Magna International Inc. (NYSE:MGA) Q3 2023 Earnings Call Transcript

Page 5 of 10

Swamy Kotagiri: Yes, those conversations have never been easy, and like you said, even when they were doing well in the last three years, I would say the conversations still were not easy. But I can say that we talked about various things in recoveries, looking at underperforming programs, programs coming to an end, input cost inflation, whether it was semiconductors or others. They were tough conversations, and I talked about getting the headwinds to be neutralized this year. All I can say is they will continue to be. They recognize that we have been living in this tough environment of inflation and chip shortages and supply constraints over the last three years, so we already have been living in that. I think we are not going to change our thinking process to be speaking [indiscernible] with data. We have had tough conversations, but I would say they were fair and cordial.

Tom Narayan: Okay, great. Thank you so much.

Operator: Thank you. We’ll get to our next question on the line, and it’s from Dan Levy with Barclays. Please go right ahead.

Dan Levy: Hi, good morning. Thank you for taking the questions. Wanted to just follow up on the last question, and specifically the commercial recoveries in the quarter. Just any color, was that at all–you know, was it retroactive, is it piece price? Any color on what the recoveries were in the quarter that you saw, and magnitude as well.

Swamy Kotagiri: I think we talked about it – again, net impact other than gross, and I talked about the $100 million, and there is a complexity of talking productivity versus inflation recoveries and a whole bunch of other things. I would say about two-thirds of the recoveries in general are more related to flow through purchase orders indexing and so on, that would continue going forward, and about roughly one-third are one-time, right, so the ones that are more mechanism-based, whether getting on an index or purchase orders and so on and so forth, will flow through into the following years, and the conversation of the one-time depends on, for example, energy and where they are versus what the recovery needs to be, so it’s kind of a mix.

Louis Tonelli: And Dan, if I can just add, when you compare to our expectations, we didn’t have a win on recoveries or commercial in our guidance. Really, when we’re talking about our increase in net inflation, the pick-up, it’s related to last year on the commercial side, and we’ve been guiding all year that we have roughly a 45 basis point headwind related to commercial issues, and that’s what’s coming through.

Dan Levy: Thank you. Then the second, if you can maybe give us a sense of what’s happening within the segments, and specifically seating – I know it doesn’t get a lot of air time, but the best margin you’ve posted in a while, so just any voiceover on seating. Then complete vehicles, we know that you’ve said that there would be a changeover and that would drag it, you know, negative margins that I don’t think any of us expected. Maybe you could just give us a sense of when you get past this changeover and where those margins in complete vehicles should normalize to.

Swamy Kotagiri: Good morning. I think again, as we’ve talked a little bit about seating, I think we’ve been saying over the last few quarters on calls that we had really unfavorable mix in ’22, and with the chip supply getting better, we are seeing a more normalized volume on some of the big platforms that we have and therefore we see the flow through materializing. A lot needs to be said about the continuing to focus on executing as we had talked about various initiatives, so that’s–we’ve been talking about seating for the mix issue, and it is really showing up, right? I think you are right on the complete vehicles, where we have said that the changeover and the launch cycle is what’s impacting, and it’s still in line with the expectations that we had in that segment, and I think as we get past this year into the next year, we’ll be able to give more color when we come back in February.

Page 5 of 10