Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q1 2024 Earnings Call Transcript

Steven Martin: Okay. And ACT predicted a bad Q4 in 2023, and it ended up being a lot better. One last question. I would assume that aftermarket is sort of the yin to new truck yang in the sense that if somebody doesn’t replace a truck, they have to buy some more stuff in the aftermarket to keep the existing truck on the road. Should we see aftermarket benefit, or until you get it righted, we’re just not going to see that benefit?

James Ray: We should see some benefit. And based on our portfolio, the majority of our aftermarket business is in — so we focused — we kind of took an 80-20 approach since I came into the role to figure out how we can win in aftermarket seating. And there’s some pretty solid players out there that we’re going up against. And it comes down to two or three different things. One is how easy it is to do business with us. And as you know, we had a website that launched. It really didn’t hit that well, and it’s because we didn’t leverage our field sales reps that I mentioned in our last earnings call. Then the second thing is, what does the customer really want, and how does that fit into our ability to carry inventory and have quick turnaround within 48, 72 hours of when they want a seat.

And that’s what we’ve been working on in Q1 with our factory in Piedmont, Alabama, which makes our aftermarket seats. So we’ve put in some new processes for scheduling. We’ve put in a different inventory profile monitor. We have a more regular touch point with our field sales reps. We have recently seen an increase in our inbound orders for aftermarket seating. So I think the opportunity is out there for us to take advantage of capturing share that’s existing with other competitors out there. As long as we focus our offering and we do a much better job of advertising and having the right inventory fulfillment model. The other activity we started in Q1 was an incentive program for our field sales reps. So this is, I think, that was the leading behavior that’s driving the trail as a result of increased inbound orders for aftermarket seats.

So hopefully we’ll continue to see positive momentum in that. But we’re looking at all different angles and being contemporary in our approach on how we’re driving aftermarket sales. It had been somewhat of a legacy business that was really focused on OE service for the major truck manufacturers. And now we’re taking a more retail type approach with our field sales reps to have a more contemporary go at it. So, proof’s in the pudding. But right now we have some good early indicators that we should see some uplift, which is also helping us put a better pencil on the second half of the year overall in the aggregate level of revenue. So we hope to see more aftermarket performance.

Steven Martin: All right. Thank you very much.

James Ray: Thank you.

Andy Cheung: Thanks, Steve.

Operator: Thank you. We have a follow-up question coming from the line of Joe Gomes from Noble Capital Markets. Please go ahead.

Joshua Zoepfel: Hi, guys. Just a quick follow-up for me. Just a couple of quick questions. Like you guys mentioned, the additional cost actions and the press release. Can you provide just a little bit of detail what you guys are doing to offset inflation and foreign exchange headwinds? And then kind of how much more of the previous cost actions need to be completed before the full savings are kind of realized? Thank you.

Andy Cheung: Yes. Let me answer you on a few areas. So one is a large part of the cost action that we have is to make sure that we right-size our businesses so that we can offset the impact of the softer demand of our businesses, mostly in vehicle solutions as well as electrical. So electrical, as you can see, margin pressure for the quarter came from really two main things. One is there’s labor increases in Mexico, and many of us are aware that there’s some government mandate of labor cost increase in the border region of Mexico up to about 20%-ish. So it’s really impacting some of our locations in our electrical business. And then the other one that is also creating some cost pressure for us is the strengthening of the Mexican peso.

Which compared to a year ago is a double-digit increase in terms of the cost of Mexican peso denominated cost for us. So we’re working on both ends. One is continue to do reduction in our cost structure. We’re taking our labor, right-sizing the overhead. At the same time, and more importantly, we’re also working with our customers commercially to resolve some of this cost pressure. I would say that we have made some progress already in terms of offsetting some of the labor inflation. But we’re still working through offsetting some of the peso-strengthening cost pressure for us. So we’ll continue those efforts in Q2, but we believe that we should be able to work with our customers to find some solutions.

James Ray: And referencing the other part of your question, last year we said we achieved approximately $30 million of cost-out activity at a gross level, gross projects. And then obviously the net, once you roll inflation in and other things, it brings numbers down. But we’re on track to a similar number this year, both in supply chain as well as direct material. And we’re taking a fresh look at indirect spend as well to achieve that same level. So we are leaning in, I would say, more specifically this year in other areas in addition to direct material. Some of our direct material is directed by, from our customers. We have a little less opportunity there than the spend that we have where we select our own suppliers and drive savings.