Overall, FX was a $0.10 impact on earnings per share in the fourth quarter. As we look out at this year, overall, our guidance, as we talked about in the prepared remarks, includes $70 million impact on operating earnings are just under 30 basis points, 31 basis points in Seating, a little over 20 basis points in E-Systems. $60 million of that $70 million is driven by the peso, which we’ve assumed will average about 17.25 [ph]. So the exposed portion, the 15%, we’ve assumed a rate of 17.25, that’s pretty much where it’s been trading over the last several months. And then we’ve assumed a further $30 million of impact on our balance sheet exposure. So the guidance includes $100 million total transactional FX impact of which $60 million or 60% of that is peso related.
Lastly, I think it’s important to highlight that the peso appreciation is also embedded in our labor inflation. And so as we’re talking to our customers about recovery of this kind of excess wage economics, there’s an FX component of that as well. And ultimately, as those models reset to reflect current exchange rates, current labor rates, we would expect the full recovery of that to take place. So some of that this year and then some of it beyond this year. And that’s a little bit of what’s weighing on Seating margins and really margins in both segments in 2024. So you’re not seeing the full benefit of all the operating improvements because it’s being diluted by both wage inflation and transactional FX. In terms of our customer price downs, we’re expecting a similar environment in 2024 than what we experienced in 2023.
Your math is pretty close there in terms of 1.5%, maybe a little bit less than that. But it’s important to note that there’s a basket of issues that you’re negotiating. And so there may be some direct reduction of that as a result of our labor inflation discussions, FX discussions, low volume discussions, EV program delay discussions and even lingering commodities that have not been recovered from the prior year. So all of that is in play as we negotiate with our customers. But if you see this year playing out, you have that contractual price down that’s baked into your first quarter outlook. You had the effects of wage inflation largely hitting at the beginning of the year and that will weigh on margins at the start of the year. And then throughout the year, we look to claw that back through those negotiations and through the execution of our operating improvement plans.
Dan Levy: Great. Thank you. And as a follow-up, I wanted to ask about the EV strategy. And I see on your slide that talks about the strategic initiatives there’s a comment here realigning resources under E-Systems, realigning resources due to changes in EV volumes. Maybe you can just talk about what specifically you are doing within E-Systems to align to this new environment. How much was weaker EVs wait on the backlog? And you issued this 8% target on E-Systems margin. How much does lower EV environment limit your ability to get to that 8% 2025 target in margins? Thank you.
Jason Cardew: Yes. And certainly, the biggest factor that led to a lower 2024 backlog and to a certain extent, the 2025 backlog is our assumptions around electric vehicle volumes, the timing of launches. So in 2024, in particular, we had guided to $1.5 billion backlog. It’s now $1.2 billion. I would say, within our guidance range, that could be anywhere from $1.1 billion to $1.3 billion, just depending on how closely the customers are – achieved their ramp-up schedules and their volumes, which are still in flux. And so that – yes, that is weighing on the backlog a little bit here in 2024, and it’s weighing on operating margins a bit in E-Systems probably more so than in Seating. And similar to the question Rod asked earlier in terms of 2025, I don’t want to get into a pinpoint margin discussion on 2025.
What we’ve talked about publicly of late with these systems is an 8% target. I think in a recent investor conference, I talked about 2025, 2026, maybe pushing that out a little bit just because of the lower EV volumes in the near term. And so as the year progresses, we’ll provide more color on 2025, but certainly, that – the lower volumes will have an impact on E-Systems margins there. In terms of what we’re doing in response to the lower volumes, it’s a combination of operating actions and commercial actions. And we’ve – you see what happened with capital spending at the end of last year. We had guided to $675 million. We spent $50 million less than that. We went back to every single program, not just in E-Systems, but in Seating and reevaluated the deployment of additional capacity and found tremendous opportunity to pause a lot of that spending.
So that will really help kind of near-term returns in both segments and I think, better positioned us for a slower ramp up. And we’re doing that in collaboration with our customers. Our customers are being very open about changes to their plans and they’re working with us to try and slow down that capital deployment so that they don’t have that excess capital and the supply base to worry about as well. And so – and then there’s a commercial negotiation element to it as volumes are lower certainly, we’re having discussions with all of our customers about the impact on fixed overhead and investments that had been made previously that will result in higher prices until those volumes come back.
Ray Scott: I also think what was important, and we talked about this with E-Systems is simplifying the product portfolio and seeing a little bit this even before it occurred. I mean, obviously, it was a much more dramatic pullback or pause as big call with EVs, but we were ahead in some respects of really limiting what capital we’ll be deploying. And I think equally as important where we’re investing our capital – our dollars and then also scaling certain products. When we talk about a BDU, it can be a very scalable program across multiple customers, same thing within IGB. And so I say it all the time, not trying to be everything to everybody investing in all kinds of different solutions, but being very, very disciplined and selective on where we will deploy capital and being very good at it.
And I think that’s helped us. I mean we still have more work to do, like Jason said, on the commercial negotiation with some of these more dramatic changes within EVs, but we have that type of relationship with our customers that we are seen as an expert. And we didn’t deploy capital at the request of a particular volume to hit a run rate. It was very, very selective, intentional. And so I think that helped. But simplifying that product portfolio in E-Systems has really helped us as this pause has come at us over the last really three months.
Dan Levy: Okay. Thank you.
Operator: Our next question comes from John Murphy from Bank of America. Please go ahead with your question.
John Murphy: All right. Good morning guys. I got three very quick ones. First, if I said that global wide vehicle production was going to be up roughly 2% this year as opposed to down 1% and took the midpoint of your range, it would probably add about $700 million, maybe just a little bit more to the revenue outlook. If you think about that incremental $700 million and assume all else equal, what kind of contribution margin would you ascribe to that? I mean, because when you look at the low end and the high end of the range, it’s indicating a 25% contribution margin, Jason, just trying to understand what you would think of on something like that. And assuming a lot of this is coming in existing programs that do better than you – you’re forecasting right now or the industry is expecting?
