Ladies and gentlemen, thank you for standing by and welcome to the Magna International Third Quarter 2018 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded, Thursday, November 8, 2018. I would now like to turn the conference over to Louis Tonelli, Vice President-Investor Relations. Please go ahead.

Thanks, Jennifer. Hello, everyone, and welcome to our third quarter 2018 conference call. We will have formal comments today from Don Walker, Chief Executive Officer, and Vince Galifi, Chief Financial Officer. Also joining us today are Swamy Kotagiri, Chief Technology Officer, as well as Eric Goldstein and Jim Floros from our IR team. Yesterday, our board of directors met and approved our financial results for the third quarter ended September 30. We issued a press release this morning for the quarter. You'll find the press release, today's conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. As we review financial information today, please note that all figures discussed are in U.S. dollars unless otherwise noted. We've included in the Appendix reconciliations of certain key financial statement lines for Q3 2018 and Q3 2017, between Reported Results and Results Excluding Unusual Items. Our quarterly earnings discussion today excludes the impact of unusual items. Lastly, in addition to our new reporting segments, many of you will recall that we have adopted this year a new revenue accounting standard related to tooling and pre-production engineering. Our comparative figures for 2017 have been restated to reflect these changes. And now I'll pass the call over to Don.

Thanks, Louis. Hello, everyone. Let me review the third quarter. We set third quarter records for sales and adjusted diluted earnings per share and returned $629 million to shareholders in the form of share repurchases and dividends. All of our operating segments reported sales growth compared to the third quarter of 2017, although each were slightly lower than we had anticipated mainly due to lower-than-expected light vehicle production. Adjusted EBIT was below the comparable quarter in 2017 and was less than we expected. After taking into account the impact of lower-than-expected volumes, our Power & Vision, Seating Systems and Complete Vehicles segments performed substantially in line with our expectations. However, our Body Exteriors & Structures segment reported results below our expectations mainly as a result of higher-than-anticipated launch costs and underperformance at certain facilities, largely offset by a favorable customer pricing resolution. We have reduced our outlook for 2018, primarily reflecting our third quarter results as well as fourth quarter expectations for lower light vehicle production, lower equity income in our European transmission joint venture, and higher costs in our Body Exteriors & Structures segment. Vince will provide more details in a few minutes. Other highlights for the quarter include continued sales outgrowth of vehicle production, Magna's recently announced sale of our FP&C business, a J.D. Power Seat Award and the upcoming launch of the all-new Z4. Once again we outgrew light vehicle production in the third quarter. Excluding the impact of currency and acquisitions net of divestitures, our consolidated sales increased by 11% year-over-year compared to global production which declined 2%. The year-over-year outperformance was driven by each of our segments with Body Exteriors & Structures and Power & Vision both up 6%, Seating up 5% and an increase of 50% in Complete Vehicles. In September, our powertrain unit…

Thanks, Don. And good morning, everyone. While there were a number of puts and takes in the quarter, overall, we posted higher year-over-year third quarter adjusted diluted earnings per share. Here are some of the details. Record Q3 2018 consolidated sales of $9.6 billion, an increase of approximately 9%. Consolidated adjusted EBIT of $699 million, down 1% from 2017. Record Q3 2018 net income attributable to Magna of $535 million. It's up approximately 4% from the third quarter of 2017 and adjusted diluted EPS of $1.56, a Q3 record for us, up 12%. We generated free cash flow of $637 million. We returned $629 million to shareholders through share repurchases and dividends. And lastly we have reduced the top end of our outlook ranges for consolidated sales and adjusted net income attributable to Magna and revised our outlook for EBIT margin for 2018, largely reflecting the third quarter results as well as lower expected production and assembly volumes, lower equity income in our transmission joint venture in Europe, higher costs at Body Exteriors & Structures. I'm going to cover each of these in my financial review. Our consolidated sales were a Q3 record of $9.6 billion, an increase of 9% over the third quarter of 2017. We delivered organic sales growth above the market in each of our operating segments. The higher sales largely reflect the launch of new programs offset by a change in production volumes on other programs and foreign exchange which was negative $180 million year-over-year, reflecting the stronger U.S. dollar. As expected, our adjusted EBIT margin declined compared to last year. We reported 7.3% in the third quarter of 2018, down from 8% in Q3 of 2017. 30 basis points of this decline was driven by the increase in the proportion of sales generated by our…

Thank you. Our first question comes from the line of Rich Kwas with Wells Fargo Securities. Please proceed with your question.

Hi. Good morning, everyone. Wanted to ask about the inefficiencies in the segment and whether – in Exteriors and whether that was – how long that was going to last? How should we think about impact into 2019? Typically in the past, these impacts have lasted a few quarters. And then second, on GETRAG with the lowering of the equity income, how does this affect the 2020 outlook? Do you view this as more permanent impact or is this transitory?

Yeah. Let me start, Rich, and I'm sure Don is going to have some comments. I'll start with our BES group. And we'll refer just – so I guess you're referring to some of the underperformance. I think the biggest chunk of underperformance versus expectation relates to a facility that is slated to be closed down. And as we're working through that shutdown, we just had a number of inefficiencies. So, that will go away as the facility winds down. And with respect to some of the other underperformance, yeah, we really can't pin it to any one cause. It's a little here and it's a little there. Is it seasonal, those are related to just a little drop of volumes, though we're not expecting this to continue to be an impact on earnings. So, I think we'll be by this as we get into Q4. And with respect to GETRAG, last quarter we did lower our equity income outlook for GETRAG and we were pretty clear on kind of why we we're doing that. As we look at Q4, we haven't changed our expectations for what we see in China. It all relates to the joint venture facilities that we have in Europe. And they're ramping up on launch, they've had some inefficiencies. They've had some additional supplier costs as a result of lower volumes. They've got a bunch of action plans to improve operations. And so, they look out to 2020, I really can't comment. We haven't looked at the business plan for 2020 but these seem to be sort of your typical-type issues as you're launching programs which should go away over time.

Okay. So, transitory on that front. And then in terms of China with regards to the underperformance in the market over there and some of the mix changes, anything that we should be thinking about with regards to impact longer term relative to what you outlined in August?

Well, we didn't update what our expected volumes are in the New Year. We're going through business plan reviews right now. There's a lot of moving parts as far as volumes over there. And overall looks like the DCT take rates are still positive and we're having a number of discussions with a number of customers so I think we'll wait till end of January just to finalize everything. We'll give an update then.

Okay. And then real – last one for me on free cash flow longer term. You dropped the current year a little bit, just as we think about the broader term. Anything structurally changing with regards to free cash flow generation? I noticed you talked about some working capital headwind that seemed to be probably transitory, but anything there, Vince that you'd share with us as we think about $2 billion target?

Yeah. Sure, Rich. So if you recall, last quarter we talked about free cash flow excluding that $200 million for those couple of facilities. This would be about $2 billion – approximately $2 billion. We brought that number down kind of $1.8 billion to $1.9 billion. $100 million of that change is strictly due to working capital. That's timing. That will come back, so we'll get that back in 2019. And as I look at Q4, we brought down volumes and margins at the lower end of our previous guidance. Depending on where we end up, that might have plus or minus another impact in the quarter. But as you kind of look out to – maybe your question was we've been referencing over $6 billion of free cash flow 2018, 2019, and 2020. There's nothing I see at this point in time that would say that we're not going to get there. So confident even with a little bit of softening in 2018, and part of that is timing that we're still on track for our 2020 outlook.

Great. That's all I had. I'll pass it on. Thanks.

Our next question comes from the line of John Murphy with Bank of America. Please proceed with your question.

Good morning, guys. This is Aileen Smith on for John. First question, can you give us a little color on what you're seeing from a commodity cost perspective and how this differs across your segments, especially in terms of contracts and who's on the hook for various changes? As we understand it much of your metals cost is ultimately passed through to the customer whereas some other commodities like resins, you guys are on the hook for. Did that impact your Seating margin or other margins in any material way in the third quarter?

Yeah. Amy (sic) [Aileen], I think if you look quarter-to-quarter, so Q3 2017 to Q3 2018 and look at – the net impact of commodities is insignificant. You've got a couple of moving pieces. Resin was a headwind which would have impacted our Seating group and our BES group. Going the other way was actually – the net impact of steel and scrap revenue was an overall positive. But when you kind of put it all together the numbers are pretty small. Even when you look at each one of the segments, the commodity cost impact to Q3 was pretty negligible. If I look at Q4, Q4 to Q3, we're seeing a little bit of headwind quarter-over-quarter and that's coming strictly from resin pricing.

Okay. That's helpful. And then just...

But again it's not – Amy (sic) [Aileen], it's not – again, it's not significant that's going to be moving margins in any way.

Okay. And then just to clarify your comment on the capital spending outlook, we should be thinking about the $1.7 billion and $1.9 billion as essentially similar on a core basis with the difference just being that that acquisition of facilities that you mentioned you've got better terms on or have you structurally reduced your CapEx spending plan in any way?

No, Amy (sic) [Aileen], the $200 million reduction is those two facilities that we've talked about last quarter we were going to exercise the right to buy them. There's a new landlord, we were able to renegotiate lease terms that made more sense to us. So, that's the only change in the CapEx spending. But recall as we talked about longer term kind of outlook on capital back in January, we're still expecting capital spending over the next couple of years as a percentage of sales to come off and capital spending, I think it's peaked at the $1.7 billion and we should see some slowdown as we look into 2019 and 2020. Having said all that, if there's good opportunities for programs that grow the business and at the right returns we'll allocate capital. We don't have a shortage of capital to invest in the business, but we'll only do that if it's good for our business and creates value.

Yeah. It's Don here. Yeah. I agree with everything Vince has said. We have been focusing quite heavily for over the past year, more than the past year on getting our free cash flow up and that includes getting the capital spending down. So, we've got – we're taking – we're looking with a lot of scrutiny on all capital offset, obviously what Vince has said, if we get good opportunities in these new business areas, we're going to pursue them, but we're taking a pretty close look at capital.

Okay. Thanks for that. Thanks for the color. And one last question for Don and Swamy. I appreciate the Fluid Pressure & Controls business no longer fit with your strategic vision on the drivetrain and driveline side. You'll be getting a pretty hefty cash inflow as a result of that divestiture. So, as you think about your product capabilities, where within your broader portfolio might you look to augment through investment or acquisitions?

Yeah. Swamy, do you want to answer that? You want me to answer it?

Yeah. You can start, Don, or I can. From the perspective of the driveline as well as the transmission, I think we have a pretty good product roadmap of addressing what we have as products today as well as the hybridization coming about 50%, 60% of the market ultimately leading to the full electric vehicles. We'll kind of look at the value stream inside and focus on the software-powered electronics competence side of things. We have a solid base as we stand today, but we'll look at enhancing that and look at the value proposition within the product line.

Okay. Great. Thank you very much for the question.

Our next question comes from the line of Peter Sklar with BMO Capital Markets. Please proceed with your question.

My first question is on the WLTP. Can you talk a little bit about what you're seeing in Europe, how that in fact, like, how that affected your customers, what the flow-through was to the pull on Magna and a little bit on what's your sense on how that impacted the demand side as well because it appeared there were some pretty good pull-forward of sales in August.

Yeah, Peter, let me try – let me start. And Louis may have some additional comments. As I look at our production forecast in Europe, we've been bringing down our outlook for a couple of quarters between sort of what we did in the last couple of quarters, we brought down our expectations for production in Europe by about 200,000. We're bringing units down another 100,000 this quarter. I think we've caught a lot of that in our internal forecasting. As I look at even Q3 where volumes came in in Europe and what our forecast was, it was bang on. And so, I think our numbers had anticipated most of it in our previous forecast. I don't know, Louis, do you have anything to comment (00:35:48)?

I think with that adjustment that we made to our forecast last quarter, we pretty much covered off the risk of WLTP and we had 150 in Q3 and 50 in Q4 and I think that's good. We're taking our numbers down a little bit more in Q4 now so I think we're covered off.

But how are you seeing it impacting you? Is it just some of your customers, their volumes are down as they struggled...

(00:36:17).

And is it across the board or is it like weighted with certain customers?

Yeah. I mean a lot of our business, as you know, like, 70% of our business in Europe is with the (00:36:31) and that's where we're focused most. It wasn't all there but that's the biggest impact to us.

Right. And when do you expect that they'll have worked their way through this and will be up to normal volumes? You expect that by Q1?

I think as we get through this year we should get through the bulk of it, Peter.

On the plant you referred to, Vince, in the Body Exteriors & Structures segment...

Yes.

...where there are some inefficiencies at a plant that you're closing. Are you prepared to quantify what the negative impact was on the quarter?

Yeah. It was around – Peter, it's around $10 million.

Okay. And then finally, on the aluminum and steel tariffs which we understand remain in place despite the new trade agreement among the three countries, I'm just wondering if you have any particular insights from your contacts within government and industry on whether you anticipate that those tariffs are going to go away.

My best guess would be probably similar to anybody else's. We're certainly keeping touch with the various parties. My expectation would be that by the end of the year, hopefully the tariffs between Canada and the U.S. would go away, and also between the U.S. and Mexico. I'm not sure whether the results of this election changes things down there in regards to the plans on tariffs. I think it's – my view is the tariffs are hurting the U.S. plants more than they're hurting other areas, because of there's some duty drawback and remission programs in place. So there's huge pressure. Certainly Canada wants them to go away. Mexico wants them to go away. I think generally speaking people in the U.S. would want them to go away as well, because they see the negative impact they're having. So I can't project. But if somebody wanted me to guess, I would hope that by the end of the year they would be removed. What happens as far as tariffs from Europe, they're not as substantial, certainly in our case anyway, and there's programs we can apply to. I would hope that there would also be something there, but I don't know. In China, I would expect that that may go on longer. But I think the dynamics of the midterm elections, we'll just have to wait and see. But certainly everybody is applying the pressure and talking to the right people, we'll just have to see what happens.

Okay. Thank you very much.

Our next question comes from the line of Rod Lache with Wolfe Research. Please proceed with your question.

Good morning, everybody. Just following up on that, can you just remind me the U.S. portion of the tariffs that may or may not go away? What's the full-year quantification of those? I know it's largely back half.

Yeah. Good morning, Rod. When you look through the quarter, what we've been able to identify to the cost of tariffs is about $8 million incrementally and gee, almost all of that was in our BES group. How much of that was – can't figure a word. How much of that was China. Do you have any idea?

Very little.

Very little at this point in time.

Okay.

I think the – as you look into kind of Q4 I think the China impact would be a little bit more.

Yeah.

But as we look at it, it all depends on what happens to the rate of tariffs currently at 10% from things coming in from China, that was just 25% and the U.S. tariffs don't go away. And when you look at kind of – try to fast-forward to 2019, that impact could be above $15 million a quarter. But, again, what happens if this go to 25%, if the U.S. tariffs go away, retaliatory tariffs go away, a bunch of open questions at this point.

Okay. And for Q3, can you just – you may have mentioned this, but just can you help quantify the unusual items that affected the year-over-year comps vis-à-vis the launch costs and customer settlements in Seating and Body Exteriors, and how should we be thinking about the outlook for those, they diminish into Q4? Should we be thinking about a residual impact from some of these or from some of the inefficiencies as you go into Q4 and early next year?

Yeah. So let me start with the pricing resolutions. In the case of Seating that it's sort of a year-over-year comparison where they had some favorable items last year and they're not here this year. So when you just do the math, A minus B, you end up with a net reduction. I think there was couple of settlements in our BES group, and when you look at the kind of impact in the quarter, that helped our margins in our BES group by about 0.7% at BES. Obviously on a consolidated basis this would be called (42:25) less. And there's two components of that. The largest component related to a program that has ended production, so that's going to be non-reoccurring. There was another component, a smaller component, where there was some pricing relief, go back to a couple of earlier quarters in the year but the benefit's going to continue going forward. So that will continue to positively impact the numbers in 2018 and 2019 and so on. With respect to the launch of new facility costs, we did say that versus expectations, costs were a little higher, probably ran a little higher also in Q4. But Rod, it's a real challenge to try to pinpoint what those costs are going to be in any quarter. Some costs, depending on where the program and how it launches, whether it ramps up faster or whether it ramps up sooner, some of those costs get pulled forward, sometimes they get pushed back. So as those programs start to launch, those costs will go away.

I think the – just to add a little bit. On the BES and the launches, we've gotten a lot going on. Nothing that's really concerning me. Most of them are just getting to the final stages.

Okay. And just two other sort of longer-term questions. One is, are you experiencing any changes in terms with your customers vis-à-vis payment or pricing? You alluded to the working capital issue and a number of suppliers have talked about that. And in Power & Vision, long-term margins are north of 11% I think is what you put out for 2020. Your exit rate here at the end of 2018 is in the high-8%s. Is that still something that in the next year, year and a half you're looking at?

Yeah. Let me just comment on working capital payment terms. We haven't seen any change at all in terms of payment terms, receivables. Production receivables are paid as scheduled. What I referred to in my formal comments, Rod, was related to tooling and engineering, higher receivables. And it's pretty normal. Sometimes these things just take a little longer to collect but nothing that we're seeing that's in any way different than what we've seen in the past. With respect to Power & Vision's margins longer-term, we – again, we're updating our business plan. It is (00:45:14), a number of moving pieces on there. We expect to benefit from growth in equity income which is going to top – drive margins. We continue to expect overall growth in margins on some of the launches that are taking place in our Power & Vision group generating some sales. The one thing as I look at longer term is what happens to electrification and autonomy costs and did those move up? And we're working on a number of things and other opportunities. So it's possible as we start to look at some of these opportunities, start to book some of these opportunities, that there may be some additional costs which could offset some of that margin growth. But all in all we're pretty confident in terms of the expansion in margin longer-term in this group.

Okay. All right. Thank you.

Our next question comes from the line of Brian Johnson with Barclays. Please proceed with your question.

Yeah. A couple of questions. It's a little bit more kind of management culture and strategic than the housekeeping. The first vis-à-vis the Bodies and the launch costs, launches especially for business that has good backlog are a fact of life. How are you comfortable that you have the right processes in place at the factories that means the launches coming in 2018, 2019 especially in this choppy environment with less macro tailwinds to cover up launch issues are going to be smoother or is this just kind of a fact of life, customer schedules fluctuate and we have to keep that in mind as we think about 2019 margins?

I'm actually quite pleased with the progress we made over the last number of years in our world-class manufacturing and that includes program management. And the program management to a large extent dictates how successful our launches are. Just been going through to cover half the company on our – the depth of our management down to our plants. We have over 300 plants and we've got pretty – we're in pretty good shape. I think in some of the new areas getting the right software people, developing products especially as we move to electrified drivetrains and our ADAS. Those are harder to predict just because they're brand-new products but I'm – knock on wood, we're launching almost $10 billion of new sales every year. But for the most part, I'm pretty comfortable we have very good processes and it comes down to people as well. We've got pretty good bench strength. We focused pretty heavily the last few years on developing that. So, overall I'm pretty comfortable with what we got. We still have the odd one here and there and most of the launch issues we're having right now quite frankly are not that surprising and there are just some really big launches so it can fluctuate up and down a couple of million dollars easily in a quarter. But for the most part, we're pretty comfortable.

Okay. Second question and it's sort of both managerial but ties to your existing free cash flow guide. So, if we're going to be in this period of choppy macro inflationary pressures, A, how do you change your (00:48:55) to manage that; and, B, in terms of the numbers, does it affect your thoughts on your current free cash flow guide in terms of your longer term targets, $6 billion from 2018 to 2020?

I'm not sure of an answer to what you're asking – ask me to clarify if I'm not, I think for the most part the way we're structured, and we're looking now at – if there's a downturn where we think it would occur, what actions would we take at the corporate office but most of our groups and plants are fairly autonomous and have good control over their costs, so they're pretty quick to react, because everybody is paid on profitability. So, to the extent that the volumes are where we expect them to be, we expect them to soften a little bit and we're pretty comfortable with their free cash flow generation. If we see things slowing down or lots have been pushed out, then we can also take down some of the costs for the launches as well as capital. But as I said already, we've been focused pretty heavily on tightening up our capital to get our free cash flow up. And I think you can see we have been achieving some of that.

Okay. And just to clarify, that $200 million for the facility, does that mean you leased instead of purchased the plant or how did that affect the cutbacks (00:50:18)?

The background to all that is we had been leasing these facilities for quite some time. And as part of our lease arrangements, we had the right to buy these if the landlord chose to sell the properties. So we had this right and we have exercised this right, but another party came in and was interested in the properties. So we were able to renegotiate the lease terms with the new landlord...

Okay.

...more favorable terms. So we decided to continue to lease the properties. But obviously going forward it will be a net benefit of flexibility and being (00:51:02).

And hence, the change in the CapEx guide.

Correct.

Okay. Got it.

Our next question comes from the line of Itay Michaeli with Citigroup. Please proceed with your question.

Hi. Great. Thank you. Good morning. Just two clarifications. First on the plant at the Body Exteriors with the inefficiencies that you plan on closing, can you share when that plant will actually be closing? And then just secondly hoping you could just share the dollar spend on electric and autonomous in Power & Vision this quarter?

Yeah. The plant that we've announced the closure of, it's halfway through next year. So that – and they have production there, that's what some of the efficiencies are, so. Sorry, just the second part of the question...

So, Itay. In terms of the – if you look at the incremental costs of electrification and autonomy in our Power & Vision group year-over-year, it's pretty well on track. We talked a bit about it being about $100 million incrementally in 2018 versus 2017. And we're on track there if you kind of do the math on our Power & Vision segment. The impact of that incremental investment was a negative impact on their margin – the segment margins of about 0.8%.

0.8%? Perfect. That's helpful. Then maybe more broadly hoping you can kind of comment on what you've seen in ADAS growth this year, and perhaps as well on booking activity and whether you're starting to see maybe an uptick in booking activity from the increased spend on a Level 4 or any synergy between the Level 4 development and kind of the traditional ADAS on Level 2?

Swamy, do you want to take that?

Yes. I think from the internal perspective we're kind of on track looking at the general availability in the market versus what we are booking, as well as the – compared to the target as we stand today we seem to be proceeding well, even incrementally better than what we had done last year. But as the year comes to a close I think we'll be able to better quantify that. On the other topic of touching on Level 4 I think the Level 4 activity has been there all along I think. But with what we are doing in our co-development with Lyft we will start seeing synergies in some of the fundamental aspects of algorithms and so on. But it's too early to directly quantify and link it to a program. I think I would definitely say we are positively looking at the ADAS compared to year-over-year.

Great. That's all very helpful. Thank you.

Our next question comes from the line of David Tyerman with Cormark Securities. Please proceed with your question.

Yes. Good morning. I'm just looking at slide 25 and also comparing it to your original guidance back early in the year. So, just when I look at the individual segments I want to make sure I understand the changes and whether they have implications for the long term. So Body and Exteriors (sic) [Body Exteriors], is this reduction from originally 8.1% to 8.5% now down to 7.8% to 8%, is that entirely from the plant issues that we're seeing?

It's from some of the things we talked about in Q3, so the launch and other underperformance, a little bit of impact to volumes. And in Q4, we had some additional costs, launch new facility, a little bit more commodity and a little bit more underperformance that we're seeing.

Yes. So sorry, David. So some of that's already been taken place in Q3.

Right. Right.

Yeah.

And so like in Q4 versus previous expectations I think we got higher launch costs than we had previously expected which I think is the biggest impact, and volumes. So, as you look longer term, launch costs would go away, under conformance of – I mean, again, it was – here and there, it's a little bit on all the places. So, longer term, our views in this business haven't changed.

Right. Okay. Fair enough. And then on Power & Vision, the same thing like you were 10%, 10.5% originally. Now, you're down to 9.3% to 9.6%. I'm not entirely clear why it's come down so much.

Go ahead, Louis.

It's really going to drag (00:56:01). I think the last quarter...

Okay.

...we talked about some of the changes that we had. Some of the impacts from Q2 and changes to our expectations for equity income and then of course this quarter, the biggest change is related to our European joint venture.

Right. Okay. And so, sorry, from the discussion, I'm not clear. Is this a sustainable problem or do you see this resolving itself over time?

Well, we talked about in terms of GETRAG in the quarter. The only impact relates to the joint venture in Europe.

Right.

The European joint venture is going through a launch. It's ramping up and it's actually one facility there. And we're seeing some inefficiencies, part labor, hard scrap, premium freight, all of the things you typically see when launch costs are higher than what we expected. We're seeing some supplier claims related to lower volumes because the ramp-up's been a little bit – just overall a little slower. Those are additional costs. There've been some (00:57:26) which is also hurting us. So (00:57:29), so we're expecting to see improvement. I think we got to get through this business line to kind of look at as the market's moving, also shift (00:57:38) from manuals to DCTs, how does it impact the joint venture? How does it impact our wholly-owned operations? We've been seeing some higher growth in our wholly-owned operations which are on the DCT side of the business. We'll have to quantify that as we get through the business plans and we just don't have that clear visibility at this point.

There's a lot of moving pieces. We have a full core press in this, and we've also got the joint venture partners also heavily involved. So, we can give some more update on what's happening in the new year. I think we'll have more clarity then.

And the adjustment from the beginning of the year, if you will. We talked a little bit about the impact on 2020. We provided that in our last quarter just related to the decline in sales, a lot of that being China. So, that's already – and that's from last quarter though.

And we haven't adjusted China this quarter.

No changes.

Right. And the wholly-owned is picking up. Is there anything specifically going on there?

It's higher volumes on DCTs in Europe.

Okay. So, it's just higher than you expected. Nothing to (00:58:48) beyond that?

Oh, no. We were expecting growth, and we're seeing a little better growth than what we had anticipated.

Okay. And then the last one was just the Complete Vehicles has come down quite a bit this year from the original guidance.

Yeah. David, we started off at 1.5% to 2% our January year outlook. Last quarter, we brought it down to 1%, 1.5%, essentially (59:22) narrowing the range, the top end of the range 1% to 1.3%. When you think about the Magna Steyr Complete Vehicle business, the biggest impact really is the G-Class, which we talked about last quarter and the ramp-up, the volumes have been less than we anticipated. And we had talked last quarter about a couple of supplier issues. We were behind one of those issues, just getting some components to us. There's another component that had impacted us in Q3, but I think we're essentially behind that, but kind of when you put that all in place that just results of a narrowing of the range right now in November versus where we were in August.

Okay. So it sounds like it's fairly temporary stuff related to the ramp. Is that fair?

That's fair. That's fair, David.

Yeah. Related to ramp and the supplier issue with that, and on G-Class we're seeing there's good demand out there. So I think the – and every one we can build that they'll sell and we're in much better shape now.

Okay. Fair enough. That's helpful. Thank you.

Our next question comes from the line of Michael Glen with Macquarie Securities. Please proceed with your question.

Hey. Good morning. Just to go back on this discussion regarding perhaps a potential rollover in production volumes, can you describe at what level do you think that you would start to see? Like what level of production decline will we need to see for you to start to see a material decline in your margin profile?

Michael, when you look at kind of overall production volumes, in North America, we started the year at $17.4 million. That's where it's come down to $17 million and last year were even higher. They're healthy volume levels. Sure, they've come off a bit, but it's all at really good levels. The macroeconomic environment in the United States is still very favorable. And keep in mind, and as I was running through our sales growth by segment, if you recall in every segment, organic growth was positive, more than offsetting even a slight reduction in overall volumes. So it's hard to say. I think it depends. If there was a significant downturn in volumes, that could be an impact. But if volumes stay where they are and come off a little bit, and we got this organic growth, it's a matter of managing how we employ capital and how we expand facilities, and can we continue to produce more in existing facilities because maybe there's more capacity, maybe we're not running as much overtime as we're running today in certain facilities. Hard to say, Michael. It really depends on how – if there's a change, how quick the change is, how temporary or how long the change is and so on.

Yeah. And how erratic it is. It is pretty difficult to adjust if you have big swings up and down. But if we know a quarter in advance or two quarters in advance and it's slightly declining, you can take the actions you need.

Okay. And relative, if we're looking to say relative to the last downturn we went through, are you positioned differently to adjust the way you spend quicker this time around versus last time?

I don't think we're positioned any quicker. I mean, the last downturn was – I mean, that was – we fell off the precipice. So I mean that was pretty dramatic. If anything, we don't expect that. There's all sorts of different things going on. If there is a big downturn, then I would expect we could take advantage of some buying opportunities. But I don't think unless the world is coming to an end, something like that will happen again. We have the same levers we did before. We just have to look at them and if there's a downturn, I don't want to panic and lose a lot of very good people, so we'll – we have to take the appropriate measures.

Relative to the previous downturn, how we're better positioned is that we're geographically more diverse, customer-wise we're more diverse. So that definitely will help as you need a downturn in every market to have the same kind of impact.

And we're generating profits in every one of those regions. And if you go back to the last downturn, most of our businesses – well, we have business in Europe, where the money was being made was in North America.

Okay. And just one final, can you remind, your content on the GM and in particular the Silverado. And is that something that you expect to be a tailwind to your North American business through 2019?

Yeah. It should be a tailwind. Our content, I don't have it for Silverado specifically, but for the whole T1 platform and versus K2XX, we're moving from about $1,800 of content to about $2,100 of content and it's not significantly different between the SUV and the pickup. So that will be a positive for us as we transition. And naturally this is going to go on this year, next year, and even into 2020 by the time we get the SUVs launched.

Okay. Thanks for taking my questions.

Our next question comes from the line of Sinkevicius Armintas with Morgan Stanley. Please proceed with your question. Armintas Sinkevicius - Morgan Stanley & Co. LLC: Good morning. Thank you for taking the question. Can you give us the number for the favorable customer pricing resolution at BE&S this quarter?

I talked about the – there's actually – I gave you some margin guidance on that. The impact was positive at 0.7% to our BES segment year over year. Armintas Sinkevicius - Morgan Stanley & Co. LLC: Positive to BE&S margins?

Yes. Armintas Sinkevicius - Morgan Stanley & Co. LLC: Okay. And then with regard to China, what is your – the view of your regulatory team as far as stimulus developments for over the next year?

I'm not really on top of it. I think we had a discussion in our last management meeting here. I think it's – everybody has got an opinion on it. I suspect China probably does not want to have a big fight with the U.S. Are they willing to move a little bit in some of these areas? They probably are. I think they also realized that things are slowing down and they do have some levers they can move. But beyond sort of high level, I really can't make a comment and we would just have to wait and see what they do. Armintas Sinkevicius - Morgan Stanley & Co. LLC: Okay. And then I can appreciate that there's a lot of moving parts with regard to China. But if you can sort of early on how you're thinking about China and global production for 2019, just hoping a little bit sort of at a high level direction perhaps?

I think for – we're looking at China. For us, I think it's more important to look at the platforms we're on as opposed to overall volumes. And again we're just in the middle of working through our business plans. So, I hope that – we should be in a position to give you some better cover on where we see China being in 2019 when we get through our business plans, so January update for you.

We are expecting China to be down about 6% in Q4 relative to prior year.

On volumes.

On volumes. Armintas Sinkevicius - Morgan Stanley & Co. LLC: Okay. That's helpful. Thank you.

Our next question comes from the line of David Tamberrino with Goldman Sachs. Please proceed with your question. David Tamberrino - Goldman Sachs & Co. LLC: Yeah. Great. I just have one for you guys. What are you seeing in the Seating business globally? The largest competitor out there is a little bit more of a challenged spot obviously on the seat structure side. But, want to understand if there's an opportunity for you to potentially gain some share over the next couple of years. Thanks.

Yeah. I don't want to talk about our competitor. I think that people know what the challenges are with them. We're just staying focused on our business. We are seeing – we have seen good opportunities, we're seeing growth there, and we continue to see good opportunities, and I think we're going to continue to see growth. And we are looking at we can grow organically and we can also try and look at if there's some small bolt-on acquisitions. But we like the Seating business. We're very small in Asia, so we're growing there but it's – I think there's going to be lots of opportunities going forward based on our capability and partly based on what the customers are telling us their interest in doing as far as growing our business. David Tamberrino - Goldman Sachs & Co. LLC: And within that, I mean, is there any bifurcation between the JIT (01:09:35) business doing a complete (01:09:36) structure side in terms of your preferences?

Well, the way we look at this is we don't look at margins. We look at return on invested capital. And typically, if you get a JIT (01:09:50) program and you do well at it, you can get better return on invested capital. But we do have a lot of good technologies, some unique technology especially in the SUV segment of the metals. So, that an area we're seeing some growth in. And we are looking a bit more at vertical integration in a few different areas. So, our Seating group has a strategy, other areas that we participate and obviously for vertical integration would be tight and so – and it's another component. So, overall we do see it growing. We do see it as a good business. The margins have been squeezed in the last number of years, but that's a trend we've been seeing for the last little while. So, but we'll give an update in January, but I think we're seeing some pretty good opportunities right now. David Tamberrino - Goldman Sachs & Co. LLC: Got it. That's helpful. And just one clarification, you mentioned about $15 million of China tariff impact for the fourth quarter. That was at the 10% rate, correct me if I'm wrong. And which segments are you seeing that in?

Actually, the $15 million on a quarter, what I was referring to was 2019, and that was on the assumption that the U.S. tariffs on steel and aluminum remain and the tariffs in China move from (01:11:16) from 10% to 25%. The impact in Q3 was $8 million and essentially all of that was with our BES group. For the fourth quarter, we're expecting tariffs to be a little higher above that $12 million. It shouldn't get to the $15 million level. And that's primarily in – and also it's in our BES group and a little bit of impact in Seating, a little bit of impact in our Power & Vision group.

And that's our best guess. There is a lot of moving pieces here because if they remain longer, we're making more pressure to the supply chain. We're going to have more discussions with their customers, (01:12:04) doing for pricing, the remission program, how successful are we. So, there is – that's our best guess. It's quite complicated. David Tamberrino - Goldman Sachs & Co. LLC: I appreciate that entirely. Thank you very much for the questions.

And we are showing no further questions on the audio lines at this time. Let me turn the conference back over to you.

Okay. I appreciate everybody calling in today. I'll be looking forward again to our business plan, internal business plans and giving our updated guidance in early January. So, have a great day, everybody. Thank you.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you kindly for your participation and ask that you kindly disconnect your lines.