Jason Cardew: Yes, James, I can give you maybe just some highlights of some of the key platforms that are driving that. And some of it is temporary. For example, in Seating, the Audi Q5 is lower year-over-year. It’s going through a changeover this year; we would expect that volume to eventually come back. With Stellantis, the Compass volumes are lower. Their launch of that Wagoneer S in the same facility. And so that’s offsetting some of that volume that sits in our backlog. We’ve got Mercedes SUV in our Tuscaloosa plant, both ICE and EVplants are seem to be lower. And in Europe, Audi A6 and then some of the Opelprograms that we’re on are lower. In China, there’s a changeover of the Mercedes E-Class. That’s an important program for us.
So volumes are lower this year. It seems to be lower. And some of this is, again, just kind of aligning with S&P making adjustments where necessary for customer insights. But those are the big drivers on the seating side. And these systems – it’s – you’ve got kind of a mixed bag. So with Ford, you have some that are up like the Maverick, the Bronco Sport and Escape that helps the Mackie, however, is down pretty significantly. I think we have had it down 33%. That’s a pretty good significant program in E-Systems. So that’s weighing on the number. Focus is lower in Europe. Audi volumes are lower in Europe. In China, SAIC signings in China. Some of the Volvo/Geely volumes are a little bit lower on certain platforms, Polestar 2 is down, Lynk & Co is down.
Those are the big kind of big drivers as we look at our volume assumptions in each of the segments.
James Picariello: Right. That’s super helpful. And then just a follow-on, on that point. Thinking about 2025, obviously, you’re not going to give my 2025 guidance. But just for the Seating business, you’re calling for a $500 million contribution in new business backlog for 2025, right? That would be just under three points growth over market off of the 2024 guide. It sounds as you just went through the seating key platforms that are influencing 2024. My question is, can we think of four points growth over market for Seating as an achievable rate for next year? Or not necessarily? Just any thoughts on that. Thanks.
Jason Cardew: Yes. Growth over market is difficult. It’s choppy. It’s volatile. And we saw a perfect example of that, even just kind of within 2023 started out decent and got worse as the year progressed as there were some mix shift with certain customers. So I think it’s important to kind of take a step back and look at the business over a longer time horizon. And over the last four years, we did deliver, as we highlighted in the prepared remarks, four points of growth of market in Seating, six points in E-Systems. As I look out over the next five years, I do see this may be uncertainty around the transition to EVs weighing on growth over market a little bit. I do see in E-Systems as we wind down some of our noncore products that will temper growth in the kind of near to medium term.
But if I look out five years, I think four points of growth of the market in Seating, six points of growth of the market in E-Systems in the long run is very achievable. And in Seating, the catalyst for it now, in the past, it was conquest wins primarily, and we do have some benefit from that in the future, but a lot of it is from modularity in – what we’re doing with thermal comfort, what we’re doing with new innovative products that we highlighted like FlexAir and ReNewKnits. So just take FlexAir, for example. Foam is a $4.5 billion market. We have a relatively small share of that today, less than 10% of that market. We see FlexAir potentially displacing polyurethane film at least in second and third row applications and maybe in all seatback applications over a period of time.
We’re going to dominate that market. That could be a $500 million business for us five years out. It would be $1 billion business for us long term. We continue to look for those kind of $1 billion component businesses. We started back in 2015 with weather. That’s a great business for us. Now we have thermal comfort, a $600 million business that we acquired will be a $1 billion business in 2027. We’re on our way there. FlexAir may be something that meets those levels of growth as well based on initial customer interest in all the environmental benefits associated with it in performance benefits associated with it. So I think that structurally, the underlying drivers of growth in Seating are stronger today than they’ve ever been. Our path to getting more jet market share is very clear, and we’re confident in the long-term growth prospects of that business.
James Picariello: Appreciate it. Thanks.
Operator: Our next question comes from Emmanuel Rosner from Deutsche Bank. Please go ahead with your question.
Emmanuel Rosner: Thank you very much. My first question is about the EV backlog. Just so we get a little bit of a better understanding of, I guess, to what extent this was derisked for like EV volume assumption. Are you able to quantify for us how much of the backlog is currently tied to EV platforms in E-Systems and as well as in Seating. Overall, like now that you essentially reduce these volume assumptions, what percentage of your backlog vis-a-vis at this point?
Jason Cardew: Yes. Even after those adjustments, electric vehicles are still the most prominent new vehicles launching over the next three years. And so in Seating, it’s about 57% of the backlog of the new programs rolling on and E-Systems is 75%. And that’s not just electrification revenue as we define it, which would be high-voltage wiring or electronics products that are unique to electric vehicles that would include low-voltage wiring on electric vehicles. So it’s still – despite the fact that we have significantly reduced the volume assumptions and the timing of the launches, it’s still a prominent and significant part of the backlog. And – and so our belief is still that the transition to electric vehicles is happening.
It may happen more slowly than what was previously anticipated, but there’s still a significant shift that’s taking place. It may ultimately end up being a lower percentage of the market than many had expected, but it’s still a significant part of the market, and it still dominates our customers’ new program launches in the near term. Now if you say you don’t believe that, that level of penetration is going to happen with EVs. I think the flip side to that is a few of the questions earlier highlighted, is that some of these ICE programs that we’ve assumed are going to balance out are not going to balance out or they’re going to run at a higher volume than what we’ve assumed for a longer period of time. So we’re definitely in a transition period.
It’s difficult to project what’s going to happen. We’ve tried to be balancing our assumptions at this stage and clear in our guidance. But it’s difficult predict, Emmanuel.
Emmanuel Rosner: Yes, that’s helpful. And then one quick follow-up or point of clarification around some of the cost headwinds, especially labor cost inflation. I guess on – on a full year basis, do you assume that you recover these from customers? Or is that – would there be a lag? Or is there like a portion that you expect that you will be responsible for? I guess I understand that it takes time and there’s a process and negotiation, et cetera. But I guess, net-net, does that remain sort of like a headwind?
Jason Cardew: Yes. I think that’s – going back to what we talked about earlier, historically, wage inflation was 3%, 4%. And our efficiency programs in the plant would offset that as well as, in some cases, a little bit more than that, and that would contribute to offset our customer price reductions each year. That was kind of the old model. That 3%, 4% is now twice that. And I don’t think that necessarily continues, as I look out 2025, 2026, 2027, but in 2024, it is. And so what we’re – what we believe we should recover either this year or this year or next year, is that kind of excess labor inflation beyond that historical normal level that we have seen and the economy has experienced for decades. And so that’s sort of the philosophy.
And so I don’t want to make it as simple as this, but roughly half of it, we’ve got to offset through our cost reduction programs, automation, restructuring, shifting the footprint, better utilization of our facilities and then the other half has got to come through some form of recovery either this year or next year in order to preserve the margin trajectory and the margin growth that we expect to achieve this year and next year.
Emmanuel Rosner: I guess in this year’s guidance, do you assume a net headwind from labor cost inflation under recovered? Or do you assume that – the piece that you need to recover from your customers is being recovered?
Jason Cardew: Yes. I think, yes, it would be a net headwind for this year in the guidance. We’ve talked in the past about generating 50 to 100 basis points of net performance. We’ve guided to less than that. And I think you could certainly attribute the shortfall to a combination of the transactional FX impact as well as unrecovered wage inflation. It’s not quite that precise, but I think that’s a fair perspective.
Ray Scott: And I think the way I categorize it and discuss it too, is that even though we have past practice in some of these negotiations and historical understanding or baseline of how we get recovery. We base our guidance on that. Now we’re in for a much different number as far as getting settled within the year and that – there’s timing elements to that. Obviously, we’re pull on productivity or pulling on volume, all these other things. And so we’re going in above what the net difference would be for negotiations based on past practice. Some of them are in models or some of them are discussed in other settlements. And I think in addition to that, we have a lot more control around the automation within our facilities.
