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Autoliv Inc. (NYSE:ALV)

Q4 2008 Earnings Call

January 29, 2009; 9:00 am ET

Executives

Jan Carlson - President, Chief Executive Officer

Marika Fredriksson - Chief Financial Officer

Mats Odman - Vice President of Corporate Communications

Analysts

Rahul Chadha - J.P. Morgan

Pat Norris - Deutsche Bank

Brett Hoselton - Keybanc

Adam Jonas - Morgan Stanley

Thomas Besson - Merrill Lynch

Operator

Good afternoon ladies and gentlemen and welcome to Autoliv’s fourth quarter financial earnings 2008 conference call, hosted by Jan Carlson, President and CEO. My name is Eena [Ph] and I’ll be your coordinator for today’s conference. For the duration of the call you’ll be on listen-only; however, at the end of the call you’ll have the opportunity to ask questions. (Operator Instructions)

I’m now handing you over to Mr. Carlson to begin today’s conference.

Jan Carlson

Thank you, Eena. Welcome all of you to our presentation of the fourth quarter results. Here at Stockholm we have our CFO, Marika Fredriksson; our VP, Corporate Communications Mats Odman; and me Jan Carlson, Chief Executive Officer.

We will as usual start with a quick review of the quarterly results. This will include an update on our liquidity position and the status report on the action program. Then turning to the outlook we will focus on the overall business climate and how we see this impacting our company in the near term. After that, we will remain available for questions. You can find the slide presentation through a link on the front page of the Autoliv corporate website under Financial Reports.

If we turn to the next page, you will find the Safe Harbor statements. As you know, this is an integrated part of the presentation. I want you to be aware that this presentation includes some non U.S. GAAP measures and where the reconciliations to U.S. GAAP can be found in the back of the quarterly earnings release and in the 10-Q filing.

Moving onto the next page, I would like to first of all extend a sincere thank you to all our employees for there support in the quality, safety and delivery, along with the action program focus during 2008. These actions helped to save margins and remain profitable during the fourth quarter, before restructuring activities. We continued to have a strong cash flow and by securing new medium term financing, despite the very tight credit markets, we again demonstrate our superior financial strength.

Our cash on hand of $0.5 billion exceeds debt maturities due during 2009 by close to a $100 million. In addition, we have unutilized credit lines of close to $700 million. As we enter 2009, it’s already clear that the global light vehicle production will be much worse than what we saw in 2008. We will continue to be nimble, adapt quickly and are prepared to meet these challenges as we are confident that Autoliv will emerge as one of the long term winners out of this crisis. And we should remember at some point, the auto sales will bounce back as they always do.

If we turn to the next page, we have the latest fourth quarter global light vehicle production figures as they come from CSM and JD Powers. This illustrates the severity of the decline with an overall decrease over 21% and represents 3.8 million fewer vehicles than the same period in 2007.

In NAFTA and Western Europe where we generate more than 70% of our sales, light vehicle production declined by 28%. Not surprising, the light vehicle production declines have quickly spread through other parts of the world. For instance, Japan produced 18% fewer vehicles and China showed a decline of 13%. Globally, there were 2.1 million fewer vehicles produced in the quarter than originally expected in October.

Onto the next slide, we have the summary for our fourth quarter results which was severely destroyed by the December free fall in light vehicle production. Excluding restructuring, we managed to achieve a 1% EBIT margin and exceed our revised guidance of a breakeven, despite a 26% decline in organic sales.

In October and November, sales developed as expected, but in December there was a sudden drop as we know, drop-off of more than 50% below last year. This low level was the starting point for 2009. Even in this steep declining environment, we still generated a strong operating cash flow of $188 million. After paying the dividend and the capital expenditure, we reduced our net debt by $84 million during the quarter.

Turning the page, we have the commodity impact on our business. The commodity cost came in $59 million higher than 2007, and this is $47 million more than we anticipated in the beginning of 2008. For the fourth quarter only, the commodity inflation was $22 million. This was below the expectation of $26 million due to lower volumes in the quarter than originally expected.

Looking ahead in 2009 if current level continues, we will return to the commodity cost level of 2007, and we estimate the positive effect of $50 million in 2009. The difference to the $59 million in 2008 is due to the lower light vehicle production and most of this improvement will occur in the second half while quarter one we estimate a flat or a slightly negative impact.

For distressed suppliers, our cost in 2008 was $14 million. Looking ahead in 2009, we have about 35 suppliers on the watch list and expect to contain the cost at a similar level as 2008. Onto the next page; we have our gross margin trend, lower sales, commodity inflation and a fixed asset impairment charge had a negative effect of almost 10%. However we were able to partly compensate the negative sales effect, primarily labor cost savings which had a positive effect of 170 basis points.

In addition a favorable currency transaction effect of 40 basis points helped to lower the cost. In this way, with the action taken, the decline in gross margin was 760 basis points despite the organic sales decline of 26%.

Moving on to the next page, we have the operating margin. In addition to the 760 basis points negative gross margin, we have a declining sales effect on our SG&A and RD&E, that is a cost of 285 basis points. Actions to reduce SG&A and RD&E and other costs generated $29 million or almost 175 basis points. Therefore, our total cost reduction actions improved the operating margin by 3.5% including the 170 basis points of savings from the previous slide. These actions allowed us to receive an operating margin of around 1% excluding restructuring charges.

On the next page, we have the cash flow performance. Cash from operations was $188 million during the fourth quarter as we mentioned earlier. Working capital was an important source of funds mainly due to a reduction of receivables along with the lower sales in December.

For the full year 2008, we generated more than $600 million of cash from operation and a free cash flow of $335 million was supported by a relatively low CapEx of only $279 million. This is roughly $100 million less than our estimate at the beginning of the year, but we expected capital expenditures to run between $315 million and $318 million and it is $70 million less than D&A of $347 million. We expect this favorable difference to continue and increase in 2009.

Turning the page, we have summarized our liquidity improvement actions that were taken during the fourth quarter. We raised $250 million of medium term funding without any financial covenant in a very tight credit market. We stopped the share repurchase program and also capped dividend by 50%.

By taking quick and early actions, we preserved cash and allowed our net debt coverage to increase to 150% of long term facilities with an average life of 4.2 years at the year end. This improvement from the third quarter compares favorably to our minimum policy that at least 100% of net debt should be covered by long term facilities and the average life should be at least three years.

Turning the page again, we have illustrated all debt capacity along with the maturity profile. We have approximately $2.4 billion of short, medium and long term financing available. Of this amount, close to $700 million is long term and remains untapped through revolving credit facilities.

Our current net debt level of $1.2 billion utilizes approximately 50% of our debt capacity. The net debt remains relatively unchanged also from 2007 due to our strong cash flow. The debt maturity is 2009 to 2011 as illustrated here on the slide and it’s a little over $600 million.

We believe that this is a strong position; especially given close to $400 million of maturities through 2009 could be covered with our current cash balance of almost $500 million. We should note that the cash will only be used if the medium term notes and commercial paper would be difficult to rollover. It is our intention to renew future maturities with similar debt structure to what we have today, as the U.S. and Swedish commercial paper programs remains active in 2009.

Onto the next page, we have the action program. We will not go through the details again of our action program that we announced in July last year, but as you know it is comprised of three things, it’s aligning capacity, it’s accelerating material initiatives and it’s further investing in technology.

Moving onto the next page, we have summarized our small car safety initiative where we are reinforcing our commitment to innovation and technology leadership. Even after considering these investments, we anticipate our RD&E cost will be around 6.5% of sales for the full year 2009. That is despite the declining sales environment. This is due to further cost reductions in the application engineering.

Onto the next page, we have summarized the early results related to the action program, and as mentioned earlier, we have decreased our workforce by close to 5,900 people or almost 14% since quarter two. Close to 2,500 of the reductions have been made to the permanent workforce; the temporary workforce has declined 3,400 or close to 50% during the same period. 9% of our current workforces are temporary, which still provide flexibility when we now head into 2009.

Our savings for 2008 is $29 million from these activities and the restructuring charge of $73 million includes $8 million of fixed asset impairments. $18 million was paid out in 2008, while the remaining $47 million is expected to be paid out in 2009. Based on the continued eroding production environment, we anticipate further actions in 2009.

On to the next page, we have our associate development, and during 2008 we reduced headcount by more than 4,600 people or 11%, down to 37,300, of which 3,400 were in high cost countries. We now have 55% of our associates in low cost countries. In response to the severe market conditions, we will continue to adopt our permanent and temporary workforce until we have right sized our company to the lower production environment.

On to the next page, we have our production figures for the full year. The volume in our seatbelt business decreased with 4% and this was essentially inline with the global light vehicle production, but better than the Triad. Continued strong demand in the rest of the world, market share gains in North America and the acquisition we made in India earlier, somewhat mitigated the negative effect of the Western European sales decline.

Our curtain airbags were up 2% mainly due to increased penetration in the Triad, and for our other product lines the volume declines vary between 4% to 11%; however, this is still less than the light vehicle production declines in our major markets Western Europe and North America of almost 30% combined. As a result, we may have lost some market shares in the steering wheels, but we have gained market shares in the seatbelts and electronic, we believe. Generally we also believe that there has been no major change in our overall market share, although there may be minor shift by the region.

Turning the page, we have the summary for our full year 2008 results. We’re satisfied that we managed to reach an EBIT margin close to 5%. This includes our major restructuring program of $73 million and commodity inflation of $59 million. If we exclude restructuring costs, we met the operating margin guidance of 6%.

Our organic sales decline of 10% was essentially inline with light vehicle production declines in the Triad and our major markets in Western Europe and NAFTA. And another important achievement during this financial turmoil was our strong operating cash flow which exceeded $600 million.

Turning the page, we have illustrated the uncertainty in the light vehicle production forecast over the last year. We expect the market turmoil experience in 2008 to continue into 2009. Weak consumer confidence together with tight consumer credits will most likely result in 2009 being the lowest U.S. light vehicle sales in 35 years and almost 20 years for Western Europe. In our two largest markets, EU and NAFTA, the 2009 light vehicle production is 21% and 31% respectively, lower than what was expected in the beginning of 2008.

Turning the page, we have the latest global light vehicle production figures from CSM and JD Powers for the first quarter 2009. Not surprising the depressed development in quarter four, it’s expected to carry through the entire first quarter and consequently the global light vehicle production is expected to be down 30%. For our two largest markets, the combined effect is approximately 40% versus the prior year. As you also can see from the slide, the vehicle volumes sequentially from quarter four last year to quarter one 2009 are 1 million units or 11% worse than the already low volumes of quarter four 2008.

Onto the next page, we have global light vehicle production by quarter for 2003 to 2009.

The global light vehicle production is expected to be down 13% in 2009; something we have not seen in recent history. As we all know, there is a high level of uncertainty in the 2009 light vehicle projections as the production volumes are changing almost daily. The quarter one level represents the run rate of 50 million vehicles and will hopefully be the low point of 2009. On the other hand, if you take the run rate in quarter four, the annualized level will be 62 million vehicles.

If we turn the page, we have the annual light vehicle production from CSM and JD Powers and for all financial planning purposes our indication for 2009 is based on the 57.5 million vehicles, along with the quarterly split shown on the previous slide. For our major markets, light vehicle production is expected to decline close to 20%, while the Triad is expected to decline around 18% in 2009.

Moving on to the next page, we have summarized some of our further planned actions to reduce our breakeven point. As back in July last year, I cannot provide you with the specific details of the actions, but I can assure you that we will move as swiftly as possible to further reduce costs as we have done in the past.

There would be further facility rationalizations to those already announced in 2008 and further alignment of our global workforce with evolving customer demand. We will continue to move as quickly as possible during the first quarter to adapt to the lower light vehicle production, and for instance we have already identified 1000 positions that will leave the company during the quarter.

We’re also implementing a general freeze in wages and bonuses along with reduced work week hours where it’s appropriate. This is in addition to the hiring freeze we already have in place. To continue to preserve cash and liquidity, we will be cutting our capital spending from already lower levels in 2008 and hold off on share buybacks while maintaining an adequate debt capacity head room.

Turning the page, we have the financial indication for first quarter and full year. In quarter one; we expect our organic sales to decline inline with the light vehicle production in our major markets, roughly 40%. Consolidated sales are expected to decline more than 45% given the current exchange rate. Consequently, excluding restructuring we expect the EBIT margin to be a loss of between 5% to 7% due to the severe drop in our organic sale.

We expect cash flow to be negative in quarter one, mainly due to the operating loss and the cash outlays from the action program. For the full year 2009, we anticipate organic sales to decline inline with the light vehicle production in the Triad and generate the positive operating profits excluding further restructuring charges.

To summarize, the first half of 2009 will continue to challenge our organization to cut costs. As we emerge into second half 2009, our continued cost focus, commodity and action program tailwind, along with anticipated volume improvement will allow us to more than offset the negative effect from the first half of the year.

The next slide concludes the formal presentation of today’s call and I’ll leave the word back to you Enan. We’ll open up for questions.

Question and Answer-Session

Operator

Thank you, Mr. Carlson. (Operator Instructions) The first question is coming from the line of Himanshu Patel from J.P. Morgan. Please go ahead Himanshu.

Rahul Chadha - J.P. Morgan

Hi, this is Rahul Chadha on behalf of Himanshu Patel.

Jan Carlson

Hello.

Rahul Chadha - J.P. Morgan

Hi. My question is, so you guys are expecting roughly a 45% decline in sales in the first quarter and a negative 5% to 7% EBIT margin? That actually implies pretty high decremental margins; one, is there any specific reason why the decrementals went high in the first quarter, and why should we expect the margins decrementals to sort of improve over the rest of the year, because I think you guys are sort of hinting at a positive EBIT margin range for the full year.

Jan Carlson

Well, I think it’s simply so that we had an over 40% organic sales decline. We can simply not keep up with the pace of reducing our costs. That is what happened in December, that is what we can see also through the first quarter 2009. We are reducing cost as much as we possibly can, but the situation with the structure we have doesn’t allow us to keep up with the pace of the sales decline.

Rahul Chadha - J.P. Morgan

Okay, any word on the 2009 maturity, specifically if you guys think you can refinance it or pay it down with cash or potentially use revolver proceeds, anymore color on that?

Marika Fredriksson

The majority of the maturities we have in ’09 are in March and in April and amounts to 398 and we have, as I stated, over total $500 million in cash at hand for the moment

Jan Carlson

And as you also said as long as we can find their credit market is working, we are anticipated to roll it over.

Rahul Chadhan - J.P. Morgan

Okay, thank you.

Jan Carlson

Thank you

Operator

Thank you. You next question is coming from the line of Rod Lache from Deutsche Bank. Rod, please go ahead.

Pat Norris - Deutsche Bank

Hi, it’s Pat Norris for Rod.

Jan Carlson

Hi, Pat.

Pat Norris - Deutsche Bank

Hi, how are you? A question on the CapEx; could you just help us think about how much lower that can really go, maybe tell us what the maintenance CapEx level is?

Jan Carlson

What we have said is that it depends on what you really mean with maintenance. The CapEx level, you should think about it in the range of $200 million to $250 million and most of the CapEx’s that we have, I think we have said a figure of 70%, is new investments, because it's related to new lines, it's related to tooling and dedicated to programs. So the majority of it for the way we see it is dedicated to new investment.

Pat Norris - Deutsche Bank

And just a follow-up on the question about the decremental margin; how much of your workforce right now is temporary?

Jan Carlson

We have roughly around 3,300 people in temporary workforce, corresponding to 9% of the total workforce.

Pat Norris - Deutsche Bank

How much of that is in Western Europe?

Jan Carlson

It is a mixture of throughout the world.

Pat Norris - Deutsche Bank

And is it fair to assume that the assumptions you’re showing in slide 21 are what’s you’re planning for the business, so you’re taking an even more conservative approach as you put your cost structure in place for this year?

Jan Carlson

Did you say page 21.

Pat Norris - Deutsche Bank

Yes, the figures slide 21, where you show the global...

Jan Carlson

You think about the capacity planning?

Pat Norris - Deutsche Bank

Yes, so are you planning for that scenario or are you planning something worse or how are you thinking about it?

Jan Carlson

As we said, financially this is what we are planning from a sales point of view. When you look into the capacity planning, we have to meet the anticipated increased demand coming through in the fourth quarter and into 2010 and we are swift and fast in taking action to go down, and now in quarter one, also in quarter two.

We are monitoring very close when the turnaround will come, if it comes; that we hope it will come at some point. So, the overall planning level, financially you should look towards the $57.5 million, but from a capacity point of view, we have to monitor it on a quarterly basis, approximately.

Pat Norris - Deutsche Bank

And just one more quick one, and then I’ll get back into the queue. Just on that ramp up, you’re obviously in a better financial condition than your supply base. So, how do you anticipate the supply base being able to deal with that ramp back up? I mean there’s obviously going to be a lot of capital required, both from the working capital side and the CapEx side. They don’t have receivables to finance, to do receivables back financing that they typically would do. So, how do you anticipate them being able to manage the upswing again?

Jan Carlson

We know this will be a difficult thing and we could also foresee that in some cases we will have to support them and that’s why we have also anticipated the same type of level as last year’s, $14 million for distressed suppliers. We also of course hope that at some point when this turns around, we will have other actions coming from governmental initiatives etc that could support the industry to overcome the turnaround when it happens.

Pat Norris - Deutsche Bank

Thank you very much. I’ll get back in the queue.

Jan Carlson

Thank you.

Operator

Thank you. Your next question is coming from the line of Brett Hoselton from Keybanc. Brett, please go ahead.

Brett Hoselton – Keybanc

Good afternoon. I believe it is.

Jan Carlson

It certainly is. Good morning to you.

Brett Hoselton – Keybanc

Thank you, very much. Restructuring, obviously you’ve updated your plan and you’re doing a lot more restructuring than usually anticipated. Is there any new annualized saving target that you might be able to provide for us?

Jan Carlson

We have noted any such annualized saving target that are ready to provide for you. The action program as it says today is exceeding the $120 million that we have announced before on the action program, so we will see a larger saving program. For this further action program that we are planning, you have probably read in the report that we are initiating activities that could have a cost of up to or around similar level as 2008. We’re always looking to all around one to one and half year of annual payback. So that is what you should calculate going forward.

Brett Hoselton – Keybanc

Okay, and then as we think about the action plan and how those cost savings might sort of impact your earnings, should we think of it as a steady ramp up through all of 2009 or should we think of it as more let’s say front-end loaded in kind of a stair step fashion and then plateauing as we move through the third and the fourth quarter?

Jan Carlson

You should instead think about it as a ramp up during the quarter actually and that will continue. You remember in the third quarter we had $5 million, now we have ULC and we have $29 million for the full year. So, you should look on that as a ramp up during the year.

Brett Hoselton – Keybanc

Okay, and then as far as your distressed suppliers and correct me if I’m wrong, but I think in the past you had suggested you thought that your distressed supplier cost in 2009 are going to be roughly the same as they were in 2008, because they were a little bit higher than usual in 2008. Is my understanding correct, if not feel free to correct me and then what is your outlook for 2009 ultimately?

Jan Carlson

For 2009 we look to the same level of 2008, $40 million or you can say also approximately $50 million to be a rounder figure; it’s so hard to estimate in this environment, but the same level as 2008.

Brett Hoselton – Keybanc

And then when you think about your dividend and your share repurchases program, what would have to happen in the marketplace to create enough confidence for you to either increase your dividend or introduce or reintroduce or start up the share repurchase program, and which one would you do first, if you start getting more optimistic?

Jan Carlson

I think when it comes to the dividend and the share purchase; of course the market has to stabilize. This is primarily a discussion we will have to have in the board before I would be ready to further go out and announce it, but for the time being we have no plans for restarting our share repurchase program.

Brett Hoselton – Keybanc

Thank you very much, Jan.

Jan Carlson

Thank you, Brett.

Operator

Thank you. The next question is coming from the line of Thomas Besson, Merrill Lynch. Thomas, please go ahead.

Thomas Besson - Merrill Lynch

Hi, a few questions from me. Can you tell us, I think you said during the call that R&D as a percentage of sales would stay at 6.5%, right? Q4 was I think the lowest absolute number you’ve ever had in recent years; $63 million to $64 million and you say in the text that you had higher engineering income. Can you tell me how low the absolutes R&D cost can be in a year like ’09 please?

Jan Carlson

While you can certainly back calculate the reverse figure, what the R&D number will be for the full year, we will continue to cut cost. The absolute level of R&D for 2009, we expect it to be lower than 2008, but due to the severe safe decline we will increase or go above the target. Not to increase the target, but we will go above the target of 6%.

Thomas Besson - Merrill Lynch

Sure. Did you have higher engineering income in Q4 ’08? I think in Q4 ’07 you already had mentioned extraordinary low R&D numbers, but still we are nearly $20 million low in Q4 ’08. So it looks really extraordinarily low at $64 million for the quarter?

Jan Carlson

We had higher engineering income. We actually had between $5 million and $10 million higher engineering income in 2008 than 2007, that’s true. So, we had a very good year when it comes to higher engineering income. You should remember that a vital part of the action program is investing in new technology and reducing application engineering and then rationalizing our activities in application engineering.

We are targeting a 30% headcount in local countries for engineering and we are progressing that through 2009, so that is the contributing factor. We should also anticipate that there will be more stress on engineering income for 2009, as our customers are more stressed this year due to the downturn in car production, but still we are expecting to come in at around 6.5%.

Thomas Besson - Merrill Lynch

Okay, great. Can you help us understand the swings in tax, both in the P&L and in the cash flow statement and you have to put it as tax gain in Q1 that limited the EPS loss you reported and you have about $50 million swing in deferred taxes and other in the fourth quarter of ’08 which help actually the strong cash generation, the operating level. Can you help us understand, are you going to have any P&L tax and are you going to get similar positive swings from deferred taxes in ‘09 or is that just a one off gain in the fourth quarter?

Marika Fredriksson

Well, in this environment it’s very hard to predict tax. So, what we said is that for ’09 the expected tax rate is the same as this year ’08 that is 31%. The swing you see and if you compare quarter four in ’07 with quarter four ’08 is we had an effective tax rate of 36% and we are only getting back more or less half of that, and this explanation is that we have made money and paid more tax incomes where tax rates are high, that’s why we don’t see the full benefit despite the loss.

Thomas Besson - Merrill Lynch

Okay, so I’m not sure I understand. In Q4 ’08 you’ve got $9 million positive tax. You have $54 million negative tax, which we find back in the customer statements. So for the full year you’re still expecting 31% tax rate, but in Q1 ’09 for instance we still could very well have a positive number, right?

Marika Fredriksson

Correct.

Thomas Besson - Merrill Lynch

Okay, that’s very clear. Can I ask one more question, please? We haven’t seen any write-off, whether its asset or intangible assets. Do you foresee any needs to do any write-offs and where and when do you see actually your net giving ratio peak? Is it fair to anticipate that your net debt to equity will probably peak at the end of Q1 or at the end of Q2?

Marika Fredriksson

Well, as we have stated in the report, we are expecting a negative cash flow in the first quarter, and in this environment it is very hard to predict the cash flow due to supplier constraints and also uncertainties with our customers. I can’t tell you the exact time when we expect this to peak, but it would be somewhere in the first half of this year.

Thomas Besson - Merrill Lynch

Okay and any needs to write-off anything?

Marika Fredriksson

No.

Thomas Besson - Merrill Lynch

Thank you very much.

Jan Carlson

Thank you, Tom.

Operator

Thank you. Your next question is coming from the line of Adam Jonas from Morgan Stanley. Adam please go ahead.

Adam Jonas – Morgan Stanley

Hi, thanks and good afternoon. I got a couple of questions.

Jan Carlson

Good morning.

Adam Jonas – Morgan Stanley

Hi, good afternoon. First, what’s the minimum cash that you need, the minimum gross cash you need to run your business?

Jan Carlson

We would guess about a couple of $100 million, roughly. We haven’t gone down that avenue, but roughly between $150 million to $200 million.

Adam Jonas – Morgan Stanley

Okay, so then around half of the current level roughly?

Jan Carlson

If you look on to the available cash, if we are looking on the utilized debt capacity, what is left is about $150 million. So, that would be the minimum level.

Adam Jonas – Morgan Stanley

Okay thanks. Then just wanted to go back of the distressed suppliers again, if I think I heard you correctly you said 35 on the list right now.

Jan Carlson

Yes.

Adam Jonas – Morgan Stanley

Is that flat with the number on the list in the third quarter, has that changed?

Jan Carlson

It has changed, it has increased. I think we have mentioned that we have had about a handful or a dozen and that has changed and it has increased primarily in North America, but also in Western Europe. Still we believe we will maintain the level of about $14 million for the cash out or for expenses to the distressed suppliers.

Adam Jonas – Morgan Stanley

So, you’re kind of implying that if the distress on the supply base is peak, you’re reaching a peak and that you don’t anticipate it getting any worse, okay.

Jan Carlson

I wouldn’t say it wasn’t getting any worse actually. I think that we have also solved issues along the lines that we have handled through the fourth quarter. And we would expect this to maybe sort of turn worse during 2009 and quarter one, quarter two in sort of the climate we are, with ultra lower volume production. It will hurt a lot of the tier 2, actually.

Adam Jonas - Morgan Stanley

Alright and between North America and Western Europe, where is the pressure greater?

Jan Carlson

North America.

Adam Jonas - Morgan Stanley

Okay and any emerging, any low cost country suppliers on that list as well or added to that list?

Jan Carlson

There are even low cost country suppliers on it, but the absolute majority is in North America and in Europe.

Adam Jonas - Morgan Stanley

Okay, final question and as granted it’s probably pretty mature, but in the market like this there can certainly be some M&A opportunities. Maybe even some of your distressed suppliers may have some IT that you find interesting, maybe not, but can you rule out any opportunistic M&A if the price is right or can you just give us a better color on how you approach M&A in 2009 please?

Jan Carlson

We never rule out a good opportunity as you know and therefore we are keeping our eyes open and we understand there will be opportunities coming out of this distressed environment. However, we will cautiously look on every opportunity due to the limited financing availability and limit during the production environment and such.

We certainly don’t need added capacity. We could benefit from technologies moving ahead and also as we have said in the past, where we can strengthen our position in the growing market, we would be interested in doing so, but for natural reasons in this environment we would be very cautious.

Adam Jonas - Morgan Stanley

Understand. Thank you very much.

Jan Carlson

Thank you.

Operator

Thank you. We have a follow-up question from the line of Rod Lache; please go ahead.

Pat Norris - Deutsche Bank Securities

Hi, it’s Pat on again. I just had one question about Western Europe next year. Western Europe would probably be significantly worse if it wasn’t for some of the scrapage plans being put into place? Is there any potential for you to under perform the market pretty significantly and a fact that a lot of the vehicles that are purchased as a result of those scrap age plans will be lower end vehicles and therefore have lower safety content?

Jan Carlson

Well, I think you have a point there that it’s going, it’s skewed towards less safety content intentsive vehicles. However, I wouldn’t put it that we’ve severely underperformed, but the initiatives, you are right; it’s looking towards smaller vehicles. We should though remember that this is exactly the reason why we are investing now in new technology and now we are taking the opportunity to spend this money. When we have the strength and the capacity to spend the money we are doing it, so that we are prepared for this to come.

Pat Norris - Deutsche Bank Securities

Okay, thanks very much.

Operator

Thank you. We currently have no questions coming through. (Operator Instructions). We have no further questions coming through. I will hand it back to Mr. Carlson.

Jan Carlson

Okay, thank you very much for interesting questions. I would like to thank everyone for your participation and I look forward to hear you all in the next earnings call on April 21, 2009.Thank you very much all of you.

Operator

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Source: Autoliv Inc. Q4 2008 Earnings Call Transcript

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