Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2017 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. As a reminder, this conference is being recorded Thursday, May 11, 2017. I would now like to turn the conference over to Louis Tonelli, VP Investor Relations. Please go ahead.

Thanks very much. Hello, everyone, and welcome to our first quarter 2017 conference call. Joining me today are Don Walker, Chief Executive Officer; Swamy Kotagiri, our Chief Technology Officer; and Vince Galifi, Chief Financial Officer. Yesterday, our Board of Directors met and approved our financial results for the first quarter ended March 31, 2017. 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 have included a reconciliation of certain key financial statement lines between reported results and results excluding unusual items. Our quarterly earnings discussion today excludes the impact of these unusual items. In the first quarter of 2017, we recorded restructuring charges related to our European powertrain facility. These reduced EBIT and net income attributable to Magna each by $6 million and EPS by $0.02. There were no unusual items in the first quarter of 2016. And now, I'll pass the call over to Don.

Thanks, Louis. I'm going to keep my comments short today in order to provide some time for Swamy's remarks. First off, I am very happy with our record first quarter results. It's good to see each of our reporting segments posting both sales and EBIT margin increases over the comparable period. This led to another record EPS. We held our Annual Shareholders Meeting this morning in Toronto. For those who did not listen in, the meeting was webcast and an archive can be accessed on our website. The key takeaways from our Annual General Meeting today were Magna is prepared for mobility of the future. We understand the industry trends. We have a highly relevant product portfolio including numerous technologies, deep systems knowledge, and complete vehicle know-how. We're accelerating innovation across the company. We have a global reach in an entrepreneurial and flexible operating culture. We expect continued sales growth outperformance, evidenced by our outlook out to 2019, and our margins, returns, and free cash flow are each positioned to expand. Today, we discussed four broad technology trends that are particularly relevant to the future of the automotive industry: electrification, autonomous driving, new mobility, and connectivity. We believe we are well positioned to benefit from each of these trends. We had a number of executives at our meeting today including Swamy Kotagiri, so I have asked him to address our positioning in a couple of these areas. With that, I'll pass the call over to Swamy.

Thanks, Don. Good afternoon, everyone. Automotive industry will continue to have a high profile as it tackles issues challenging the car to become smarter, safer, cleaner, lighter and yet continue to be affordable. The word mobility is being used more often to define the industry, broadly addressing movement of people and goods with various operating models. Particularly notable is not so much the pace but the breadth of innovations and how much it is altering the basic landscape of the industry. Managing or balancing focus between evolutionary, revolutionary, and disruptive technologies is important for the enduring sustainability of Magna. As Don mentioned earlier, I'm going to touch on two topics today: electrification and driving autonomy. But before I start, I want to point out that, as Don addressed today at the AGM, we have leading market positions in a number of product areas in addition to powertrain and ADAS. These areas will still be highly relevant on the car of the future. Now, let me turn to electrification. Although there are different views on future market share and the pace of ICE, hybrids and EVs, it is safe to say that the markets will certainly have a mix of powertrain variants over the next 10 or more years. Some highlights from my perspective. A significant portion of the markets will have an ICE-based platform. 60% to 70% of the total volume will have some form of hybridization. Europe will lead the hybrid electrification trends, although highest growth rate of electrifications will be in China followed by Europe and U.S. I strongly believe our product portfolio sets a solid foundation to a transition into hybridization and electrification whatever the rates are. We have experienced producing electrified powertrain systems including an electric rear axle drive for the Volvo V60 or the Ford…

Thanks, Swamy, and hello, everyone. Overall, a very good first quarter for Magna. Consolidated sales were $9.4 billion, a new Q1 record. Adjusted EBIT percent was 8.9%, up over a full point from the first quarter of 2016. Net income attributable to Magna was up 20% to an all-time record $592 million. Diluted EPS was $1.55, an all-time record for us, and that's up 27%. Cash flow from operations was $443 million, up 46% year-over-year, and we were free cash flow positive in the quarter, which is not typical for the first quarter given the unusual Q1 investment in working capital. I'm going to cover each of these in my financial review. Consolidated sales increased 5% to $9.4 billion in Q1. This increase reflected higher production sales in each reporting segment along with higher tooling sales, partially offset by lower assembly sales. In North America, production sales were up 7% despite a 1% decline in vehicle production. The increase largely reflected the launch of new programs together with a $48 million increase due to the year-over-year strengthening of the Canadian dollar against the U.S. dollar. In Europe, production sales were up 8% compared to Q1 of last year. The increase reflects higher volumes as production was up 2% in Europe as well as the launch of new programs. These were offset by $97 million decline due to the lower euro and British pound relative to the U.S. dollar and lower content on the MINI Countryman and Paceman compared to the previous model, which was assembled at Magna Steyr and on which we had substantial production content. Complete vehicle assembly sales declined 31%, largely reflecting the end of production of the MINI program and the fact that we recorded only one month of sales on the BMW 5 Series assembly program,…

Our first question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead. Adam Michael Jonas - Morgan Stanley & Co. LLC: Hey, everybody. Just two questions. First, on the strategic side. You've obviously seen what Delphi has done in restructuring their business, announcing the spin-off of the powertrain unit and how the stock market really reacted, re-rating that company as kind of all auto suppliers across the value chain are kind of reassessing to the tune of your comments about so much going on, on tech, where there's value in the portfolio that may not be appreciated by the market and others, where they could either sustain an existence outside of the current collection of industries. So was just curious if you could care to comment on those types of moves and whether there are similar opportunities to unlock value for shareholders of Magna.

Yeah. I took a look at what Delphi is doing, obviously, selling off a business that is unrelated to their electronics business and some of it is – you've done your own analysis, some of it is with diesel and internal combustion engine technology. We are always looking at our portfolio, taking a look at what's the value creation based on the investment we're making in different product areas and where there's (23:30) value. We tend to think that we are undervalued in our multiple, we're not planning on spending anything off and, for the most part, the positions we've gotten in, in each of our product areas are good. We're always going to tweak the product areas, but we don't anticipate making any major moves, but we will continue to look at what other people are doing and what the impact is. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. Thanks, Don. And just a follow-up. On wiring, and the kind of transmission of power in the car and even though, let's say, you don't have a wiring business as such, you make such a diverse group of products around the whole portfolio of the car, this following question, I think, is relevant. I would love your opinion, or maybe, Swamy's opinion on this. But I couldn't help but notice Elon Musk's comments last week where he talked about taking the amount of wiring – wiring harness of a Model S from 3 kilometers down to half that in a Model 3, and then talked about his next model, which he's planning on bringing to market in just a couple years, to as little as 100 meters of wiring. And he mentioned that that was a redundant wiring harness and how their view of a wiring harness would be a flex harness with the high-rate bus so you could transfer more than just data and energy on this harness. I mean, you guys have a lot of respect for Elon, I think, and for what Tesla's doing, and even if this doesn't directly impact a product, that is a significant part of your portfolio, was just curious, Swamy, can you have a car without a wiring harness?

Yeah. Adam Michael Jonas - Morgan Stanley & Co. LLC: A copper wiring harness?

I think fundamentally, when you look at the system, right, you're trying to draw an analogy between a fuel tank that becomes a battery, and you convert your rest of the systems into a integrated e-machine and so on, and you still have to find a way to get power from one place to the other, whether it's mechanical or through wiring harness. So I think that's the overall picture of it, but there's a lot in terms of the material science and like the copper versus other materials, and the efficiency at which you can transfer and what happens to the motor efficiency and so on. So, I believe it's a little bit of a complex question to look at, but the power transmission from the source to where it needs to get to will be an important topic to be addressed as EVs become I guess high volume deployment in the future.

Yeah. And as you say, we're not in that business now, but we are trying to take a look at what is the new technology going to be required. Is it growing, is it declining for the margins, is there technology there? So we are looking at all these areas to see if there's a business opportunity, specifically, with new technologies. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. Thanks, Swamy. Thanks, Don.

And our next question comes from the line of Ryan Brinkman with JPMorgan. Please go ahead.

Hi. This is Samik on for Ryan Brinkman. The first question I had is you recently formed a seating a joint venture with a domestic Chinese seating supplier, I believe, HAPM. Wondering if you can share any details relative to what is HAPM's market share today, what are the capabilities they have in seating today, and what's your investment plan regarding that business. Looks like (27:01) predominant in the Chinese market in terms of seating market share, so what gives you confidence in gaining some share against those global competitors?

Yeah. The reason we did it was we're relatively new in seating in China, we do have some metals capabilities over there, one plant, we're rolling that into a joint venture. They've got some good technology, they're very cost competitive. So they're rolling their – they have bigger business over there, we're rolling it together, we're putting some cash into the business. So, we think it's going to be a good way for us to grow the metals business, and ultimately our full capability in seating. So we're going to try and leverage that on to some complete seat business growth as well. It's not a huge joint venture, but it's part of the AVIC Group, and they're very big in the aerospace business, and potentially, we could do some other business with them. So it's relatively small, but we think strategic for us to continue to grow our seating business over there, and they've got some very good customer contacts.

Got it. Got it. And just finally a question for Swamy. Swamy, thanks for your comments about content per vehicle or potential content per vehicle from Magna's perspective on hybrids and the electric vehicles. I believe you mentioned you have content today on the Ford Focus BEV as well as the Chevrolet Bolt. So, if you can give us a sense of what components you're supplying to these vehicles today, and what your content per vehicle looks like on these platforms today, and then, we can sort of compare to what it can be potentially in the future.

Just as a correction, what I mentioned in the call was our electrification experience with the Ford Focus BEV, and the eAxle on the Volvo V60, right.

Yeah.

So, the eAxle System, I think, is in production on the Volvo V60. And we did a lot of not just the component work, but also the integration work on the Ford Focus, BEV. And what I was referencing there is the experience that we have, we're taking to develop the next-generation 48V or the high voltage eAxle Systems, and how we are evolving our existing driveline systems into the next-generation. That's one piece of it. And the other one as you start looking at the next-generation electric vehicles, you start looking at hybrid systems, right, where you have a integrated e-machine, which is a transmission mechanism. You have the motor, in very broad terms, and obviously the control systems, which is being more around (29:40) the software. So this is kind of the experience that we have that we're building and I was projecting the roadmap of how we are taking it to hybrid and electric systems in the future.

Okay. Got it. Thank you. Thanks for taking my questions.

Our next question comes from the line of David Tyerman with Cormark Securities. Please go ahead.

Yes. Good afternoon. My question's on the European margins. So they were up pretty nicely year-over-year and I'm just wondering with the guidance for the year, I've realized you have seasonality obviously in the business, but your margin guidance isn't really much different than what you did the last year, yet you're up quite a bit in Q1. Is it just that U in GETRAG that's going to cause kind of the relative drag in the rest of the year or how do I kind of bring the strong Q1 against flat sort of year-over-year guidance?

Yeah, sure. Good afternoon, David. It's Vince. I think you've got to keep in mind a couple things in Europe that are impacting – will impact margins. If you think about my comments on Q1 in complete vehicle assembly sales, the BMW 5 Series program launched in March, so we had essentially one month of BMW sales. That program is going to continue to ramp up throughout the course of the year. And in the second half of the year, we're going to start ramping up the JLR program.

Okay.

Complete vehicle assembly sales are going to be a bigger proportion of sales as we move on past the year. So everything else being equal, that's going to have a negative impact on overall margins. As you know, complete vehicle assembly business operates at margins that are below Magna averages and below what we're doing in Europe. I guess the second thing to think about this kind of seasonality. You get into Q3, Q4 – Q1 and Q2 are typically stronger quarters, so that will repeat itself. In Q1, in my prepared comments, I talked about some commercial settlements that we booked in the first quarter. Now they amounted to about $15 million. The amount again, not significant overall in Magna, but about a third of those were North America and two-thirds of those were in Europe. So that's kind of a – commercial settlements happen every quarter, whether they repeat themselves, I don't know – I haven't factored that in to the forecast, but certainly, Q1 versus kind of the balance of the year, I don't have those numbers in there. We do have more launch costs as we move on past Q1, and in particular at GETRAG as it's ramping up. So we expect to see kind of a U shape, if I look at the various quarters in overall margins with the margins probably softening a bit in Q2; Q3, impacted by seasonality; and then picking up again in Q4. So all in all, when you kind of look at it, we're still guiding to kind of 4% to 4.5% for the full year, which is consistent with our previous outlook other than we've got more tooling sales in Europe. We don't earn margins on tooling sales. So maintaining same level of margin, I think that's good. And I think in terms of that range, I'm more comfortable where we are in that range at the end of this quarter versus where I was last quarter, that could be a little bit better than we were anticipating, I think that's going to carry forward for the balance of the year.

Okay. That's a good rundown on the differences. I guess, the other one, it's a broader question. So, you had a 25% increase in earnings in Q1. Your sales guidance though and your margin guidance for the full year isn't all that much higher than year ago numbers, which would imply not gigantic increases like 25% for the remainder of the year. And again, I'm kind of wondering why the slowdown in growth rates from Q1, what are the big drivers, maybe Europe explains part of it.

On a consolidated basis?

Yes.

Yeah. I guess, if you look at Q1 and we're 8.9% adjusted EBIT, and we're guiding to kind of 8% to 8.2%, that's going to imply over the next three quarters that the margins are going to be lower...

Right.

...which is the case. And I'd say there's a number of reasons. I'll run through them for you, David. Seasonality certainly impacts us in Q3 and Q4. And when I look at overall launch activity, that's going to ramp up again and be negative to us in Q2 and Q3. Again, we'll start to see that improve as we get to Q4. In between North America and Europe, when I look at kind of our most recent outlook and what we had in January, we're running another $350 million to $400 million in tooling sales, which is kind of split equally between North America and Europe, again, that's a negative impact. We brought down volumes in North America. And if I look at taking volumes out of North America, we also have a lower Canadian dollar, the proportion of North American sales is smaller on a consolidated basis, so that's, again, mix is a negative. And in Europe, we've brought up production sales for a couple reasons, one, we moved up volumes, and that's actually euro's gotten stronger versus the U.S. dollar. So again, on a relative basis, that mix is hurting us. So when you kind of put that all together, what you're seeing is the Q1 margins are at 8.9%, and as we get to Q2, Q3, and Q4, when we average it all out, would be kind of 8% to 8.2%.

So if I understand correctly, it sounds like Q1 had better mix, whether it's between regions, maybe a bit lower launch activity, stuff like that, and the rest of the year, the mix, geographically, gets worse than in Q1, the tooling goes up, the launch costs go up (36:45)

Yes. It is a higher proportion. The other thing I didn't mention was if you look at complete vehicle assembly sales, we were at $413 million in Q1.

Sure.

We're guiding to $2.7 billion to $3 billion for the full year. So the impact alone of Magna Steyr on margins is again pretty significant.

Right. Although the actual dollar profit should go up, should they not?

Yes. That's correct. But if I look at overall margins, it'll have a dilution impact on consolidated margin.

Right. Okay. That's very helpful. Thank you, Vince.

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

Hi. This is Tamy on for Peter. My first question's for Swamy. Swamy, you talked about the potential that Magna has in autonomous driving and battery electric vehicles. I'm just wondering if you could talk about where Magna's strengths are and what the relative advantages are for you guys versus, say, other suppliers?

Yeah. Let's take the question in two parts. If you look at the driving autonomy, like I said, there is three pieces to it, one, in terms of having the sensor suite capabilities, where we have a leadership position in the cameras and their features associated with vision-based systems. We have capability and scale on the electronic (38:18) side of things. You must have seen, we have an alliance and a investment in a Israeli LiDAR company. We have an initiative that brings to market a high definition CMOS radar. With all of this put together, we believe we have the right tools in the tool box to address the sensor suite portion of it. We have been and continued to do what I call the compute piece, whether – some people call it the domain controllers, some call it the ECUs, which brings all the processing and the different aspects of this together. We have the knowledge and you see this on different features that we have on the market today. So we think we are positioned well to be able to address that. If you look into 2016, we were just in the ADAS portion roughly $450 million in revenue, and we continue that roadmap. On the hybridization and electrification side, I think the significant aspect is the system knowledge that we have in terms of the driveline, in terms of the thermal management and in terms of the transmission systems. For us, for example, at DCT, you have the right architecture in terms of acting and the layshaft architecture that you have to convert this, integrate them and provide a highly integrated e-machine, making hybridization possible. I talked briefly about the 48-volt or High-Voltage eAxle Systems that we have and continue to evolve, which addresses augmented electrification. The packaging and system integration, whether it's from Steyr or from other product groups, helps us understand all of these systems together to play a significant role in electrification too. So I think that's kind of the logic behind my statement of saying we are well-positioned.

Okay. Got it. Thanks. And my second question is just, going back to operations in terms of the Rest of World segment, I'm just wondering now that the Rest of World, that's breakeven, are there any plans to resume or increase investment in South America?

Not at this point in time. We're just getting back to a breakeven. We're only entering into contracts where we've got very clear terms on how we're going to handle currencies, inflation and things like that. So logic would say, long term, South America should be a good place to do business, but we're still very cautious about it.

Okay. Thanks. Those were all my questions.

Our next question comes from the line of John Murphy with Bank of America Merrill Lynch. Please go ahead.

Good morning, guys, and thanks for all – or should I say good afternoon and thanks for all the info today, incredibly helpful. As you guys think about ADAS and the march towards EVs as well, I'm just curious, there seems like there's some time here to develop products but there also might be some technology you might want to acquire. So I'm just curious, in your current suite of products, as you think about these developments 5 to 10 years on the horizon, how you think about sort of make versus buy or investment versus acquire as you think about the technologies you might want to wrap in with what you currently have?

Yeah. Probably could give you a long answer. Now, the reason we asked Swamy to spend some time both at the annual meeting and today just talking what we're doing for electrification and autonomous driving is there's certainly two trends in the industry, and we have been working hard on them. If you look at our total managed powertrain business, it'll be about $10 billion by the end of the decade. So we're certainly a very strong player there. We're more in the transmission, the driveline portion, not the engine. We've got a lot of capability there. I doubt we would go out and buy anything else. We still launched a line of (42:27) Getrag and doing the integration. If there's something really interesting, we would look at it, but we've got a couple of R&D projects on some pretty interesting new products and Swamy talked about some of those today. After having said that, if something really good came up, we'd certainly look at it. We wouldn't be shy about doing something if we think it's really value-added. On the autonomous driving, there's a lot of players, a lot of people have different capabilities in there. I think the technology development will still continue at a very rapid pace. As Swamy said, we've got the building blocks for it. We're doing R&D. We're looking at new start-up companies, looking at universities. So I think there's still a lot of room for leapfrog technologies there. And if we find something, we wouldn't be shy about buying it, developing it, working with new start-ups, and we're sort of looking at in all those areas.

Okay. And then just a second question, I mean, Jim (43:36) was talking about some of the new business wins that you've got and one of them was Geely, the Geely link. I'm just curious, as you'd see that business in China ramp up, is that coming from the Volvo side or actually you're making some good strides in penetrating the domestic Chinese manufacturers where you've sort of traditionally been or still are fairly underrepresented?

Well, the program he's referring to is the Geely program? So we are making some progress certainly with Geely.

We just did a presentation with the board. I was just over in China last week for the full week. Depending on the product group, they have had their own strategy who they want to work with. We went over there initially with mainly our traditional customers on global platforms. I think there's going to continue to be pretty big swings in volumes and the success of Chinese OEMs. So we're not going to say it publicly, but we've gone through every one of them. We ranked two of the top three we generically want to grow with, who are the next three we want to grow with, and we've got various rationale for that. Every group is slightly different. We are careful where we allocate capital, but we do have a pretty detailed action plan there, and we are growing our business more with some of the Chinese domestic OEMs. So we actually presented a little bit of detail with the board yesterday and they certainly feel more comfortable with it. So we do have a plan, we're going to continue to try and penetrate, but we want to make sure penetrating with people what we believe the volumes going to be there, we believe we're going to have good commercial relationships and we feel comfortable with what technology we're launching with various people.

Okay. That's great. And then just lastly, if you can just remind us when the 5-Series is fully ramped up at Magna Steyr in Graz, I mean, what will the run rate volume you think you'd be or what are you capacitizing for on that program just on a volume basis?

I'd have to dig it up. Well, I know we have less than 50% of the full volumes on the 5-Series.

Okay. But is it close to 50% or is it significantly less?

I think we're both 60-plus thousand units there full volume.

Okay. Great. Thank you very much.

Our next question comes from the line of Richard Hilgert with Morningstar. Please go ahead.

Hi. Good afternoon. Thanks for taking my question.

Good afternoon, Richard.

I wanted to get a little bit more color, if I could, on the joint venture equity line. Vince, you mentioned in the presentation that the ramp-up there was looking stronger than previously anticipated, but then you were also talking about Getrag having a U shape to its contributions during the quarter. Since that JV equity line is also inclusive of the Getrag JV equity, is there a similar effect in the equity income line or does the ramp-up that you spoke off progress on a quarterly basis with the seasonality that we normally see in the third quarter?

Yeah. I think when you – if you think about what we consolidated in Getrag, you're going to see some certainly seasonality in Q3 and Q4 not dissimilar to our other European business, but they are going through some launches. In particular, I think if you look at the equity line, the equity contribution in Getrag, I'd say it's probably more severe on the U shape. Q1 was a good quarter for equity income, strong quarter. We're going to see some pressures in Q2 and Q3. And there's two things that are really taking place in Q2 and Q3 that are going to depress that equity income line, and one is there's just some seasonality. But the biggest part of that is going to be additional engineering cost on some new programs and launch cost. And that's going to continue. Timing is never perfect, but it's where I'm seeing it right now, kind of Q2, Q3. Product starts to ramp up Q3, Q4. So we see equity income again picking up in a more sort of substantial way in the fourth quarter of this year.

Okay. Good.

And just a general comment on Getrag, we bought it, we knew that they were going to be going through a lot of launches and bringing some new product to market. And so far very pleased to see how the product is performing because they're highly complicated products. And we're also very pleased to see how their operations are running and specifically the progress they've made in their launches of these brand-new products, so I'm quite encouraged what I see there.

Okay. Great. On the European side, and I guess kind of a larger picture margin outlook too, you were talking about the margins with an earlier question on the European side and the impact of having a higher proportion of revenue from contract manufacturing being somewhat dilutive on those numbers. You are in a transition phase in the first quarter so there's plenty of fixed costs there that you had to deal with, but you still had a 60-basis-point improvement in the European margin. With more volume coming on offset by the additional launch costs, should we expect the European margin there to be flattish from the full-year perspective, looking at the first quarter, given that you'd get some favorable operating leverage from the substantial increase in operating volumes by the end of the year? And then I've got a follow-on to that after that.

Yeah. Just a couple of observations, Richard, for you. If you look at our production sales in Q1 in Europe, they were strong. And we actually did move up volumes in Europe by a couple of hundred thousand units. That all was as a result of production in the first quarter. We've essentially left our production assumptions for the remainder of the year intact, and based on kind of where I'm looking at the numbers, it looks like Q1 is the strongest quarter from a production standpoint. And production sales, relative Q2 and then compared to Q1, again depending on what happens with FX and mix, but preliminary I think they're a little bit down in Q2 versus Q1 and down again in Q3 and Q4, and it keeps going over that seasonality. You think about incremental or decremental margin on lower sales, that has an impact on margins as you would expect, nothing unusual. And the CVA business is a little different than our regular production business. If you're ramping up production program, we're typically incurring a lot of launch costs and start-up costs as you're ramping up the program. In Magna Steyr, the relationship with our customer is a little different given the business that it is. So the impact of launch costs and start-up costs are much more muted. So there was less sales and less absolute profit in Q1 at Magna Steyr because sales were lower. But as sales started to ramp up and you start looking at percentage of production sales versus CVA sales, and that ratio increase in the CVA sales is ramping up in a more significant way, the impact on margin, Q1 versus kind of Q3, Q4 is negative to European margins even though it's accretive from an EBIT perspective bottom line because obviously more volumes mean more profitability. So Q1, as I'm looking at the numbers in Europe from a margin perspective, Europe looks like it's going to be the highest quarter for the year, and we will come off in the balance of the year as expected, but higher than – a little stronger than what I originally anticipated. And the reason it's coming off, I'll repeat this, the same reason for the seasonality is contract vehicle assembly. Toolings, compared to our previous outlook, is higher. Actually, tooling on a relative basis is stronger in the last nine months of the year versus the first three months of the year, so that has an impact. And launch cost obviously has some impact.

Okay. Got it. And then extrapolating that a little bit further with the additional programs that you're going to see coming over the next couple of years and looking at some of the guidance that you've put out there through 2019, by end of that period, the contract manufacturing is going to be an even more substantial piece of the overall pie. But then you've also got some margin accretive stuff that might offset some of the lower-margin CVA with ADAS, for example. Should we expect just generally over time that Magna could still continue to expand consolidated margin even though contract manufacturing is becoming a much larger piece?

Well, let me talk about – well, I guess if you look at our January guidance for the various regions that we operate in the world, I mean, essentially we were kind of – in North America we're seeing flat to up, a little bit between 15% and 19%, Europe up, Asia up, and rest of the world improvements. So if you kind add all that up, it should result in a higher consolidated margin. In particular in Europe, we're going to look at that, and currency is not going to impact margins. So we're guiding to margins in Europe for this year with Magna Steyr being kind of 4% to 4.5%. And when we get to 2019, margins are expected to improve bottom end and top end by 50 basis points. So 4.5% to 5%. But the impact of just Magna Steyr on 2019 is 1.5%, so we'd kind of be ex Magna Steyr or somewhere between kind of 6% to 6.5% in 2019, we're probably about 4.5% to 5% in 2017. So what we're seeing in Europe is continued growth in production margin in our production division and there's a number of reason that part of that is new launches, part of that is a contribution from Getrag, part of that is a continued focus on some underperforming operations and world-class manufacturing, and a big chunk of that has been offset by the higher proportion of complete vehicle assembly sales, which are going to be somewhere between kind of $6.6 billion to $7.1 billion by the time we get to 2019, and we're kind of $2.7 billion to $3 billion for 2017.

Right. Okay. Very good. Thank you very much for taking my questions.

Our next question comes from the line of Mark Neville with Scotia Capital. Please go ahead.

All right. Thanks. Apologizes. My question was answered. I was disconnected there. Again, I appreciated some of the puts and takes in the margin, but I guess to get to the midpoint of what you're guiding to for the year, you would have to be on quite significantly from Q1. And I think on a year-over-year basis, it's about 30 basis points for the remainder of the year. I guess would that sort of be the expectation?

Well, I mean, if we were at 8.9% in Q1 and if you have midpoint 8.1%, we're coming off in the next nine months of the year, if you use the midpoint, if you use 8%, we're up by 0.9%. If you use 8.2%, we're up by 0.7%. That's what we're guiding to, Mark. But I think you've got to kind of – there's been some changes even from our latest outlook. Overall I would say that in all our segments, excluding foreign exchange, on the production side, we've done a little bit better than what we thought we were going to do given where we were, what we thought in January. But we do have, on a consolidated basis, some headwinds when you look at consolidated margins by the time you get to the end of 2017. Part of that is reduce North American volumes and you know our margins in North America are higher than where they are in Europe. So that'll have a negative impact on consolidated margins, but bringing down our North American production guidance, the revenue in North America, so that'll have an impact. From a European production standpoint, we've moved up volumes, but sales become larger. Foreign exchange is also growing. So we had more U.S. dollar reported sales that's relative to stronger euro. So again, that changes some of the mix. Asia really is kind of flat. And we've moved up tooling across both North America and Europe. So when you have higher sales, we got higher tooling, and you got more sales in Europe, that tends to depress consolidated reported margin. But I think when you look at the various pieces, it all kind of hangs together quite well.

Okay. Again, I appreciate all that. I just wanted to confirm for, I guess, for the rest of the year. Again year-over-year you're down, but it sort of sounds like the thinking. So just in Getrag, I think last year you said a little bit better than neutral to earnings. Maybe if you could maybe give some numbers around sort of accretion expectations for 2017 and then maybe 2018, 2019, I guess there's a lot of spend going on now. So I just want to get a better appreciation for how that ramps.

In terms of Getrag, Getrag has – last year it was a little accretive in earnings and it's more accretive this year than it was last year. And the bigger impact on earnings is going to be as you go into kind of 2018 and 2019, Mark, so that'll be our bigger impact on overall numbers. And that accretion is coming in a number of areas. It's going to come in Europe. It's also going to come in Asia. We saw the impact of Getrag on the equity income line positively in the first quarter, in both Europe and Asia, and that's going to continue as we move into 2018 and 2019.

Okay. Thank you.

Our next question comes from the line of Michael Glen with Macquarie Securities. Please go ahead.

Good afternoon. Just to circle back on the guidance overall. Can you – just when I look at the North American production revenue guidance that you're giving, if I work with the high end of that, then it looks like where we should be looking for sales to be down through the next three quarters on a year-on-year basis in aggregate, is that the realistic expectation or am I reading that right?

Yeah, I actually haven't looked at that. Let me just try to answer that in a different way for you, maybe help Mark out a little bit too. You look at 2016 and you look at North American production sales, they were just under $19.4 billion. When you look at our guidance that we issued today for North America, it's kind of $19 billion to $19.6 billion. So it's relatively flat on a year-over-year basis. And North America, you know the margins what they are and margins are still fairly healthy in 2017 as they were in 2016. Remember (1:01:13), if you look at Europe, last year's sales were above $9.1 billion, and our latest forecast, the low end of our guidance is $9.2 billion up to $9.6 billion. So our European production sales are higher. Our complete vehicle assembly sales were $2.2 billion last year, and we're guiding somewhere between $500 million to $800 million higher, and we have higher tooling sales. So when you start thinking about a consolidated margin, you really got to start thinking about all those pieces too. So they do impact how you report it all together. But I'd like the fact and look at (1:01:53) operation that it's actually, given where we are on volumes and given where we are in sales. I think we're actually doing quite well in comparison to 2016.

And, Michael, just to further on that. If you look at the Q1 volumes, we were about 4.5 million units in North America. We were 4.5 million more or less last year, almost bang on. So last year we ended the year at almost 17.8 million units and we ran the year this year at 17.5 million units. So that means we've taken down the next three quarters by 300,000 units compared to where we were last year. And I would say even within that there's some mix impact. So K2XX is going to be down a little bit in the back half of the year. We have a little shut time down and a couple of other programs that are a little bit negative in our key programs. So we have volumes down as well as a little bit of mix that's negative for us in North America.

So we should expect maybe one or two quarters of negative North American production sales growth then within our forecast?

Well, I'm not going to comment on any given quarter, but I mean, the numbers are the numbers. You can see where we are for Q1. You can see what our range is for the next three quarters, so you can deduce what you think is going to happen.

Okay. And then just, you touched on the value discrepancy versus peers. Your balance sheet is getting better. You've increased the free cash flow profile. And just wondering if you can comment on the strategy for the buyback program or if there is any thought to maybe increase the pace of buyback activity?

Good question. We look at kind of overall what we want to do in the buyback quarterly with the board. Our strategy hasn't changed. Kind of want to be between kind of 1 and 1.5, we ended up at about 1.25 during Q1. We didn't increase our free cash flow outlook for the year. We have a strategy for the full year of 2017, then we kind of spit that up by the quarter. We may fine tune it in every quarter. You should expect that we're going to continue to be active in the market given the free cash flow we're generating, given the fact that you look at overall the valuation of our organization, and I think we're significantly undervalued and it's a good opportunity for us to buy back our own stock.

Yeah. We didn't buy back much stock in the first quarter. Obviously we want to – we'd have to pick that pace up if we want to try and get to where our target is.

Okay. Thanks for taking the questions.

Our next question comes from the line of Rich Kwas with Wells Fargo Securities. Please go ahead.

Hi. Good afternoon. Just a couple of quick ones from me. Vince, on the equity income line, you talked about Getrag being a bigger contributor as we move into next year 2019. Is this kind of a stair step function around the contribution for Getrag in 2018 and 2019 versus where this year settles?

Getrag is going to be a step function from 2016 to 2017, and it will continue to be a step function 2017 to 2018, 2018 to 2019 as is – if you're asking the size of the steps. It can move around a lot between now and 2018 and 2019 but you should see increases in both those years.

Okay. But it's kind of steady increases or – let me put it this way, 2018, at least 2018 right now, would that be bigger in size in terms of the increase versus the 2017 growth?

Bigger in 2018 than 2017, yes.

Okay. All right. Good. And then just on the mix issue, I think that kind of got touched on here in the last question or two. But so do you have something on the K2XX that mimics IHS or do you take an additional haircut and then forward this cut some incremental super duty volume here recently. How are you viewing the mix? It sounds like you have it down in the second half of the year in North America. But based on what you see in schedules four to eight weeks out, are you seeing any risk that maybe they start taking some incremental time down around summer shutdown versus normal?

No, no, I wouldn't say so. I would say that our new forecast reflects what we're seeing in the schedules, and I would say that we're not really seeing anything at least at this point out of the ordinary in the summer shutdowns or at least no different than what we are anticipating as we started the year. We're obviously going to watch that and see how things go and how sales are and how inventories are, and what happens there. But at least (1:06:55) what we have in our new forecast, it's in line with what we see on the leases (01:06:58) the next quarter.

Okay. All right. And then last one from me. Don, just to Adam's earlier question around the company and the business, what other suppliers are doing, you look at the various businesses you have under the umbrella and you've always viewed that as being an incremental advantage versus others and having everything under one umbrella and going to market with that and being able to deliver a solution or system to the OE, and that I think has worked from an organic growth standpoint better here recently than over the last few years. But the market obviously is not paying for that. So I guess the question really is, why wouldn't you consider trying to – maybe separating the company into different areas just because it would seem like maybe there could be, at least exploring it, there may be some value that could be called from that?

Well, it's a good question. We were talking at the board meeting yesterday about what do we need to do to get our multiple up and why we not either understood or why it's not been appreciated, or we value it fairly. One of the things we've talked about is should we be giving more color into things like Steyr because obviously it's a bit hard for people to understand what's happening there although we think it's good business. We'll continue to fine tune our product strategy. We sold a lot of interiors business to buy Getrags, where we got more critical mass. One of the attempts we're going to try and to do and we get, we started that today in a little bit more detail, Swamy at the annual meeting, is just explain to people what we have in electronics, how big we are, what technologies we're looking to go to, what are we doing in the powertrain. So I guess you could be in argument if you sell things up or spin them off, and you can partially trade at a higher multiple, another way to do that is just to explain to people in a bit more detail what we've got so people can sort of add up all the pieces. But we are a little frustrated with the multiple we're trading at and we're looking at what we can be doing to try and give better transparency to people to see if they agree with us, so we just think we're undervalued. I think we're perceived still to a certain extent as being sort of old technology and some of our products are – we'll just maintain them, but they're throwing off good cash flow and we're getting the return on invested capital and we're all growing a lot of areas too. So we're looking at options.

Operator, we're going to take one more call if that's all right.

Our next question comes from the line of Todd Coupland with CIBC World Markets. Please go ahead.

Hi. Good afternoon, everyone. Snuck it in right at the end. I just had a market question. A lot of the details have already been discussed. I'm just wondering what you think about all the market dynamics around auto finance and questions on used car prices falling and exaggerated leasing in the market. And how does that impact your thinking as you plan your business for 2017 and 2018? Thanks very much.

Well. Todd, I guess if you step back, and we've been talking for some time at some point we're going to see a softening. Question is how deep and how severe is the softening going to be? And the advice I've always said was see some gradual softening in the industry, and as a result of our continued penetration in content per vehicle, you could end up with a situation where North American production sales are flat or even up. We did bring down volumes by a couple of hundred thousand units in North America. I think generally in the United States, the economy is still very, very strong. Obviously we look at used car pricing, we look at days of inventory, all those metrics. So I think there could still be some downside in overall production volumes. But as we're planning our business, we're not looking at one year, we're looking at a program, the program's life. We're looking at when that program is going to ramp up and what the volumes are going to be and making the investment decisions accordingly. And then you adjust that where you can based on the production changes so they go up or down. But we're not going to make dramatic changes to our strategy as a result of volumes being a little higher or a little lower in any one particular year.

Thanks a lot.

Okay. Thanks to everybody for dialing in. We had a good quarter. Vince has gone through the outlook and then why we are there. I was pleased the Q1 results. I think we've had where launches are going well. We're making some improvements center performers. We're seeing some good progress in a lot of different fronts geographically. So we'll see how Q2 goes. And based on that, we'll tell you whether we're more confident in the full year. But thanks very much. Everybody, have a great day.

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