Back, everyone. Hope you enjoyed the lunch break. We're gonna continue on the track right now, and very pleased to have with us Tim Kraus, CFO from Dana, Inc. Dana's been one of our favorite names here for a while as they've been undergoing a transformation, really, by selling their off-highway business and recapitalizing the balance sheet with the proceeds. So, Tim, thanks for joining us today to sort of talk more about the story. I do wanna sort of get into the sale of off-highway, what new Dana sort of can look like, you know, from here.
But just because we are here sort of with three weeks left in the year, you know, you gave some guidance that looks pretty reasonable, I'd say, sort of for the implied fourth quarter, but maybe could you give us a little bit of a level set as sort of how the quarter's played out thus far?
Yeah. So, you know, we're eight weeks in, you know, really not much left to the year when you really think about the holidays coming up. But I think, you know, we're on track for the quarter, so we feel very confident that the implied guidance we had for the fourth quarter is where we'll end up. And despite, you know, some of the headwinds with obviously the fire at Novelis for Ford, but you know, I think we had that in our forecast when we came out. So I think we're in really good shape.
Can you remind us exactly, you know, roughly sort of what you assume for that, and has the downtime associated with that roughly played out as you said?
Yeah. I mean, we were pretty much in line with what Ford was saying. You know, we've seen, you know, we definitely saw volume decreases in October, and then, you know, which is what we were expecting. And I think the good news is, I think Ford's running, you know, less and less from a volume differential, but they're running consistently, which is always better from our perspective in terms of the efficiency that we can run our plants at. So we're pretty pleased where we're at. They've done a nice job of getting units out, and we're obviously supplying them as they need it, so.
And then I know it's still fairly early. Don't expect you to sort of give a 2026 view here right now, but was wondering if you could sort of talk at a high level how you're sort of thinking about some of the end markets that Dana remains. And then even maybe more than that, you know, especially on the light vehicle side, you're fairly program-specific, right? So even if we think about Ford, for instance, right, you know, not only are you sort of lapping against some of the downtime specifically in the fourth quarter, but they've also sort of talking about, you know, adding capacity and shifts. So it seems like it could be a pretty good year for Ford on the Super Duty side next year.
And then, of course, late in the year, you get the Canadian capacity coming on. But wanted to get your sense of maybe the markets and some of the customers, how you think.
Yeah. I think, you know, Ford's obviously on the light vehicle side, the largest customer. I think you, Joe, you said it right. I think, you know, we see relatively flat overall for the market. I think we do probably have a little bit of upside with Ford if they are able to get some of the issues behind them and run better, which is, it was really great for us. I mean, you know, we're on really good programs, really with all the customers, but certainly with Ford, Super Duty, Ranger, and Bronco. So, you know, those are great vehicles, and, you know, we're really proud to be the driveline supplier choice for Ford, so.
With the, you know, it's been public information that Ford is sort of adding this capacity for the Super Duty and up in Canada. Can you give us a sense of sort of what type of work you need to do in order to sort of help prepare to supply for that, or where are you supplying that?
Yeah. So we're not adding any concrete for supply out of it. So we produce the Super Duty axles in Dry Ridge, Kentucky today, so.
Mm-hmm.
Not far from Kentucky Truck. We'll continue to produce the axles there for the production that they're gonna have in Canada. In terms of we've had an increase, you know, run rate for the lines and then some of the capacity we have on some components. But generally, with that exception, we haven't had to add any CapEx, just some capacity in assembly and components.
That'll help them with U.S. content requirements, I think.
Correct.
Okay. So, the sale of off-highway, I know we, I think a week ago, maybe two, we sort of saw that you got sort of final approval. We were just sort of chatting a little bit there, outside. Just, you know, I know you sort of said close by the end of the year, as you sort of mentioned, we're getting pretty close. Like, what sort of really needs to happen here for now that you sort of have approval to sort of, you know, finish the close?
Yeah. It's really separation, right? It's, you know, I mean, the while the business was a separate segment and ran, you know, relatively separate, separately from a sales organization and whatnot, there's a lot of systems that are integrated, especially on the IT side, on aftermarket. So we're just completing those separations. We also have, you know, physical separations that have to be completed. So that's all being run.
There were no shared facilities or anything?
There’s no shared physical facilities. There’s shared campuses. There’s some built-in things like that. But no, generally speaking, no, no shared facilities. So it’s really the real nitty-gritty of getting to the business separated so that when we do close, you know, it’s in the best possible position for Allison to run the business without any issues.
You know, the TSA is all set up as well?
TSAs are all set up. I mean, and we're in really, really good shape overall. It's really just making sure I mean, it's a big transaction, you know, for us from a divestiture, right? It's a big transaction for Allison, obviously. We on both sides, both us and Allison, you know, we just wanna make sure, you know, we're in the best shape and make sure that our customers, the operations, the suppliers, our employees, you know, it's 10 or 11 thousand employees that have been with us for some of them for a very, very long time. We wanna make sure that transition happens really, really well and it really gets off to a great start. So, you know, that's really what we're doing.
I don't really have any concerns that we won't get there by the end of the year.
Yeah. And one of the things I think I maybe sort of failed to appreciate, obviously, we knew the workers, the facility workers, the plant workers sort of going over, but as you sort of indicated, there's a decent amount of sort of staff, right, that goes over with the deal as well, to Allison.
Yeah. Yeah. I mean, you think about, like, the off-highway business for our European business was the bulk of our European business. A lot of the sort of non-off-highway specific people really did support by and large the off-highway program. So many of those people are going over with the transaction and, you know, they have to move legal entities and get reset up. And so there's a lot of really detail-oriented things that have to get completed to make sure we don't, you know, last thing we wanna do is not be able to deliver a part to a customer or pay one of our employees, you know, after the deal. So those are the things we're really focused on today.
But there will still be some stranded costs or headcount post the deal?
Of course. I mean, just think, you know, I mean, like, part of my salary gets allocated, obviously. It gets absorbed by that. They, like, they can't cut 30% of me off. I think my boss sometimes thinks he'd like to, but, so yeah, of course, there's some of those costs. I think, we'll, you know, we've called out, you know, it's about 40. We think we get 20 of that, you know, taken care of next year. And then the, you know, by the end of the year, we'll be able to take the vast majority out or offset it in some other way. But we're very confident in our ability to eliminate the impact of those stranded costs on the remaining margin of the business, so.
So with the cash coming in, you've been very clear, right, that a lot of that will be returned. There'll be some sort of deleveraging. I think one of the, one of the things that, you know, earlier this year sort of surprised us a little bit was, you know, you did say you would sort of buy back some stock in advance. I think you bought back maybe a little bit more than we, than sort of we anticipated. So can you just, again, remind us and sort of level set, you know, where you are with, you know, the cash that will come in, what, what can still be returned, what sort of goes towards deleveraging?
Yeah. I mean, we've called out about $2 billion of deleveraging on the gross side. You know, that's obviously still, you know, where we'll be. We also announced a $1 billion capital return, you know, as part of what we announced, you know, over the last year. You know, we've largely done. We said we do $500 million-$600 million. You know, we're largely on track for this year. We have bought back stock, probably more quickly than we were originally anticipating. Some of that's, you know, obviously one of our largest shareholders was,
Mm-hmm.
Carl Icahn, or the Icahn Group. We completed that transaction in the early summer. So that kind of, you know, kickstarted it. But you know, our view of the stock has been undervalued and continues to be undervalued. And so, you know, we have a $1 billion authorization. If the stock's on sale, you know, might as well buy it back ahead of time. You know, we have a lot of confidence, obviously. We're gonna get to closing. And.
Mm-hmm.
That's the reason we accelerated that. We still have about $400 million on the authorization, and we anticipate, you know, using that over the next two years through 2027 to continue to buy back stock.
Okay, so let's talk a little bit, I guess, about sort of what new Dana looks like, right? So it's, I'd say, sort of a little bit more simplified, right? You've got the light vehicle driveline, which, as we sort of discussed earlier, has a couple sort of very key customers and programs. And then you've got the commercial vehicle side. How would you describe the strategy for each of those sort of end markets, either from a growth or a margin or a profitability perspective?
Yeah. I mean, I think the light vehicle business largely has the old light vehicle driveline business and the vast majority of old power technologies groups, so which was the sealing and the thermal business, which primarily serves light vehicle, not in its entirety. There's still a little bit that goes to off-highway or commercial vehicle customers, but that's largely what's in the light vehicle segment. And, you know, those are pretty traditional products. So you mentioned the driveline.
Mm-hmm.
The four big programs that we serve here in North America. And then, you know, we do various sealing and then thermal products, which is really classic, you know, oil and transmission coolers, but also contains our battery and electronics cooling, which continues to be a growth area, not the kind of growth we were expecting or had planned for a couple of years ago. But, you know, it's an application of technologies that we've developed, you know, for ICE that are completely applicable to the EV segment. So while that growth is a bit slower, still a great opportunity for us to continue to grow as the market for electric or hybrid vehicles continues to develop.
When power technologies was its own segment, that was one area where we did see sort of margins languish a little bit. How do you think we bottomed there in that specific business, and where are we in sort of the ramp?
Yeah. I think, you know, we're, you know, we've had a couple of things. We've obviously. There's quite a bit of volume that came out, especially on the EV side. So we've managed through that. I think it's been, you know, a process, but a good one. We've had some plant optimization that we went through, like launches that we struggled with a little bit over the last year. That's largely behind us. So I think those margins improve as we move into 2026, part of the margin improvement story that we've been talking about.
And I think largely the other part of this is, you know, the number of SKUs in that business, number of part numbers that we sell in, especially in the sealing side of the business is pretty significant, especially on the OEM side, not just for light vehicle, but commercial vehicle off-highway.
There's an industrial component that's relatively small, but, you know, we're evaluating that business now in terms of, you know, what parts are profitable, which ones aren't as profitable as they need to be, and really evaluating those and going through and saying, "Look, I, you know, if that part doesn't meet our profitability or our return thresholds, you know, we're gonna go to the customer and get a price increase." And if they don't want the price increase, we'll tell them, "Hey, you're happy to take the business elsewhere." And I think that leads to, you know, maybe a shrinking on the top line, but a much more profitable business going forward for, you know, what was the power technology segment.
By the way, I think, you know, when you think through that, it gives us opportunities as we go through if, you know, we end up with plants that are less than utilized.
Or further.
We've got some opportunities to maybe rationalize some of the manufacturing and take additional fixed costs out of the business. So I think there's a lot of opportunities for us, as we come through both for margin expansion and for growth.
I wanna get back to that point on margins and rationalization in a second. But just to sort of close the loop on the commercial vehicle side, you know, Bruce sounded pretty despondent, I think, on the hopes for sort of recovery there. You know, which has obviously been a market that sort of struggled. I mean, what's your sort of latest and greatest sort of view on the commercial vehicle market heading into 2026? And are there growth opportunities in that market, or is it just sort of, you know, with the ebbs and flows of the cyclical?
Yeah. From a market perspective, we're talking about North America.
Yeah.
Yeah. Bruce hasn't changed from what Bruce said. Like, we don't see much recovery, certainly in the first half.
Mm-hmm.
We don't see it getting any worse. So, you know, it's not in a great position from a total volume perspective, but it seems to have stabilized. You know, as we look out into the back half of next year, maybe there's some opportunities. We haven't seen that yet. Our customers' order books don't seem to suggest it. But that would be sort of, I think, the first opportunity. I think the only bright spot there is, you know, the year-over-year comparables, you know, like, they aren't gonna be.
Right.
You know, could be better just because this year has been, especially in the back half of this year, has been pretty tough.
And I know there are other geographies in that business, you know, Europe, South America, China. So it's a little bit difficult, but, you know, by our measure, it does seem like you've probably been outperforming the markets, even when we sort of try to blend that, which suggests that there's either, you know, share gains or some sort of, you know, pricing or something. So what do you think's happening with that?
It's both, right? We have, like, that's really part of the offset we have next year. We continue to gain share with, you know, customers that historically have been pretty small for us. That continues to be an opportunity for us as we, you know, can compete from an end market customer's demand for our products. On the CV side, we have an opportunity with customers like Navistar, like Volvo, which have a much smaller share. Picking that share up to offset some of the weakness in the macro volume is pretty helpful. I think that's an area we can.
That's the sort of, you know, 'cause I know, like, customers can ultimately choose their sort of, you know, axle provider, but that'd be sort of like a the standard or recommended fit?
Yeah. I think there's a couple of parts there. One is where we sit in the book. That's really how we work with the OEM themselves. And the other side is on the end market fleet customer and making sure that they understand the value proposition of having a Dana Axle and drive shaft in their truck and then using that as a pull-through with the OEMs to push the product or pull the product through the supply chain. So it's really a combination of the two. And then as more customers really want that in the order book, our position in the order book and the pricing in the order book gets better and then, you know, that should lead to better market share.
Yeah, so I think you sort of, you know, talked about, you know, you typically do sort of a backlog update. I think you indicated you might do that at some point in January ahead of reporting earnings.
Yeah.
You know, what, obviously, you know, you're still sort of working through that. You might still get some business. You're not gonna give us a number today. But, like, again, broadly, like, how should we think about what drivers really are for that business? 'Cause, you know, I think historically on the commercial vehicle side, backlog's a little bit of a funny concept because it is sort of more built to order, right, as opposed to sort of orders in advance.
Yeah. Our backlog, you know, if you look at the backlog, you know, from a year ago, right, the amount of backlog related to either off-highway or CV is relatively small.
Uh-huh.
especially on traditional.
Right.
A lot of the backlog in CV.
Was EV.
Was EV because that's brand new. Those were brand new programs. So, you know, obviously those are gonna be lower tomorrow than they were yesterday because of just what we're seeing in the market.
So then when we think about on the light vehicle side, right, like, I mean, it's a pretty unique set of product for a very specific segment of the light vehicle market. So how do we think about sort of continued wins in that business?
Well, I think there's a couple of things. One, you know, we still have significant EV business coming online, albeit at lower volumes, but still incremental sales dollars that flow through that we didn't have in the past. And that's true on driveline and on battery cooling and electronics cooling. I think the other is as the customers start to, you know, rethink their product plans, you know, we are seeing, you know, renewed opportunities in for ICE programs or new variants within the programs that we're already on. So we are seeing, you know, a change. Whereas, you know, if you went back two years ago, like, there was virtually no RFQs for new ICE platforms or significant adjustments to those platforms. That's changed quite a bit today.
We're seeing a lot more of that interest from our customers in terms of those platforms or new platforms that they might be considering.
Would something like the expanded volume for the Super Duty ramp-up and count be considered backlog?
That would.
or is that an expense?
We would typically, we wouldn't consider, you know, volume uptick to be backlog. In this case, we do 'cause it's a brand new plant, incremental volume. So yes, we are, we would consider that. The other things that would go through volume is where we've got additional content on the vehicles, right? So where, you know, they've, the customer may have added variants that weren't there before, and those come with additional content because of different gear ratios or options, then that goes through backlog when it's a renewed program.
And to the extent, you know, one of the things like Ford has alluded to is sort of maybe some richer mix of, let's say, performance vehicles, right? And I think we typically think of engine when we hear that. But the same can be said for the axle. So to the extent there's more Bronco Raptors.
Yeah. Right. Those are great vehicles for both us and, quite frankly, obviously for our customer, but you know, those are great 'cause they do come with significantly better content, and the OEM gets to sell it for a premium price, so yeah, more of those types of vehicles are always helpful from our perspective, and the nice part there is it's not a variant that they run one-off. They'll tend to run 'em.
Mm-hmm.
In a set. So, you know, you can set up, run, and the profitability's really quite good on those programs.
I guess final question on the backlog. I mean, I think if I recall correctly, almost three quarters of the last backlog seem to be tied to EV. And you just sort of alluded that it's not going away, but there's definitely been sort of a push out or, you know, to the right or the area under the curve looks a little bit different. So, how should we think about that in the context of sort of what you've already reported for that three-year backlog and then as you sort of roll on?
Yeah. I think, I mean, we'll talk about this.
Yeah.
Next month. But, you know, there's gonna be a number of components. There'll be some clearly canceled programs.
Mm-hmm.
That'll affect backlog. There's volume decrease assumptions that'll affect backlog and then some delays in the program that'll move backlog.
Right.
You know, around in the year. So, like, you know, I mean, our backlog on EV is going to be a little bit, if you just look at 2027 from before and 2027 tomorrow, it, it'll obviously look a little bit different. But we still expect a good chunk of the backlog to be EV. It just isn't going to be as large as we once thought it would be. But again, that comes with less investment too.
But I was just gonna say, with that business, which you sort of won, how has sort of the conversation with the customer sort of changed in order to sort of take that?
I would, I mean, the conversations with our customers are, you know, I never put them in the easy category, but I think they've been very constructive. I would say that they've been, you know, we've got to where we need to be with many of the programs.
When you say less investment, is that because you're leveraging investments already made or because they're shouldering more of the investment?
It's a bit of both. Where we hadn't put capital on the ground yet, that capital's coming in smaller 'cause the volumes are down. So some of it's like, hey, we hadn't ordered the programs. And some of this is true also because they delayed it. Now they've actually taken the volume down. So because of the delay, we hadn't ordered capital, and then we can put it in. The other is where we do have opportunities, and I think this is, you know, to go back to the growth conversation, we're offering a lot more to the customer now saying, hey, look, if you, you know, especially like on the CV, if you, we have an off-the-shelf product, we can make it fit what you want.
If you want that, you can have it at X price, and it's great. If you want something that's bespoke, you're paying the full bill, and you know, what we're seeing is, you know, a lot more acceptance of something that's less bespoke and more off-the-shelf with, you know, some adjustments, which the customer then is willing to pay for, and don't forget these systems, you know, we're on a mechanical system. You have to change the mechanical aspect of the axle to get a different drive. On an EV, you can change ride characteristic with software. You could have principally the same motor inverter and hard parts and change that ride dynamic and how the customer feels in that vehicle by changing the way the software runs, so there's a lot of opportunities.
I think more of the customers are, as volumes just aren't gonna be there, rethinking kind of, do they really need something that's special or bespoke to them?
Maybe going back to the cost side and the margin side, right? You sort of talked about $300 million, $310 million, I think.
310.
Of cost out, right? You've done a. I think you're probably ahead of plan basically.
We are.
To date, does that, as you sort of work through that, have you sort of uncovered additional opportunities where, you know, I'm not saying you're, I'm not gonna sort of hold you to this as saying like it's for sure, but does, as you sort of evaluate and see what you've been able to do, do you see more opportunities for even more cost outs down the line?
You know, you think about the 310, right? We started out with 200, went to 300.
Mm-hmm.
Now it's 310. You know, I think the team has done, you know, just an absolutely fantastic job, not only identifying the cost out, but really, you know, getting more efficient, right? Here's things we're not gonna do. Here's how we're gonna do the things we need to do more efficiently. That's why we have such confidence. One, the costs are gonna go out and the costs are gonna stay out. I think as you move forward, and a lot of that was all above the plants, right? So you're talking about a lot of corporate back office.
Right.
Right. You know, it's a lot of engineering to.
Yeah.
You know, like, and by the way, the reduction in EV really helped drive a lot of that 'cause we'd put a lot of infrastructure into the business for that growth that's now not coming and that cost has been taken out. Not just engineering, but I think program management, purchasing, right? This is gonna be a $3-$5 billion business, comes with a lot of other costs.
Mm-hmm.
I think now, are there still some additional opportunities? Yeah. I mean, is it, is it.
But more in the plants, right?
Definitely in the plant, so you know, as we've been sort of down this EV journey over the last, you know, four, five, six years, we spent almost all of our time and effort maintaining the business we had and then, you know, developing the products that we needed for EV. You know, that's been done, but what we didn't do is spend as much time or capital, mostly 'cause we didn't have it, 'cause we were spending it on EV, on really trying to improve, you know, really supercharge the efficiencies in the plants.
That's the opportunity that we see over the next, you know, year, two, three years. It is really at the plant, you know, level, being able to do, you know, consolidation or automation, other efficiency within the plant that really will help take that profitability to that next level.
Is there also internal benchmarking? Like, do you think some plants are just inefficient relative to other areas of, other plants you have within the organization?
We certainly have a gradation, right? A newer plant is obviously more efficient than the one that's been around for 60 years. I think the more important thing is, you know, we're behind on, you know, base automation. If you just look at a typical auto industrial type manufacturing, and that's where we've really, I think, going to be concentrating. It comes with investment.
Mm-hmm.
But that was investment that would've gone into EV, which will now go to these types of activities. You know, the good, the great part here is the returns are excellent, right? And there are a lot, you know, from a risk-adjusted prices, far easier to understand. As long as the volume on, say, an ICE program is gonna be there, like that additional profitability and savings are gonna flow through because we know what variable cost or fixed cost we've taken out of the business.
That's not just labor savings, right? Where I know at times, like labor has been a little bit of a challenge. But is it also sort of, are there also, I wouldn't wanna imagine efficiency savings, quality savings, right, from automation?
Yeah. I'll give you a great example. So this is, you know, when you build this differential on an axle, right, you put a gear set, right? A hypoid gear set, the hypoid gear set's made and there's some movement inside that. There's a shim that gets put in there and there's varying sizes to reduce backlash, you know, noise, vibration, right? Historically, right, you had, you know, Bob or Mary who like would be, oh, I think I need, you know, number three.
What's going on now is, as you think about automation, you know, there's an automated camera that's looking at it and then calculating and say, hey, like your best choice is shim number three. And the number of times that that's correct goes up. So OEE comes through and starts to go up there. That's not really automation in the sense of a robot, but it is, in terms of our OEE and the amount of throughput we can have on the same type of machine, you know, maybe we don't need to run three cells. We only need to run two cells and get the same output.
Those are the things that I think, you know, when you think about how we can continue to invest in the, on the plant floor to really improve the productivity, but also to your point, quality, right? You're less likely to make the wrong choice and end up with a gear that doesn't pass NVH at the end of the line. So,
So it's not just automation, right? It's also the use of more AI and other software technologies.
Yeah. Exactly.
To help get that quality up, so you mentioned, you know, there would be some investment, but that's otherwise investment that would've gone to EV, as we think about, you know, you've given some, you know, free cash flow margin color for the company on a go-forward basis. CapEx, I know it could be variable from year- to-y ear depending on program launches, but how should we think about CapEx as a % of sales on?
Yeah. It's like, I mean, I think next year's probably 4%. So in the four-ish, 4.5%, it probably is a reasonable number. It'll, like you say, it'll move around depending on where we are in the refresh cycles. But I think generally 4%-4.5%, I think is where we're at. We have a 4% of sales free cash flow number for next year.
Mm-hmm.
I think that is not an issue at all. 'Cause you think about it, right? We're at 10%-10.5% EBITDA margins.
EBITDA. Yeah.
With a better capital structure, obviously lower tax base, you know, we continue to see some efficiencies from a working capital. But even without that and with a 4%, you know, free cash flow or CapEx, like getting to a 4% free cash flow.
Mm-hmm.
It is the walk's pretty easy to understand from my perspective.
Okay. Can we talk about the working capital part for a second? Because, you know, I think, I don't know whether this is true or not, but, you know, please correct me. Like when I thought about the off-highway business, right? Great, great business, good margin business, but, generally, you know, lower volumes and a more diverse array of SKUs, if you will, right?
Yeah.
So that seems like it probably was a working capital headwind relative to the rest of the business, but I'm not sure whether that's true, but, maybe just some color on how you could see working capital for new Dana emerging relative to old Dana without the off-highway business.
Yeah. I mean, certainly it was our highest working capital intensive business, right? For exactly, right? And it's an Italian, largely a large portion of it is Italian. And, you know, those customers tend to, you know, live off the old fiat, you know, 90-day terms, 100-day terms. So, you know, yes, you know, even outside of inventory, you see that on the receivable side, get a little help on the payable side, but even still, absolutely less intensive.
And by the way, you know, one of the things in that business is when you know, sales fall pretty quickly, you end up with pretty long supply lines and you end up with you know, bubbles in working capital until you can kind of work that out. So that'll be certainly helpful to the new Dana as we go through. I think for the rest of the business, you know, we've you know, this year we had you know, obviously a pretty significant fall off in the commercial vehicle, which does have a bit longer supply chain metrics than our light vehicle business. So we think some of that'll come back next year as well as we kind of work through.
Right.
Well, it's stopped falling.
Yeah.
Of course now we're kind of working through, you know, what's already been ordered and come into the plant. So we do think there's a bit of help there. You know, we still have some work to do on some of the other aspects, but I think that'll be helpful next year as well.
Okay. Forgot to mention this, but to anyone in the audience who has a question, if you scan the QR code, it'll pop up here on this iPad and I'm happy to ask a question on your behalf if you have one. So I'll be on the lookout for that if there is anything. Metals pricing. You know, we've seen the price of metals sort of fluctuate a little bit. I know, you know, SBQ is a big input as well to you and that's a market that's quite frankly a little bit more sort of opaque to us. So maybe you could just remind us sort of, you know, what or tell us what you're seeing on metals pricing heading into 2026 and then remind us sort of how that works its way through the.
Yeah. I mean, we're not seeing, you know, any, we're not anticipating any drastic changes in the core metals. So, you know, I think the SBQ, another one that's a core piece for us is really North American scrap.
Right.
Pricing, right? 'Cause that, that's really an input for a lot of the steel we buy. You know, what we've seen, you know, as the commodity prices have sort of swung and moved quite a bit over the last two, three, four years is, you know, our commodity recovery mechanisms that are contractual have worked very, very well. They, you know, we tend to be able to recover somewhere in the 75%-80% range. It depends on the customer and the program. And we tend to be on a, you know, 90 to, you know, you know,
How much higher is that than it was, let's say, five years ago?
That's, it's really not unchanged. It, like, that aspect changed many, many years ago. I think what we learned through the last, you know, two, three years of these swings is some of the indexing that we had worked fine when, you know, metal prices were relatively,
Yeah.
You know, mirrored. Now that there's been some disparity, we've found that some of the indexes that we were using no longer, you know, really estimate the impacts. So we've gone back over the last few years and actually improved those and had the customer agree. 'Cause it doesn't help either one of us if the index we're marked off of isn't working. But you can see that like the impacts on, when you look at the walks, it hasn't been dramatic.
Mm-hmm.
other than the impacts you have from a lag perspective.
That lag is still generally a quarter or so?
It's a quarter, maybe a little. Again, it depends. It could be 90 days. It could be 120 days depending on the.
Any material differences between the businesses that you retain control of versus off-highway on?
Yeah. Off-highway had very little contractual commodity adjustments. Those were all, all negotiated, you know, other than with some of the very large, the Deeres, the AGCOs of the world. The rest of them were all, you know, you know, you had to go in and, and, and negotiate. So in that respect, I think the, the percentage of the, of the business that is, covered by contractual obligations will actually increase.
Mm-hmm.
After the sale of off-highway, that said, I mean, the one thing the off-highway business was very adept at was going in and getting that pricing from the customer, you know, when that happened. And you saw that over the last few years when margins in that business actually improved, despite, you know, inflation and commodity prices increasing.
Yeah. I'm curious sort of how you think about opportunities in the China market. I know it's not a large, it's not a large portion of the business. But it is, you know, a large market, the largest market in the world. And some of those players will undoubtedly exercise more influence on the global automotive industry. So what's sort of the strategy there?
Yeah. So, we're selling a large chunk of our Chinese business along with off-highway.
With off-highway.
That was a large.
But I was talking about on Ramin Co. Yeah.
Yeah. On Ramin Co., I like, if you think about it, so on the commercial vehicle side from pure ICE, we have a joint venture with Dongfeng.
Mm-hmm.
on it. So it's non-consolidated. So that's how we play in the ICE commercial vehicle market. The part of the commercial vehicle market where we have a really good position is in the EV. So they're very early adopters of EV even in the truck and bus market.
Mm-hmm.
We continue to see, while that market has been reduced, still very supportive and adaptive of our EV technology. So we'll continue to be able to supply there. On the light vehicle side, you know, it's not a light truck, you know, it's not a full-frame truck and SUV market. So we have, you know, some business through joint ventures with a number of the OEMs, but it's relatively modest. So we'll continue to look at, you know, opportunities, especially in the CV market.
Mm-hmm.
The LV market, the place where we play is really in the power, the old power tech stuff. So in thermal, and we'll continue to see growth and work to grow that part of the business in China as we move forward. But our core light vehicle driveline business just isn't really. It just doesn't have the market customer products that really match up well with ours.
On the light vehicle, the commercial vehicle side of the business, are you comfortable with where the portfolio's at, either from a, you know, are there holes where you just sort of wanna fill in either organically or inorganically? Maybe that could be sort of a potential sort of use of cash going forward. Or conversely, are there still some areas that as you sort of continue to go through the business, evaluate what you have, where you may realize this business doesn't make sense for us to be the owner.
Yeah. I mean.
Of products.
Yeah. If you look, I mean, we've sold a couple of small.
Yeah.
You know, joint ventures that we've had that were non-consolidated this year. You know, there's.
Just not even China, just overall.
Yeah. No, no. It's, I'm not talking about China. I'm talking about overall. You know, I think, you know, on use of proceeds for acquisitions, like we're really focused on the business that we love the businesses we own. You know, in terms of what do we have any holes? I think the place where we see, you know, a lot of growth and we're spending a lot of time in, and this is really around our aftermarket business.
Mm-hmm.
Especially on the sealing side. Really in North America, we have a very strong position in Europe, really trying to replicate that here and going after some of the big box retailers to get that done. I think there is a great spot to be in. But generally speaking, we love the businesses we're in. We like where we're positioned and we like the technologies that we have.
Great. Well, at that time, I think we timed it perfectly.
Perfect. Thanks.
Like strike zero.
Thanks, Joe.
Thanks for having us. All right. Thanks for being here.