Much for joining us. I wanted to really thank the Dauch team for being such a good partner from for my 20 years at Bank of America. You've been involved from the debt and equity side, always with an investor focus. With us from Dauch, we're joined by David Dauch, the Chairman and Chief Executive Officer, and Chris May, Executive Vice President and CFO, and they're joined by an extraordinary IR team led by David Lim and Joe Pudlik, which I'm not sure if we've met yet, but I'm looking forward to talking in the future. The Dauch Corporation's kind of special to my heart 'cause in 1998 when I first started, it was the very first plant that I visited.
It was an American Axle plant, and I remember thinking like, "Wow, this plant is so clean, and the auto industry is so great." I visited about 10 other plants after that, and I realized, like, that plant was different.
Yeah
The first one I saw, how organized it was. I recommend anyone starting in the auto industry to take a look at one of the Dauch plants and they're pretty special. With that, I want to thank them again and thank the audience for being here, and why don't we turn it over to Alex to kick off the first question?
Yeah. Thanks, Doug, and thanks to the Dauch team for being here with us today. I actually wanted to start off with a few housekeeping questions actually, and then we'll take it up a few levels. Could you maybe just talk about your free cash flow for this year and what may change for 2027 and beyond? You know, maybe as a part of that, sort of discuss the restructuring costs for this year. You know, when should we see the benefits? I think it's been a key topic for the investment community, so I just wanted to lead with that before we start going into more strategy.
Yeah. I'll take that as a crack. This is Chris. I'll take that as a crack. Look, our guidance for the year from an adjusted cash flow perspective is $235 million-$325 million. Of course, that's before any restructuring and synergy implementation costs. Still on a consistent way on how we disclose our cash flow, continued strong delivery expected here from our operations. However, inside of 2026, you know, we have a few things going on. Number one, we have to close the transaction as it relates to Dowlais, which we did in early February. We paid the cash associated with that during the first quarter. Some of that will also be in the second quarter. That'll go away after 2026. The next piece that we have is our restructuring costs.
You really have two elements associated with that. First, we have the completion of our Dauch restructuring, which is about 2/3 of that. They've gone through, I would say a journey over the last couple of years restructuring their U.S. operations, moving to Mexico, Germany operations to Hungary, and some other elements inside of Europe. They've been on a significant campaign, as I mentioned, for about three years. This is really the final leg of that restructuring. We will see a sizable step down as we go from 2026 into calendar year 2027 with those restructuring costs. I would expect less than half of what we experienced here in 2026. Excited to put that in the rearview mirror and behind us and, of course, associated with that is the ongoing then P&L benefit from that restructuring.
We also, on the legacy American Axle side of the house, we announced at the end of 2025 a closure of an operation in Germany. That will also complete in 2026. That's part of that core restructuring element. Again, holistically, our restructuring costs will go down by about half into 2027. Very positive momentum from the elimination of the acquisition costs, sizable step down of the restructuring costs, and then the last piece is really our synergy implementation costs. This is really now stepping into that journey for the combined acquisition of Dauch, where we expect to have $300 million of annual run rate savings over the next couple, three years building into that. What we had said is we will spend or invest about $1 of investment to get $1 of annual run rate synergy.
In total, $300 million. I would expect that front-loaded sort of more towards year one and two. You see our guidance here for 2026. Similar number will be in 2027, and then that will sizably step down in 2028. Our company's set up really well positioned for core operational cash flow. Think of our adjusted cash flow numbers and then some of these, I would call them, some are one-off for the close, but even the restructuring and the synergy implementation costs will continue to fade away and really drive us into strong cash flow momentum into 2027 and then again into 2028 as, number one, your synergies are continuing their final leg up of performance and all those costs associated with implementing them are stepping down. Hopefully that sort of
No, that's perfect.
Laid the next couple of years.
Yeah.
We're pretty excited about it.
I guess last housekeeping question, and then Doug will take us into some of the more strategic questions. Maybe just bridge for us, you know, the Dowlais adjusted EBITDA to your guidance. The 2025 adjusted EBITDA to your guidance. Could you maybe just walk us through sort of the bridge there?
From a Dowlais perspective?
Yeah.
Yeah.
Yeah.
Yeah. As you just sort of to maybe level set everyone that's listening. Dowlais reports in IFRS. They also have different adjustments when they compute their adjusted EBITDA number. Really if you take the Dowlais numbers that they would publish for 2025, and those are still in the process of being finalized and out, but very similar to some of their I would say guidance that they gave in the January timeframe just before the close of the transaction. You would have to take from that number, you have to subtract out a little over $100 million associated with U.S. GAAP to IFRS adjustments. That's really driven by lease accounting differences, pension accounting differences, and some R&D accounting differences. Again, all consistent with what we expected as part of the transaction.
Part of that, how they account for their unconsolidated joint venture. Now our unconsolidated joint venture in China being the largest, it's about a $1.5 billion operation. They do gross that up for EBITDA. It's not consolidated on their books. It will not be consolidated on our books. You have to unwind that as well. That's about in total, the two between the IFRS and the joint venture accounting adjustments, about $100 million. Again, consistent with all our planning for the transaction. Another key element, they've been very successful over the course of the year 2025 in reaching resolution with commercial settlements, especially on their eDrive side of the business where volumes didn't materialize, et cetera. You have some one-time commercial settlements sort of flowing through their 2025 results of about $75 million.
You have to subtract that piece out when you step from calendar year 2025 into calendar year 2026. Then lastly, as you know, at the macro level, volumes are down a little bit, and right near the end of 2025, they sold some small pieces of their operation. You put those pieces together, gets you right on top of where our guidance was for the year. Hopefully that steps through those pieces.
That was excellent.
Thank you for asking those questions.
From a bigger picture standpoint, I mean, I love the Dowlais transaction because as a creditor, bondholder, credit investor, you kind of double the size of the company and kept the balance sheet leverage about neutral. There's a lot of opportunity. Expanding the business in Europe gives you a lot of diversity. If you could just kind of hit some of the higher points of what made you think about that transaction, how long were you looking at it, and what really could drive some of the growth for the entire company?
Yeah, let me take that. You know, we actually tried to buy GKN Automotive back in 2018.
Oh, yeah.
Again in 2022. We saw them as an outstanding partner to expand our business, to create a more robust business model, would help us from a diversification standpoint in regards to the product side, the geographic side, and the customer side of things, reducing our dependence on our largest customer, General Motors, from 40+% down to approximately 25%-27%. That was all positive. In light of the age of which propulsion system's gonna survive in the future, we also thought that we wanted to have a more agnostic product portfolio. Half shafts, which they're the market leader in that product or side shafts, as they call them, you know, that was a great addition to our portfolio.
It's the only driveline product we historically at AAM have not made or didn't make. In addition to that, there's tremendous synergistic opportunities, which we talked on earlier in regards to $300 million, and we've broken down that appropriately between SG&A about 30%, 50% in purchasing, and the remaining amount in the operational side of things. There's a very talented team there. Of all the acquisitions we've done in our 30+ years as a company, one of the more talented resources that we're picking up, which will not only help us on day-to-day leadership but also on our succession progression planning going forward. To your point, we got a much stronger, robust business model. Obviously, they're headquartered in London.
Yes.
They've got a strong German engineering presence as well, that's received very favorably in the marketplace. Much like us, they're a strong engineering and manufacturing company. I do see opportunities for improvement from an operating system standpoint in each of their facilities, as I've been around to many of them already and have more to get to. That's all part of what we factored into, you know, the bigger plan and the synergies that are there. They've got very strong relationships with the European OEMs. Not that we don't, but they have a stronger, more lasting relationship there. I would even say on the Asian side, where we have strong relationships, they have even stronger. I think there's tremendous cross-selling opportunities with the European and the Asian customers.
Where we're historically founded in the U.S., and our Detroit Three is our primary customer base, so we can obviously help them in that respect also. So we feel real good about, you know, what we've done here. Like I said, it gives us the size and scale, the robust business model, the diversification, not to mention, you know, the high margin potential with the synergies as well as the cash generation, which will allow us to service that balance sheet on a go-forward basis.
Yeah.
Yeah.
I think a big part of the, you know, Dowlais transaction, you talked a lot about synergies. I think $300 million of synergies, the majority realized by the end of year three. I know you've broken it out in the past, but can you maybe expand a bit more on what goes into the $300 million of synergies and provide an update on how the integration is progressing so far?
Yeah. Let me start, Chris, then you can add to it. As I mentioned, we've publicly announced that $300 million of synergies. I just covered what the breakdown was. 30% will be in the SG&A side, so a minimum of $90 million there. 50% in the purchasing or procurement side, you know, $150 million there. The balance remaining 20% or $60 million on the operational side. We feel very good about our ability to meet that $300 million number. Again, that number was established before we were able to get in to see a lot of their operations. We're not changing that number at this point in time, but we think there may be some upside in the future.
We'll have to figure out what that is and when that is. Obviously on the purchasing side, the buckets may move around a little bit from what we originally guided, but we're very confident that we can deliver that $300 million. What we publicly initially stated is that we'll achieve a run rate of 60% by the end of year two and 100% by the end of year three. Then in our recent earnings call, we identified that we expect over $100 million run rate here in year one. That all bodes well for us in regards to we feel very confident about the plans, the market baskets that are filling up. Ultimately we hope to overachieve that on a go-forward basis.
When you go back and look at what we did with MPG, we originally established MPG at roughly 3% of sales, and we delivered well over 5% and essentially stopped counting at that point in time because it just became normal business. We know how to manage synergies, we know how to deliver the bottom-line results, and we expect to do the same thing here with this acquisition. I don't know if you already touched on the cost of implementation.
Yeah, we talked about the cost, but also if you look at some of the buckets that David just articulated really plays to the strengths of our company. What do I mean by that? In the SG&A portion, it's not just traditional SG&A and public company costs, but it's optimizing our product engineering spend, which we've been on a journey the past couple of years to do. Dowlais has done something similar. Now combined, we can really leverage that scale inside of that spend. But also on the purchasing side, it's not just the scale for purchasing buying power, but it's also leveraging our vertical integration strength as a company. We're founded effectively on a vertical integration policy and approach, but now you bring in this, we're the largest automotive steel forger in the world.
Obviously, Dowlais buys a lot of, or historically has bought a lot of forgings, steel forgings on the outside. We had a small powder metal business inside of our operations. We bought powder from Dowlais, so now we vertically integrate that and even more of that powder buy. It really leverages some of our key strengths as a company, not to mention the operational side that David just mentioned. We're pretty excited about this opportunity that sits before us.
Maybe I think you mentioned this earlier, but I'd love to expand upon it a bit more. Can you maybe talk to us about how much customer diversification and even platform diversification was a key part of this acquisition? Obviously, you had, you know, pretty heavy GM concentration. I think your you know the GM T1XX is a large part of the business. Obviously, that may downsize here with this acquisition. Maybe walk us through. I think this takes up your Toyota mix a bit. Maybe talk to us about, you know, customer diversification and even platform diversification.
Yeah. I mean, our top five customers, I mean, General Motors. When we started the business, we had two customers, GM at 98.5%.
Yep
Ford at 1.5%. You know, after the MPG acquisition, GM, as I said, was around 40%. Stellantis was our next largest customer, around 13%-14%, and then Ford was slightly behind that. With that, with the latest acquisition, GM comes down to that 25%-27% range. Stellantis is still a large customer for Dauch as well, so they'll stay around that 13%. Toyota is a big customer there, so they come up the ladder. Ford's a big customer as well, so they'll be in the top, and then Volkswagen will round out the top five.
Yep.
Now we've got, you know, thousands of customers when you factor in hundreds of customers in our steel forging business and thousands of customers in the powder metal business. We've really grown substantially from a customer base standpoint. Again, our primary customers are the top 20 global OEMs around the world, is what they are. I think, Chris, I don't know if you want to talk to the platform.
Yeah, from a platform perspective, look, at Legacy American Axle, top two platforms in our company were the T1XX platform and the Ram Heavy Duty platform. They are still our top two from a dollar perspective platforms in the combined company. We actually gain content on the T1 as we bring in side shafts from Dauch, as well as some other powder metal components. It's a critically important platform for us. We think it's one of the best platforms in the world to be on as a supplier, that's very strong. We also add platforms with Stellantis on some of their crossover vehicles. We add platforms with BMW through the Dauch acquisition and then some of the names David mentioned, the Toyota side as well. We're pretty excited about this expansion as it relates to the platform and the content we provide.
Yeah, the other thing, you know, it's not only just Toyota. I mean, they're touching base with almost all the Japanese OEMs.
Mm-hmm.
Where we're doing, you know, 50/50 in China between Western OEMs and Chinese OEMs, they've shifted that more towards 60%, approaching 70%. So that's a positive, especially as the Chinese OEMs are gaining market share globally around the world.
Maybe lead us into some China questions. Saying Dowlais is 65%-70% of their business is domestic China.
Mm-hmm.
Yeah. Through the joint venture.
Through the joint venture, yes.
That's a great number.
Yeah.
You know, you've been in the business a long, long time. We're looking at China, it's been a 30+ million market. How is the company positioned to support that growth? If they were to bring, you know, more product to Europe, more product to South America, and potentially maybe even the U.S. one day?
Yeah, that joint venture is a jewel in this whole acquisition.
It is.
I mean, they've done a tremendous job establishing that joint venture with HASCO. The joint venture name is called SDS. As Chris said, it's about $1.5 billion in sales. Started with Western OEMs and grew into domestic OEMs, where there's more of a balance there now, but weighted more towards the domestics, like I said. That's all been positive. It's a profitable joint venture, so that's important thing. I can't say that about all suppliers in China.
Yeah
or even all the OEMs in China. I think the government's starting to step up to some of the pricing issues that were going on or the price wars that were taking place there, yeah, is what it was. For us, they're well established with a multitude of OEMs there. Are we. Together we have a wider band of Chinese OEMs that we're working with. There's an installed capacity of about 65-70+ million units in China, but their market, as you said, is a little over 30 million units. Okay. They just last year became the number one exporter, surpassing the Japanese.
Wow.
They have a plan to export vehicles. It's just a matter which countries are gonna allow or accept those vehicles into their areas. Clearly Europe is a target for them.
Yep.
They're being very aggressive with respect to Europe, but they're also being very aggressive in regards to Southeast Asia and also Latin and South America. Here recently, they just cut a deal with Canada. We'll see what happens in regards to the U.S. I mean, Trump's supposed to go over and meet with Xi in the future. We'll see what happens in that respect. You know, Trump's whole thing has always been about just building jobs or building vehicles and product in America and, you know, putting Americans to work and protecting our GDP and all that as well, and I'm not here to talk politics at all because, you know, everyone varies in that respect.
The bigger thing is the fact that the Chinese market is plateauing right now at that 30 million units. If they wanna show growth, they've got to go outside of China.
Yeah
To realize that growth. At the same time, their market is uniquely different compared to the rest of the world. 55%+ of their business today is electric or hybrid-type applications. Where you go to Europe, it's 15%-20% that's electric or hybrid, and in the U.S., we peaked around 10%-12%. We're sitting at 5% today, and we've had a lot of regulatory and policy changes, not only here in the U.S. but also in Europe, that is really slowing down what people thought the adoption rate was gonna be. Personally, myself and our company, we never totally believed in the 50% attainment of electric vehicles by 2030.
Yeah.
We were very selective about our investments. We were very selective about what OEMs and what products we developed and what platforms we went after. You don't see us writing off a lot of issues. I mean, the market spoke, the consumer spoke when ultimately he said that, "Hey, we can't afford these vehicles." That's the biggest issue with electrification. At the same time, we don't have the infrastructure in place to do it either. Now we've got $70 billion of assets that have been written off in the last 12-18 months, and there's more to come from some of the other OEMs that are out there. You know, that was a big miscalculation, but ultimately, you know, you learned a long time ago that the market's the boss and the market's the consumer.
The consumer's gonna vote with what they can afford, and most people can't afford more than a $25,000-$40,000 car. The average electrification vehicle's around $55,000. Today, the average, you know, total vehicle is around $47,000. Before COVID, that number was below $30,000, around $30,000.
Yeah.
That's how much, you know, increase has taken place in regards to transactional prices.
I think that's a good lead-in to the next question, which is sort of this re-pivot back to ICE platforms. I think on the surface, it would feel like it's maybe a really good thing for you guys, given sort of your platform concentration and your key customer segments. Just maybe talk to us about that and how you're sort of balancing, you know, product development and capital investment, you know, across powertrains.
Yeah, I mean, it's a fantastic thing for us. We already have an installed infrastructure, right, is what we have. But I also don't want people to mislead in regards to my comments. We're big believers in electrification of the technology. We just didn't believe in the adoption rate that was being-
Do that-
Forecasted by the prognosticators. It's gonna vary, like I said, between, you know, Asia or China that's at 55%, Europe in that 15%-20%, and the U.S. in that 5%-10% when it's all said and done, growing maybe to 20% over time. But you know, the opportunity here is right now we're really working on a lot of contract extensions, securing our business out into that 2030 to 2035 plus period of time. That bodes well for us for a strong cash generation. At the same time, it minimizes some of the CapEx we have to put into place because it's already in place.
Now, we do have some major platforms like the T1-2 with General Motors that we're launching this year over multiple years because it's a phased approach that does have some CapEx requirements to support the incremental technology that's being built in into those vehicles on a go-forward basis. You know, we still think our CapEx will be in that, you know, Chris, 4.5%-5% range of sales.
Okay
You know, for this year. That historically, you know, we at times have been up in the 8%-10% when we did the MPG acquisition because we were both very capital intensive, and it just happened to be at a certain time. Those investments have been made, and we always said that we wanted to be in that 4%-6% range, and we're comfortable that we can deliver that, you know, on a go-forward basis. We talked on the engineering side of things. Again, we put a lot of money into developing an electrification portfolio. We're gonna continue to invest in that.
with the acquisition of Dowlais or GKN, it helps us minimize some of those costs going forward that otherwise we would have spent historically from an AAM standpoint, where now we can, you know, on a combined portfolio basis, we've filled a lot of those gaps.
There's still a little bit of work to do to have that bookshelf technology, so when the market responds, that we can respond effectively with the market appropriately, is really what it comes down to. I don't know if there's anything else you wanna add.
Yeah, no, you've seen that in our R&D spend each of the last two years. We have reduced that spend to align with this macro condition that you just described. I think the takeaway as you think about the extension of ICE or continuation of these programs or into their next generation of programs, will allow us to have a lower capital intensity than you would've seen us over the last 10 years prior, when they were going through all different models and changeovers and things like that. I think this really bodes well for us from a cash flow perspective over the next couple of years, no question, and then even longer, potentially past that.
Maybe I could ask a question. We had a few speakers prior kinda as we anticipate, you know, June, July, USMCA discussions. If you could just help us think about, I mean, how you're thinking about it internally, how it could impact your business, and you've got, like, material assets, you know, in various parts of North America.
Yeah, personally, I'd like to see USMCA stay together.
Stay together, right.
That's how we've all planned our business over the last several decades. I think it's important that we try to protect that as best we possibly can. You know, clearly, the Trump administration is gonna use their leverage appropriately against, you know, the trading partners of both Canada and Mexico. I think there's, you know, probably a stronger relationship with Mexico than there is Canada today, just openly speaking.
Yeah.
We don't have a lot of exposure to Canada from our own manufacturing standpoint. We do have critical suppliers that are in Canada, but at the same time, we've talked to them about localization strategies if we need to move in that direction. You know, we've got a big complex with thousands of people, and we've added to that now with the Dowlais acquisition in Mexico. Our job is to keep those facilities utilized and generating the proper returns and financial performance. The customer is the boss too, and if they decide they want certain plant loading, our products tend to be a little bit larger in size.
Yeah.
We wanna put them in closer proximity to the OEMs, but you just don't pick up billion-dollar plants and move them, right?
Put them on wheels and move them.
You know, it costs you years to do that and hundreds of millions of dollars to do that. It's very costly to shut down a plant, probably more costly than it is to launch a plant. It's one thing to say it or draw it on paper, it's another thing to go execute it, right? Clearly, the Trump administration's putting a lot of pressure on OEMs to make investments in the U.S. You're seeing a lot of new and incremental investments, and in some cases, at the expense of both Mexico and Canada, because he wants those jobs in the U.S. Therefore, the OEMs have to do what they need to do. Once we get clarity on the OEM strategy, then we can finalize our independent strategies.
Those will all be individual business cases that we'll review with our customer base and then make the right decision for both parties, is what we'll do. Like I said, we really would like to see USMCA stay together. There may be some adjustments to that, but I think it's in the best interest of our industry that it does that, and our trading partners, for that matter.
I agree.
Now that the Dowlais acquisition is closed and integration is underway, what does, you know, Dauch's acquisition pipeline sort of look like from here? Are you evaluating, you know, smaller tuck-in acquisitions? Are you focused primarily on integration and balance sheet strengthening? Can you just maybe talk to us about, you know, capital allocation priorities and how the recent acquisition fits into that?
Yeah. Let me touch first, then Chris, I'll have you cover some of the capital allocation. We just finished the closure on February 3rd, so we're six weeks into acquiring a $6 billion company. Our focus the next two years is really on integrating this company and realizing the value and the synergies that we talked about and that cash generation. That's critical. You know, we wouldn't be fair to you and wouldn't be fair to ourselves and our governance if we didn't deliver on what we said we're gonna do. Our priority is clearly on that. Now, with that being said, I will say this.
Historically, we always went back and looked at twice a year our product portfolio and said, "What's core and what's non-core?" We'll do that same thing and are doing that same thing with Dowlais GKN. There will be some assets that we potentially may wanna divest in the future. That's a source of cash for us to bring that in, and then, you know, Chris and I will, and the board will determine, you know, what do we do with that cash. Obviously, a priority to us is to get our balance sheet and our debt level strengthened. You know, historically, AAM, you know, we finished last year leverage-wise at 2.5 x With the deal closing, like I said, it will be around 2.9x-3 x. Call it approximately 3x
Our goal is to get down to 2.5 x before we start looking at shareholder-friendly activity. Think stock buybacks or think dividends, something we haven't done since the 2009 period of time. At the same time, our longer-term leverage goal is to be under two, but we're comfortable, you know, being in the level that we are today, but with a solid game plan to deliver the synergy, generate the cash, and we think there's just tremendous cash generation opportunity in this business. Not so much in 2026, but still healthy, but much stronger as we go out in the outer years.
Leverage kind of popping up to about 2.9, and then the target is around 2.5, and then after you get 2.5, can have a more balanced approach to capital.
Yeah. Yeah. 'Cause typically, our capital allocation has been on organic growth-
Yeah
debt paydown.
Yeah
A little bit of tuck-in strategic things.
Yeah.
We never really went down the path of the shareholder-friendly activities.
Yeah.
That's where now we can have more balance, and we can look at what's the best.
Option
Return on those and how do we optimize that for the best interest of the shareholder and the company.
Yeah. We wanna put out some milestone points to hit with 2.5x leverage, then 2 and below.
Right.
Yeah.
Right. Yeah, that's one of the nice things about this acquisition is it gives us that more robust business model that we can carry a little bit more leverage and then open up the capital allocation strategy even more.
Makes sense.
Wanted to ask one on, you know, OEM vertical integration, if you see that, you know, as a risk or not. Are there risks, you know, to the tier one suppliers, in terms of vertical integration and how is the company really sort of truly differentiating your value proposition?
Yeah. What I would say to that is there was more of a risk if electrification was gonna take off at the rate that was being discussed.
Mm-hmm.
You know, even today, the OEMs buy a lot of ICE and hybrid business on the outside, like from companies like us and Dana and others that are out there. Even with electrification, they would do some of that, but they would also make some of it in-house.
Mm-hmm.
It's just a matter of what that balance is gonna be. Now that we have sunk investments on ICE and hybrid, why would the OEMs make that vertical integration then when they could put that money to better use elsewhere? Right now, we're not hearing that chatter or that talk about insourcing. Quite the opposite is what can you do to help us. What they're more worried about is the health of the supply base, and then they have too many smaller suppliers that are disrupting their continuity of supply, and they want to work with more of the robust tier one suppliers to strengthen that continuity of supply so they can run their operations efficiently and generate cash as much as they can.
Makes sense. Maybe we could talk a little bit about jumping around a bit, but some of the R&D and some of the kinda, you know, as we kind of migrate a little bit away from EV, there's still a lot of R&D and opportunity in the ICE platform to bring new product to market, you know, more efficient, lighter weight, stronger. If you guys may tell us about some of the new initiatives you have on like the future products.
Yeah. I mean, there's obviously going to be a big push on efficiency. I don't care what technology, whether it's ICE, hybrid or electrification, it's about efficiency. There's gonna be a lot of push on light weighting, so there's gonna be more use of non-ferrous versus ferrous-type materials or hollow-type applications that were in the past more solid bar, things along those lines. You know, clearly, we're going to look at, from an engineering standpoint, we're going to continue to work with Dauch in regards to they're the industry leader, like I said, in side shafts and on prop shafts. What we want to do is continue to work with them on those same initiatives so that we can stay on the cutting edge, much like we are historically from a beam axle or from an all-wheel drive system standpoint.
You know, those are the bigger areas that we're going to concentrate our stuff. Not to mention, we'll be working on insourcing opportunities. We'll be working on a lot of reshoring opportunities from the supply base. That all requires engineering time and validation and involvement, and in a lot of cases, even some customer involvement. That's where we're going to shift some of our engineering resources because that will lead then to greater synergy opportunities and paying ourselves versus paying the supply base in some cases too. I don't know, Chris, anything.
Yeah. In addition to supporting the customer initiatives as they're looking to distinguish their vehicles, when they get into things like torque wars, what technologies do we have that can allow that vehicle to perform at a level they can market to their own customers? There's a lot of investments going on even in the traditional space, as David mentioned. Of course, you know, there are continued investments on the electrification space because that segment-
Don't forget, we announced the award of the Scout front and rear axles, and we just announced earlier this year we also won the disconnecting sway bar, or SmartBar, as we call it, in the industry. We're going to continue to make the necessary investments in electrification. There'll be select products that we develop. We'll target certain customers and certain platforms that we think will be successful, because everyone has grandiose plans about what those volumes are going to be, and then volumes don't materialize, and then you're stuck holding the capital, which is why a lot of companies are writing off a lot of assets right now.
We've been very disciplined, like I said, in regards to the process that we go through to select who those partners will be and what technology we'll go after and what those financial hurdles need to be.
Perfect. I'll ask one last one, and then we'll open it up to the audience. Can you just remind us sort of the cadence of the year? I think you noted, you know, meaningful downtime in January at key customers, and you expected 1Q to be a bit softer, and you only had the partial contribution from Dowlais. Maybe just walk us through sort of the cadence of the year and how we should think about that.
I mean, broadly speaking, in a normal year, we would have typical seasonality inside of our year, right? Fourth quarter usually has less production days. This year, as you mentioned in our earnings call, we did talk about there was some heavy downtime to start the year from some of the truck plants at our customers that was predominantly done in January, so they're back up and running, so that's a good spot. I would expect also, you know, tariffs have reset in terms of negotiations with our customers as you see across the supply base. Usually, we have a little lag on tariff recovery between tariff incurrence and recovery. You'll have, again, probably a little heavier tariff cost in the first quarter.
It's collected through the balance of the year, and we still expect to sort of be slightly, just a slight cost associated with tariffs for the full year like we experienced last year, but there is a timing lag. Then our seasonal cash outflow we'd expect in the first quarter. That's a working capital build coming off of year-end. It's seasonal for us, seasonal for Dowlais, so that would continue. As then for the rest of the year, obviously, you would pick up some tariff recoveries, as I mentioned, and then really it will be cadenced around normal seasonality for production. A little downtime in early July and again, generally at the end of the year, December timeframe, you see some.
At this point in time, I wouldn't call it any other seasonality that we would face that would weigh one quarter over the other versus the items we mentioned for the first quarter.
Perfect. We'll open up to the audience to see if we have anything out there.
A question over here on the left.
Hi, thank you for taking the question. Wanted to know how the revenue synergies are coming along relative to your forecasts, and elaborate on how we can quantify the upside, to some of those figures. Thank you.
Yeah, we did not build in any revenue synergies into our overall synergy number. Although, as I mentioned earlier, that we think there are cross-selling opportunities that would exist. Anything that we're able to realize and achieve will be upside potential.
Yep. Mm-hmm.
Good to see you guys.
Good. Good seeing you.
Wanted to just double-check on that, vertical integration make versus buy. If we think about post-acquisition versus, you know, I'll just take last year, 2025. Well, how has that changed now in terms of maybe fixed cost versus variable cost, your incrementals on, you know, $1 of revenue? Or maybe someday if you can define it, how much you actually purchase from outside versus you wanna use to sell it yourself, buy more from our own internal operations. Potentially, a nice enhancement to your margins, but maybe a little bit trade-off in terms of fixed cost.
Yeah. As Chris said, I mean, from a powder standpoint, we're already buying from GKN on the powder side. So now we're one company, so we can now buy. But we're also buying from their competitors as well. Now we can buy more. That's just an internal management decision and go through the proper product validation with our customer base to make sure that we can do that. So that's a no-brainer in regards to, you know, things that we need to do in that respect. Staying on the powder side, GKN Automotive and GKN Powder Metallurgy were really run as two separate companies. When you really look at this, we're really integrating three companies into one, not two, okay, is what it comes down to. GKN Automotive was even buying from their GKN Powder Metallurgy business.
When I walked the factories, I saw all their competitive products in there, but I didn't see their GKN Powder Metallurgy. That's another thing that we'll go back and look at. Let's source work to ourselves first before we go to the outside, but we'll balance that appropriately based on capital needs and other types of things. On the forging side of things, we're the largest steel forger in the world based on our acquisition of MPG back in 2017. Because we already had a strong capacity, and we added to that with MPG. As Chris said, they make 25% of their forgings internally and buy probably 75% on the outside. We have open capacity. That's a no-brainer. Profit that'll drop right to the bottom line.
Now, if we need to make proper investments or certain investments, then we'll just run the business cases on a make versus buy and just decide what's the right time to do that based on what the business needs are for the company. We'd be crazy not to take advantage of that full vertical integration. The other part of that, which there's a hidden cost to, is continuity of supply, right? We're not at risk if we're just looking at ourselves in that case, and we're very comfortable that we know how to operate and run our factories where we can't say that all the time about our supply base.
That's a hidden cost that we can avoid, that ultimately will not disrupt our operations and allow us to be more efficient in our current factories, is what it'll be.
And-
Go ahead.
Oh, I was gonna say, I would not expect to increase our fixed cost very much through these.
Yeah
Insourcing opportunities. Maybe some tooling, things of that nature.
Yeah.
As David mentioned.
We already have the capacity in place.
Yeah, we have the capacity in place. You would really capture that variable margin that would come in from the supply base into us.
Yeah
is how we would think about it.
There's-
Small fixed cost, but not much.
There'll be select areas that we'll have to invest because you gotta understand, you know, when you make a side shaft, there's the main products are tulips, tripods, outer races, and inner races. They've got the capacity in place for some of that, but not all of that. Therefore, they'll have to make some investment. The volume that they're producing or using will justify itself in a very short period of time.
You put out some push this deal for the $6 billion-
We haven't yet. But historically, we've always tried to run our operations in that 85%-90% utilization. If you're not running at that level, you're not making the type of money you should. So we're going back and looking. We also had some presses in storage too from a forging standpoint that could be installed, that we already own. It's just the cost of installing them, which is a lesser cost. Yeah. Good question.
Perfect.
Well, I think that is all the time we have, so I really wanna thank the Dauch team for a really great conversation and thank you all for attending. Thanks again.
Great. Thank you.
Thank you very much. Appreciate it.