Greetings and welcome to the Third Quarter 2020 Results Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Friday, November 6, 2020. I would now like to turn the conference over to Louis Tonelli, VP, Investor Relations. Please go ahead.

Thanks, Jason. Hello, everyone and welcome to our third quarter 2020 conference call. Joining me today are Don Walker, Swamy Kotagiri and Vince Galifi. We will have formal comments today from Don and Vince. Yesterday, our Board of Directors met and approved our financial results for the third quarter ended September 30, 2020. We issued a press release this morning for the quarter. You will 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 in the appendix reconciliations of certain key financial statement lines for Q3 2020 and Q3 '19 between reported results and results excluding unusual items. Our quarterly earnings discussion today excludes the impact of unusual items in Q3 '20 and '19. Don will comment on the noncash impairment charge we recorded in the quarter. Please note that when we use the term organic in the context of sales movement, we mean excluding the impact of foreign exchange, acquisitions and divestitures. Lastly, please note that we will be providing our 2021 outlook at the same time as we report our fourth quarter and year-end results in February 2021. And now, I will pass the call over to Don.

Thanks, Louis. Good morning, everybody. Hope everybody is safe and healthy wherever you are today. Before I start, I would like to acknowledge all Magna employees around the world for their tremendous efforts in meeting and exceeding the challenges of the past 9 months. I would also like to once again, reiterate that the health and safety of all of our employees remains our top priority at Magna. Today I will review our recent highlights including our announcement of Swamy's appointment as Magna's next CEO; our strong third quarter financial results; our noncash impairment charge related to our investment in one of our equity accounted transmission joint ventures; our agreement to acquire Hongli; the startup production in our vehicle manufacturing joint venture with BJEV in China; our announced cooperation with Fisker; and a key program award in camera monitoring. I will switch up the order a little bit here and I will start with our strong Q3 results. Following the significant production declines driven by the COVID-19 pandemic in the first half of the year, we are experiencing a recovery in production which started at the end of the second quarter, particularly in our key markets of North America and Europe as well as China. We were pleased with the operating performance in our quarter. While sales were down 2% year-over-year, our adjusted EPS increased 38% to $1.95 in the quarter. And we generated $1.3 billion in free cash flow. These strong results reflect our operational focus on world class manufacturing and the actions we’ve taken to reduce discretionary and structural costs in response to the lower levels of production. While production is recovering and auto sales have been fairly robust in the past few months, the resurgent of COVID-19 remains a risk to future sales and production. I believe…

Well, thank you, Don, and good morning, everyone. As Don mentioned, following the worst year-over-year decline in vehicle production during the second quarter of 2020, that we can recall, we experienced a significant recovery in our key markets in the third quarter. And we quickly bounced back to profitability, stronger margins and solid free cash flow generation even on relatively low vehicle production. Our third quarter results include sales of $9.1 billion, adjusted EBITDA of $778 million, which is up 39%. Adjusted EBIT margin of 8.5% compared to 6% last year, adjusted net income attributable to Magna of $585 million, up 34%; adjusted diluted EPS of $1.95, up 38% over the third quarter of 2019 and free cash flow of $1.3 billion. We also returned $115 million to shareholders through dividends. Lastly, we increased our outlook for 2020. I'm going to cover these in my financial review. Our third quarter total sales were $9.1 billion, a decline of $190 million or 2% from the third quarter of 2019. Our sales were negatively impacted by lower assembly volumes at Magna Steyr, lower vehicle production, particularly in Europe, the end of production on certain programs and net customer price concessions. These were partially offset by the launch of new programs, the negative impact of the labor strike at GM that was reflected in our results in the third quarter of 2019 and currency translation, which was about $117 million tailwind. On an organic basis in the third quarter, our sales were roughly in line with global production, largely as anticipated coming into this quarter. Year-to-date, our sales have outgrown production on a Magna weighted basis by 4%. We also expect solid sales outperformance of the market in the fourth quarter, as you will see in our outlook. Despite the lower sales, adjusted…

Good morning guys, and thanks for all the detail on a lot of developments here. It's very helpful. I just wanted to ask a first question on the outlook, Vince, that you just went through, particularly around the fourth quarter, which is, is very strong. The top line and even at the EBIT level. Are there programs rolling on in the fourth quarter that's giving you this level of confidence? Because, I mean, if you look at the outflow [ph] versus the market as you -- just simply without sales waiting, up 10% to 21% above the market. So this seems like you're really outperforming the market in the fourth quarter. And it seems like something must be rolling in.

Well, I think what you're seeing in the fourth quarter is the benefit of some new program launches. We're also seeing -- expecting to see some continued better mix just within our product segments, which helps certainly to grow overall sales or our old way of defining thing is content per vehicle, average content per vehicle. So that's certainly helping on the sales line. On the margin side, you look at kind of implied margins in Q4 and there -- if you work the math, it'll be a little lower than where we were in Q3. But remember Q3 benefited from those government support programs about 70 basis points. So if you kind of neutralize Q3 for that and look at kind of the range of potential Q4 margins, it's in the ballpark of the Q3 net of the government support programs. Again, I look at that and I still think that's good margin, strong margin. It's reflecting obviously some of the activities we undertook through this year, starting in Q1 and Q2, and actually continuing where we're right-sizing our company looking at a whole bunch of structural costs that we've taken out. We took a pretty big impairment on severance costs in Q2 about $150 million, and we're expecting some savings and we're seeing the benefit of that in Q3. We'll continue to see the benefit of that in Q4 and continue to see benefits growing as we get into 2021 on the margin side.

John, the other thing is for the most part, we've had -- we've been struggling with some losing divisions in the past years in some difficult launches. And right now, knocking what everything seems to be going pretty well, we made some really good improvements in a number of those areas. So that's helping as well.

Yes, on the sales side for sure big programs or some launches, including the GM SUV, but just generally the GM programs are very strong year-over-year, more -- stronger, let's say in the fourth quarter relative term -- in relative terms compared to where they were in the third quarter. So that's definitely helping us and we're launching the Bronco, we've got some content on that. And of course, the Escalade and we've got content on there. So there's a few programs that are launching as well.

Okay. That's very helpful. And then just a second question, maybe sort of two-pronged strategy here. I’m just curious if you can remind us of your current seating position in China and what does Hongli acquisition means to sort of the total portfolio in China? And then sort of the second strategic question is, when you look at Arcfox and Fisker, I'm just curious how the platform development costs and the platform development, whether you call it a skateboard or what the -- what -- how you want to define that EV platform is getting paid for it and shared with these partners. And is there any crossover between what you're doing with Arcfox and what might be the platform for Fisker?

Yes, let me start with the seating. Magna has been, as you know, if you look at historically, we've been relatively small going back 20 years, we first grew in North America and then in Europe. So we are relatively small player still in China, but we have made some acquisitions. We've done some greenfield operations, and this just strengthens our position in China. We believe we can continue to penetrate organically with this winning new business over there. And we've got some very big competitors in China and some of have gone through some difficult times. So this was a move for us to really give us full capability, just to continue our greenfield growth over in China. Maybe I'll turn it over to Swamy for Fisker. Fisker, we just [indiscernible] Fisker and what we're doing for Arcfox, because we're tied up with customers. We're pretty limited in what we can say. We are leaving it up to them, what they want to say, but then do you want to add anything, Swamy, on Fisker and Arcfox?

Yes, Don, I think generally like you said, we won't be talking specifics, John. But most importantly, I think there is a lot of platform and core technologies across Magna. And we've always talked about how that is an advantage in being able to bring all of these platforms together at a system level or from a vehicle perspective. We have done that at different levels. So Fisker is one other example of being able to provide that base platform, obviously, the details and the customization and some of that stuff is different from different OEMs and customers and we are not able to discuss those details.

Okay. Maybe just one follow-up to that. I mean, obviously you're capable of designing, engineering and manufacturing in EV, right, that I don't think that's a secret you guys are very good at this stuff. The business -- question is, the business sense of that is always a big question mark. Somebody else is taking the riskier being Arcfox and Fisker for you. But I mean, it's just will we ever be able to hear how these development costs and these platforms costs are shared over time? Because I think there's a lot of interest in obviously what you're doing here, but then what you can do in the future based on what you might develop here or what you might do with other partners. I mean, is there going to be a point in time where we can have more disclosure? I understand what's going on right now, but I think there's a lot of curiosity about what you're doing here.

Yes, like I said, John, one of the key things that we've always talked about looking at platforms being modular and scalable at each of the product line. When I say that whether it's powertrain within certain power levels, ADAS, L1, L2 plus. As we go through each of this, even in Cosma exteriors, like what is the underbody [ph], what's the vehicle structure. We have always done it with outlook on what the vehicles could be in different segments. And what is the sweet spot with our Magna’s tire engineering capability and kind of oversight on what they go through from a manufacturing perspective. We are bringing these things together. So it's very difficult to say, here is a platform overall. This is what we consider to be the core platform technology development, and it happens across the portfolio. So definitely going forward, there will be synergies on things that have been developed and use off-the-shelf going forward just like any other products. And we hope to see that, but difficult to quantify exactly for the specific platforms.

Okay. And then just lastly, real quick on the GJT write-down. Don, you kind of commented the other way that value had been allocated at the point of acquisition may have been less than perfect based on what you know now, right. Maybe it's good when you were doing it. But it sounds like there's a lot of value that's developing on the HDT side is sort of package neutral for hybrids. And just curious, in total, if you think about that acquisition, there's some really -- some parts that may be a little bit negative, but then it sounded like there's some parts that are really positive to go on the HDT side. So is the GJT write-down really an accounting rule that you're kind of forced to follow. And there actually is still a lot of value in this Getrag acquisition, and it's not something it's all of a sudden in total being really impaired in a significant way.

John, I think definitely the product adjacency compared to what we had in our driveline systems, it is definitely a great decision and it continues to show in our DCT portfolio. And as you talked about, we continue to win business in the hybrid duplex transmissions, and a lot more inquiries from various customers, going way beyond the 2026 timeframe even. So we see a strong roadmap there. And as a next step, based on the DCT platform, we are also looking at the DHT and there is -- that is applicable to the hybrid as well as the EV’s platforms. So we see that as the right decision and it continues to be a foundational step for the electrification process. So it's only a matter of regional product application in China, where I think Vince talked about it, maybe you can add some color is the reason why we are seeing the impairments. But overall as a product portfolio and the decision on Getrag, we still believe it was the right thing and it is the right thing.

John, it's Vince. Just -- unfortunately, the accounting rules forced me to look at our wholly-owned operations in our equity accounted investments as separate pieces. So as we're doing some required testing, I got to compare that to how we originally allocated purchase price on this acquisition. And that's forcing a pretty significant impairment this year. We also took it on [technical difficulty] on this business. If these entities were consolidated and I looked at this through one lens as opposed to two, I can say substantially all that impairment wouldn't be required. I think there'd be some -- still some fixed asset impairments in the entities, because it's a different test that applies whether you are equity account or consolidated, but substantially all that impairment wouldn't be required. It's just unfortunate because as Don talked about and Swamy talked about, you at this acquisition and there's always uncertainty in anything you do, even when you look at a program and you had in China, we've underperformed and in Europe, we've outperformed expectations. And as Swamy talked about its positioned extremely well when you think about our electrification strategy. But that's just the end result and we are following the rules.

Yes. Thank you very much. That's incredibly helpful. Thank you.

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

Great. Thank you. Good morning. And Don and Swamy, congrats to you both. First question going back to the margin discussion, may be for Vince. It looks like you're exiting kind of in the high 7% range for your guidance. And I think you mentioned earlier there's still some additional opportunities there. So at a high level, how should we think about kind of the original 2022 guided range I think of 7.6% to 8%. Understand there's a lot of uncertainty out there, but should we think about that as having potential upside over the next couple of years? Any puts and takes there will be helpful.

Yes. But we're in -- right now in the middle of business plans. So I don't have that information handy right now that I can look at and rely on. So we'll give a full sort of color in February. But, Itay, I think kind of sit back the way I would think about it as is follows. If our volume and mix assumptions in 2022 were exact. We pull -- we did pull our guidance, right, given the uncertainty, that gives you a benchmark. And then I look back at the business and what's happened in the business and some of the things that we've done this year to improve our cost structure would be additive, I believe, to where we would have been in 2022. So that's a plus, but I got to remind you too that, I don't think the volumes are going to be where they are. I think they're probably going to be a little bit lower. So that's kind of a negative. I don't know when you kind of add one plus two and the changes of new business awards, where that all sort of adds to. But we have become, I'd say, more efficient on the cost structure and that's just not a Q3 or Q4 item, it's something that's going to continue for the foreseeable future out into ‘21, ‘22 and ‘23. That's my visibility at this point in time.

No, that’s very helpful, Vince. Thank you for that. And then secondly hopefully you can give us an update broadly on just a new bit of that. And then secondly hopefully can give us an update broadly on just the new business and coding pipeline. And then maybe particularly on the ADAS business. And I know previously you were thinking of the outlook was to take that business to over $1 billion of revenue by 2025. Any updates there in terms of the level of coding and just new business win activity.

Go ahead.

Go ahead, Swamy. Go ahead.

Vince, I think I just was going to make a comment on the programs that we were talking about and which have actually helped us get some of the development process that we've undergone in advanced technologies and that put us in a great position to win some additional business. So I think that core platform technology will help significantly. And as we look at the growth ranges out to ’22 and ’23, earlier we talked about to be in the 7% to 9%. CAGR from ’19 to ’22. Looking at ’19 to ’23, we are in the 13% to 15%, but there is some good traction in terms of programs that we're talking based on the core development that we've gone through.

Yes, Itay, if I look at our program awards and it's harder to just take a quarter and make a conclusion on that. But if I look at the first 9 months of the year and most in the pipeline, I'd say on the -- specifically on ADAS, we certainly had a plan in terms of what we were targeting and where our results are today, I'm confident that we're going to meet or exceed that plan. Then we'll quantify that as we get some guidance in February of next year. With respect to some of the other businesses, I think in some areas we've seen some slippage into ’21, as some of the programs have been delayed, but it's not that we've lost the business just that the program awards have been pushed out over what we thought they were -- the date that they were going to be awarded. So, Itay, overall, we're on track in terms of where we thought we were going to be at the beginning of 2020.

And Vince, I think just maybe a couple of points on Don mentioned that the program award for camera monitoring. I think it's a good example of how we are basing the existing technology and bringing different systems together. This is the complete intelligent vision system we are talking about, includes the outside mirrors with camera monitoring, inside video mirror and the remote ECU and our software, of course. So we see this as a trend where it's unique to us to be able to bring systems together. And that's a good win, and we see a lot more traction than discussions with other OEMs.

Interesting. That’s very helpful. If I could just sneak it on, on that Swamy, on the camera monitoring award, any sense of how we should think about the CPV for that?

It's difficult because it's based, Itay, on the number of features and what type of integration is needed. But if you look at the mirrors versus the cameras individually versus the overall system, I would say at an average, that could be an increased content for us.

Got it. Terrific. Thanks for all the detail. Thank you.

And our next question comes from the line of Chris McNally with Evercore ISI. Please proceed with your question.

Thanks so much and congratulations again to Don and Swamy. Hopefully, Swamy, you can get the 23x return in Magna stock that Don was able to accomplish over his career. So we'll keep that optimism. One model question and one strategic. On the model, the power and vision margins were particularly impressive, and that's one where you've already discussed that you had a lot of turnaround in a couple of execution issues over the last t to 2 years. This is a business that you used to have a 10% plus margin goal. Just curious, can we think about that this 8% sort of second half floor as something to work off going forward? I know you're working on the 3-year plan, but just trying to see if there's anything extraordinary in the mix that gave you such a nice pickup in that -- in what looks like the implied second half.

Chris, let me try to answer that. I mean, you look at the margins in Q3 for power and vision, they came in at 8.3% compared to about 6.2% the year before. I think got to look at the 8.3% and think about first of all, the employee support programs, and that was probably around point -- 60 basis points, 60 to 65 basis points for power and vision. And there was a benefit of not having the GM strike in Q3 last year. But besides that, we did see some margin expansion in our power and vision segment. Part of that came through some efficiencies and restructuring savings. Part of that came through reduced spending on Lyft, which we've talked about. But Chris think about it, this business on this basis, it's still a relatively small business. I know it's growing quite rapidly and we've been investing in, I would say, a couple of areas. One is, I call it, core platform technology. And you've heard Swamy talk a little bit about that in other areas of the business. And we're also spending a lot of money on programs that are going to ramp up and launched over the next couple of years. That core technology spending once we've got it, it's an asset we have, it's like a fixed asset. Unfortunately, we don't put on the balance sheet because we expense it. But we're going to be able to leverage that for future programs. So that should lead to higher margins on its own. Unlike fixed assets where you depreciate over time and it continues to hit margins, this money is spent, we've got the assets and we're going to leverage that. So how the margins grow over time is going to be a function of how quickly the business ramps up, how much new business we've got and what our continued spending is on platform technology. And I'd expect the level of spending that we're doing now on sort of gaining and maintaining our capabilities is going to be roughly the same. And the variable is going to be application engineering, which is complete related to and tie to new business.

Okay. That's really helpful in terms of the launch sequence. Then maybe my second question is a little more on strategic. As I think about Steyr and John, I think alluded to sort of the spirit of the question in his question. I guess, high level, you have Austria, you have a similar facility in, I think Serbia, which you can grow. What would it take from an economics perspective a new customer to launch sort of a U.S facility? Because I think clearly the -- what we're all seeing is a huge startup demand from new EV players who really don't have any history and in manufacturing, but essentially have all the free capital in the world. And it seems like there be this once in a kind of cycle opportunity for Magna to do something with Steyr in North America and sort of get out ahead of that. So if you could just talk about maybe the hurdle requirements, CapEx requirements, anything about what is the opportunity that looks like we can grow Steyr significantly from here.

So I think, Chris, great question. In terms of looking at the possibility of a footprint in North America, we always said if the business case makes sense in terms of a longer term perspective, we would remain open and the position is still the same. To your point whether it's the incumbent OEMs looking for different variants, whether EV or otherwise in combination with the new entrants, I think with the flexibility in the manufacturing processes, you still have to look at a volume criteria of how much is required to sensibly have a facility. You can always talk with something and have the flexibility to grow or add on. I think that still remains the same whether the -- whether it has to be multiple OEMs or not, will depend upon the volume. If there’s a smaller volume criteria with a descent outlook, then its two or three mix, or maybe just one which has a certain number. Our Graz facility, our Graz [indiscernible] facility today can produce up to 200,000 units a year. Kind of gives you a ballpark in terms of the scale and size plus, minus obviously we can, like I said, have the flexibility to start smaller and grow. But we continue to have that discussions and we are seeing a lot of inquiries. Beyond 2023, we said we would be contemplating and looking at the possibility with Fisker, again if it makes sense. So I think there's a few variables that we need to manage through.

That's great. And those typical programs, I think you said on previous calls, I mean, you've done programs that are 50,000, but typically there's 75,000 and above. Okay. That makes sense. Thanks so much and congrats again.

And our next question comes from the line of Ryan Brinkman with J.P. Morgan. Please proceed with your question.

Hi. Thanks for taking my question, which is another one on the ClearView opportunity on I think it was Slide 17. How you estimate -- how do you estimate this product stacks up in terms of its cost, weight, packaging, et cetera, relative to what competitive offerings are out there and given those characteristics of the market, do you have a targeted amount of sales or market share that you think your product could garner over time? Could this become eventually material for the power and vision segment? And if so, over what timeframe?

Good morning. I think one -- the key point there is bringing systems together, which we’ve always talked about was the uniqueness of Magna. So this is a good example. And as you look forward, we always talked also about mirrors being augmented with other systems to provide information to the drivers and the passengers. This is that. In terms of looking at the value, you cannot just look at the value from the component to component comparison as we have these discussions with the OEM both in terms of the feature, availability to the consumer, plus -- the one plus one is greater than two, is a good example here. So, overall, like a system level, the OEMs would look at it only if it makes sense to reduce the cost base for them, right? For us, it is an increased content and we are able to bring things together in terms of synergies of software, ECUs and packaging for sure. And it's giving more value to the consumer. In this case, it gives a larger field of view and that is customizable to user preference. It has improved driver visibility with three cameras creating emerged view. So there's a lot of value to the consumer itself. So it's a combination of the two that we are able to bring and we think there's a large market for this especially with the expertise we have on both mirrors, cameras, and software.

Okay, great. Thanks. And then I'm just curious finally after the announcement of the transaction with Fisker, if you've received any sort of additional inbound interest along these lines, I know you have more capacity particularly in China coming online. How should we think about the complete vehicle assembly business ramping in terms of potential new awards or transactions with startup automakers that don't have their own manufacturing capacity? How do you think that could trend over the next couple or several years?

I think it's not specifically related to the announcement actually. Even before the Magna’s tire capabilities are well-known, and we have and continued to have various discussions with the startup new entrants, as well as actually the incumbent OEMS, whether it's variants or regular platforms. So we see that as a unique capability and like Don talk about we're just starting to launch in China. We see a lot of discussions there as well as in North America and in Europe. We believe we could be the enabler to the OEMs to widen their portfolio and look at us as an extension, and definitely from a new entrant perspective to bring reliability, robustness, experience of scale manufacturing to them. So we see a good future there.

Okay, great. Thank you.

Just want to add one thing to your previous question. You talk about the market size for ClearView. It's always most difficult to develop something, get it proven out and get it -- get a car maker to say, we are going to put that on a platform. Once you get one, it's -- the barrier to entry for others is much lower. And as an example, you would look at the electronic latch. It took us almost a decade from the concept to land our first contract. Once you get the first contract and it was tested out, then there was a lot of interest [indiscernible] and it starts to penetrate. So can’t give you a dollar range, but expect once you get it, the first one, then you can get others.

And as we're looking at the very first program, it's a pretty sizable program. We're estimating sales are about $100 million a year, so it's the first step into, I think additional awards in the future. And we are speaking with a number of additional customers about our ClearView technology. So I think this is an area of growth for us.

That's great. Thanks a lot for the color.

And our next question comes from the line of Mark Neville with Scotiabank. Please proceed with your question.

Hi, good morning. First off, Don, Swamy, again, congrats – both congratulations. I just want -- help me with a little more color on some of the structural cost savings. It sounds like headcount is a big part of it, but just curious if there was anything else. And Vince, maybe it's a challenge to quantify, but how do we think about that in terms of maybe if it's structurally higher incremental margin, or putting a number around those cost savings. Thanks.

Marcus, not all headcount related, right? Some of it is process related. Some of it is just sort of -- we talked, I think we talked about this in -- at the end of Q1, is where the team took an opportunity to look at what we've been doing and just say what -- what's real value added and what can we do differently. And what costs can we eliminate? So we've done some of that. And even when you look at the headcount, when I think about the improvement, it's not because labor is up or down because volumes were up or down. We've actually taken headcount out, because we've reduced our structural costs and don't expect that to come back. In terms of trying to quantify it, I don't have a number, Mark. All I can tell you at this point is we did spend about $150 million or incurred about $150 million provision in Q2. There continue to be unfortunately some severance and restructuring costs, even in Q3 and expect some more in Q4. We didn't call them as specifically as scattered here and there and everywhere. And when we did the analysis and we spent a lot of time in Q2 and just looked at what savings are kind of permanent versus just volume related. At that point, our view was that our savings will be about $209 on an annual basis. Now we don't get to that full number till 2022. We're -- obviously, we're getting some of that today. And then the balance of this year, there'll be a bigger part of that's going to fall into ’21. And again, ’22, we should see the full 200 impacting our profitability on a positive basis.

Thanks. And I guess, I don't want to pick too much on the Q4 guide and you said it's very strong. Just sort of look at the implied sort of growth rate sequentially, I think sales were up about $700 million. I haven't quite done the math with the subsidies, but again, it looks like the incremental margin is a bit lower than I might've thought. So maybe some of those, excuse me, the cost savings are taking some time to come in, or maybe it's mixed. Just curious if you could speak to that.

So you're looking at kind of -- sales where -- if you look at our sales range implied for Q4 were kind of 9.4 to 10.4 and we were just over $9 billion in the quarter. I think mix has got something to do with that. You still have to think about seasonality in our business. You've got the Christmas shutdown still impacting us in Q4, right? I think it's going to be a little different. I hope it's a little different and probably stronger production generally over the holidays, but there is that impact typically in Q4 that does hurt our margins on a seasonal basis. So you got to factor that into account as well, Mark.

Okay. So just maybe just one last one. Just for the accounting on the impairments and JV, what's the remaining carrying value for that JV? I’m just sort of curious, the last 2 years sort of what percentage of the book was written down?

Yes, what -- you look at the -- we've got a number of JVs in there. I think when you look at all of it, I'm just trying to find it over here, certainly a lot less than kind of where we thought. We're probably in the $300 million to $400 million range at the end of the quarter in terms of recurring value. Do you remember our carrying value on our original acquisition price could be a lot of movements in there, right, because you're -- we've taken money out in the form of dividends. We generated some income, so it's not an easy tie back to kind of our original purchase price. You got to run through all the various pieces that impact our carrying value on our books.

All right. Got it. All right, thanks. So I'll pass the line.

Thanks, Mark.

And our next question comes from the line of Dan Levy with Credit Suisse. Please proceed with your question.

Hi, good morning and echoing other’s comments, Don and Swamy, congratulations. Wanted to go back to the margin question and specific to body exterior structures, you had a 10% margin in third quarter. Fourth quarter, it's basically implied something like 9% and that's well above what you've done in the past, or at least for the period that you've reported the segment margin. So can you just give us a sense of the underlying dynamics in the business? I mean, I know in 3Q, you obviously had some government support there, but 4Q is still pretty strong because it's just the GM truck mix in third quarter and fourth quarter that you're getting, really nice contribution margin on that? Or I noticed you mentioned a few things in the release about cost days or low launch costs, efficiency improvements, are those unique? We shouldn't extrapolate this going forward, or is there any sustainability to those results and to those drivers?

Hey, Dan, I think when you look at last year's margins for BES, sort of last year, they -- there's a couple of things that really stick out in my mind. One is certainly the GM strike, which we called out last year, which is -- was under 50 basis points -- about 45 basis points. So that's reversed in the quarter. But we were impacted by a couple of underperforming operations in our BES group last year. And we've been talking about some of the actions that we've taken to improve those operations kind of blurred in the first half of the year, given previous volumes of COVID-19. But if you look at the performance of those operations in Q3 and expected performance in Q4 and so on, the actions we're taking to improve operations is adding to overall margin. So that's going to continue and just continue to expand as we move into 2021. We've been benefiting a bit through lower launch costs, it's just really the level of activity. But throughout the entire organization at BES and actually throughout the whole company, we're seeing the benefits of some of the right sizing actions that we took and some of the efficiencies and restructurings items that we've done. And again, I think that's going to carry on. What won't carry on into Q4, is again the impact of the government employee support programs, and at BES we estimate that's about 90 basis points on their margins. So you take a 10.1, they're really running at kind of without that, 9, 9.2-ish, let's call that, I think that's a good sort of benchmark. And with continued realization of some of the benefits from the cost savings from the restructuring, it should throw over time as well as continued improvement in some of those underperformers. I don't see any reason why margins can continue to inch up over time.

Great. So there is some sustainability to that run rate that we see in the fourth quarter. And just to be clear, how much of that is driven by mix? Because GM is particularly strong and they're running a whole lot, and I know you got a high content on that.

Yes. Dan, and I think when you look at overall our BES businesses, a number of customers and a number of programs, don't really look at it and kind of highlight what one program may or may not do to overall margins.

Got it. Okay. And then I want to circle back on the fiscal question and just really more broadly on complete vehicle. So I think we all know about, you do the vehicle assembly piece quite well. I mean, we're all well aware of that, but I think what -- it may be unique to us or what we're seeing more of now is this engineering services piece. So first, could you just give us a sense of how new is this or how you're approaching areas like battery, powertrain, electrical architecture that we maybe don't see as much on the assembly side. And, obviously, I think we know the appeal of a startup to come to you because they take the asset light approach. But what's the appeal of a legacy automaker to join you on this platform and take on these engineering services when they obviously have some of that in, in house. Is it just really scale or resource allocation?

Yes. I think the important part of it is that the engineering -- full vehicle engineering services is not new. We have done that with many of our OEMs, both in North America and Europe at a subsystem level, also at a full vehicle level engineering and integration. So it's not specific or unique only to the new entrants. We have done that in the past and that is the experience that we are leveraging and working through. So there's a rich heritage there. I think a little bit goes to our knowledge and depth in different product systems. So it is not just bringing things together. We can leverage each of the product groups that we have to get the knowledge, we know how the systems interface and bring it together. And top of that is the experience like I talked about is the full vehicles in the past. So I won’t say it is specific to startups only. As the OEMs are looking at it, they know we have the capability and the experience. So if they're looking at a variant or -- often an existing platform are looking at -- taking an existing platform and customizing to something different to meet their needs. I think all of the above we are able to bring to the table, right. And specific to new entrants, I think we can actually look at the entire value chain and say, here are the platforms that we have core technology that Vince about. And if we're involved with them way ahead, there is a lot of synergies in terms of time and the development process that could be helpful to come to the market faster. So it's a combination of all of those.

And just to clarify any comments on sort of how you've approached the battery areas, which are a bit more unique?

In terms of the integration of the battery, if you remember, we have the knowledge in terms of how the batteries work and like we also talk about how do we bring power to the wheels. So in terms of the battery chemistry and so on, honestly, there's a lot going on. So that's something for us to understand, but not the expertise. But in terms of the integration of the battery packs and the rest of the system, we have a lot of expertise and knowledge in that, I should say.

Great. Thank you.

And our next question comes from Kevin Chang with CIBC World Markets. Please proceed with your question.

Hi. Thanks for taking my question. And again, congrats Don and Swamy. Maybe just a couple of clarification questions. Vince, you called out the government wage support impact on margins. I think if my math is right, it's about $64 million, mid $60 million of contribution, that's greater than the decline you saw in your labor cost line. Just wondering where else would this -- these cost savings show up in your P&L?

Yes, they would be in the …

Overhead.

… overhead. Yes, cost of sales and SG&A, the biggest part of it's going to probably be in cost of sales, Kevin.

Okay. That's helpful. And just -- a lot of conversation on your complete vehicle manufacturing capabilities. If memory serves me correct, when EBIT margins were closer to 1% to 2%, you would constantly highlight that the return on invested capital within this division was at a corporate average or in line with the other divisions. Just given the step function improvement you've seen in margins in complete vehicle manufacturing, wondering how that ROIC looks like today. Would that be just that you're seeing returns better than the corporate average now, with margins closer to 5%?

Yes. With this business here, we've been seeing returns historically would have been better than our corporate average, and that continues to be the case, Kevin. I'd say on the -- on a negative, what’s impacting return on invested capital doesn't offset sort of some of the gains as a result of margin expansion, but it's the capital that we've invested in new facility and in Europe just to support some of the Graz activities. Certainly, that -- that's a pretty significant investment that when you do the math impacts return on invested capital. But all in all today, our Steyr business is operating at returns that are better than the corporate average.

Okay. That's helpful. Thank you. Congrats on a good quarter.

Thank you.

And our next question comes from the line of James Picariello with KeyBanc. Please proceed with your question.

Hey, good morning guys. What are the restructuring savings you're expecting to achieve -- to achieve by year end within the $200 million fully targeted? What should be realized this year? And has that changed at all relative to your previous guidance?

Given to our previous guidance, I don't have any information at this point that would make me change my views on that. We'll do a deep dive as we get through people's and group’s business plans. I felt that the $200 million numbers, though I'd say relatively in the ballpark. Yes, in terms of how much of that's going to be realized this year versus next year and ’22, I’d say that the bigger bulk of it is going to be in ’21 when we have a full year advantage and we've been operating in this type of environment for 6 months plus. So we should see continued -- everything else being equal incremental improvements to margins as a result of the activities that were taking place or have taken place and will continue to take place in 2020.

Okay. Got it. So no major change to the what's achieved this year?

No.

Okay. All right. And then just at a high level, as we try to bridge to 2021, on the positive side of the ledger, we'll have structural cost savings from the program we just talked about. It sounds as though your top-up payments were fully reimbursed by the government support programs this past quarter. So nothing really call out on that front. Just as we think about next year, is there a quantifiable bucket of net temporary cost savings this year that will repeat in 2021? I mean, could this be an equal offset to your permanent savings next year? Just how should we be thinking about that? It'd be helpful. Thanks.

I think that's going to depend on a little bit on what happens with restrictions. Yes, I can see, for example, travel costs start to edge up somewhat if travel is now more free. We have been working virtually across this organization. It works fine. I still think the face-to-face meetings in certain situations are important and necessary. I don't think we're going to get to the same level we were in the past, but that could certainly edge up somewhat. But people are going to be a little bit -- if volumes start to move up, profits start to move up. People are going to be a little bit -- a little easier to spend some money on discretionary items possibly. But I don't think that's going to anyway outweigh the benefits we expect from rightsizing our business.

Got it. And then just last one. The timing of -- the almost 30 million share buyback program, would you expect to complete that authorization within the 1-year term? Just -- what's been the company's historical track record on fully executing the Board’s share reauthorization?

Do you know, James, I think this is the 10th year in a row that we've announced the NCIB. And I think there's a couple of periods where it comes to mind we haven't come close to what we were doing and what we were authorized to do. And the reason for that is we were allocating capital to the business. I think at the period when we acquired Getrag, for example, we stopped the buyback to bring some more cash into the [indiscernible] to pay for the acquisition. But once we got through that, we started buying back again. So you look at into this NCIB and I've talked about when do we consider resuming the NCIB. And I said, we're not going to be doing anything in 2020. We're going to get through the end of this year. We'll have our updated business plan for the next 3 years. We can come up with a revised strategy and our capital allocation strategy hasn't changed. So it's going to be a function of how we use our cash and how much of that is used to invest in the business either organically or inorganically. And then the balance of the buybacks. So you could get to the situation where we buy back the complete number of shares to be that some of that cash is being used to invest and grow the business. So we'll -- the -- we'll just cut back a little bit on the buyback. But unknown at this point in time, but in terms of our strategy and how we look at it, James, hasn't changed with this announcement here.

Got it. Congrats to you, Don, and to you as well, Swamy. Thanks.

Thanks.

Thank you.

Thank you.

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

Great. Good morning, everybody. You talked a little bit about the opportunity that you see in hybrid drive lines. I was hoping you might just touch on the feedback that you've been getting on the competitiveness of your battery electric vehicle drive line technologies. What's the interest in the motors, gears and power electronics that you've been developing specifically for EVs? And is there some aspect of that that you think is in particular gaining traction with OEMs? And then secondly, GM yesterday talked about the decision to transform Oshawa to pickup truck manufacturing starting in 2022. I think you have over 2,000 hours of content per vehicle on pickups from them. Do you have similar levels of content or do you have the potential for similar levels of content on some of the electric pickups that are coming out over the next few years?

Good morning, Rod. The answer is yes. And what I mean by that is, as we look at the e-Track systems, we've talked about how we looked at the building blocks that go into the overall system. And all -- not just on the integration, but actually the value chain of the systems is where we have been looking at. And in the two programs that we have, and we talked about, obviously the winning of the business shows the competitiveness for us in getting that as we go through the launch -- we are going through a launch and getting through that process. So we actually have a very comprehensive strategy on addressing the power rangers and the [indiscernible] and so on and so forth. So we believe we have a very -- I strongly believe we have a good position in the overall system, which means we have to look at the power electronics, the gearbox, the software and the inverters that -- and how they all come together. We are looking at it from an overall system perspective and also at a component perspective. So I think it's a very good position there. With the tool that we have that we are launching will gain experience and we continue to have a lot of discussions with other programs across OEMs. From a pickup perspective, I think the content, if anything, could be better, like we talked in the past with electrification, with our powertrain, bringing power to the wheels. Our market actually opens up to address even the front wheel drive, not just the four wheel drive all-wheel drive market. So we actually see that as a potential upside going forward.

So we could have battery frames as well, which is a pretty high content product.

Right. So you're saying that in -- because you have front wheel drive that that's a -- that would be incremental because you -- most of your contents on the pickup trucks is transfer cases in all-wheel drive systems?

So the way I'm looking at when you say they always are four wheel drive, it's a feature, Rod, right today. We happen to provide that feature with the transfer case, but we are doing e-drives. So the e-drive functionality can also provide thought to the wheels where and when needed. So we are able to provide that functionality, right, going forward. What that mix is going to be the consumers are going to look at, and the customers, the OEMs are going to look at. But as we moved into the e-drives and we are making them today, we should be able to address not just only the all-wheel drive, four wheel drive feature. You can also look at the two wheel drive feature with a e-drive, right. So if anything, it could be an expansion of the market is what I mean.

Okay, great. And you've mentioned battery frames a few times, and just to put this into context for us, what is the content opportunity for you guys? Is it sort of rivaling the kind of content you would have on the pickup truck frames or any way to put any context around that?

So if you look at the battery frames today definitely actually more than if you look at a content of a full sized frame, it's more than that, Rod. And I think as the scale comes and it evolves, it could change a little bit, but I think it will be substantial and easily compatible to a full vehicle frame.

Okay. Interesting. Great. Thank you.

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

Right. Thanks. Vince, just going back to the guidance that you provided in January for 2022, when you provided that guidance, was the restructuring part of that? The restructuring where you plan on getting the $200 million of savings, or should we think of that is that $200 million above and beyond the guidance that you provided back in January?

Yes, Peter, I think there was some of that was baked into our ’22 guidance. But the bulk of it is going to be -- should be incremental to what we had built into 2022.

Okay. The other thing I wanted to ask about there's -- I don’t think there’s been any discussion today about the three -- you have the three significant ADAS programs where you're moving from engineering and to production. And when you were talking about some of the moving parts that improved your margins, you didn't talk about those programs. So can you give us an update on those programs and where they are in terms of moving from engineering to launch and if they are contributing to the margin?

Yes. So …

Hi, Peter.

Swamy, go ahead if you want. I can fill in afterwards.

Yes, no problem, Vince. I think the programs are continuing and hitting the milestones, so they're progressing well. We still have to get to the finish line, but in a much better position, like I said, and we also anticipate that some of the development that we have undergone during this process really become what I consider to be the core technology. And they will help put us in a good position to win additional business. But from the three programs that you're talking about, Peter, we're moving according to plan.

Peter, just to add a little bit more color there. I think if you look -- remember, we talked about those additional social costs in the second quarter. You back those out, I’d say, the first half of this year compared to the first half of last year, we're probably running at little bit higher, but as I get into Q3 and Q4 on a year-over-year basis, we expect those costs to be a little lower. Again, I didn't talk about that in my role discussion because it really is not meaningful. I think the more meaningful impact is going to be in ’21 and ’22 as these programs near and start to launch.

Yes.

And can you just be a little bit more specific? When do these three programs get into launch? Does it start next year and then unfold over the next three years?

I don't know whether we are able to give specific customer timelines, Peter, but the launches would be next year, but a substantial part of the engineering activity will be coming or will be over the hump, let's say, already. And it's in the next 3 to 4 months, 3 to 6 months, I would say is continuing towards production. But the launch -- the plants are in the 2021. I didn't want to get too specific because they are customer timelines.

Okay. I understand, Swamy. Thanks. And just one last question. Vince, I noticed that you did buyback some shares during the quarter. Is that more you're buying for antidilutive purposes, or do you feel comfortable now given how things have unfolded with COVID and the recovery in the industry that you can be back to buying stock?

No, Peter, they're specifically related to employee commitments. So we're -- because we have the NCIB, we're buying them under the NCIB, the deferred play commitments and the shares will be distributed to employees. It's not part of kind of realigning our balance sheet structure.

Right. Okay. That's all I have. Thank you.

I think, I would just add, just because we're almost out of time, I'm just going to -- just want to say a few closing remarks and maybe Swamy does as well or lose everybody. Just, Peter, I'm glad you asked the question because after all the -- must be over a hundred quarterly investor calls, if you hadn't asked the question at the end, it would have been a little disappointing. So just want to thank everybody for participating today. And Q3 was a really strong bounce back quarter from Magna. I'm also very encouraged from what I see going forward in the fourth quarter and beyond. And then, as I said earlier, I think it really is a testament to the fact that Magna is pretty agile and adapting to issues that come up. Just in general, I would like to thank -- personally, like to thank all the investors for all their support over the years. I took over operations Magna back in 1991. So I've been CEO for 26 years. If I include the 4 years, I was the CEO of the Intier Spinco. And specifically, I look at my career here specifically since 2010 when we did the transaction to go to a single class share, we really, really been focused on our three priorities of world-class manufacturing, innovation and people development. And we're a global organization, it takes time to really get things ingrained into a company. We’ve probably been focused heavily for the past number of years in our long-term product strategy and a consistent capital strategy, which I think a lot of people have asked us about. And some other things like free cash flow that we thought were important for our -- for the investors in their share price. And then…

Yes. Thanks, Don. I appreciate your comments. And as always, Don, has set the bar and in a nice way, a good target for all of us. All kidding aside or the -- since the announcement, or as we've been working together, Don, I should have started with a few comments, but it was get your head down and get back to work because even after the announcement that transition the next day, I felt like normal day at work and all that credit goes to you for making it so seamless and for the rest of my peer group, who have been phenomenal in helping through this process. So -- and to all of you who are on the call, since the announcement I’ve gotten a lot of calls, many text messages and emails and so on. So I very much appreciate all the good wishes and I look forward to working even closer with you going forward. And Don I will try my best to meet the target that you've set out there. Thank you very much.

Okay. Thanks, Swamy. And I guess the last thing I'd like to say is that with -- I must say the -- over the years, the investor calls and the questions we get, we get increasingly more complicated and difficult. And I -- there's no way we would've been able to give as good a -- an update to the investment community, but wasn't for Louis and Vince, who have done a phenomenal job in my opinion, and really understanding that the questions and the needs of the investment community. So hats go off to both of them because it made my job a hell a lot easier. So thanks very much everybody. And I appreciate everybody dialing into the call today.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.