In China, however, and in Asia, more broadly, generally, you see much higher content in your EVs versus your ICE platforms, where, you know, again, especially in China, EVs are really much higher content still, at least the vehicles that we enjoy, where we play. And we've really strategically went after those platforms in terms of an average transaction value for us, because we see that's where we can add value, that's where we can drive, you know, margin, that's where we can drive our niche in the market. That's where we've partnered with the likes of NIO, XPeng, and some of our other conquest customers. So we still drive that, really, you know, as our market niche over there, both in, you know, in China and on some of the hybrid platforms more abroad in Asia.
Yeah, and it seems like there's a lot less risk on, on EVs there than there might be in the U.S.
Yeah.
It's actually-
Correct. That's right.
Probably upside over time.
Exactly.
Sticking on sort of, you know, sort of some of the macro stuff. You guys, I remember in the last three years, I think maybe at this conference, and you guys were really, and Jerome, you specifically, were leading the charge on discussions, and I think at the tip of the spear for, or the early end of the curve, talking to automakers about recoveries, and did a good job. Did a really, you know, valiant job for your company. And I think a lot of people drafted off of you.
You know, some of that, you know, discussion is maybe, you know, not as necessary because we don't have the same kind of inflation or the same kind of volatility at the moment, although things are not, you know, completely back to normal. I'm just curious if you can talk about, you know, the current, you know, discussions around, you know, commercial settlements and interrupts on, you know, programs that are going slower than expected or the volumes that are not there relative to, you know, where we've landed on sort of the more traditional price down and efficiency discussions.
Yeah, I think there's... Maybe if you just step back a little bit. There are still costs that are, you know, built up in the system, you know, especially around the peso, is still a challenge. You know, if you convert in Mexico, you know, it's still a very strong currency relative to where it used to be, along with a lot of labor in that region, with minimum wage pressures that, you know, we're still in active discussions with our customers on. You know, coupled with over in Europe, you have energy that's receded, but still a, you know, a challenge for us that we're working through, along with labor pressures in Europe, and, and then coupled with the topic that you brought up around volumes that are just underperforming on a lot of the EV platforms.
And so it comes back to, with our customers, this basket of goods discussion that we have with them, where it's not... You know, if you comb through our P&L, you know, how much did you get for energy or how much were you able to obtain for a peso offset, you won't always be able to see that because it's not always going to be a one for one. And so what we really like to point to is, what are we achieving from a business performance standpoint? Are you able to drive positive business performance or, you know, a positive sustainability equation?... through this basket of goods discussion. And, you know, we've been able to do that even through COVID, even through this massive energy increase.
You know, and we still look at, Mark touched on it in his opening remarks, you know, through some of these volume challenges that we're having in 2024, even through these slower ramp curves, through the EV challenges we're having, or to have a positive business equation through this basket of goods discussion with our customers, really looking to offset the labor, offset the peso, offset some of these other challenges through a basket of goods discussion, through positive CI with our customers, through negotiating price downs with our suppliers to drive positive business performance into the business. And that's really how we look at this net positive sustainability equation.
So the discussions are still hot and heavy.
Absolutely.
And they are active, and they're fruitful.
Yes.
You're not getting stiff-armed, maybe like you would have 10, 20 years ago. I mean, there's-
No, I mean, I think-
There's collaborative discussion going on.
Yeah, I think they're collaborative discussions with the customers, and they understand the need to have a sustainable supply base.
Yep. And not all those commercial discussions are the same across the board, right?
Yes.
It varies based on customer, right? So some are more accommodating, some are a little tougher, right? So, the dynamics, you know, are the same as what we've felt over the last couple of years, right? It's hard fought, but we're going out there because it's the right thing to do.
I mean, you guys, I think your aggregate forecast is, you know, flat to down on global production, right? So, I mean, I think reasonably conservative, but we'll see where the year lands. You know, even with that backdrop, you're talking about some margin, you know, expansion this year. I guess some of it may be with the, you know, the help of some of these discussions, but a lot of it's gonna be on a micro basis internally. I mean, can you talk about those actions, what you're achieving, how sustainable they are, and, you know, where they ultimately may go in the years to come?
Yeah, I think a lot of it is. You know, we talked in the last earnings call a lot about modularity and the things that we're doing and really looking to drive our footprint, you know, from high-cost countries, leveraging our metals asset in a way that we've never really looked at leveraging our metals asset, and moving content that traditionally would be in a JIT footprint into a metals footprint through, you know, engineering that precious space and allowing us to drive content into metals. You know, that's a very sustainable action for us, where we can take 30%+ of labor out of JIT into our metals plant, shifting, you know, that content high cost to low cost. First program launches this year with, you know, really direct read across, then into multiple projects in North America. We're now actually driving that through.
We had very fruitful discussions two weeks ago with a very large European customer on doing that same model in Europe, servicing Germany out of our footprint in Hungary, with the same type of concept. And now, even in North America, we have two customers saying, "Can you use that to displace labor at a competitor's JIT plant by doing operations in your facility in Mexico, at your metals facility?" And so that we see as very sustainable, very sticky, actually, in terms of not only our performance, but unleashing the potential of real CI in our business. So that, you know, that's actually accelerating. The other thing that we've really been driving, that we've been pretty quiet about, is automation in our foaming operation.
So we were, you know, the first to market with automation in the placement lines, and that's now, you know, fully deployed across our network in the United States, where we've been able to eliminate, you know, anywhere from somewhere in the neighborhood of 8%-10% of direct placement labor on our foaming operations. Again, that's very sustainable, very sticky. That's now being rolled across globally. In addition, we have automation on the back end of our foaming lines, and then the other projects that we have, you know, we have automation in our trim plants that we've, you know, piloted in our European operations for highly complex trim for a major German OE on their, you know, highest-end luxury vehicles, for some of the, you know, higher-end quilting processes and higher-end embroidery processes that we're now rolling that across globally as well.
You know, I'd say in the infancy, but if you look at, you know, what that can yield, you know, somewhere in kind of the 10%-15% range, if we're able to read that across and then, you know, driving that forward throughout our trim network. And so that, you know, level of automation between trim and foam and, you know, somewhere in market share on the foam side, world's largest foamer, you know, those are truly sustainable actions from a CI standpoint, as we read them all, you know, read them across. That's how we really continue to drive this margin expansion across the network.
So it's not just what I would call brute force negotiation with our customers, but, you know, really unlocking that CI, that direct labor dependency, you know, doing away with that, and continuing to drive this continuous improvement mindset across the business. So those, you know, two or three work streams alone, you know, we see us propelling forward through 2027 and beyond for, you know, that margin expansion roadmap.
A couple of follow-ons to that, because there's a lot in there. You know, as far as, you know, some of your comments, it sounds like you're allowed to do or you're being tasked with doing more self-sourcing slash vertical integration in a way that, you know, a couple of years ago wasn't as accepted.
Mm-hmm.
I mean, I think we've all been in the industry for a while. You've seen, you know, these times where things spin out-
Yeah.
-just go back and forth. But it seems like more structurally, because there, there are these, you know-...major tasks for capital, both on a human and dollar basis at the automakers, that they're struggling with, you know, which is not that surprising, that they're, they're willing to be like: "Hey, you guys, you guys got this. We trust you. Do more, do, do more of it." How much of an opport-- I mean, is that, is that happening right now? Is that sus- you know, is that, you know, more sustainable than maybe it has been in, in the past? You know, and really, what, what, what, you know, what are you hearing there? Because it does sound like this is ramping up for a lot of suppliers.
Yeah, I think as the automakers look at their own internal resources and capital allocation or human capital allocation, they are putting more into their supply base and, you know, basically saying: "Find me the best solution that you can to solve the output." And depending on the customer, we are getting more degrees of freedom and the ability to go and solve for this. And it does vary by OE. And certainly, our Japanese customers-
Mm-hmm.
which, you know, we enjoy kind of largest market share outside of their keiretsus with, are giving us a lot of these degrees of freedom to go and be able to do this. And that's where our metals footprint is certainly lending us a real competitive advantage. It's where our partnerships with a lot of our comfort system suppliers and our ability to really drive competitive tension in the market, you know, with not only some of the traditionals, but also a lot of now the emerging Chinese competitors, is giving us a significant cost advantage versus some of the traditional incumbents. We're seeing that yield some very significant benefits in a very competitive marketplace. So that's yielding some real advantages. And so that's an area where we see, you know, with the Japanese, some very advantageous steps.
And then I think, you know, with the Germans, they're looking at it saying: "I've got, I've got to double down on my efforts to become competitive on EVs, and so for my next cycle that I'm putting out there, they're giving us more autonomy to do what we need to do as well." And then with a couple of the Detroit Three, they're also handing over more control for a couple of their platforms as well, saying: "Go and find me the best value chain solution that you can. I'll evaluate that where I think I can get to, and then we'll weigh the two benefits together, and then if you're more competitive, I'll hand control over to you.
Mm-hmm.
It's more collaborative than it's been historically.
Heading in the right direction?
Yeah, absolutely.
Yeah. And then on the automation side, you know, I think when traditionally, and this might be a bias of having, you know, looked at things for a long time, the cut-and-sew, and final assembly of the seat, you know, you know, the trimming of the seat, it's kind of always been viewed as something that'd be very difficult to automate. Are we getting to a point where that can also be, you know, automated, and that would, you know, pull a lot of labor out, and you can get the same product yield and quality out of that? You know, so, you know, sort of one step further. Is that possible, or is that what you're talking about?
Well, I think on... So if you take the cut-and-sew piece of it, I mean, we already have automation in place today on the cut-and-sew piece of it.
In the application.
Yeah, I mean, that's in place today on the cut-and-sew piece of it. You know, in our European operations and even in our Mexico operations, we have levels of automation deployed today in the field.
Mm-hmm.
You know, like, moving forward on, on certain aspects of the, of the cut and sew. The question is, you know, what level can you drive that to? How, how far can you get to? And that's what we're actively working on. As you then move forward into, you know, next step, when you then move that up into the JIT plant, what level of automation is then healthy in terms of... You know, today, we have a very, what I would call, fungible asset with the people that are in the plant, and when your customer doesn't hit volume, you can then flex those, those people down, and you can flex them up. If you then move to a very high level of automation, you then have a fixed asset, and your, your recovery discussions with your customer then become much more difficult.
So I think it's, it's thinking through that. In a trim plant, you don't have a dedicated trim plant. You have a trim plant that'll run, you know, five different customers and 20 different programs. So you can always flex your labor, and if you're automated, you can then flex that automation. JIT plants are generally, you know, somewhat dedicated, or you maybe have two platforms. So I think it's weighing, you know, those two different things.
I think for us, as we continue down the path of modularity, you know, as we look and we automate our foam plants, as an example, the question becomes: Can we do what traditionally would be done in a trim plant, where you're skinning the foam, or you're putting heater mats on, or you're doing traditional operations that would be done in a trim plant on the foam, move those to a foam plant and automate them in a foam plant, where you're then doing five or six customer applications in a foam plant in an automated manner, and moving, kind of reengineering that value chain? And that's what we're more working towards. Because we've already got the modularity piece, can we now get that automated?
Yeah.
That is something where if we leverage our scale that we have on foam, where we just have more scale than anyone else does on the foaming piece of it, can we reengineer that value chain? That's where we're really aggressively working. Because we have the automation now in the foam piece further ahead than anyone else, how, how quickly can we parlay that now into a more modular concept?
So, with all these actions, it sounds like you're in a obviously a very competitive position, you know, leader in seating, you know, globally. So, I mean, it's not like you're trying to catch up. You're trying to get further ahead, I think, of some of your competition. If you were to think about all of these actions versus what's happening in the competitive set... Where do they stand? You know, are they moving as quickly? Does this allow you to kind of maybe expand the gap? But then there's an important question because there is the question of, you know, the international side outside of China, right? I mean, and then the inside China market with Yanfeng and other-
Yeah
... you know, other big, you know, startups. And I think there's been some concern, you know, and I not sure this is really gonna manifest itself. Some of the Chinese suppliers, as the Chinese go global, go with them, much like you guys have with, you know, some of the D3 over time and expanded the business well beyond that, Japanese suppliers, Hyundai Mobis, you know, I mean, you have, you know, sort of these, this history of-
Mm.
you know, national-
Yeah
... national companies sticking together. But, you know, so if you talk about everything you're doing, competitive set, you know, outside of China and then inside of China, then China, maybe-
Yeah
... out to the rest of the world.
Yes, I mean, just, you know, comment on the competitive side. I mean, our competitors are highly capable, extremely competent, and it's fiercely competitive, and we have, as a company, full respect for, I mean, all of them. I mean, they're extremely, extremely good companies that are all extremely good at what they do. I mean, first and foremost, and I really do mean that. And, you know, they all have pieces of business in their portfolio that we would very much like, and I'm sure it's vice versa if they sat up here, and I said that last year sitting in this exact chair. So, I really mean that.
I think when it comes to, you know, how we think about the competitive set, you know, this business really comes down to execution, and what you need to do every day is you need to execute. Because if you're, if you're executing because of the intimacy you have with your customer, because generally, you're 90 minutes away from them or 120, however, your, your sequencing window is, because of the just-in-time nature. If you're executing every day, and you don't give them a reason to look elsewhere, that's always gonna be first and foremost. You, you have to execute. Execution every day is first and foremost in this business. You have to give them, you know, the best quality, on-time delivery every day, because if you have that plant-to-plant relationship, that's absolutely critical. And then after that, you know, you have to be competitive.
And so everything I just talked about, you're making sure that we wake up, and we're focused on driving continuous improvement in the business to drive that level of competitiveness is critical. And I think we have a team that is relentlessly focused on that and making sure we have levels of automation. We're rethinking value chains. We're thinking of how to drive solutions that customers need and that customers really value. And we really focus on when we sit with our customers, are the actions that we're taking, things that you value? And we get a lot of questions on, you know, "Why haven't you vertically integrated on comfort systems?" And that just comes down to when we sit with our customers, is that something that they value? Is that something that is going to allow us to better service our customers?
The answer we get is, you know, always a resounding, they want the ability to disaggregate that value chain. They want the ability to source those as separate, and if they're going to source them as one, then they want us to have the ability to go and really partner with either a Gentherm or an AEW or a Leggett & Platt, where now you have the Chinese, who are fiercely competitive in that market, who are very technologically advanced, who are moving faster than any of the incumbents are, and they want a seating supplier to have access to that market. And so they don't want us to have kind of this captive in-house portfolio, and that's the resounding answer we get.
And so, you know, it's service your customer and start with what your customer wants, and if we do that, I think then, you know, we... Yes, we have to be aware, you know, will they bring their partners with them? But if we don't give them a reason to go outside, and we have so much scale when you look at, you know, how many foaming operations. You know, setting up a trim plant isn't easy. It's 2,000 people in Mexico or in Morocco, and we have more scale than anyone else does. I mean, we have more foaming operations, more trim operations in Europe than anyone else. To overcome that scale is a big hurdle for someone. It's the same thing in the U.S. So, you know, could they bring?
Yes, and they may bring, but if we execute every day, and we're focused on our customer needs, then that's what's really important for us to think about.
So if you're thinking about sort of growth over the next, you know, 5 to 10 years, and we get beyond, you know, talking about the outlook for the year, but I think about strategically about the business. You know, what do you think the key driver of growth is going to be? You know, is this gonna be sort of regional expansion, customer expansion, thinking about things sort of horizontally? Or is it, you know, potentially, are there parts that you could more vertically integrate that would add content over time? So I guess it's kind of like customer and regional versus-
Yeah
... technology versus vertical integration. I mean, how should we think about, you know, where and how fast you, you can grow?
Yeah, I think, so I think you have to kind of cut it by, maybe cut it by region first-
Yep
... and then go kind of across the, right down the fairway versus adjacencies. So I think if you go by region, you know, I think in the Americas, you know, that... The Americas region is kind of going to be a flat region for us. Or even if you look back five years from now, that region may contract from a top line, but that's only because we're strategically winding off third-party metals business there, which we've always said we would do. But it's only going to start happening in the, you know, 2025, 2026, 2027 timeframe. You know, we're partially backfilling that with very high-calorie JIT trim and foam, vertically integrated business.
And when you're talking about this, you're talking about relative to the industry volume, right?
Yeah.
Not just the terms. Okay.
Yeah.
Just so-
Yeah, exactly.
Let's-
Yep, that's right.
And so we really think that that's what fuels the Americas margin expansion, is this wind-down of metals, and then we get this higher-calorie business that starts to wind on. And that's what drives the Americas, and we continually look in that region. Are there opportunities for, you know, what I would call right down the fairway type of things to bolt on, you know, in the foam marketplace and the trim marketplace? Because there is still a bit of fragmented capacity in that market. If you then look to Asia, which is really the growth engine for the company there, where we see, you know, last year, very nice growth over market.
We continue to expect to see that region to grow, you know, over market, you know, over kind of, I'd say, in the 5%-6% range growth over market, even out into the long term. You know, really fueled by our footprint with our, our Asian customers outside of China, and then in China, our relationships with the NEVs and our... You know, today we're 40% domestic. We'll move over the period to kinda 60% domestic, and we expect that to really propel us. And then, looking in that region, are there things we can do, you know, through strategic investments, with additional partners there, and really feeding that region with capital? You know, that is really the growth engine for the company.
Then, if you pivot to Europe, you know, Europe is the region where if you just look at, and I'll talk production, you know, it used to be a 20 million unit production region. Now it's kind of in a 16-16.5 production. Used to be an exporter of vehicles, now it's a net importer. You know, that region will kind of continue to, I'd say, shrink for us from a top line, stabilize somewhere maybe at the $25 million revenue level. And that's one where I think we've got to look at, what does it mean to us from a, you know, SG&A structure standpoint?
What do we need to do, capital allocation, and how do we drive that region long term, from an, you know, overall standpoint of accelerate restructuring, as some of our peers have done, to just rightsize that region, and we're really digging into that. So that's a regional view. Then top-level add-in, I mean, we're always on, I think, the lookout because we have this agility on our balance sheet now. We have this agility in our cap structure. You know, are there things that are right down the fairway for us? And we wanna keep that flexibility in our cap structure if something were to come available, you know, that we could act on it.
So you had made the... Doug?
Good segue, by the way, guys.
Yeah.
So you've done a great job paying down debt for the last few years. Balance sheet's in, optimized, got a really low leverage relative to the peer group. Cash flow looks pretty strong. It's coming through, I think, $300 million. If there's opportunities out there that are maybe bigger than bolt-on, I mean, could you entertain them, or how do you feel about the current credit profile and leverage? I mean, it's, it's an asset to have balance sheet in such good shape.
Yeah, I think you're right, Doug. I mean, it's the flexibility that we have today that we didn't have two years ago, right? So it's even... To be here, having that conversation with you, right, tells you where we've been and where we are today.
Yeah.
So, you know, we look at all options, right? So we look to see how we're gonna generate net value to our shareholders and to our bondholders, right? And so if there is something, as Jerome mentioned, that's, you know, straight down the fairway, that helps, you know, solidify a position for us, let's just say Asia, outside of China, Japan, sure, we'd take a look at that as a bolt-on, right?
Yeah.
If there was something bigger that came up, it would really have to make sense for us to really be accretive for the company, right? That we saw, you know, not only near-term benefits, but longer-term benefits, right? We will take a look at that. Again, just doing the work that we've done over the last two years to position our capital structure to where it is today, allows us to have that conversation.
It's helpful. There are certain areas in the world where there could be opportunity and-
Absolutely.
I think you're spotting some of them. Okay. That's great.
I have one last question, but is there any questions in the room? All right. We're good? We generally think your stock is pretty inexpensive. But, I mean, obviously, there's some people that don't, 'cause, you know, it, you know, it's not going up that much. I mean, so it is, or it's going where we think it should go. You know, as you look at this, you know, and you guys have been around for a while, and you, and you, you know, seen a lot of things, what do you think the disconnect is in the perception in the public markets, really specifically around the equity, versus what you think you're doing? And what do you think ultimately changes that over time?
We certainly have our own opinions, but I'd love to hear yours.
Yeah, maybe I'll start, and Jerome, feel free to chime in. But I, I think to a certain extent, we're still a show-me story, right? So if you think about where we've been and where we're heading, right, you know, obviously, we had some launch issues, manufacturing issues. You know, the thesis at that time was basically back to basics, stabilize the business, right? We did that. We showed that we can improve margins. We're well on that track. You know, then it came down to, you know, fixing the capital structure. You know, we just talked about that. We've been able to do that. Now we're in this period of time where we're generating cash, right? So it's how much cash can you generate? Can you sustain that cash generation? And then how is that cash allocated, right?
So how are you gonna balance the needs between, you know, returning to the shareholders, investing in the business, right, doing some, what I'd say, opportunistic debt paydown, right? And then keeping some dry powder for some M&A activity, right? And so I think, really, the investors are looking to make sure that we can execute on that plan. Jerome, I'm not sure if you have any other-
No, I mean, I think that's a really excellent summary. I think the only thing I would add is, one thing that I think is an underappreciated asset that we have is really our exposure to our Japanese customers, where-
Mm-hmm ...
It's a very unique position in terms of being outside of their keiretsus, you know, their largest seating supplier, and it's a very underappreciated asset, but one that we really do cherish having that relationship with them, one that we nurture. You know, largest tech center, you know, outside of the Japanese in our Torihama offices, and it's something that I think is just generally underappreciated. Especially, you know, I mean, we have 100% of all of Toyota's truck business, if you look at it. It's just a very powerful thing that we enjoy. They happen to be doing very well.
Yes.
Yeah. Generally. Very nice trucks. I'd encourage you all to go and explore them.
With very nice seats.
Yeah, with very nice seats.
Very nice seats.
Yeah.
With that, we're getting low on time, so we thank you very much for the time today. I wish you were actually working on the seats here today. It would actually make me feel a lot better.
Yeah.
But next year, maybe we'll get some Adient seats in here for the conference.
Yeah, sounds good.
Thank you. Thank you so much for joining us.
Yeah, thank you very much.
Thank you so much.
Thank you.