Thanks, thanks everyone. We're going to get started with our next session. Very pleased to have with us next, American Axle & Manufacturing with Chris May, CFO, and Shannon Curry, Treasurer, from American Axle. Chris, I think you had some just brief opening comments you want to make, and then we'll get into Q&A. We'll also be taking questions from the audience. If you have any, you can use the QR code on your table. Snap that photo, ask a question. It'll show up on the iPad, and I'll ask on your behalf. But, thanks for joining us, and take it away, Chris.
Great. Thank you, Joe, and good morning to everybody. First of all, thank you, Joe, for hosting this event. Also to UBS, this is always a great event to come to and talk with our investors and share our story. It's always always very exciting for us to do that. Before I begin, I would also remind everybody to take a look at our forward-looking statements that we have out on our website for the matters that we're going to talk about here today. But just from a perspective of some opening remarks, you know, we closed our third quarter and reported our results about a month ago. Certainly pleased with how we are performing on a year-to-date basis. Strong quarter for cash flow, nearly $100 million of adjusted free cash flow inside of the third quarter.
But also, we continue to perform multiple quarters now in a row where we have year-over-year positive, favorable performance as a company. So really placing us well into conclude out through 2025, but also setting us up really nicely in our view for 2026. I know another topic we'll probably dive deep into here today is our acquisition of Dowlais, and that continues to progress very well. We did get our shareholder approval in July. We've now completed our permanent financing with Shannon and team here in the October time frame. And in our earnings call, we said we've received eight of our 10 approvals from the respective jurisdictions. I am pleased to announce we have received our ninth, that would be from the country of Mexico. So now we're really down to waiting for final approval in the China marketplace so we can conclude and close this transaction.
So we are tracking to close the transaction here in the first quarter of 2026. Certainly excited to get that size and scale, to continue to leverage those synergies and create a lot of value creation for our shareholders and our other stakeholders inside the company. At the macro, for our business as well as for Dowlais' business as well, you know, the ICE for longer continues to be a theme that we see that's exciting for the foundational elements of our business that will carry our performance and cash flow for a very long time to go. And we'll continue to focus on our operational core productivity of both companies in addition to those synergies. So really setting us up hopefully for a great 2026 and beyond. So with that, Joe, maybe that's sort of some positioning where we sit today.
Yeah.
Maybe turn over to you for some Q&A.
Sure. Thanks. Maybe what you know, you sort of talked a little bit about your guidance for the year. We've got about, you know, three weeks left in the year. You know, how would you sort of say things are trending? And I guess specifically, like, you know, you gave some ranges on the GM full-size truck program, which is obviously a very important program for you. We saw the S&P update. There were some positive revisions now. Again, maybe some of that was timing because I think there was also a positive revision to the third quarter as well, in which I know we've sort of talked about post-earnings that, you know, you thought maybe their cadence was a lot. But overall, they still did raise the number.
I think they're probably a little bit closer to what you were expecting now, but how are you sort of seeing that trending, through this quarter?
Yeah. We provided our guidance, early in November. We talked about a North America production environment of around 15.1 million units. That continues to be sort of our line of sight to that. We did get a range of the T1 truck production of 1.35-1.39 million. We have seen volatility inside the quarter for some of our platforms, some of which we talked about in terms of at our earnings call. You know, we saw some early downtime in the quarter at Wentzville for GM's facilities.
Yeah.
We have seen some extended downtime planned around the Christmas holiday. I think generally speaking, that's in line with what we talked about on our earnings call, and of course, one of our other large customers, Ford, some of their volumes as they've gone through some of their, I'll call, supply challenges with some of the aluminum side. We've seen some softness in a few of our schedules for Ford around the edges, though we see them clearly trying to, you know, build out the Super Duty platform, which we are a large supplier for from a component standpoint, so volatility still inside the fourth quarter, but generally aligned with our commentary at our earnings call. No end. Those updates from S&P Global.
Yeah.
Really didn't factor into any of our thinking at the moment.
Okay. And then as you begin to sort of some of your planning for next year, any high-level commentary on what you see from a U.S. market perspective or maybe some of the internal, American Axle goals, again, on a standalone basis from a cost side? And then obviously, you'll, I know you'll have the integration to deal with, but.
From a production standpoint, is your question?
One from how you're planning for production and then related, you know, any sort of cost initiatives that internal.
Sure. Yeah, and at this point, it's a little premature to give any guidance or ranges for 2026.
Yeah.
But in terms of how we're thinking about 2026 and some of the elements we're stepping into, you know, from a macro market perspective, as you know, S&P has the North America markets down slightly, and the European markets, you know, I would say call it relatively flat.
Mm-hmm.
So that's sort of our current planning scenario that we're evaluating and taking a look at. From a truck production standpoint, you know, we are, I would say, very bullish on our trucks, whether it be the General Motors trucks, the Ram trucks, and even the Ford trucks, going into next year. Now, GM, I think from our view, will start to transition to their next generation platforms. And you've heard some of our commentary as it relates to our fourth quarter performance that we're starting to make some investments from a capital and project expense standpoint to start.
When does that go through? When will that be done?
From our standpoint?
Yeah.
Yeah. That will continue probably the fourth quarter of this year and into a little bit, I'll call it first quarter or so of next year.
Okay.
Then those transitions. I would expect probably some volatility from their plans as they do some conversion in the next year. But big picture, I would still expect the T1 platform to be a strong performing platform next year. From the Ram perspective, they went through this phenomenon a year ago, so they had, you know, softer production in Q4 of last year and Q1 of this year, and now they've been running very strong and steady. Our view on those heavy-duty platforms, again, with Ram, would be strong and steady into next year. We see no reason why that wouldn't continue to be the case.
Okay.
And same with some of the Ford programs that we support as well.
Yeah.
Some of those production things.
Yeah. Yeah. I do want to get to the cost side, but I think it's a good time to interject this, so you know, you mentioned the ICE stronger for longer sort of thesis, and you know, we agree with that. I'm curious to sort of get your view, though, on not just ICE, but let's say you know, pickup trucks, work trucks in general, with the more relaxed regulatory environment with automakers not having to sort of manage their overall mix and of electrified vehicles with a potential you know, CapEx cycle and sort of the need for infrastructure build.
Do you see a world where maybe it doesn't play out in 2026, but if we think out over the next, you know, two, three years where the pickup market overall just trends higher than what we've seen in the past couple of years?
Yeah. I don't know if it trends higher, but it clearly, in our view, continues to remain strong and robust, and we have an interesting, you know, our pickup, programs we support both light duty.
Mm-hmm.
On the GM side, and then we really have a great line of sight into the heavy-duty side. Call it the 2,500 and greater series for GM, Stellantis, or Ram, and for Ford.
Mm-hmm.
On the component side, and our view is those markets to the items that you just talked about will remain very strong for the foreseeable future.
Okay.
That's, that's our expectation.
Mm-hmm.
Now, if you get into a boom where there's a lot of capital investment going on and housing continues to grow or takes off in some regard or construction, obviously that drives demand for those 2500 and greater series if that's what they support.
Yeah.
So that would continue to either keep a floor on strong production or maybe take a slight tick up. But our view over the past many years is those are strong and stable platforms.
Yeah.
Because they have a need in the marketplace. And there's no substitute for them, quite frankly.
Right. Right.
So,
And you mentioned, you know, in your opening remarks, the good recent sort of performance that you guys have had. Again, how are you sort of thinking about that into 2026?
Yeah. So some of the, maybe cost puts and takes as we think about 2026 going forward, I think from a couple different perspectives. From an operational perspective, you know, if you look at our driveline business unit, it has performed strong and steady, and that environment allows that business unit to generate productivity that offsets price downs or inflation. I would expect that recipe to sort of continue on our driveline side, albeit with the, call it a little bit of puts and takes for the GM conversion to the next-gen truck. On our metal forming operation side, look, you know, we've been trying to trend it back to double-digit margins. It got closer in the first half of the year. Quite frankly, the third quarter wasn't a particularly strong quarter for that group.
I think we still have some work to do in terms of operational efficiency at a few of our locations, but also some continued capacity optimization, as it relates to our metal forming group. We've taken some actions through our restructuring costs for American Axle this year as a standalone, to close some facilities. I would expect that to continue into next year to some degree. They continue to bring some cost improvements in the metal forming side, which would translate to margin improvement for that book of business.
That's on a standalone basis. And I know you're limited in what you can sort of say now on a combined basis, but, you know, when the deal does close, will that provide additional opportunities to maybe restructure even sort of standalone, American Axle facilities? Or is some of that thinking and calculus already go into the decisions you've already done?
I mean, as the items I just referred to were focused.
Needed to be done irrespective.
It needed to be done irrespectively, but if you think about the ones we're combined, part of our synergy opportunity is plant optimization, so I would expect that we would further optimize our plant footprint as part of the acquisition over the next couple of years together, so we'll be able to leverage both companies' today's footprint and optimize that through some restructuring, part of that, and that's already included in our synergy estimates and cost.
Okay. You have, we have seen some price movements in the metals markets of late. I'm curious if you could just sort of give us an update there, what you're seeing, how that would play into 2026, and remind us sort of how that works its way through your financials.
Sure. I mean, at the macro, how it works through our financials, generally speaking, for index-related cost changes, we pass, call it 80%-90% of those costs up or down to our customers. It's either every month or every quarter. It depends on the customer. So we're generally insulated from that. There can be some timing lags. But what we have seen, some of the main, I would call it input costs to our business that factors into is scrap steel, which is the key ingredient to make bar steel that we buy. And that's actually been relatively. It's come down over the last, call it 12 months, and it's sort of run flat. The aluminum that we purchase has been remarkably flat.
Mm-hmm.
Over the last 12 months as well. We've seen some other one, copper and things like that starting to increase, but again, we're protected with our pass-through mechanisms.
Right.
Right now, I would say big picture over the back half of the year, it's been relatively flat. We don't really make predictions going forward on that as we are productive.
Yeah. You mentioned the metal forming EBITDA margins, and I think those were, you know, and I think you said double digits you want to get back to. They were, I think, mid-teens back, back in the day. So, you know, what, what just, you know, what, what is the plan? What needs to happen to sort of get back to those levels?
Yeah. It's a couple, I would say this year, I think year to date, they're about 8% all in for the three quarters. And there's a couple factors driving that. I mean, when you compare back to the high-teens element, of course, that was a while back, the cost structure from a metals pass-through perspective has changed quite a bit, and that has caused a meaningful change in the margin profile because you pass on those costs at cost. So it actually deteriorates margin, but it protects the company and protects the business unit.
That's a change from when you were doing high, high-teens or something?
Yeah. We've added a lot since then in terms of some of the pass-through.
Okay. So structurally, they're just.
There's a piece that's structural, but that's not the whole story.
Right.
There's truly operational improvements that we need to do inside of this business unit, and as I mentioned a few moments ago, you know, we've made progress, but we still have work to do, and how are we going to accomplish that? Look, a lot of this is inside the four walls at a few of our select facilities. We've been quite frankly struggling a little bit with capacity optimization, as well as some efficiencies inside those plants, so we have teams dedicated and working through those. Like I said, we've made some progress this year. I would expect that to continue, but in addition, you know, through some footprint optimization, I would expect also to squeeze out some fixed costs.
That's also another piece of that story that'll get us into those double-digit margins, which should play out over the next 6, 12, 18 months inside of that business.
If you go back, I don't really think so much this year, but definitely last year, labor was a little bit of an issue, as well, and turnover. And, how has that sort of, you know, played out across your different sort of facilities and businesses? And, is there a little bit more stability there as and how do you sort of view that going forward?
Yeah. No, that was a significant challenge for our business and many businesses.
Right.
In many industries, you know, just a couple of years ago. You know, we put a lot of structural changes in place, some compensation changes in some cases. We tried to introduce automation where we could in quick order to sort of take some relief off of the need for manpower. So I would say for the most part, we've now reached a stabilization in terms of at our facilities. We do have some challenges from time to time, but it's nowhere near like we experienced about two years ago. So that issue, I don't want to say it's past. It's something we have to manage every day. I think every company has to manage that every day. But I think the major pain points that are sort of passed through a lot of the things that we have done.
I would expect to continue more into the automation side as well.
As I was just going to say, I mean, as you sort of reevaluate things here and obviously sort of automation technology has progressed as well, is there an opportunity to do more? Because it does seem, I don't want to say you sort of underinvested in that in the past. Maybe it wasn't sort of the right time to do it, but it does seem like there's more opportunity to do that going forward. How does that play in, I guess, to sort of, you know, go forward CapEx plans?
Yeah, well, it would be included in our estimates of CapEx today in terms of at least what we think from an investment standpoint for automation. But I would say our factories have a fair amount of automation into them, but this is a very, I would call, hot topic inside of our company.
Mm-hmm.
With our engineering teams and our MEs to look how we can advance automation because it solves a lot of different issues. Number one is some of the labor pain points that we talked about, but it also can improve efficiency inside of our factories and create better capacity utilization of our equipment, so they're looking through a lot of opportunities to do. We've done some quick hits in a lot of our factories, but we're also trying to lay even a longer game plan, how we can increase the automation in our factories going forward. This is a key topic for us to continue to invest into and install in our factories.
So would you say you're still in the early innings of that, like, long-term? Like, and not to say in two years it's going to be sort of all automated, but there's a long path here for.
It's clearly a path. I don't know. I would say a long path. Again, our view is we do have a lot of automation in our facilities.
Yeah.
But I think in terms of some of the advancements from an IT perspective, from just pure automation continues to evolve very rapidly.
Mm-hmm.
And we are evaluating some of these sort of advanced techniques, but that those would be probably a little longer path. But I would say it's kind of short to midterm. You'll see continued investment inside of the automation in our factories.
What about on the Dowlais side that you're inheriting? Are there, where would you say that sort of they stand on that front? And are there any practices or techniques they use that you could sort of scale across your standalone facility?
Yeah. It's certainly a little bit, I think, early days to draw some conclusions there. We, you know, if you've heard us make some remarks that we really haven't had a lot of opportunities to get into their factories. Since our shareholder vote passed back in July, that has opened up, so our teams have been able to spend some time in their factories, and I think we're excited about some of the opportunities they would present. But look, they're a very capable company. They have a lot of automation in the factories, and I think combined, we'll have even new ideas to advance our operating systems, and automation is a key piece of that.
All right. So we danced around the sort of topic of the acquisition a little bit, but let's sort of dive into that a little bit now. Well, first with the approvals and closing. So it sounds like you're just waiting on China now.
Right.
And you expressed confidence that the deal can sort of close in the first quarter. It, like, is that really like once you do get approval, are you able to close? Or is there still some sort of timing that needs to happen between those, that process?
Yeah. So we've been in active dialogue with our teams and regulators in China. We're not concerned about any of the topics. It's just, I'll call it a process.
Yeah.
And it takes some time, and that continues to work through. And then once that's concluded, we have to set, it's, I would call it a, I don't want to call it mechanical, but there's a court date you have to set in the U.K. to get sort of final approval, which is generally, relatively automatic, and then you close.
Okay.
That's not really viewed as a meaningful hurdle to get past. You just sort of have to schedule it and go through that process. So once we get approval from China, I think we're accelerating the process to get ready to close.
Okay. You mentioned the synergies. I think you sort of talked about $300 million. There's a number of different buckets. And maybe you could sort of just quickly go through those buckets. Now that you have at least had a little bit more sort of access to some of those manufacturing facilities, what if you could like let us know any update there. Does this sort of just leave you sort of more comfortable with the opportunity you sort of laid out? Or are you sort of beginning to sort of find elements of potential upside there?
Okay. Yeah. No, this is an exciting topic and, and just to kind of frame, as you mentioned, $300 million of synergies really falling into three main categories and we'll talk about each of these, but 30% of that is, I'll call it in the public company SG&A engineering type, we call it redundancies.
Mm-hmm.
that we can control. About half of our synergy estimates is through the purchasing and procurement arm. And we'll dive into that in a moment because it's not just direct purchasing. We have a lot of vertical integration opportunities here for us, which I think is unique for these two companies combined, which is one of the things we really liked about it. And then the last bucket, 20%, was valued for operational improvement. So that would be a common operating system as well as some plant capacity optimization or plant footprint.
Mm-hmm.
Validation. But before we get into some of the details of that, the teams, I would tell you, have been working very diligently now over the last, really since the June timeframe, and we continue to gain momentum and speed. We have an IMO office set up really focused on the value capture for this. The broader teams, anywhere from 80-100 combined between the two companies, are meeting, you know, multiple times a month now to really get us in a position so we're hitting day one from a just a pure close perspective, a pure system perspective, but also from the value capture on the synergies, getting out of the chute as quick as we can, but if you think about some of these $300 million of synergies, clearly that first bucket of SG&A and public company costs, very common duplication.
Mm-hmm.
You know, we'll get at it relatively quickly. The R&D spend, both companies, you know, have a sizable R&D spend. Both of us are investing into electrification and similar type of elements. This brings a great opportunity from a synergy perspective to come together and optimize that engineering spend. Part of that almost size and scale theme of being able to spend better to get an outcome for even greater products going forward. On the purchasing side, look, the size and scale will drive pure, I would call, negotiation with the supply base to get lower prices. But I think unique to the combination of these two companies is today, Dowlais, for example, purchases a lot of steel forgings on the outside. We are the largest steel forger in the world on the American Axle side. They don't buy a lot from us today.
Mm-hmm.
The ability to integrate and vertically integrate many of these components, there's some real capture of margin, if you will, as part of that. The same on the powder side. So we are in the powder metal business. We buy raw powder, some from them, which they manufacture, and some from other suppliers. We can obviously vertically integrate that piece into ourselves as well. So it's not just a negotiation with the supply base. There's a real true vertical integration element to the combination of these two businesses.
How much of that bucket of purchasing would you say the vertical integration is?
You know, the purchasing bucket is half of the.
Yeah.
Of the $300 million. You know, it's probably in the, call it, 20% range.
20% of the 50%?
Yeah.
Or 20% overall of the.
20% of the 50%.
Okay.
So, you know, rough, rough number, in terms of some of that opportunity. And that'll obviously. We have to do. You have to insource parts, and you do need to get customer approval for some of these. So you have to kind of work through some of that pieces. And then the last bucket, which we're most interested in from an excitement standpoint in terms of the optimization of the factories because now we've been able to go through some of these factories, and we're seeing how this can play out with a common operating system, a best of the best, the AM operating system, the Dowlais operating system, and how we can drive improvements in their factories and our factories as well when you commonize some of these elements.
So we think potentially, you know, this is an area where I think we overperformed when the MPG acquisition we did back in 2017. And our view is, look, this is an exciting area for us. This is the sweet spot of American Axle. What we love to do is the operational side. So that.
Is that also the area that probably takes the longest out of all the buckets you just mentioned to sort of start to see the benefits?
Yeah, absolutely. You know, the first bucket, SG&A and R&D, you know, that's pretty quick within.
Right.
Year one, you get most of that. The purchasing side, there is some cadence of timing when you're renegotiating with suppliers. Maybe new prices started on January 1 or something to that effect.
Mm-hmm.
This one, the operating system, look, you can get at quickly, but you have to install it across a fleet of facilities, which will take time. And then, of course, the plant or footprint optimization, that's probably the longest because you have to really build out a detailed plan to do this. In some cases, you may need customer approval to do some of these movements. That would be the longest tail in this piece, but also could have the biggest bang for the bucket.
On the vertical integration portion, like you mentioned with powder metal, would you be able to source that exclusively internally? Or did you still need to go to.
There's different chemistries of raw powder that you buy, so we would have to obviously want to balance some of that and make sure that they do all the chemistries that we would require, but we believe there's a significant portion that we would be able to work through.
And vice versa on the castings as well.
Casting, the forging.
The forging side. Yeah.
Yeah. Steel forging.
Yeah.
Yep. Absolutely. Same concept.
Yeah. Okay. I guess the other part of, you know, investment that we could sort of see as sort of that you might need to make, and again, sort of going back to sort of the standalone business is, some of your customers, and you sort of alluded to a little bit earlier, like notably GM, changing over to sort of a new platform, but they're also increasing capacity. Ford likewise is, you know, ramping up in Canada for some of the Super Duty. So how do you sort of evaluate your footprint and be able to sort of supply those additional factors?
Yeah. No, that's a great question. Clearly, we work closely with our customers on these topics. Starting maybe in reverse, you talked about Ford expanding.
Mm-hmm.
Inside of, well, Canada in terms of this, the Super Duty platform.
Yeah.
In our last earnings call, we had a little announcement that we won some heavy-duty truck business. We can't name who that customer is.
Yeah.
But aligning with some of that expansion, the supply components into that vehicle.
Mm-hmm.
It's very exciting for us, and as you know, sort of what we were talking about earlier, the demand for those heavy-duty products, but clearly align the capacity-winning new business and expansion to support them. You know, the key is just obviously being cost-competitive, which we are.
Mm-hmm.
And then, working with them to supply their needs. On the larger driveline systems, you know, our customers source us well in advance of when they're going to launch. They have. These are long programs. They take delivery at our docks. So they generally direct traffic to where they want these products built and sourced from. And we'll just work with our customers to support their needs throughout the North America region.
Does that require additional lines for your facilities? Or is it just more overtime? Like, how do you fulfill the additional demand?
Yeah. So they set us—and this is true for all customers, right? They put us on contract for certain capacity requirements. And we go through, I'll call it a quotation and commercial process with them to put in place what they need. In some cases, you may be able to just cover that capacity requirement through, like a six-day or overtime when they need it, or a flex, if you will, flex time. In some cases, they want permanent capacity in place for the need of their particular product. It depends. It's product-specific. And you work with the customers and reach a commercial arrangement with them on that. But they will tell us which way they would prefer, generally speaking.
Okay. So going back to, you know, the vision of the combined sort of pro forma company, right? It's you put together two strong EBITDA-performing businesses. You could layer on over time another $300 million in synergies. It sounds like there might be some capital that needs to be spent, maybe some restructuring as well once you sort of undertake it. It stands to sort of follow that, the resultant free cash flow of this combined organization can also be quite strong going forward. I know it's sort of a leverage-neutral sort of transaction. You know, you talked about them and completing the sort of permanent financing. How do we think about the uses of that cash for the combined company, going forward?
Because I think, you know, before this deal, there was sort of, I think, a path where you're sort of trying to sort of take, you know, leverage down.
Mm-hmm.
I guess that's still probably the plan, but maybe sort of just talk about what you see as the use of that cash flow.
Yeah. No.
To the extent you can sort of talk about the cash flow dynamics of the pro forma company.
Yeah, certainly. First and foremost, right, our objective, from a balance sheet perspective is to continue to reduce the leverage ratio of the company.
Mm-hmm.
At both standalone American Axle, and I think we've made great progress on that, but also as a combined entity. That is our objective. And if we'll talk about some of the cash flow dynamics in a moment. However, from a pure capital allocation perspective, what we have articulated that is, after close, you know, we'll fund organic growth. We'll fund our R&D. But our primary use of the cash flow that's generated from the business will be to reduce our outstanding indebtedness until we're about two and a half times levered. And once we get to two and a half times levered, the thought process there would be we would have a more balanced capital allocation playbook. What does that mean?
We'll continue to pay down debt, but we'll also then focus some of that, that cash flow generation onto, I'll call it, shareholder-friendly activities, whether it's a dividend or buyback.
Mm-hmm.
That would yet to be determined. But more balanced where you've seen us now over the last, really since 2017, be almost exclusive on debt paydown. Well, we'll transition that once we cross the two and a half times threshold. I would expect from that standpoint going forward, we would still want to reduce our outstanding leverage to get down below two times with that balance of capital allocation posted two and a half times. From a cash flow perspective, look, you know, our objective is to, you know, 5% of sales or greater, you know, adjusted free cash flow performance of the company. I see over the next couple of years, how does this play out? Clearly, after close in 2026, we'll have a few things to fund. We'll have to fund the, again, the organic growth and R&D of the business.
But we'll also have to fund or make an investment in the amounts required to capture these synergies. So we've estimated, as we've talked about, $300 million of annual run rate synergies. Our expectation is we will have to fund about $300 million of costs to achieve those synergies, whether it's plant relocation or severance costs and a few other type of pieces that would fall into that area. Both companies will continue to have, I would say, their base business, some level of restructuring activity going on like we do today.
Mm-hmm.
Dowlais has been spending a fair amount of cash over the last couple of years doing that. I would expect their amounts on a standalone basis to come down. They've publicly talked about they're reaching the end of some of their core restructuring inside of their business. That would be positive for us as well.
But you back out some of that restructuring from your adjusted free cash flow number?
Our adjusted, yeah, our adjusted free cash flow is before restructuring.
Right.
You would have to then take the restructuring after that. But true cash flow.
So.
Is generated by the company.
Understood. But then, like, and again, let's sort of think about before some of these initial additional initiatives to sort of get at this, the synergies, that sort of standalone ongoing restructuring you're just talking about should be at similar levels to what we've seen historically.
For American Axle.
For American Axle?
Yeah. It would come down. You know, we're finishing up some items in our infrastructure for us in terms of some plants. But I would expect both companies to come down to sort of some, I don't want to use the word nominal, but some lower rate, sort of what you've seen us historically.
And then we need to add in $300 million to sort of get to the $300 million.
I would expect the $300 million sort of spread out between 2026 to 2028, probably a little more front-loaded in terms of.
Mm-hmm.
That activity because you need to make those investments to get those exit rates of the synergy savings. But that's how I would expect that to play out.
Right. It's really, though, $300 million for a smaller number because you don't need to spend capital for some of the SG&A, for instance, you've talked about.
You do have severance costs and things like that. It's not capital though.
Right. Exactly.
But severance costs and things of that nature would be included to achieve some of those synergies.
Right. But so it's, we would still see them then like the payback on that $300 million for the synergies that do require sort of capital spending is, what, probably two to three years or so. Is that?
Yeah. Fair way to think about it.
Correct.
Because you'll exit out of this period of time with a much different fixed cost element structure that you would receive part of your $300 million.
Okay. I don't know if there's anything in the audience, but again, if you want to ask a question, please use the QR code. I'll see. I'll keep on looking over at this iPad to see if anything pops up. If not, I guess the other side of this acquisition is, you're going to be a much larger company, right? More critical mass. I think you also want to be, but you still want to sort of focus on your core competencies. I think, on standalone American Axle, there were some businesses which I think you were one. You have gotten out of some. I don't know whether that process was done in sort of the full evaluation, whether those sort of be continued businesses that you sort of choose to walk away from or not.
How do you think about it from the Dowlais side? I mean, I knew, again, I know it's early days, but are there potential divestitures that can also be sort of cash flow in sources, if you will?
Yeah. No, a great question. And this is something, you know, we've been evaluating inside of our own standalone American Axle now the last couple of years. And you saw us take some action here this year. We exited a joint venture in China, monetized that for about $30 million. And then we decided to, I don't want to say exclusively, but clearly, double down in just being a light vehicle manufacturer.
Mm-hmm.
Exited our commercial vehicle axle operations in India and monetized that for about $65 million. So all in, brought in about $100 million into the company this year for some of these assets. What I would tell you is we continue to look at our product portfolio once Dowlais becomes a part of the family. When we close in the first part of, or first quarter of next year, kind of looking at it across the entire board. Now, how do we think about that product portfolio longer term? You know, what do we want as a part of our kind of go forward basis for the next five to 10 years? We are absolutely open to thinking about, are there pieces in here that may or may not make sense for us?
And if we conclude they don't, we obviously, you know, we would have a disposition process for those. And at this point, right when we close, you know, we're all, it's all part of one.
Right.
We'll go through an evaluation process.
You know, obviously, it's a meaningful acquisition of large size and will take some integration efforts. Do you still think there's the potential for smaller tuck-ins to sort of round out the portfolio? Or do you think you have and are comfortable with what you need, once the deal closes?
I think, you know, small tuck-ins or things of that nature. And there's nothing quite, I mean, we're heavily focused on Dowlais acquisition at the moment. So just to be clear. But if you look over the last three to five years as a standalone American Axle, we had some small tuck-ins from time to time to round out either maybe it was a supply chain challenge we thought we could better manage inside the company or wanted to expand into certain products that's like we did with Tekfor. Look, I think that's always a part of the dialogue. But right now, our focus is solely on the acquisition and closure of Dowlais acquisition.
You mentioned that both you and Dowlais are, or have been, investing in R&D and sort of electrification. And, you know, look, that's a relatively small part of your business. And, you are also, let's say, overexposed to sort of the North American market. So I guess at least for your sort of standalone business, and then we could sort of talk about maybe what Dowlais might do. But, you know, you mentioned right off the bat, right? It's ICE stronger for longer. And I think that's mostly a North American comment.
For the most part.
But and for some of your other products maybe in some or for in the other markets for some of the pro the vehicles you provide, I would agree. But does that then change how you sort of think about R&D or sort of is there or how you sort of go to your customers and sort of talking about what you could do for them? Are you requiring for them to fund more of the developments upfront or because you know otherwise you could sort of just continually sort of get caught in the cycle where you're spending and then you don't get the returns on that investment because the volume's disappointing.
Correct. Yeah. And I think the industry has gone through that cycle here over the last couple of years. I think our approach over the last couple of years for American Axle standalone will continue in that same, I'll call it philosophy going forward. I think we've been very selective in what we have decided to work on and pursue from an electrification standpoint, which I think has allowed us to be quite measured in terms of the R&D spend to support that. Now, we've dialed our R&D spend back. You know, this year alone, we've reduced our R&D spend by nearly $20 million. That is a direct beneficiary of the changing landscape for EV in particular in North America.
But being sort of measured and thoughtful about where we make these investment dollars and where these may transition to in terms of growth opportunities is really top of our mind. I think we have, I would say, rigidness probably maybe a little too strong of a word, but you know, we have key financial metrics, key risk management metrics we think about when we're pursuing new business. EV is a part of that, and ICE is a part of that. And we try to treat these the same. But we do see growth pools for our electrification business. We're experiencing it in China today at some of our e-Beam axles. And clearly, we're experiencing it on our component side of our business to support the volumes that are in the marketplace today. Now, those require far less R&D dollars than a big driveline type of system.
We're able to sort of, I think, kind of play the middle road here in terms of growing in some key areas with limited investment and then in terms of components, but also making select R&D dollar investments in some of our drive units to support the marketplace. But once we combine with Dowlais, now you have twice the talent. You have twice the product set. You have a lot of capability in-house to support the electrified market. And I think we can rationalize some of those costs as well and still be what, offer a competitive product to what our customers need. That sort of generally answers your question.
Absolutely.
But we've been very measured in this and have not really gone all in, if you will. And I think that theme will continue. But our investments here, we just won this. We announced the award with Scout.
Yeah.
That's a great award for us. It's our electric axles. It's on a range extender vehicle. So we'll continue to perform, we believe, in this space on a selective basis.
Yeah. Maybe, maybe final question. You know, I mentioned in the, in the previous of the last question that you're, you're sort of, you know, the vast majority of business right now is North America. Dowlais obviously diversifies you geographically and a lot more in, into Europe. One of the investor concerns about Europe is that there just needs to be, you know, the, the automakers in Europe need to undergo sort of their own right sizing because they're facing competition from right now some China imports, but eventually sort of China localization. How would you sort of categorize your assessment of Dowlais' footprint to be able to sort of handle that if that, if that sort of trend continues? Have they been proactive with some of that? Or is that, an additional source of potential restructuring that might need to take place?
Yeah. I would say over the last couple of years, they've been quite proactive in addressing this. And in some, some of our comments earlier, they've made significant investments in restructuring dollars to really right size their European footprint to some degree, also their, their U.S. footprint as well, moving it from the higher cost to lower cost countries. But they've taken a lot of action inside the European marketplace to support that. I would say in addition, and maybe at the other end of this, you know, they have a significant joint venture in China.
In China.
Which is really how they participate in the China market. They have a 50% interest in this entity that sells the full suite of products that Dowlais or GKN manufacturers, and they've been growing their book of business there. It's almost 50% now with local China OEMs, so that will allow you to enter into that value chain through China, so we think between that element as well as the restructuring activity that they've done already inside of Europe, we should benefit from both of those sort of actions and activities going forward.
Competitively, that JV in China, as you sort of look out on the horizon, you think can remain a player there? Or is it, is there going to be more intense local competition?
It's an intense competition in the China marketplace to begin with, but absolutely can be a player there. We're very excited about it. You know, we participate as American Axle standalone. It's about 5% of our revenues. You know, we have sort of a niche product line there. But we have some unique products that we can work with the joint venture on, you know, going to market together. So we're very excited about participating in the China market through this approach.
Great. Well, with that, I think we're out of time, so Chris and Shannon, thanks for joining us today. Really a pleasure.
Thank you. Thank you, everybody.
Yeah.
Thank you.