Commercial Vehicle Group's CEO Presents at 2013 Credit Suisse Global Industrials Conference (Transcript)

Dec. 5.13 | About: Commercial Vehicle (CVGI)

Commercial Vehicle Group, Inc. (NASDAQ:CVGI)

2013 Credit Suisse Global Industrials Conference Call

December 5, 2013 8:15 AM ET

Executives

Richard P. Lavin – President and Chief Executive Officer

John Hyre – Director of Investor Relations

Timothy Trenary – Executive Vice President and Chief Financial Officer

Unidentified Analyst

Good morning everyone, so we are pleased to hear today to have Commercial Vehicle Group with us, we have Rich Lavin as a CEO, Tim Trenary is the Chief Financial Officer as well as John Hyre who is Director of Investor Relations. I think this morning the format they are going to give some brief prepared remarks to go over a couple of slides and then we’ll just open it up to Q&A. So thank you so much for your time.

Richard P. Lavin

Good morning and thanks for joining us for this morning’s presentation. As Jamie mentioned I’m Rich Lavin, Chief Executive Officer of Commercial Vehicle Group, I joined CVG just over six months ago after retiring from Canaccord after 29 years and Tim is also relatively new, he has been with us for just over two months, so we are looking forward to giving you our perspective I think on opportunities that we see in CVG and we look forward to taking your questions after we finish the presentation.

This is just a look at our product line up, and our product mix, CVG of course we are an industry leader, a global industry leader in supplying components to the commercial vehicle industry everything from seating, to mirrors, wipers and controls, if it’s in or on the cab, we try to design it and we try to supply it, the percentage of it just a breakup of – the percentage of our total sales represented by the different product groups. This product line I think its serves very well, one of the real opportunities for us I think is to be more broad as we go to market in selling every aspect of our product line up.

Our global footprint, as you can see we’ve got offices and manufacturing and some of these facilities in each of the trispears Americas, Europe and Asia this represents I think a real strategic strength for CVG, as I will comment in a couple of minutes we are sharply focused on Asia, sharply focused on China as an area of growth going forward, so our footprint in China gives us I think a great leverage point as we try to grow sales, profitably grow sales in China, over the next several years.

As you can see we’ve also got a fairly dense manufacturing footprint and in North America we are taking a hard look at rationalization of our footprint to determine whether we can get more efficient and take total costs out of manufacturing that study is underway right now.

Unidentified Analyst

Just a quick update on, what’s happening at CVG as I mentioned our new management team, Tim, myself we’ve also got a new managing director of Asia Pacific, the gentlemen by the name of Geoff Perich who joined us from Canaccord he has got deep experience in China he is also got deep experience in areas that are very simple to our future, product design and management, manufacturing operations and also marketing.

So Geoff is on the ground in Shanghai managing our China operations. I’ve also reorganized the leadership team, as you will see in a minute I want to talk to lift the organization chart you will see that we now division presence, and accountability for developing global businesses in our important segments, in construction, and in military in truck and bus and also in after markets and infrastructure.

We also took some time a couple of months ago to do a deep dive on critical areas of the company, to determine where we needed to focus our attention in the early days to strengthen the foundation of the company, in the third quarter release, I talked about the engagement of McKinsey and the help that they provided to analyze our strengths or weaknesses and help us put a plan in place to drive change and improvement in key areas.

I will put up a slide, in a minute that goes through this in a bit more detail, but the work tied out to and overall value proposition and the value proposition by initiatives. So we have great confidence that we are going to execute the projects that we put in place but also great confidence we are going to deliver the value prop associated with that work is the organization as I mentioned the most critical change was movement from a very regional, a very North American centric focus, a very product line focused organization to one in which our division presence have accountability for developing a global business.

So Kevin Frailey is an example now he has global responsibility for Construction Ag and Military, previously had responsibility for the wiring business there was a very North American focused approach because that’s where the majority of the opportunity was Kevin is now looking at Construction Ag and Military with all of our products on a global basis, Ag and Military has taken the same approach with respect to truck and bus. I mean Timo Haatanen has also taken the approach with respect to aftermarket. The growth opportunities for us are in the United States Survey in certain areas but the opportunities in Asia.

The opportunities in China really swamp the opportunities that we are looking at North America across all of our businesses today. I’ll talk about that in a bit more detail. These are the initiatives we ran with McKinsey. Again the purpose was to deep dive sort of critical areas of the company to make sure that we again we had good foundation or good plan for moving forward as we looked at expanding our footprint and refining our go to market strategies. So North American truck we’ve had a strong position traditionally, but it’s becoming a much more competitive market. So we wanted to make sure that we have the right approach both in terms of product strategies and go to market strategies not only to protect, but to grow our share in North America truck.

Construction and ag equipment represented a tremendous opportunities for us globally. We’ve established very strong relationships with the key North American multinationals Deere and CAT at the top of the list, but we now need to take that success in North America and leverage it outside of the United States especially in China.

Our success is really based upon our ability to introduce differentiation in the market through the products as we design our manufacture. So we spend a lot of time talking about our new product development process to ensure that we have resources allocated to the most important highest return projects, but we also talked about the line to value making sure that we have a mindset and a culture within our R&D organization that will help us deliver lowest cost, highest value to customers going forward that’s where the differentiation will continue to come in for CVG in the marketplace.

We’re also looking at our manufacturing footprint as I mentioned we started that work with McKinsey several months ago. The story for us in terms of profitable growth is going to be largely organic and we’ve looked at our position globally, we’ve looked at our product line up, we’ve looked at the customer opportunities. We think we have significant opportunity to grow this company organically over the next several years. That’s not to say that we won’t be an M&A, we will be in the market, but certainly if you are looking at opportunities, but I don’t see M&A as the prime path to growth over the next several years, we’ve got organic growth opportunities that we’ve got to – that we’ve got to get after.

And finally, we did up the spans and layers overview that resulted in the removal of about $3 million to $4 million in structural cost at the end of McKinsey engagement. So that is structural cost, head count cost out of the organization today. As we move ahead with our product driven organization, we maybe introducing some of that SG&A back into the organization, but it’s going to be a much more value adding capacities within CVG.

And I’ll wrap up with this slide I talk a lot about the China over the course of the last couple of minutes. This stacks up the unit opportunity 2013, 2014, and 2015 in construction; ag and truck. North America compared with China just to take construction as an example. Our 4x opportunity versus North America in 2014 in construction in China. We got a very strategic footprint in China, we’ve got a good plan for moving forward and even if can only address one half of the total opportunity, because you know China is a very price sensitive market, but a good part of their market I think is moving towards a value proportion, but if you assume that we can only address one half of the opportunity it’s still more than 2x of the opportunity inside North America.

So that will conclude my comments I’ll turn it over to Tim, we look forward to taking the questions and again thanks for joining us this morning. Tim?

Timothy Trenary

Good morning, I’ll echo Richard comment at the outset, thanks very much for joining us this morning. I’m going to start here with – I’ll look backwards before I share with you the early observations that I have here with the company with respect to the company’s financial affairs and to develop a little bit more some of the comments Rich made with respect to our financial opportunities.

On the screen here the last seven quarters, last year 2012 and first three quarters of this year 2013 the bars represent sales for these quarters and then superimposed on those bars is the operating income margin for the same periods. Now as I imagine many of you know if not all of you about half of the company’s businesses almost directly tied to the North American heavy truck market, about 20% of the company’s business is tied to construction equipment. And so again as I’m sure you realize over the last year or so those two end markets have dipped a little bit and that performance in those end markets which make I think rather a large composition. The majority in fact that the company sales is reflected in the company’s financial performance over this period of time. Focus your attention please in last two quarters the second and third quarters of 2013 the two right most bars and operating income margin data point on the slide here.

There were some special items and extraordinary charges if you will in both the second and third quarters $2.5 million in the second quarter associated with executive change, management change and then in the third quarter charges – $2.8 million in charges associated with the consulting services that we spoke of about $2.7 million in some impairment charges and $1.8 associated with the reduction in force that came out of the spans and layers analysis which I’ll come back to in a moment.

Before giving effect to those charges in the second and third quarters that operating income margin would have been more or like 2% or 3% so better than this slide shows here for the second and third quarters but are 2% or 3% not nearly good enough.

Now – we have been with the company for two months and pretty much my observations coming into the company over this two months period then confirmed. And that is that I believe that the real opportunity for this company lies in enhancing the company’s margins starting with the gross profit margin, EBITDA margin which and obviously result from the operating income margin and driving operational excellence and SG&A opportunities as well as focusing on the top line and diversifying that.

Let me just speak quickly about each of these. As Rich indicated we are in the final analysis of our manufacturing capacity utilization, I believe there is some opportunities to enhance that and that will drive some manufacturing footprint change. I think there is some actions that is going to come out in the very near future. Operational excellence are driving lean manufacturing technologies, our activities into our manufacturing facilities is an area that we are renewed focused on, in the company we have a program that we are in the final aspects or finalizing it and will be rolling it out after the first of the year.

We expect that to also drive some additional cost out of the enterprise. And then finally and I’ll refer to it is addressing other costs or [indiscernible] SG&A addressing cost as opposed to just eliminating them. And as Rich mentioned, we as a consequence of this spans and layers analysis and the $1.8 million charge associated with it in the third quarter. We did identify and we have taken out almost $4 million of expense associated with the existing selling, general and administrative charges.

I will say this is – that I preferred to refer to it is addressing SG&A because I believe there are many opportunities for the company to repurpose some of the spin that we had incurred in the past away from activities that are not as value additive as they might be, so well we have taken some of the expense out, I expect with a very near-term here moving into 2014 to reinvest and to redeploy some of that savings into for example developing the product line, management infrastructure, the sales team and just generally making our go to market strategy more robust.

Now after having addressed the cost structure the another main element here of improving the company’s financial performance is now the leverage that cost structure and we intend to do that through growing this top line organically. We’re organized now around the end markets, truck, bus, construction and agriculture, military and aftermarket and we go to market now globally to those end markets. The process of going to market in that fashion, I believe we will give you a company of real ability to diversify our top line geographically much more readily in Richard’s slides, you saw the opportunities with respect to China and diversify our end markets more readily, more specifically construction and agriculture, okay.

In the course of doing this, I expect some further diversification of the company’s customer base and products. As you can imagine as the company undertakes going to market in this way and diversifying its top line in this manner, the impact that the – in this example of the heavy truck market end market in North America the influence of that element of our business which is about 50% today, I expect to be somewhat diminished in the future.

Now in the course of action in these initiatives, we will be I believe deploying incremental capital, capital associated with the manufacturing capacity utilization analysis and therefore some changes with the manufacturing footprint, I expect that they’re not too distant future. We’ll be investing in the facilities and the equipment in the facilities for new business, and I imagine for some actions coming out of the operational excellence. And finally as Rich mentioned, we are at the end of the day a product oriented company. And so we’ll be investing in product innovation. And again back to my comments about the repurposing SG&A expects some of the spend in SG&A to be repurpose towards that sort of activity product innovation.

Our capital structure and our liquidity is as of today well suited for the activities of this management team is undertaking $250 million in senior secured notes outstanding, not due until 2019 and we just renewed a $40 million asset based loan last month as five years to run. So sort of the way I think of the company’s capital structure is a covenant light capital structure one in which that’s in place for an extended period of time now at least four, five years out into the near future. With respect to the liquidity $75 million of cash on the balance sheet at the end of September and with the renewal of the ABL $30 million of availability in addition of that cash available to the company the action of various initiatives. So with this covenant like capital structure coupled with the liquidity, I believe CVG is in a very fine position to execute in all the various initiatives that we spoken to you about today.

I want to leave you with this one thought, this final thought a takeaway if you will and I do think it’s important. And that is that this is a new management team, new organization structure at CVG and a management team that is in the process of orchestrating a considerable amount of change. My experience in these circumstances is the change that’s not happen overnight, I can sort of think of it as a journey. And in fact that's what this management team and CVG have embarked on as a journey. Again my experience is at the end of this journey and I expect this to be the case at CVG, I think there is going to be a meaningful amount of value for all of our stakeholders.

So again thanks so much for joining us today, stay tuned and more to come.

Unidentified Analyst

I guess I just wanted to take off with a question Rich in particular given your experience in Caterpillar and in Asia-Pac specifically, I just wanted you to elaborate on your approach in China on giving your experience in Caterpillar in terms of the type of customers you’ll be focusing on whether it’ll be the global ease or the domestics to your approach to products a lot of industrial companies have taken different approaches whether to introduce their developed world product hints there or have their own products. And then I guess how you make money over there? And then your longer-term view of the construction equipment market?

Richard P. Lavin

Yes, I think my experience in Caterpillar especially in China is going to be very; very helpful as we move ahead would build out of a business in China. Where the opportunity with the multinationals doing business in China today in construction and ag is significant. We got a relatively low share of their total business at this stage. So the multinational opportunity is going to be enough I think to drive a meaningful short-term gains and growth for us. So it’s Cat, it’s Deere, it’s Komatsu, I mean all of top tier construction and ag companies are going to be a part of our go-to market strategy in China.

Then you got all of the I would say second tier Japanese and you’ve also got the Korean, so we’ve got a long list frankly of construction and ag equipment manufacturing multinational that we can address, I think as a product line what we’re building out in China today. You make a very good point regarding the type of product you’re trying to sell in China. Caterpillar moved from an approach where we were selling maybe de-consented global product best-in-class product to Chinese to where we were designing for the China market and that's exactly the approach we’re going to be taking in CVG.

We’ve got to be designing for the local market because if we’re going to address the cost and value expectations in a wide range of customers, you can’t do it by de-consenting one product. You’ve got to have separate product programs that are focused on building value for different types of customers. So that would be our product development strategy. We’ve got a very, very competitive seat that we’re going to be selling in the market beginning in January especially the full time which as you know is our large customer on the truck side of the business. As far as construction generally is concerned, I think a flattish global outlook 2013 to 2014 is probably reasonable at this stage, I think the GDP growth projections in China already were up from 7% to 8% but I do, I have been reading about increased infrastructure spending in China over 2014, 2015 which will be very good for construction and very good for our business as well. So I think at this stage, of our business planning process for 2014, we haven’t finalized our plan yet, but we were kind of thinking flattish on a global basis for construction 2014 to 2015.

Unidentified Analyst

Okay and you didn’t mention like the [Indiscernible] I was in China a couple of weeks ago and Sawhney was brought up in every meeting is that - is the problem child that I mean how do you view the domestic OEs longer-term and do you think that there will be a incredible player in a developed world and if so what is your opportunity there?

Timothy Trenary

Thanks for asking that question I meant to address the Chinese manufactures if you look at the Chinese manufactures, their tiers of manufactures as well I think LiuGong is probably at the top in terms of the value prop that they try to deliver to their customers it’s closer to the multinationals, it’s closer to the Caterpillar, Sawhney I think is moving in that direction then you got a whole range I think of maybe second tier manufacturer in China that are much more priced, much more cost driven.

So we are going to be selective in addressing Chinese OEM opportunities and at the top of the list will be LiuGong and I think [Indiscernible] as I moved closer to the multinational value proposition is also going to be on our list, and you can’t ignore the volumes I mean [Indiscernible] is the volume player today in, China although I think Cater over the past year is overtaken a next phase of share but they are still a major, major player and they are moving outside of China to your point I mean [indiscernible] as a manufacturing facility in Georgia and they are trying to build a distribution system so as we begin to address their needs in China that gives us an opportunity as well to grow with them in North America and in Europe.

But not yet I don’t think in the construction equipment manufacturing assembly units in Europe but they are moving in that direction, they are in North America. So it’s the same thing as CVG another suppliers to Caterpillar growing with them outside of U.S. in China we need to be with the Chinese OEMs as they grow outside of China and they will become much more important players in North America and in other developed markets.

Unidentified Analyst

Is anyone else have a question? All right can I just ask one more and then I will give it to you sorry, just because you did mentioned exposure in China on the truck side you have a relationship you said with Photon, can you talk about there has been I feel like there has been pre-buy this year ahead of the NS4 emissions regulations sort of your view on whether or not that gets implemented in 2014 for what time period, just generally and are there other opportunities for you to grow with some of the other players, some of the other Chinese players like Dong Feng et cetera?

Timothy Trenary

Absolutely I mean Photon is our major contract right now as you know it’s been a little slow in ramping up but we expect to get to near matured volumes to that relationship in 2014, so the grow over the course of the year, but as I mentioned we got a good product in place to serve their needs and to address our need to be profitable inside China. Are you referring the emission to?

Question-and-Answer Session

Unidentified Analyst

[Question Inaudible]

Timothy Trenary

I think China over the years has been aggressive in passing legislation and regulations along emission’s line, I think there is pressure growing in China today associated with the degradation of the environment it’s really become much more aggressive and enforcing the legislation, enforcing regulations. So I expect to see much more teeth in 2014, 2015, we frankly is I think it’s going to be play to the advantage of multinationals like CVG on display side and like Cat on the OEM side, because as in Chinese are forced to complex these regulations to become more global in their design it’s going to drive value, value expectations on part of the customers and price expectation on part of the OEMs.

Unidentified Analyst

Just on China competitively can you just go over in terms of cross your product line, what the landscape is like over there? What’s your biggest concern in those markets when you’re trying to grow over there and just how you plan on strategizing your efforts in that region?

Timothy Trenary

In our biggest market right now which is seats for construction in truck, we are seeing competition from couple of European competitors who also becoming much more active in North America is [indiscernible], so they are competing aggressively and then we got a whole string of local competitors who are competing more or less on our cost and price basis as I mentioned earlier we have an opportunity, I think as the Chinese OEMs more toward a multinational value prop, to give them what they need in terms of technology performance but also price, but today I mean it is a very aggressive competitive market being driven by Europeans but also by the local Chinese.

Our main business right now is seats we are in the process of building out opportunities for the rest of our product line in China, while they harness another products for today it’s principally truck seats. I think the biggest challenge for us will be as I mentioned earlier to come up with what I would characterize is a multi-tier product strategy to make sure that we’re addressing price, cost and value prop expectations across has brought a cut of our customer base as possible, if I think about my experience in Caterpillar as we changed our designs as opposed to simply de-contending our global product to begin to address the cost price value expectations of different customers at different tiers, we became much more competitive and that’s what we need to be thinking about as we design our products for the China market.

Unidentified Analyst

Hi, can you just talk about the level of investment that will be required to invest in China in terms of developing more multi-product line for to address the China market and I guess my other question is just more broadly because you sell into a lot of end markets, I feel like 2013 was the year of excess inventory and I’m assuming that impacted you to some degree. Can you talk about as you look to right now how are you thinking about inventory levels and then theoretically for 2014 in a flat retail demand market should you be able to keep better than that just because unanimous situation over the inventory [indiscernible] in the channel. Specifically out in construction and there was I mean active managing, they have been managing okay but the order…

Richard P. Lavin

I will ask Tim to take the investment question.

Timothy Trenary

So as Rich mentioned our initial existing sort of focus with respect to the product in Chinese is proceeds okay, and with respect to the seat activity there at the facility that facilities that we have in place I think for the moment are adequately capitalized for the activities with respect to the seats, as we do some of the design changes that Rich mentioned that will require some incremental capital which is still be in size. As we explore the avenues to expand the product portfolio in China which we have not really sort of put the pencil to the paper yet, we will develop the sort of capital needs for that portion of the world more to come on that.

Richard P. Lavin

On the inventory question I think the inventory overhang in construction especially has been dealt with, I mean there is still a bit of a lingering problem I know Cater has been very aggressive over the past couple of years and dressing overhang I think…

Unidentified Analyst

Globally or in U.S. just it’s there?

Richard P. Lavin

That is globally, so I think that as the overhang has drawn down as dealer orders pick-up and that’s going to be very favorable for our business, I know that no Cater’s third quarter results call was I would say measured in their comments about dealing the order situation going in 2014, but I think is as inventory has drawn down, dealer orders will pick up and that’s going to be good for our new business.

Unidentified Analyst

You mentioned you’re looking to improve gross margin, how much of the issue is either underwater or sub-optimal legacy pricing and if that’s an issue at all how long if it take those contracts to cycle out and create retail pricing?

Timothy Trenary

Richard will correct me if he knows something I don’t know, but I’m not aware of a tremendous amount of sub-optimal pricing in our product portfolio, we as you’re going to appreciate I mean the sometimes as programs age and the price down take effect some of the margins get some compression but I’m not as I sit here today aware of any material programs that are really upside down anything of any real substance.

Unidentified Analyst

Okay, great. Then my second question was you mentioned you just did a study on the footprint. I guess how long until a restructuring reorganization type plan we’ll take to actually get those plans to where you need them to be.

Timothy Trenary

So the studies not complete. We are nearing the final stages of it. I expect that we’ll be wrapping that up this year and the actions will I expect begin shortly – shortly after we wrap up the planning this year. So I can’t – and since it’s not finalized, I can’t tell you specifically, one, it is we will trigger the actions. Based on the work that’s been done to date, I think that this work should be able to be completed in the course of next year.

Richard P. Lavin

Just one other comment on the legacy pricing question, Tim was spot on as a response. I would mention that the whole design to value initiative that we – that we ran with Mackenzie was intended to address cost reduction opportunities beyond the price down expectations in long-term agreements. And so we’ve got – we identified some real opportunities in the early stages of that work and we’re going to expand that work into other products and certainly our full customer line. So these contract agents, Tim mentioned, we do tend to get some margin compression, but we’re going to be much more aggressive in our DTV work and identifying opportunities to reduce cost and expand margins as the contracts mature.

Unidentified Analyst

Do you think as we have had a change in management, can you just talk about today as you look at how your key management people are compensated today. And if you like are you contemplating management – different compensation plans for your management going forward to drive different behaviors?

Richard P. Lavin

I’ll take a swing of that and then I’ll turn it over to Tim. I think that the incentive plans we put in place for senior people will be an important tools to drive behavior in results. And so, I – we don’t have anything to announce in terms of our metrics for 2014, but I can tell you that our annual incentive plan metrics will be tied directly to what we’re committed to deliver is a part financially as a part of our overall 2014 business plan. And one of the things we need to make sure, we do a good job of is continuously communicate with our leaders and the people throughout the organization in terms of our performance against metrics, so that they can understand our performance, but more importantly understand how they can change their focus, change their behavior they’ll change the results.

Unidentified Analyst

Right and ever historically has it been more a return focus, sales focus, profit, I’m just trying to get a sense of historically what drove compensation?

Richard P. Lavin

I would say that before last year, there was key financial metrics, but the results there was some activity metrics that were directly tied to financial performance. We’re going to have a very short list of metrics tied directly to performance, generally profitable sales growth.

Unidentified Analyst

I just want to turn to Europe really quickly, what have you guys been seen there like we are getting better, what do you sort of expect for going into 2014?

Richard P. Lavin

Yeah, I mean Europe in terms of GDP I think is kind of a flat year-on-year storm, so we’re not expecting any great help from market growth inside Europe. We do have programs running on the product side and intended to do ensure that we’ve got more cost effective, more value creating products for our customers. As you know the highway truck market over there is very, very competitive. And so it really comes down to product differentiation, value crop creation to ensure that we’re getting our fair share of the business. But in terms of market growth, we don’t expect much help from the market in 2014.

Unidentified Analyst

Are you seeing the competition there, acting like any differently versus other geographies?

Richard P. Lavin

No, I think that the pricing environment here for our products has really been pretty rationale. And so I mean we are competing in some of the same players and the seeds for example in Europe as we’re competing against in the North American today [indiscernible] at the top of the list and they compete aggressively but we’re not really seeing irrational pricing behavior from our European competitors.

Unidentified Analyst

Anyone else?

Unidentified Analyst

Excuse me, Rich if I may, I have been…

Richard P. Lavin

I’m sorry sir your name is? Your name? Mike.

Richard P. Lavin

Mike, I want to come back – I’ve been reflecting on Mike’s question about our programs and our pricing. And I’ve been thinking and reflecting as that think at least see into Rich’s answer, there is one program that I’m not prepared to disclose at this point in time in which we are taking some actions to improve the profit profile on, but setting the slide that one program I’m not aware of any programs okay.

Unidentified Analyst

Can you just talk about your – Tim particularly you as a CFO what your approach will be to – I’m sure you are just considering this now it might be a little pre-mature but your approach to providing guidance to the investor community just because I cover a lot of suppliers to major OEMs who have a fairly difficult time providing, good guidance because the OEMs generally have forecasted or usually offer to you as this one supplier last night and talked a lot about this is changing our strategy. I mean so can you sort of talk about that how much you rely sort of, how you’ll provide guidance, how much you relied on what the OEM production schedules are telling you, do you hear about that like just a broader approach to how you’ll think about that?

Timothy Trenary

Okay, so we rely on the outside independent forecasters by the way of example truck ACT. We do adjust a little internally those forecast s for our experience with the OEMs as of the nature of our relationship with them. We sometimes have some information that I suppose forecasters don’t have. So we start with the independent forecasters and then adjust those expectations for our business planning. And so just sort of – just to sort of close the loop on that we actually are not quite as optimistic as some of the external forecasts which respect to North American truck build next year

Unidentified Analyst

Yes, what did you think of the orders, because I will tell you from the people that we have presented so far, the orders that came into nights ago the 21, was it that weaker and I feel like everyone is already tempering sort of…

Timothy Trenary

While this sort of got at this positive bump a month ago, I guess that drove the SAAR up to like 280,000 or something in North America, and I read it right that November numbers were 245,000. So I was little disappointed. So I would say, that build rate that resulted net SAAR of 245 is sort of close to were it heads that?

Unidentified Analyst

[indiscernible]

Timothy Trenary

Jean, I want to come back to work that the question that you started your question with the way Rich and I intent to sort of interact with the investor community in terms of guidance. I think it would be fair to say certainly, I can speak for myself, they can speak in for Rich as well on this. He and I both have a bias towards disclosing as much as we reasonably can to the investor community within the parameters that we have to work as you can appreciate. And I can’t – I don’t have a real appreciation for what went before, but I think going forward to the extent, we are able to do so. We will be as transparent as we reasonably can be.

When a company is undertaking the level of change that we are undertaking here, and the fact that as I said in my prepared comments, that’s a journey. The – our ability to provide, what I would characterize for you all is meaningful guidance to the future is somewhat compromise, okay. So, said in other way after we have been into this change down this path a little bit, I believe our ability to provide that level of guidance that maybe you all would appreciate would be improved. In the near-term I think it’s going to be difficult to be candid with you.

Unidentified Analyst

And then just sticking with North America, I know you said globally your construction market you think will be flat next year, what you think about us specifically North America? What’s your take on potentially picking up next year?

Timothy Trenary

Construction?

Unidentified Analyst

I mean, construction, yes.

Timothy Trenary

Yeah. I mean, look, our thinking right now is year-on-year North America is going to be flattish. I mean…

Unidentified Analyst

Within our four construction, like construction revenue you are talking about.

Timothy Trenary

Construction equipment…

Unidentified Analyst

Flat for next year?

Timothy Trenary

Construction equipment, I mean that is our planning assumption at this stage. I mean, we may see some upside as we get into the year. But we’re assuming flattish year-on-year. And again, I think you need to go back to Caterpillar’s third quarter results call. I took out of the impression from them that they are looking at, it’s kind of flat year-on-year, not globally, because they maybe looking some uptick in Asia, but certainly in North America.

Unidentified Analyst

And give us any thoughts, I think one of the other things that’s going on with the global construction OEs what I hear about is more pricing competition in the market that we are hearing about just sort of more globally, I think you see that in some of the margins and some of the global OEs, are they starting to put any of that pressure on you, or are there any major pricing contract that are off, for example, that could put your pricing efforts at risk?

Timothy Trenary

Yeah. Well, I think whenever the OEMs whether it’s construction or truck or in a pricing pressure we feel. But I think the key thing for us is to develop relationships with the OEMs on the construction side CAT deal and others that enable us to get involved early in the design stage for new product to ensure that we are thinking with them regarding what they need in the OEMs both performance and also cost price. But at the end of the day it’s a question whether we can deliver a product to the OEMs, and we label them to realize price in the end market. And so they maybe getting unit level price pressure, but if we can show a value profitable, we are delivering to them, and they think they can recover the marketplace that gives us some pricing space if you will.

Unidentified Analyst

I guess this is my other question within the construction or the broader market, because it will impact you, what is your view for next year on what happens with Section 179 on the bonus depreciation?

Timothy Trenary

Are you talking about the Ag business?

Unidentified Analyst

Yes.

Timothy Trenary

Yeah. I think that if accelerated depreciation goes away in Ag, it’s bound to have an effect. We have not factored that into our planning at this stage.

Unidentified Analyst

Okay. Any other questions? All right, great. Thank you so much.

Timothy Trenary

Thank you.

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