Those pressures look to continue next year. We’ve got really good dialogue with our customers and there’s a sharing mechanism and pass-through mechanism in most cases now on that, but that’s another factor to think about as you start to model ’24 and beyond.
James Picariello: Thanks.
Jason Cardew: You’re welcome.
Operator: Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question.
Colin Langan: Great. Thanks for taking my questions. Sort of following up on that, any color on how cost recoveries are trending with customers since they’re obviously going to be under a bit of cost pressure themselves. Has that changed at all? And the recoveries you’ve gotten this year, how much is piece price. You don’t have to renegotiate versus sort of lump sum where I guess January 1 you’d probably have to have discussions again about getting recoveries?
Ray Scott: Yes. I’ll go ahead and start it. I think the negotiations have been ongoing and I haven’t seen a significant change on how we’re negotiating for recovery. The customers are very sophisticated and in some cases have very sophisticated models on what is in as far as some of the labor economics or even the commodity costs within our components. And so those are ongoing. And — to answer your question, we have seen an increased request more on, let’s call it design changes and design reductions within the product lines that they are under more pressure on that side of the equation. But one thing we’ve talked about before being the most competitive, cost competitive company in the world has been our focus. That puts you in a very good position when you are negotiating through some of these more challenging difficult negotiations.
So, we do have evidence binders’, very detailed analysis, those type of modeling scenarios. So, we haven’t seen the negotiations slowdown on that side. The side that we’re pricing more impactful right now it’s just their willingness to look at alternative designs or what we’ll call DAB or product designs that can get at cost. I mean some of them have changed their targets internally that are more aggressive than they were this year heading into next year. And we’re embracing that. We actually think that we have — our whole culture is built on being the most cost competitive. We have a couple of different things that we do internally with cost technology optimization. We have these coliseum events that are very rigorous and that we have no excuse boards that we have queues of ideas.
There’s enough inefficiencies in the value chain across the board to drive opportunities. And so, that’s something we pride ourselves on. Like I was just mentioning, we just had a major coliseum event with one of our customers that we generated over between $60 million and $70 million of opportunities within the year. And what I like about it, buoy did they react positively. I think traditionally, it’s been, it’s too risky. We don’t really want to do that right now. We’ll come back. Maybe elements of it does get approved. But buoy they’re taking a much more different look at different ideas that’s where we push our vertical integration. And that’s been our strategy as how we engineer our own components to create a value proposition. And so, we’re picking up a lot of steam on the side of engineering our own products, terminals connectors and Lear components and wiring, vertical integration with trim covers or things like FlexAir or foam the modularity, those are all working right into our way.
So, there is a pickup of momentum from our customers, but we also feel that we’re in a really good position to create a value proposition for both companies.
Jason Cardew: And overall, the year kind of played out the way we expected. It’s about a $25 million benefit from the full year basis on commodities between lower cost and recoveries. So it’s solid improvement year-over-year.
Colin Langan: And any color on the amount that are a piece price versus lump sum that need to be renegotiated?
Jason Cardew: Yes. I think we’re seeing a trend towards piece price generally. And there may be agreements like in the third quarter, we had an agreement with the customer that had a lump sum and a piece price component to it because, they went back to earlier in the year and the lump sum just covered the earlier part of the year, but the piece price has been adjusted going forward. And I think that there’s an increased willingness in general for customers to do that particularly where it’s sticky inflation or sticky commodity increases, where there isn’t any reversal in sight over time. And if it’s something that’s more kind of transitory, then that would set itself up for more of a lump sum recovery. But where it’s more permanent like wage inflation for example, you’re seeing piece price adjustments.
Colin Langan: And just lastly on FX as we think about into next year. I think you had some pretty good protection this year from some of your hedges. How should we think about sort of currency risk as those roll off or do they roll off into next year?
Jason Cardew: Yes. So, our largest exposure is the peso. And we do have a pretty aggressive hedge program in place, a 24-month rolling hedge program that largely insulated us from that issue this year. There’s still a $20 million impact for us and much worse than we had anticipated when we set guidance at the beginning of the year we’ve had to sort of absorb that as the year has gone on. As we look out to next year, if you would have asked me that question three months ago, I probably would have felt worse about it than I do today with the peso at 18.30 [ph]. It’s a manageable issue for us, as I look out to next year. It’s still a meaningful impact and a little bit worse than what we experienced this year, but manageable. And we’ve locked in 75% of our exposure for next year already. And by the end of this year, we’ll have 85% or so locked in. So we’re going to be in a pretty good position to continue to mitigate that risk.
