As well as the heavy-duty Ram. Now, American Axle could evolve significantly in the next few years with its planned merger with Dowlais, the legacy GKN Driveline unit, which would materially shift its customer and geographic mix. While the market's initial reaction to the deal has been mixed, the potential synergies, along with the earnings and free cash flow upside, could be substantial. To discuss this and American Axle 's broader outlook, we're very happy to welcome CFO Chris May, along with David and Joe from Investor Relations. Gentlemen, thank you so much for being with us.
Thanks.
Thank you, Emmanuel. Glad to be here.
Maybe just to kick it off, Chris, we'd like to offer some opening remarks, and then we're most of the way through Q1, how are business conditions tracking in general?
Sure. Yeah. I'll start with a few prepared remarks, and then, like you said, we'll dive into I would surmise a lot of questions you have on your mind and others may have on their mind that are listening in here today. First and foremost, thank you, Emmanuel and Wolfe Research, for hosting this event. We look forward to the conversations we're going to have today. It's always a great way to connect with yourself as well as key interested parties in AAM. I would also remind everybody to take a look at our website for our forward-looking statement information for items we're going to talk about today. Of course, you can find that at www.aam.com. I think the start of the year, as I would describe for American Axle , has been, quite frankly, very exciting.
We ended 2024 on a strong note, 12.2% adjusted EBITDA margins, nearly $749 million in adjusted EBITDA, and also closed out the year with a strong cash flow generation of over $230 million. Great way to end 2024 and really start to set up 2025 for success. Our Q4 earnings and full year 2024 earnings were not the only exciting news that we talked about in the first part of this year. As you know, at the end of January that Emmanuel referred to, we announced on January 29th our transformational combination with Dowlais. This was really centered around strong industrial logic with the complementary product portfolio of these two companies bringing together a global driveline and metal forming supplier. We are going to leverage the strength of new significant size and scale on a combined basis for nearly $12 billion in revenue.
We're going to diversify our customer and geographic revenue mix, and we're certainly going to leverage about $300 million of key synergies we see as part of this transaction. I'm sure we'll get into some more of those questions and dialogue as we go along. If you take that, put it all together, package it up, this company is going to have potential for very high cash flow, very high margins. You can see some illustrative analysis in some of our investor materials with combined cash flow generation potential of nearly $600 million each year. That's exciting stuff. Those are benchmark numbers. We're really looking forward to this transaction. As we continued on since our announcement on January 29th, we're making great progress. Our bridge syndication is done. Our credit agreement amendments are done.
Obviously, we'll go to the market to finance the transaction near the close time frame, which we're looking to close near the end of this year. Our regulatory filings are tracking right on progress. We filed with the United States. We've cleared the waiting periods. We put out a press release to that effect last week. Making great progress on all fronts to advance this transaction. That's exciting. We'll talk more about that, like I said, in a few moments. As it relates to 2025 commentary, you teed this up a little bit, Emmanuel. We provided our initial guidance for the year in mid-February at our earnings call. We also provided some initial commentary in terms of cadence of calendar year 2025, where we would expect to see first quarter sales on a sales per production day basis, probably the lowest of the year.
We experienced downtime in early January with several of our key customers, including some of their truck plants. On a year-over-year basis, S&P Global and others, as you know, have production down. We are experiencing, just as we described on our earnings call here inside the first quarter. As you know, production is a primary driver for our EBITDA and our cadence of profitability. Keep that in mind as we continue to kind of work through the course of 2025. That said, we made great progress on closing the transaction. We are setting up here for 2025, as I just discussed. The ICE for longer environment, very good for AAM. We will talk a little bit about some of our quotation activity, I would suspect, through some of our Q&A. As a company, we are focused on our core productivity. We are focused on 2025.
We're seeing increased activity in our quotation activity for our core business. It's going to be an exciting year. I know 2025 is going to have some challenges. I think we all know the macro that swirls around us, but it's going to be a very exciting year here for AAM. Maybe with that, I'll pause, turn it back over to you, Emmanuel, and see if you have any questions you want to take a little bit of a deeper dive into.
Yeah. No, thanks so much, Chris, for this overview. For the full year, you've guided to revenue down a bit with backlog essentially offset by attrition and then some negative volume mix effect. Can you first remind us what drives this volume outlook?
Sure. Yeah. The underpinnings of our guidance that we released at our earnings call time from a macro perspective really centered around, so think of our midpoint of our guide at the time, North America production, around 15.1 million units. I know S&P Global updated some of their views yesterday. It's still pretty close to that, but a tad bit softer. 15.1 million units was our assumption for North America production. The GM full-size pickup truck, commonly referred to as the T1XX platform, that's a critical platform for our company. We to 1.4 million units for the year of 2025. Of course, like most of our peers, as well as our customers, this does not include the impact of any tariffs or any of those type of ramifications from a macro perspective. That's the underpinnings of our revenue guide for the year and corresponding profitability.
On the new business side, you've commented that there is a bit of an air pocket as the OEMs reassess their plans. Can you elaborate for us?
Yes. Yeah. We've experienced this air pocket now, and that's a term I think we started to use maybe a year or so ago, as I would say a level of uncertainty emerged, I would say, in the macro and impacting clearly our customers in terms of propulsion trends, whether they are regulatory elements that they're facing, customer adoption, capital investments. You saw a slowing of sourcing of new programs. That's why I think you found ourselves, as well as others of our peers, really not announcing new business wins. We started to see that change a little bit here now with the U.S. elections clearing in the fall of last year. It sort of has now started to kind of reignite additional interest in program extensions, new programs to quote on.
Now, it's not fully where it was several years ago, but it's now starting to come back to life. You're starting to see us make some announcements on our extensions, like we talked about the Bronco Sport. We now were aware of that extension. We talked about that at our last earnings call. Our active quotation activity is about $1.5 billion of new business. If you remember that number, sounds familiar. That's something we were quoting on a couple of years back. Most of that a couple of years back was related to electrification. Now we've seen the complete inverse of that. Nearly 75% of our quotation activity is on ICE or hybrid applications versus electrification. It's starting to come back. We did have that air pocket, but we're certainly starting excited to see some of the trends we're seeing with our customers.
Let's shift to tariffs a little bit. Can you just remind us, what is your exposure to potential U.S. tariffs, both in terms of your products and inputs that are crossing the border, and also in terms of materials economics? What pass-through mechanism are already in place?
Sure. I think it would be fair to start, though, as we think about tariffs at AAM, what's our principal mitigation activity? We talked a lot about this back when this was a hot topic in, call it, 2017, 2018 time frame. Our core company philosophy has been and continues to be to build and buy in the region that we support our customers. That has helped mitigate us from some level of tariff impacts historically. Also, continues to help mitigate us today from some of these impacts. That is key. I think I should dimensionalize a little bit of our potential exposures that we have. I think you will find this approach of regionalization and build and buy local is protecting us from some of that. Let me share some data points here with you, because I think this would be beneficial to you and those listening.
From a steel and aluminum perspective, inside the U.S., we have very minimal direct exposure, as we source most of our steel and aluminum from U.S.-sourced suppliers. That is very positive for us. As it relates to China imports into North America, our core into the U.S., our core U.S. operations import very minimal amounts from China. That localization has proved very beneficial to protecting us from these elements. From a Canadian perspective, we import about $25 million worth of product into the U.S. from Canada. Of course, from Mexico, we import about $150 million worth of products throughout the course of a full year. That is a little bit of our content exposure in the North America region. A key element for us also to keep in mind, as you know, a large part of our operations is our Mexico driveline facility.
It's the largest one we have inside the company. About 70% of the product that we ship out of our Mexico facility ends up in Mexico-based OEM facilities. I think that's a key factor to keep in mind. Generally speaking, across the entire spectrum, our finished product that ends up on our docks, our customers take delivery at our docks and then are therefore responsible to handle any of the freight duties and customs from there. I think those are some key benchmarks to think about as you think about our company as it relates to tariffs. Obviously, this is a very active topic, a lot changing every day. Early April brings on another dimension to this, and we'll see how that plays out.
I think it'd be too early to make any calls one way or the other, but hopefully that information helps dimensionalize our exposures there and the positive things we're doing to help mitigate it.
Yeah. On the material economics, can you just remind us if the net impact of all this is to essentially raise the market price of some of these metals? To what extent is it your responsibility versus the automakers?
Sure. As it relates to tariff, there's not an automatic pass-through. That's something you'd have to have a discussion with in terms of dialogue with your customer. To the extent it would disrupt or cause changes in pricing for commodity-based inputs that we buy into our components, so think of things such as scrap metal, nickel, moly, etc., as well as aluminum, to the extent spot index-related charges for those occur, that dynamic is passed up and down to the customer, whether favorable or unfavorable, each month or each quarter based on contractual arrangements. That is the commodity element of our business. We are insulated from some of that. We do talk about that, and we do try to show those on our quarter-over-quarter bridges that we release each quarter as well. You will see that dynamic play out.
Longer term, do you see a scenario where American Axle or your customers would reshore production to the U.S.? Do you have room or capacity to do that, and what would the impact be?
Yeah. Look, that's a great question. I think it's very topical today, especially given the macro discussions that we're talking about as it relates to tariffs and the consequences with those. Of course, at the end of the day, our customers would have to ultimately make those decisions to direct traffic and direct sourcing requirements because they source us a product and they source from particular locations for that product. They have to take a look at their entire supply chain and balance cost structures, balance logistics, balance how they want to handle exports outside the U.S. These would all have to come into play as part of that analysis, as you would imagine. It's a complicated equation, but certainly could see some reshoring back into the U.S.
As it relates to us, meaning American Axle, we do have some limited capacity, certainly to accommodate some, especially on machining and forging. Our driveline systems are generally custom assembly lines to support our customers in the particular regions. You heard me articulate a little bit, for example, our Mexico is supporting Mexico operations. Our driveline facilities in the U.S. are supporting U.S. operations predominantly. We would have to kind of work through that logistics with the customer. At the end of the day, can it be done? Absolutely. It would take certainly time to do, as well as some investment dollars to relocate these facilities, whether ours or our customers.
Shifting gears to the proposed merger. For investors that are less familiar, can you walk us through the industrial logic behind the merger with Dowlais?
Yeah, absolutely. This is something, as I indicated in my prepared remarks at the beginning, this is a transaction we are highly excited for, and it really starts with the industrial logic supporting this transaction. It is very clear to us. It is very evident. The feedback we receive is also very similar. At the end of the day, we are creating a global driveline and metal forming supplier, significant size and scale, nearly $12 billion of combined revenues. That is important not only for some of the synergies achievement, but it is important as we continue to advance forward and grow our business.
Our view is the size and scale will allow us to not only leverage our existing product set today, but also make the appropriate investments and have the resources, both dollars and capability and technical and capacity to pivot into the world of electrification over the next couple of decades. We think that's a critical factor for us in terms of us facing future growth. Also, it brings from an industrial logic perspective, diversifying our customer base and our geographic base. As you know, American Axle is overweight to the Big Three in the United States, and clearly overweight to North America from a revenue perspective. This will bring much more balance to our top-line revenue. We'll still remain, by the way, the largest, probably one of the largest exposures into North America in the supply base. That's great. We certainly like that fact.
It will also allow us to gain, I would call it, exposures and relationships to new customers that we have very little exposure to today, names such as Toyota and Volkswagen. Very exciting from that perspective. Of course, the economics of the synergies, the cash flow generation power, the margin potential really brings home this industrial logic of this transaction.
What's been the shareholder feedback on both the American Axle and on the Dowlais side around the proposed merger?
Yeah, no, great question. I would love to give you some feedback on that. Unfortunately, due to U.K. regulations, we are prohibited from providing direct feedback on your question. It's a great question. Unfortunately, I cannot provide you a response to that question.
Understood. Just in terms of understanding the mechanics, is this subject to a shareholder vote?
Oh, okay. Yeah, from a mechanics standpoint, yes, it is subject to really a couple of elements, a shareholder vote on both sides, meaning Axle shareholders as well as Dowlais shareholders, and of course, working through the remainder of our regulatory processes and clearances around the world. That is what will take course through the balance of the year. We are tracking very positive on that front.
Great. Now, your free cash flow outlook this year represents roughly 40% free cash flow yield at current valuation. Combined with the deleveraging, many investors saw a clear path to strong value creation. Now, adding over $2 billion of new debt for Dowlais, which generated just a limited amount of free cash flow last year, makes the path to value creation perhaps a little bit more difficult. Can you maybe just walk through some of these combined free cash flow dynamics?
Yeah. No, look, I think the free cash flow story of this combination is very exciting. It's very compelling. We've provided some materials in our investor relation presentations you can find on our website. You can see some of the data that I'm going to share here with you if you want to look at it in more detail. In terms of the cash flow generating power, I think from an adjusted free cash flow, as we articulate our cash flow, the combined companies over the last two years have delivered nearly $400 million of adjusted free cash flow. That would be before restructuring. We'll come back to restructuring in a minute because that's a key piece of this story as well.
This combined cash flow plus the power of our future synergy achievement, which, as we just talked about, was $300 million, plus you'll obviously have some taxes and associated interest. You made some remarks on our new debt. We'll get us close to almost $600 million of adjusted free cash flow generating power of this combined company. I think that's very compelling. I think it's very exciting. It's a big number. It's nearly 5% of sales from a market cap perspective, also a high percentage, as you know. That's the underpinning of it. In terms of some of the recent dynamics in terms of cash flow of both companies, I think we've talked about ours and all our public commentary in our earnings call and year-end update pretty clearly.
As it relates to Dowlais, they've been experiencing over the last couple of years making investments in restructuring a lot of their business, which has consumed some cash. You see where they do not provide an adjusted cash flow number. They have just a true cash flow number after restructuring, as they've been relocating many of their facilities, converting them from the high-cost countries to best-cost countries and optimizing their footprint. They've reduced a lot of their spend inside of Europe, also the same in the United States. Here's what's the great thing about this, Emmanuel. I think this is a little bit underappreciated. I think people are looking at historical data and not realizing what it's going to be into the future. Number one, the $600 million.
Two, as Dowlais indicated on their most recent earnings call and some of their annual announcements, their restructuring endeavors are starting to wind down here in 2025, meaning that consumption of cash. This is all going to start to convert to just true cash flow- generating power. All the benefits of this restructuring activity that they've done over the last couple of years will start to contribute to the combined company in 2026 and beyond. I think that's a really key piece of information people need to appreciate as they look at the data historically, but also think about where we are going and that trajectory from a cash flow perspective.
Definitely. Correct me if I'm wrong, but I think Dowlais spent $140 million on restructuring last year. I thought this year they're planning something like $160 million. You're saying beyond this year, the amount would essentially taper off or most of these actions would be substantially complete beyond 2025?
Yeah, they indicated in their public remarks that their major restructuring activities are starting to wind down. Now, look, we're in the auto space. As you know, we will continue to restructure both them and us, as well as all our peers will continue to have some element of restructuring as we optimize our business and rationalize capacity over time. Some of the major stepping stones that they've been working on over the last couple of years are winding down per their remarks.
The synergies are expected to be $300 million within three years, with 60% in the first 24 months, half of which from purchasing. Given broadly OEMs often absorb supplier cost saving, especially when it comes from purchasing, how confident are you in realizing these purchasing synergies?
Look, we're very confident. We went through the process that we had to go through to acquire a U.K. company and provide a synergy estimate. It's different in the U.K. than what we would experience typically in the U.S. What do I mean by that? We have to go through a synergy assessment process. We work jointly with Dowlais to work through our best estimates. In some cases, we need clean rooms, especially on sensitive purchasing data, work through our best estimate. As a part of the U.K. process, we also are required to have an opinion from a third party, that being an auditor. In this case, we used Deloitte. You can see their reports on our website as part of this transaction where they go through our assessment and provide an opinion on the synergy attainment value, that it's realizable.
Obviously, you have to achieve it and accomplish it in the future, but the methodology, the estimates, and that it's incremental to your existing book of business today, meaning on top of your current plans of both companies. The process itself is fairly robust in the U.K., first and foremost. Secondly, let's peel back a little bit about, take a little deeper dive into your commentary as it relates to purchasing. This is the largest piece of our synergies. It's about 50% of our synergy savings we have in the, I'll call it, purchasing bucket or area. You have to break that down even further. Think about some of the industrial logic we talked about in terms of the company being the size and scale.
One of the key elements of that size and scale, not only for the revenue growth of the company, but it also brings our ability to have size and scale and buying power with our supply base. We clearly see opportunity set there in terms of, call it, supplier price reductions because we're able to bring a larger, more scaled buy to the supply base. I think that's a win-win for both sides in terms of the supply base as well as us. In addition, with now a larger footprint, the opportunity to, I'll call it, rationalize our global logistics and supply chain elements will also provide some synergy opportunities. Lastly, and I'll say almost exclusively within our control is, as you know, Emmanuel asked very well, we have benefited from a vertical integration style company for really since day one.
There's a key element of our synergy savings associated with vertical integration. And you're going to say, well, what does that mean? We'll also refer to this as insourcing. We, as you know, standalone Axle is the largest automotive forger in the world. Dowlais procures a lot of forgings on the outside. Natural fit for us from a potential vertical integration. We, meaning American Axle today, standalone, is in the powdered metal business. We buy some of our raw powder from Dowlais today. And Dowlais is the second largest producer of raw powder in the world. We have further insourcing vertical integration opportunities in that area as well. Again, these are elements inside of our control. None of them really have to do with the OEMs. So, yeah, so we're confident in our ability to deliver the holistic $300 million of synergies.
We are confident as we think about the opportunity set that sits in front of us as it relates to purchasing. Probably a long-winded answer, but I think some of the extra details in that space is probably worth sharing with you.
Yeah, it's good color. In this context, what level of synergies would you expect in year one?
Yeah, look, starting fast is certainly a key for success on these types of endeavors. I think in year one, you would see some of the traditional elements in terms of savings. Think of elimination of public company costs, attacking some key SG&A synergies. You have duplicate departments, if you will, when you bring the two companies together from an SG&A perspective. Those you'll get at pretty quickly. The same with similar concept with our product engineering spend. We'll have some duplication we can rationalize quickly. Some of those insourcing/vertical integration capabilities, we should be able to get at sooner rather than later as well. Again, getting a fast start is key. We've been talking about it as a management team. We're working on making sure we set the structure up to do that.
To the extent the process around these $300 million is pretty robust, I assume that there's some level of conservatism embedded in it. Now that you've had a chance to do more diligence maybe on some of the facilities, have you identified any sources of potential upside to some of these targets?
Yeah, I think it would be a little early in our process to declare upside. What I would tell you is, and I think you kind of hit on the point, we've articulated, David Dauch, our CEO, articulated when we made the announcement, we have not had access to their facilities. We, since that time frame, have started to now go into some of their facilities jointly with the Dowlais team. If you look at our synergy set of the $300 million, only 20% of that $300 million relates to our operations, whether it's operational improvement or capacity rationalization. As you know, we're well known as an operating company. That's where a key strength of American Axle sits. It's also a key strength of Dowlais, to be frank.
Initial signs, getting into the facilities, having some dialogues, leveraging the strength of best of the best operating systems for system-wide efficiencies is starting to look positive. Same with now starting to assess the capacity rationalization and opportunity set there. I would say very early days, again, too early to comment on any upside. In terms of opportunity set inside that bucket, we're pretty excited about it. Long way to go yet, but early signs as we're excited about the opportunities that sit inside that bucket.
Now, one of the big benefits you've highlighted is diversification. From the outside, it would look like American Axle is in the way diversifying away from North American trucks, which is one of the auto industry's most profitable and stable programs toward maybe tougher global markets. Can you just explain the rationale?
Yeah, look, I hear your comment. And of course, as you know, we certainly love our North America truck market. We're not shy about our passion for that segment. I wouldn't say we're diversifying away from it. I would tell you we are building upon it. And what does that mean? Clearly, the core franchise of American Axle will remain intact. We're bringing on, with this combination, the strong franchise of side shafts, also commonly referred to as half shafts in the marketplace of Dowlais. And of course, half shafts and side shafts, they also go on trucks, by the way, in North America. So, we're continuing to build upon that. But that also gives us a whole another set of vehicle applications that we can grow into globally: crossover vehicles, light truck, passenger cars. So, we're excited to bring that piece in as well.
I wouldn't say we're diversifying. We're building upon it.
How does this deal change your positioning in electrification and also in hybrids?
Yeah, look, as we think about electrification in this transaction, this, in our view, improves our positioning. As you know, we have a pretty good electrification franchise. We've been winning in China. We've, as you know, in Europe in terms of AAM and other products as a standalone AAM company, as well as from a components standpoint. We've announced a fair amount of component wins over the last couple of years. In terms of look at the Dowlais side of the equation, they're in a lot of vehicles as it relates to drive units and have made investments in that space as well. We bring these together. We bring strong technical capabilities together. We bring strong global reach together, different customer mix in terms of where we've penetrated from electrification.
We have a strong product set from drive units, e-B eams, components, and a very capable, I'll call it, engineering community inside the company now when we combine them together to continue to design and develop some of the best products in the world. I think it strengthens our position. It goes back to a little bit of that industrial logic of size and scale as we face the pivot to electrification over the next couple of decades and the growth associated with that. We think this is a key piece of this transaction in terms of how we will face and benefit from our combined positioning to grow the company going forward.
Now with greater exposure to China, what will be your mix between global and local Chinese customers?
Yeah, that's another very interesting and great question. That's clearly a trend inside the China market. We've experienced it as our wholly owned operations, which on a relative scale are quite small inside of American Axle. It's about 5% of our business. And pivot as well in our own business going from predominantly, call it, non-China-based OEMs, converting now to China-based OEMs with our growth with Chery, some of our e-Beam applications with some OEMs. Dowlais participates in the China market principally through a large joint venture. It has total revenues, call it $1.5 billion, for which they have a 50% interest. They've been going through the same domestic conversion of their revenue base, meaning highly overweight towards non-China OEMs.
Over the last couple of years, that joint venture, which sells all the same products basically that Dowlais does around the globe, but inside the China marketplace, has been converting now towards China national OEMs. That transition continues there. I think it puts us in a really great spot from a mix of customers. I would expect that trend to continue. They are clearly winning business in that space as well. Combine that with the same experience we have, I think we are lining up for the right trends inside the China marketplace.
Still on China, are you seeing any increasing competition from local Chinese suppliers in your field of business?
Oh, yes. I mean, China is a very competitive market for every, well, probably every industry, quite frankly, but especially on the supply base. Yes. We're clearly announcing new wins in that space. We're competitive from a product perspective, a timing perspective, which is very critical in terms of that marketplace, and a cost perspective. Yes, clearly heavy competition inside that marketplace. To be fair, I mean, the automotive space is very competitive in China. It's very competitive in North America. It is very competitive in Europe, the three big markets. Nothing new to us, but it's something clearly we need to continue to stay competitive on those key elements.
In your introduction, you were mentioning that ICE, stronger for longer, is good for American Axle. Can you just elaborate a little bit on this? What is sort of like the current mix? What is the backlog mix? Does it essentially enable you to have more positive revenue dynamics? Are there other expenses that you could pull back on? I guess in which ways is it most beneficial?
Yeah, in the moment, meaning in the current environment, why is it beneficial? It really is from a couple of different perspectives. If you think about, you referred to our passion for trucks inside of North America. Holistically between how we supply into General Motors and Stellantis and Ford, that's almost half of our revenue base as a standalone AAM. These comments relate to standalone AAM, by the way. Will continue to be extended. We have now announced almost all of our primary driveline programs that we support with all our customers are secured into the 2030 and beyond timeframe as we've gone through various extensions with the Bronco Sport and Ford being the most recent one.
What that does is really put you on a solid footing from a capacity utilization standpoint, put you on a solid footing from a revenue generation standpoint that you can either add upon or build around, which brings some level of, I'm going to use the word certainty. As certain as things can be in the auto space to our revenue mix. You leverage that. Then as you're going through these extensions, in many cases, the customers are very focused on either extending existing programs. When they do convert to next generation, which we are experiencing, the changes and modifications to some of the products aren't as great as they were in the past. You require less capital investment, less R&D dollars, etc. You can benefit from that from your cash flow profile.
Lastly, and you see a little bit of this as we think about 2025 as it relates to electrification with the, I'll call it, deferral of electrification, the elongation of some of the adoption rates. Part of our objective was to build our electrification platform. So, it's ready to go to market, and it is. We've completed that. We've won various awards through that as we've announced. It also allows us now to sort of recalibrate and dial in our product development spend or our R&D spend. You saw the first signs of some of these benefits stepping into our 2025 guide where we reduced our R&D spend by $20 million. That's some of the tangible benefits that we're talking about in terms of this ICE's longer perspective where we're able to benefit from a more stable revenue line.
We're benefiting from lower capital intensity in some of these extension programs. We're benefiting from being able to dial down a little bit of our product engineering spend. Those are some of the perspectives I would offer as it relates to that concept.
From a capital allocation point of view, I think the goal is to get to a leverage target below 2.5x . Once that's the case, are you going back to returning capital to shareholders as the main priority?
If you think about today as a standalone entity for American Axle, what our capital allocation priorities have done, it's to continue to fund organic growth, which would include capital expenditures and R&D for new programs. From there, it was essentially heavily overweighted towards paying down our outstanding debt, which we have done almost $1.6 billion. We have paid down really since the acquisition of MPG in 2017. We had some small, call it, tactical M&A with the objective of before we thought more broadly in terms of capital allocation, we want to get to 2x level.
Bringing on the transaction in the combination with Dowlais in that size and scale, the resiliency of our balance sheet really allows us to kind of take a step back or allowed us to take a step back and say, look, with the benefits of this combined company, the cash flow generating power, the stronger balance sheet, the current state of the industry, we're able to rethink about our capital allocation to where not driving towards a two-time lever. We're much more comfortable at a 2.5x lever before we open up that playbook. We will continue to fund our organic growth. We will continue to fund R&D as appropriate. We will continue to pay down debt. It will be overweight towards debt pay down until 2.5x now versus 2x . Once we hit that 2.5x , that opens the playbook.
We'll have a much more, I would say our intent is to have a much more balanced capital allocation perspective. I would suspect we'll still continue to pay some debt down, but we'll also then open it up to some of the more shareholder elements of a capital allocation playbook, whether it be a buyback, dividend, or whatever. We would make the call at that time once we cross that threshold. I think this is another outstanding element of this transaction that brings to our perspective on capital allocation.
Maybe just finally, how should we be thinking about R&D spending over time? From the current stage, should spending be trending up or down?
You know, absent any significant programs, because significant programs can drive, let's call it lumpy R&D spend. And that's to me good spend, by the way, because that means you have a big program you're launching. I would suspect, especially with the elongation of EV and some of that deferred out, as well as some of our key products designed and developed and put on the shelf, you would start to see a decline in our R&D spend. You see it here in 2025. I think there's some more opportunity to reduce that spend going forward past 2025. Again, large program development, if you want something new, that might put that into a slightly different direction. Holistically, yeah, I would expect to have some R&D savings continuing.
Great. I think we're basically at the end of our session. Chris, David, and Joe, thank you so much for joining us. Thanks for all the insights. Thanks everyone for tuning in.
Thank you.
All right.
Thank you for your time.
Thanks. Take care.
Bye-bye.