American Axle at BofA Summit: Strategic Moves Amid Market Shifts

On Tuesday, 15 April 2025, American Axle & Manufacturing (NYSE: AXL) presented a robust strategic outlook at the BofA Securities Automotive Summit 2025. The company highlighted its strong financial performance in 2024 and detailed its strategic acquisition of Doutlay. While optimistic about future growth, the company acknowledged potential challenges, including tariff impacts and labor market tightness.

Key Takeaways

• American Axle reported $6.1 billion in sales for 2024, showcasing strong financial performance.
• The acquisition of Doutlay is expected to close in Q4 2025, with anticipated synergies exceeding $300 million.
• The company aims to achieve $550 to $600 million in free cash flow post-acquisition.
• American Axle is prepared to manage potential volume declines through a variable cost structure.
• A focus on automation could address labor market challenges, with potential to automate 10-30% of labor.

Financial Results

• Sales Performance: American Axle closed 2024 with $6.1 billion in sales, marking a robust year.
• Synergies from Acquisition: The company expects over $300 million in synergies from the Doutlay acquisition, supported by rigorous auditing.
• Free Cash Flow Target: Aiming for $550 to $600 million in free cash flow after the Doutlay acquisition.
• Leverage Ratio: Targeting a leverage ratio of 2.8x at closing, with plans to reduce it to 2.5x.
• Margin Impact: Commodity and inflation pass-throughs are impacting margins by 100-200 basis points, with potential for improvement in metal forming operations.

Operational Updates

• Doutlay Acquisition: Expected to close in the fourth quarter, with restructuring to be largely completed by the end of 2025.
• GM Truck Capacity: GM is increasing the line rate at Fort Wayne, which could benefit American Axle.
• Automation Opportunities: Exploring automation to mitigate labor challenges, with potential to automate 10-30% of labor.
• Volume Management: The company has a playbook for managing volume declines, leveraging a highly variable cost structure.

Future Outlook

• Tariff Impact: Analyzing potential impacts and working to comply with USMCA regulations.
• EV Market Penetration: Expects EV penetration to reach 25-30% by 2030, while hybrids and ICE remain strong.
• Product Strategy: Aiming to be market-agnostic, offering products for ICE, hybrid, and EV markets.
• Long-Range Planning: Seeking clarity from customers on long-term product plans and plant loading.

Q&A Highlights

• Labor Costs and Availability: Labor costs in the US are significantly higher than in Mexico, with a tight labor market.
• LBO Consideration: While acknowledging strong free cash flow potential, management remains committed to operating as a public company.
• Program Extensions: Viewed positively due to volume benefits on depreciated equipment.

American Axle’s detailed strategies and future outlook provide a comprehensive view of its plans amid industry challenges. For further insights, readers are encouraged to refer to the full transcript.

Full transcript - BofA Securities Automotive Summit 2025:

John, Host/Interviewer: Thanks everybody for getting settled in. We we actually appreciate everybody sitting down, ready to go here. Next up, we have American Axle. We’re very happy to have David Dauk, chairman and CEO, and Chris May, CFO. Thanks, guys, for for joining us today.

I mean, for you for those of you that are not that familiar with American Axle, it’s one of the leading global suppliers of drivetrain and powertrain technology to to the auto industry. It’s heavily exposed here in North America. They’re they’re working on that, and that’s been a project that’s been underway for quite some time and and making progress. Currently in the middle of the acquisition of Dallet. I’m pretty sure I pronounced that correctly.

David Dauk, Chairman and CEO, American Axle: You did.

John, Host/Interviewer: For the moment. That will help diversify them geographically and from a customer and product standpoint as we work through this. So there’s a lot still to come here and there’s a lot that’s going on at the company right now. So we really appreciate you guys taking the time because I know you’re very busy not just because of that transaction but also because of everything that’s going on in the industry. So so much for the time.

Hopefully, you you guys alert yourself from the questions we Hopefully, we can help you out a little bit here too. So thank you very much for the time. Maybe maybe kick off, David, if you wanna make some opening, you know, comments before we get into questions that that might be a

David Dauk, Chairman and CEO, American Axle: good Yeah. First of all, good afternoon to everyone and thanks for being here with us today. Chris and I are honored to be with you. It’s been a while since we’ve had a chance to address everyone in regards to what’s taking place in our business, so it’s a pleasure, like I said, to be with you. But, yeah, we finished 2024 very strong from a financial performance standpoint, so we’re very pleased with how the year wrapped up last year.

On an independent stand alone basis, we guided the street. We expect another solid year this year. This was prior to any of the tariff discussion that’s going on, and I’m glad you got all those discussions out this morning so we don’t have to talk about them this afternoon, but hap happy to talk about them in in all seriousness. But then in January, January ’20 ninth specifically, we announced the strategic combination with the Doutlay organization or what was previously known as the old GKN Automotive and GKN Powdered Metal business. We finished last year at about $6,100,000,000 in sales.

Are approximately a $6,000,000,000 business as well. The only driveline product that we don’t manufacture is side shafts, as they call it. We call it half shafts here in The US. At the same time, they have a metal forming business, much like we do, but theirs is powder metal. Ours is steel forgings, powder metal and ferrous and non ferrous castings.

So both their businesses are very complimentary to our business. This business will allow us to get size and scale. We want size and scale, especially during uncertain markets and the things that we’re going through and experiencing right now as an industry and as an organization because we can better weather the storm. We get a lot of diversification here. Customer wise, GM will go from approximately 40% of our business to about 25% of the business, but we’ll also strengthen the relationships with the Toyotas, the Volkswagens, the other European and Asian manufacturers, and there’s cross selling opportunities that go with that.

We get the diversification in regards to we’re heavily concentrated, as John just said, in North America around 73%. This will take us down to around 55, 50 seven percent. We’ll increase our penetration in Europe, which is not a bad thing. Some people think that it is, but in our case, we don’t think it is. DOLA has been doing a lot of restructuring in Europe the last couple of years.

We’ll we’ll we’re gonna time this thing perfectly. We’ll we’ll realize a lot of the benefits of their restructuring and see the cash generation that’ll positively contribute to the combined business on a go forward basis. They also have a very strong joint venture in China that we’ll be able to benefit from. We have a good presence in China, but their strategy, much like our strategy, is China for China. The other thing for us in in both our organizations, we wanna try to buy and build local, to mini mitigate or minimize any tariff exposure.

We had a very minimal impact back in 2017, ’20 ’18 when Trump was first in in office. We’re obviously, you know, you know, dealing with the issues that are out there today. On the tariff side of things, what I will say is that, you know, we buy all of our steel and our aluminum locally here in The US, so we haven’t had any impact with respect to the current tariffs that are in place. You saw on April, he gave the auto industries more time from a part supply standpoint until the May 3 period of time. Clearly, vehicles have been taxed.

80% of what we do in Mexico gets consumed in Mexico into vehicles there, so the OEMs would have that responsibility. 20% of that, comes across the border that we would have some exposure to. All of our parts are USMCA compliant or the majority of our parts are USMCA compliant. Those that aren’t that we’re working to identify what would it take to be USMCA compliant. And then on April, also indicated that he may want to look at just, you know, giving credit for US content only, which then means we just need to, you know, back that out and we’d be subject to tariffs with respect to the non US, or non US, content that’s in in the vehicle.

So we’re doing all those analysis right now. I think when it’s all said and done, level heads will prevail. I think Trump has used this as a solid negotiating tool for him to bring a lot of countries to the table to address the imbalance that existed in trade. At the same time, he wants to reopen the USMCA agreement to get more US content. And what it’s really looking to do is promote more American manufacturing and more American jobs.

And as as long as everyone understands that big picture and understands that this can’t continue on for an extended period of time, the supply base is very fragile and and has had to be propped up in previous years. It only takes one supplier to screw up the whole chain. And, we were already starting to see some of those bumps that take place, and we’ll see what happens on the go forward, baby. But we’ve weathered the storm for thirty years as a company. We’ve addressed a lot of challenging issues.

This is just another issue as far as, you know, that we need to tackle and we need to deal with. But more importantly to us is we’re really focused heavily on the integration and the acquisition of Dalla. And all of our banking agreements and credit facilities are in place as far as the financing for the deal. We’ve turned in all the antitrust documents for the deal with the exception of one country, which we’ll have done by the end of the month here. We expect the deal to close in the fourth quarter no no later than year end, so that’s positive for us.

We’ve already cleared The US antitrust assessment, so that’s a a real positive as well. There’s tremendous synergies to be realized over $300,000,000. We went through a very arduous and rigorous process to identify that $300,000,000 much different than what we’ve ever done in a number of acquisitions that we’ve done in our thirty year history as a company. It was a tough process to go through we not only had to identify the suggestion, but explain why we were recommending the suggestion, where we’ve done it in the past, put justification, substantiation behind it. And based on that, the auditor gave us a score and discounted that score based on the ability either to implement it or the confidence level that they saw associated with it.

Because of The UK law, we were not able to visit the factory. So many of our operating synergies were discounted heavily, to the tune of 75% discount. So we think there’s some upside potential to that $300,000,000 that we identified publicly, but we feel very confident we can deliver that. Every acquisition that we’ve done in our history of our company, we’ve been able to meet or beat the synergies that we’ve committed to as an organization. So to us, you know, we really see the future as being extremely bright.

You’re bringing two strong companies together. It’s not like DALL E’s a stress company or a distressed company. They’re they’re a very well run company. Together, I think we can be run even better. At the same time, there’s tremendous value creation opportunity that goes with it.

And I think it will open up a different playbook for us from an American Axle standpoint. So with that, I’ll turn it back to you, John.

John, Host/Interviewer: So I will say as far as efficiency, American Axle is incredibly efficient. I think David just packed in the first seat. Yeah. I mean, it’s the most content we’ve seen

David Dauk, Chairman and CEO, American Axle: in Yeah.

John, Host/Interviewer: In in density. So we appreciate that opening. That’s actually incredibly helpful. Thank you. Yeah.

Thanks. Really helpful. Okay. So I got a few questions left up still. So on tariffs, obviously, there’s a lot of direct and indirect stuff we can talk about.

But the indirect one that I think a lot of people are concerned about is the potential for industry volumes to be you know, down or potentially even hammered, right, as as as a result of this. More from the automaker side as opposed to what you guys may or may not be directly exposed to. You could just remind us sort of your your playbook of, let’s see, industry’s down ten, twenty, as much as 30%, think, is more the draconian views of this stuff. You know, how you guys have reacted to that in the past, how you react to it, you know, now, what may have changed, lessons learned, but really sort of that that indirect, which could be a big one, macro impact.

Chris May, CFO, American Axle: Yeah.

David Dauk, Chairman and CEO, American Axle: Do wanna take a first stab?

Chris May, CFO, American Axle: Yeah. Sure. What I’ll tell you, John, is, you know, this question is a a question quite frankly in the auto space. It’s a cyclical industry we deal with each and every year as as we face the challenges of the industry. And back in we have a standard playbook that we follow.

We published back in 2020 as part of our investor relations materials, excerpts or summary of this playbook. But principally speaking, as we think about the cycles of the industry, this could potentially be another cycle, if you will. You know, we work through our cost structure. We start, we have a highly variable cost structure, 60% of our costs today are purchase components, obviously highly variable. Our labor in general across the globe is highly variable.

So you start to work through these elements of your cost structure very quickly, and of course speed and reaction time is important as we manage our cost structure through this process. And then we take a look at terms of our view of depth of the issue and duration, because that will really start to then drive our views on our next steps of our playbook in terms of rationalizing, I would call semi fixed costs, right, salary, labor, other sorts of fixed costs that are inside our factory too, if we thought it was deeper and more prolonged where we can rationalize capacity. So that playbook is has been tested and tried and used many times through our history, and we would continue to adapt that playbook to whatever we we would face in terms of these challenges coming forth.

David Dauk, Chairman and CEO, American Axle: I I I think one one of the critical things is the private askators are forecasting that, you know, that the global markets could be impacted to two and a half million units. Here in North America, roughly a million, a million and a half units. As Chris said, we have a playbook in place to deal with that. The other thing you have to look at is where those what segments are those units coming out of. Typically, your trucks, your SUVs, your crossovers stay relatively strong in those periods of time.

That’s more of the passenger car and a little bit of the crossover that get gets impacted. But, we’ve got a proven playbook. We’ve executed that playbook multiple times, and we’ve always persevered and

John, Host/Interviewer: got our

David Dauk, Chairman and CEO, American Axle: way through it.

John, Host/Interviewer: Got it. So one of the one of the questions is, like, your your major customer, GM, has truck capacity in Fort Wayne that might be expanded its allowment, which might be, you know, may you know, shrunk, if you will, as far as far as volumes. I don’t I don’t know what you’re hearing yet because it doesn’t sound like anybody’s made any decisions. But, I mean, GM had a big jobs fair at Fort Wayne already, so it sounds like they might be on the on the track to hire folks there to try to expand, well, in a soft way, the the capacity there. If, you know, somehow they they expand that capacity in in Fort Wayne without big bricks and mortar yet.

Right? This is, you know, adding a third shift and and and and more vehicles. What flexibility do you have to to service that out of your existing facilities for Fort Wayne or and or, you know, would you have to ship from, from, you know, Salau or you got to get

David Dauk, Chairman and CEO, American Axle: your Yeah. Mean, we’re we’re so. Yeah. Yeah. I mean, Jim has already announced that they’re gonna increase the line rate at Fort Wayne.

Yep. And they’re gonna bring incremental workers in on a temporary basis until such time that they can see that it’s a permanent type move that needs to take place. We’re already supplying Fort Wayne out of our Mexico facility today. Okay. So we can continue to ship more product to them if need be.

If GM ever desires to want to put more capacity in The US, then obviously our whole strategy all along has been to buy and to build local and be in close proximities to our customers. Before that region was a North American region. If it has to be shrunk down just to a US region, then we’ll have to evaluate what we need to do, but we’ll do that in in concert with General Motors or any customer for that matter.

John, Host/Interviewer: And our general understanding right now is that the automakers, particularly if they’re the importer of record, are are paying the the tariff directly, particularly in this case when you’ve made a commitment to them, you know, in in Mexico and, you know, are helping would be helping them out with incremental, you know, incremental axles being shipped from Mexico to to Fort Wayne. They’re paying that. That would be that would be on their on their dime at at at the moment. Right? That’s our understanding.

Important record is that.

David Dauk, Chairman and CEO, American Axle: As far as product going into vehicles assembled in Mexico, the OEMs are paying for. Product coming across the border going into vehicles, we would be exposed to. And then you have to look at what’s USMCA compliant or US compliant to determine what that level of tariff would be.

Chris May, CFO, American Axle: Yeah. That would be product we’re shipping especially in between our plants, but most of our customers will pick up at our docks and take delivery.

John, Host/Interviewer: Got it. So, I mean, so those act those incremental axles that’ll going to Fort Wayne from Mexico, they would they would be they would you know, your docks in Mexico or they would be you’d be shipped in in your pay you’re on the hook for the tariff first blush, and then there’s a negotiate, and then there’s a discussion.

Chris May, CFO, American Axle: Generally, our customers take delivery at our docks. So they would they they handle all freight logistics.

John, Host/Interviewer: Got it. Okay. And and and, Dave, you you touch on this on on the on the mix side, but I mean, what we’ve seen with resiliency, particularly of of GM trucks, you know, through sort of, you know, the the stresses that we’ve seen, you know, over the last ten years in the industry, they’ve held in very well. Based on what you would understand right now outside of GM making a decision, and I highly doubt this is GM’s gonna make a decision to take this you know, take the trucks down even in the even in the even in the face of tariffs. Your view on on mix for you specifically is a high level of resiliency relative to to what would be happening in in the in the macro environment.

One one two to one three on GM trucks, 1.2, one point three million is is, you know, not certain, but very, very highly likely.

David Dauk, Chairman and CEO, American Axle: I’d happen to say they’ll deliver that for sure.

John, Host/Interviewer: Got it. Okay. You know, as you look at this, you know, labor has been, you know, tight everywhere. Right? And that’s kind of one of the ironies of what’s, you know, going on right now.

This idea of trying to bring manufacturing jobs back to The US, it’s hard to find people to do stuff. Right? I mean, there’s massive shortage of auto technicians, you know, in service based dealerships. If you were to bring back and Jean were to bring back capacity to The US from Mexico, right, in in this example, I mean, is there a lot of labor around and available? Or or is this is it gonna be very tight and end up being, you know, reasonably, you know, expensive to do that even if you can find find the people?

I mean, that’s, you know, one of the real challenges here. It’s not like we have an unemployment rate that’s very high and a lot of folks in manufacturing communities that are looking for jobs because a lot of a lot of people are are employed.

David Dauk, Chairman and CEO, American Axle: So I mean, the labor market’s better today than it was just a few years ago, but it’s still very tight to your point. Okay? At the same time, there’s 500,000 open jobs in The US today, and now we’re talking about bringing additional work here. How do you fill those jobs? That’s the big question.

But at the same time, I think we, the manufacturers, have to look at what can we do to minimize the amount of labor by design operations more efficiently, at the same time leveraging automation and robotics where we possibly can. But it is a tight labor market, and it will be a challenge on a go forward basis, especially if everyone is trying to do the same thing at the same time.

John, Host/Interviewer: So as far as your operations, how much opportunity is there to automate? Could you take 10%, twenty % of labor out of the what’s the roundhouse estimate on that?

David Dauk, Chairman and CEO, American Axle: Anywhere between 1030%. Just a matter of how much money you want to spend, and is there a payback for that investment, or what is the customer willing to pay if you need to make those investments to to be able to support that production in in in, let’s say, The US? So so historically, we we’ve looked at the

John, Host/Interviewer: business, it’s it’s been sort of a mid solid mid teens, like, you know, 15% plus, you know, e EBITDA margin. Before we get into Dalet Dalet for a minute because we’re gonna get into we’re gonna get into that, you know, is there any reason that you could see with the current macro and maybe even some of these pressures for from tariffs as to, you know, any reason that the business couldn’t once again, pre Dalet, we’ll we’ll get into that in a second, that the business couldn’t get back into that that range over time.

David Dauk, Chairman and CEO, American Axle: And, Chris, why don’t you explain to them how the the margin walk, where we were, where we are today, where we’re headed?

John, Host/Interviewer: Yeah.

Chris May, CFO, American Axle: Yeah. So, John, you’re referring to sort of some of our mid teen performance of a few years back. Know, if you think about has at the macro level has transitioned through that time frame. First and foremost, you know, volumes are lower than they were when we were running in those mid teens and we have high operating leverage, right? We have fantastic variable profit margins and that benefits us in time when volume goes up.

When it comes down a little bit, you know, obviously that impacts our headline margin number. At the same time, I would call commodity metal market pass throughs and inflation pass throughs that are being passed up to our customers at cost, which are great agreements that we have because they protect the company, but optically they impact your margin performance. And that’s 100 to 200 basis points of margin that we’re passing through in terms of elevated metal commodity costs versus call it five years ago. And the other piece I would tell you, and we talked a lot about this in 2023, we had some challenges inside our metal form operation and you saw, and you can see it in our segment data, their margin performance sort of has stepped down through that period of time. We have since reversed that trend and starting now to see a trend of upward performance in our metal forming operation.

And we think collectively for the company, you know, we have another hundred to 200 basis points of opportunity set inside of that to start to work to claw back in terms of that mid teen performance level. Obviously, a little macro plays a little bit to that performance level, but we also have some self help, which we’re we’re driving towards, and you’re seeing that trend in our operations now. And the only other the

David Dauk, Chairman and CEO, American Axle: only other issue would be, you know, we encountered all the inflation everyone else did, and productivity wouldn’t offset all that inflation, and we weren’t able to pass on all those costs to the customer. So so we took responsibility for some of that.

John, Host/Interviewer: The standard volume operating leverage come metals metal markets pass through. Metal metal metal forming, like

David Dauk, Chairman and CEO, American Axle: Metal forming or

John, Host/Interviewer: farming. P j basically, MPJ.

David Dauk, Chairman and CEO, American Axle: And then inflation.

John, Host/Interviewer: And then and then inflation. Correct.

David Dauk, Chairman and CEO, American Axle: So those are all

John, Host/Interviewer: And that those were yeah. Yeah. You know, mean, it’s it’s it’s getting better, and cash flow is pretty pretty good, you know, pretty strong. Right? So you haven’t seen the same kind of impact.

So that metal margin metal markets pass through, you’re not seeing in free cash flow rates. And free cash flow is still pretty Correct. Pretty strong. That’s correct.

Chris May, CFO, American Axle: It’s protects the company.

John, Host/Interviewer: Yeah. You’re correct.

Chris May, CFO, American Axle: Exactly what I’d just like to do.

John, Host/Interviewer: I’m sorry. Like, you were

Doug, Analyst: I I just want to flag that some credit investors look at I mean, revenue goes up because of the pass through

Chris May, CFO, American Axle: for steel.

Doug, Analyst: And although your margins could contract a bit, your EBITDA is going to be kind of flat because you’re off of a higher revenue. Correct. So it’s not like our margins are compressing because we’re doing worse. Just just a little bit of a different macro mix on the revenue versus

Chris May, CFO, American Axle: Yes, you can see that in our absolute performance, whether it’s cash flow or even EBITDA dollars.

John, Host/Interviewer: The old adage, it’s tough to pay your bills with a percentage, but you know, with that free cash flow you can pay your bills, right? Okay. Getting to sort of insourcing versus outsourcing. Right?

GM insourced some, you know, some of the axle business, but there is some potential for outsourcing coming from other automakers. And then there’s this whole question of what is going on with the Chinese OEMs and and I’ll call it GTM, but, you know, has this, you know, on the half shaft side has, you know, potential real opportunity to to help drive, you know, further penetration with with Chinese manufacturers. So can you maybe just talk about generally, you know, your product set, you know, how much opportunity there there is on future outsourcing, not just from the incumbents well, from the incumbents, but, you know, the incumbents that we know and then the Chinese, you know, manufacturers, and what risk there is of insourcing? Because it seems like insourcing risk is fairly low at this point and probably done, at least my opinion. Right?

I’d to hear yours. No. And then and then on the outsourcing side, there is potentially a lot of opportunity, you know, still in in front of you.

David Dauk, Chairman and CEO, American Axle: Yeah. I I’d say the traditional ICE and hybrid business, most of the make buy studies and and the insourcing has been done by the OEMs, especially the Detroit Three. So as you alluded, you know, GM insourced a little bit of the Bmax will work. We have the balance of that that Bmax will work, At Ford Motor Company, they still probably make 60 plus percent of their their business between us and Dana and and others so that we supply the balance of the business. Stellantis buys from us, buys from Dana.

They also used to have their in house operation. That business was sold to Jet and ZF. So ZF has that business today. So that’s the Detroit Three. And then you’ve got a similar thing.

You know, Toyota has always used Hino to be their actual supplier. Although Toyota just brought that work in house because of some of the other issues that were going on with Hino. And that’s been a mixed bag with Nissan in regards to they make some internally, and they buy some on the outside. So I think on the on the traditional business, that’s pretty well been established, but I do think over time, that could be an opportunity for us. It’s just a matter of know, OEMs got to decide where they wanna place their capital going forward, and do they wanna make investments on undercarriage components that there’s suppliers that are very capable of, whether it’s American Axe or our competitors that can do those types of things.

On the electrification side, it’s gonna be a a mixed bag again. Some are gonna wanna have a capability in house. GM’s already demonstrated a desire to make some of that in house, but they’re also putting some on the outside. Ford’s already desired to put some on the inside, but they’ll look to the outside. These are all electric drive units, not beam axles, and that one beam axle has been in sourced by the OEMs on the electrification front, because the market really isn’t ready for that at this point in time.

So so what we’re doing is making sure we’re properly positioned that we have electric drive unit offerings. The Dahlia acquisition will even strengthen and broaden that portfolio capability for us. At the same time, a lot of r and d activity had by AM has been done on the B Mantle side to properly position ourselves should the market turn in that direction on a go forward basis. And again, we just want be agnostic to the market and have products for ICE, hybrid, and EV. And we’re already in the EV business.

We’ve been making electric axles since 2017 for Jaguar or Land Rover in regards to the I PACE. A lot of work for Mercedes and their AMG brand through six different or seven different derivatives there. We’re doing a lot of electrification work in China with a host of Western as well as domestic OEMs in China. Is really The US market that was lagging. All a sudden, the Biden administration, they tried to enhance that.

It was a false enhancement. I’ve said that all along. Prognosticators thinking 50% penetration of EV by 02/1930 was crazy. My feeling is 25, 30 percent, you know, is where I think it ultimately settles in at. And EVs are going to continue on, there’s no doubt about it.

Hybrids, you can see the tremendous growth in hybrids, ICE business is going be here a lot longer, and when I say a lot longer, for decades. But at the same time, hybrids and EVs will will grow their market penetration on a go forward basis. We’re prepared to satisfy any of those propulsion systems.

John, Host/Interviewer: And you just mentioned some penetration with with with Daimler on on the the AMG line. You know, what is the opportunity with with with the Germans? Right? Mean, that’s not I mean, if they’re trusting you on AMG, you know, I you gotta imagine. Yeah.

David Dauk, Chairman and CEO, American Axle: I mean, that’s where they that’s a

John, Host/Interviewer: lot of the

David Dauk, Chairman and CEO, American Axle: capabilities are. Right? So we’ve done a tremendous job building that relationship and respect with them. Whether it makes it to serial production on the other side of the house, that’s too TBD, but we’ve demonstrated that capability and we’ve delivered what the customers have asked us.

John, Host/Interviewer: Okay. Well, promise we’re gonna hit that light, but on backlog, given everything that’s going right now or maybe before before sort of the last last couple weeks before, you know, we’ve gotten to this the the the kerfuffle, you know, to put it politely. The the backlog and and and bidding on programs, I mean, has that been progressing? Not necessarily maybe exact numbers, maybe you can give exact numbers, but but but, you know, as far as the activity. I mean, there been slowdown, pickup Yeah.

As normal, you know, I mean

David Dauk, Chairman and CEO, American Axle: A year ago at this time, we were quoting a billion five of new and incremental business. 75 to 80% of that was all electrification based. 25, 30 percent was was the balance in regards to ICE or hybrid. Sitting here today, it’s the opposite. We’re recording 75% of the business we’re quoting today is ICE and hybrid work.

The balance is electrification work. All of our contracts on our existing business for the most part have either been secured already or in the process of being extended, so that’s a positive thing for us. Not many suppliers or companies can say they’ve got their next generation locked up for over a decade. We’re proud to be able to say that. But right now we see tremendous opportunity, but it’s more in our traditional space, and our normal hit rates 25%, thirty %, and we’ll win our fair share of that on all technologies electrification on a go forward basis.

John, Host/Interviewer: We’re we’re

David Dauk, Chairman and CEO, American Axle: Unless there’s anything else you wanna add?

Chris May, CFO, American Axle: No. I mean, you heard us talk a little a little bit last year about it was a lull as the industry was sort of repositioning their views, but that lull has picked up to what David just said. So which has been great for us.

John, Host/Interviewer: So in the past couple days, heard something that that I that I thought was a bit counterintuitive, you know, certainly the way that I think, which maybe not be saying much. But the, you know, the idea that the program extensions might not necessarily be, you know, a great sort of gravy train for for suppliers or might not be a positive. Actually, it might be somewhat of a negative. And the rationale was that, you know, traditionally, you would set up tooling and other sort of fixed costs so that they would last for the extent you know, the the life of the program. So if you get year five, six, seven, and it’s being extended one, two, or three years on you, but all of a sudden, you have another layer of investment on retooling or refurbishment and other investment, know, capital intensive investments to try to keep it going for those couple years that might not have the greatest returns.

What what would you say that’s sort of the the, you program extension? I would have always thought they would actually be good. You know, you thus, you know, I mean, you guys can retool you guys can retool anything. Right? I mean

David Dauk, Chairman and CEO, American Axle: Stick with your thought process because volume is good, especially on an extended basis, running us across depreciated equipment. Right? At the same time, if you maintain your equipment the way you’re supposed to, volume is your friend.

John, Host/Interviewer: Okay. Alright. That’s that’s exactly right. So alright. Alright.

Think of planning. Can be crazy for other reasons. Yeah. Okay. So let’s get let’s get into the daylight.

You know, can we simply just run across deal rationale? I mean, I think you guys have talked about this. And then also, you know, as you look at this business, you said it’s in great shape, but it does seem like it’s not throwing off a ton of free cash flow at the moment. What are the opportunities to get, you know I mean, obviously, $300,000,000 synergies might help you there. Yeah.

But just, you know, basic deal rationale and then and then what you can do to get that free cash flow up to to to service debt.

David Dauk, Chairman and CEO, American Axle: Yeah. Let me describe who Dahle is first, and then I’ll talk about the the strategic combination is. Dahle is the industry leader on side shafts or half shafts with over 40% market share in that space. They have tremendous joint technology, which is really the differentiator in a side shaft or a prop shaft, So they’re the industry leader in that side. They also are very strong on the all wheel drive side of the business.

They were our number one competitor when we were competing on all wheel drive activities. And on the electrification side, they’ve made some big investments over the year in electrification, although they’ve recently scaled a lot of that back because the market didn’t develop the way they thought that it was gonna take place. So they’re in the process of finalizing some restructuring on that at this point in time. That’s the auto piece of their business. The other piece of their business is the powdered metal piece of their business, where they’re vertically integrated, they make their own raw powder, but they also make sintered product as well.

They’re the largest automotive sintered powdered metal manufacturer in the world, So they’re they have a driveline business and a metal forming business. We have a driveline and metal forming business. To your comment about they’re not generating as much free cash flow, part of it is because they’re in the process of restructuring their European footprint, and they just finished restructuring their North American footprint where they moved some work from The US to Mexico. So we’ll have to evaluate that in regards to the trade and tariff situation, but they also moved a lot of Western European cost structure business to east the Eastern European locations. So think Hungary and Turkey and some other places along those lines.

So going forward, post this year, let’s say 2025, they’re gonna a lot of that restructuring will be done, a lot of that cash generation will drop to the bottom line, and and we’ll be able to realize that on a go forward basis. So we see our strength of our cash generation with their cash generation plus the synergies and the value creation that we can put forward to the point that we’re generating, you know, 550 to 600,000,000 of free cash flow. You know, you look at that as a percentage of sales, you look at that versus our market cap today, it’s pretty compelling. So the whole acquisition is extremely compelling. It for for me, for us, what we’ve been looking for is a transformational deal for quite some time.

We told you a long time ago we wanted to be a consolidator in this industry. We started with MPG on the metal form side back in 2017. This is a transformational deal that impacts both our driveline business and our metal form business, as I said. It’ll catapult us to be a top 10 North American supplier, top 25 global supplier, but almost number one or number two in every market that we serve. And, you know, it’s times like today, like I said, the uncertainty that exists in the marketplace is really the strong rationale and by why their company and our company feel it’s the right combination and the right time for our businesses to come together.

But there’s not many companies that are hand in glove fit. This is one of those. We’ve looked at this three times back in 2018 when Melrose bought it. Looked at it again in ’22 and ’22, and Melrose just wanted a price we weren’t willing to pay. And now we were able to put a a proposal forward to their board of directors that they thought was better than their internal plan.

They accepted that, and that’s what we took public on January 29.

John, Host/Interviewer: Okay. So to be clear, you guys are doing two to I mean, run rate roundhouse numbers two to two fifteen free cash flow of of of your own. Right? That gets you, you know, your 2.8 turns, let you know, levered, you know, at at the moment on on a on a stand stand basis. So as we think about sort of the the new entity or DAOLA, right, before we put put you guys together, they’re not generating a lot of free cash flow, but you think that that is got upside on an organic basis be before before synergies of being turned around in the next couple years as they’re re rejiggering their their their footprint.

Yeah. And then you layer on the 300,000,000. So, I mean, it sounds like they’re a company that could get to a couple hundred million dollars free cash flow. Like, I don’t know exact numbers because we haven’t modeled that separately on their own. Plus, you have the $300,000,000 in synergies.

The 300 millions of dollars of synergies are not, you know, double counting what they may do on their own. This is a this is a pure deal synergy of you guys going together. So so the reality is if as we’re looking at this, and this is news to me. Right? I’ll be I’ll I’ll be you know, to be fair, the 2 to $2.50 is yours, $300,000,000 synergies, we’re gonna get into that in a second, plus potentially a couple hundred million dollars on on of their turnaround.

So all of a sudden, you’re you’re you’re saying five to five fifty in in in free cash flow. That’s kinda synergies plus what you’re doing. But then there’s potentially the layer on of what they have going on in their own turnaround plan.

David Dauk, Chairman and CEO, American Axle: That’s correct.

John, Host/Interviewer: Or or rationalization plan. It’s not a turnaround.

David Dauk, Chairman and CEO, American Axle: It’s

John, Host/Interviewer: not a good.

Chris May, CFO, American Axle: And, John, if you look at our investor relation materials, we we have a page in there walking through almost how you just articulated because when you

John, Host/Interviewer: I’m glad I I

Chris May, CFO, American Axle: Many when you look at well, it’s it’s relatively new. When you look at the free cash flow that they generate, often they report net of all restructuring. So when you back out that restructuring, you could see their adjusted free cash flow in a similar, I would say, comparison to what we generate is very close to 200,000,000 right now, this year, meaning 2024. All that restructuring, the big heavy lifting of that will be done by the end of twenty twenty five on their side. So their pure cash flow performance plus the uplift of their performance should start to accrete to the combined entity going forward.

Then you have our synergies. You have our base cash flow as well.

John, Host/Interviewer: K. I get mad if you wanna ask this question on MPG. You stubbed your toe a little bit on the synergies. Right? I mean, you know, that went you know, that was a that was

David Dauk, Chairman and CEO, American Axle: a Synergy wise, we actually beat it. We we we committed to 3% in synergies and delivered 5%. The issue that we had is we inherited some launches that weren’t planned properly.

John, Host/Interviewer: Okay.

David Dauk, Chairman and CEO, American Axle: And some of the synergies that we realized had offset the pain that we endured based on not knowing about it and it wasn’t shared with us in the diligence process.

Chris May, CFO, American Axle: But the SG and A synergies, public company cost, the savings, we we delivered that.

John, Host/Interviewer: So that that was offset by by a lack of of correct capital investment before you took over and and G.

David Dauk, Chairman and CEO, American Axle: Okay.

John, Host/Interviewer: So now we’re looking at the $300,000,000 of synergies coming out out of Dow, the Talay combination. You’ve talked about upside. You said something about, you know, the auditors kind of discounting it by 75% or certain In certain areas. Certain certain areas. So it sounds like the you know, that $300,000,000 could have very you know, once again, you said there could be upside, but we’ll see.

You’ll see as you go through this. But that’s the heavily audited known, you know, actions with some discounting from auditors that that that you think you you Yeah. I mean, that that’s that’s pretty

David Dauk, Chairman and CEO, American Axle: weighted average number based on there’s some that we got a % credit for, some 75% credit, some 50% credit. Most of the manufacturing was at 25% because we were not able to visit their plants, so therefore, it was heavily discounted by the auditors. Correct. So that 300 number is a weighted average of the whole thing. I guess that some are three are a %, some are 25%.

But, ultimately, the number that they they signed off was at 300,000,000 that we could public publicly communicate.

John, Host/Interviewer: So, basically, we’re looking at something, you know, that could be, you know, that your your $2.50 free cash flow, they’re 2 to $2.50 free cash flow, call that 500 plus 300, that’s 800,000,000 plus some upside to that. You know, all of a sudden, could be looking at 900,000,000 to a billion dollar.

Chris May, CFO, American Axle: We have to take off taxes and interest as well. Yeah.

John, Host/Interviewer: But but there’s yeah. That’s You’re With operation money? Operation money. There’s there’s there’s tremendous potential in the combined free cash flow.

David Dauk, Chairman and CEO, American Axle: We agree. Yeah.

John, Host/Interviewer: That’s incredibly helpful. Doug, do you have anything on that? I want to maybe just talk a

Doug, Analyst: little bit about balance sheet. So in most transactions in auto parts are levering. This does not is not levering because the target company had levered I think maybe one and a half turns or so. So if you could just kind of shape, how do think the balance sheet would look post transaction?

Chris May, CFO, American Axle: Yeah, our goal, and we talked a little bit about this to finance the transaction, Our goal is to close the transaction at leverage neutral to where we concluded ’24. So we, as American Axle, closed the year at 2.8 times, so we’ll be approximately that at close. Then our objective going forward is then to continue to obviously generate the cash flow that we were just talking about, and then continue to strengthen the balance sheet down to two and a half times would probably be our sole use of free cash flow from a capital allocation perspective. Once we get to two and a half times, I think we’ll have a little bit more balance in terms of our capital allocation playbook. Right.

But we’ll still continue to prioritize debt pay down even after the two and a half times.

David Dauk, Chairman and CEO, American Axle: But just explain what you mean by more balanced. Like, what what other capital allocation efforts?

Chris May, CFO, American Axle: So more balanced, I would articulate now. For example, we are predominantly focused on debt pay down. We do some small m and a. Really, we do not have any share buybacks or any dividend payments to speak of for American Axle at the moment. Post the transaction with a much stronger balance sheet, more resilient business, our view is with with those capabilities, once we get to two and a half times, we can be a little bit more, I would say, allocated across, continue to pay down debt, but also open on that playbook to some shareholder friendly activity, and whether it be a buyback or a dividend at that point in time.

But we’ll continue to pay down debt even past that as well. And strengthen the balance sheet is a top priority for the company, and we’ll continue to be so. Yep. It’s great.

John, Host/Interviewer: Okay. I mean, this is this is a weird question to ask right right now because that means the things are still on on the come. But given the potential incredibly strong free cash flow and where your your equity market cap, you know, sits, I mean, I I gotta imagine it at some point if the market doesn’t start recognizing, you know, and maybe folks like me don’t start recognizing what’s what what’s going on, so you could throw stones in this direction if you need to. But, you know, that that, you know, that you would consider, you know, an LBO. Right?

I mean, you know, mean, given that kind of cash cash generation versus the market cap, I mean, you know, it starts to get a little little wacky.

David Dauk, Chairman and CEO, American Axle: We’re we’re a public company today. We’re gonna honor that public company, but we’re gonna create optionality for our business.

John, Host/Interviewer: Okay.

David Dauk, Chairman and CEO, American Axle: On a go forward basis. Yeah. No. I’ll leave it at that.

John, Host/Interviewer: Okay. You know, it just it just seems it just it just seems like at some point, I mean, even on a standalone basis, you know, things are getting a little a little

Doug, Analyst: little hard to raise a

John, Host/Interviewer: lot of debt right now. No. Well, I mean, Doug’s always Doug’s always got big big pockets

David Dauk, Chairman and CEO, American Axle: of the

John, Host/Interviewer: field, so you’d be helpful. Don’t know if anybody’s got any we could take one last question in the audience. I don’t if there’s any. We got one right over here. I think that’s probably what we’re going have time for.

Unidentified speaker: Yeah, thanks for the presentation. It was very helpful. You guys mentioned that you guys have a tried and proven playbook for managing down pretty severe volumes. To what extent does Dallet have that in terms of the restructuring that that they’re in the midst of, completing? I think you said by year end, they should be done with that restart operation restructuring.

Chris May, CFO, American Axle: Well, the restructuring will clearly make them more nimble through these type of events inside the marketplace. And if you look at some of their public disclosures, they do talk about their variable profit performance. It’s highly highly variable like ours, so strong operating leverage. And through discussions with them, you know, they’ve articulated their playbook in in many of the same recipe in terms of what we described, would do as well. Which gives us comfort on a combined entity, we can apply that same playbook to the combined entity.

David Dauk, Chairman and CEO, American Axle: Yeah, we’ll look at what they’re doing, what we’re doing, combining together, have one playbook on a go forward basis, but make sure that we can manage the business, know, at least understand what it would take to be a, you know, a breakeven, and then what what what would need to take place with respect to that, including, you know, facility consolidation if need be as part of that plan if if the volumes, you know, stay low. Yeah.

John, Host/Interviewer: Maybe if I could sneak one last one in. When you think about the the the cost structure, the big delta between Mexico and The US would be mostly labor costs. I mean, there’s some utility costs and some other stuff that would be a little bit a little bit higher. Labor costs are sub 10% of op costs at the moment?

Chris May, CFO, American Axle: Total cost structure for the company? Yeah. If you think about our cost of goods sold, 60% is purchased materials, call it eight or 9% is D and A. The balance is sort of split between all in labor cost, meaning labor benefits, and then the rest of our overhead.

John, Host/Interviewer: Okay. So, you know, ballpark 10 Yeah. 15%. Fifteen.

Chris May, CFO, American Axle: Okay. All in for the combined companies. And Mexico is obviously, you know, under

David Dauk, Chairman and CEO, American Axle: The US is one thing. Yeah. Western countries are this. Right. Mexico is something different.

John, Host/Interviewer: Well, so I guess I guess the question is, is the labor cost two x in The US versus Mexico? Is it three x in in US versus Mexico? I mean

David Dauk, Chairman and CEO, American Axle: It’s rough roughly two and a half to three times.

John, Host/Interviewer: It’s okay.

David Dauk, Chairman and CEO, American Axle: So it’s Well, on a fully loaded basis, wages and benefits. Gotcha.

John, Host/Interviewer: Okay. So I mean, if you had to if you had to make the switch, you’d, you know, you’d be 10%, you know, ish underwater on, you know, on that and that

David Dauk, Chairman and CEO, American Axle: Well, just if you’re holding prices where they need to be at

John, Host/Interviewer: or Or yeah. Yeah. Or know, without making any changes and then you start passing it through if you need to. That would be cheaper than a 25% tariff. Right?

I mean Correct. Probably the tariffs probably

Chris May, CFO, American Axle: And then utilities and things like that. Yeah. Actually higher down there than in The US. Then you’re working

John, Host/Interviewer: with your customer Great. Pricing as well on the economy because obviously that’s That’s

David Dauk, Chairman and CEO, American Axle: all the math that will have to be done with the customer to say, is it better just to ship and pay a tariff on the non

John, Host/Interviewer: We’ll figure it.

David Dauk, Chairman and CEO, American Axle: Yeah. USMCA compliant parts, or is it better to relocate something to be closer to

John, Host/Interviewer: have to game game game plan out or game theory out what Yeah. What what’s actually gonna stick and not stick and, you know, the capital investment goes right.

David Dauk, Chairman and CEO, American Axle: What what we ultimately need you know, the government has got to provide clarity to the OEMs. Yeah. What we ultimately need from our customers is what are they gonna do from a long range product plan, meaning what’s their penetration of ICE, hybrid, and EV. We then need to understand what are their plant loading plans to deal with tariffs or deal with how they want to run their business going forward. And then our whole strategy is to try to buy and build local and be in close proximity because we ship big parts, And we just don’t wanna make the freight companies rich.

We wanna be pass that value on to ourselves or to our customers on a go forward basis.

John, Host/Interviewer: And shareholders too.

David Dauk, Chairman and CEO, American Axle: And shareholders for sure. Yeah. Absolutely.

John, Host/Interviewer: Alright, Dave and Chris. Thank you so much for the time. It’s always good. We really we really appreciate this important part No.

David Dauk, Chairman and CEO, American Axle: It’s great. So thank you. Thank you.

John, Host/Interviewer: Thank you. Thank you. Thank

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