Martinrea International Inc
TSX:MRE
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Martinrea International Inc
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Good afternoon, ladies and gentlemen. Welcome to the Martinrea International conference call. Held on Thursday, 3rd of November, 2021 at 5:30 PM Eastern Time.[Operator Instructions]Good afternoon, ladies and gentlemen welcome to the 2021 third quarter conference call. Instructions for submitting questions will be provided to you later in the call. I would now like to turn the call over to Mr. Rob Wildeboer. Please go ahead.
Hello, everyone. Thank you for joining us today. We always look forward to talking with our shareholders, and we hope to inform you well and answer questions. We also note that we have many other stakeholders, including many employees on the call, and our remarks are addressed to them as well as we disseminate our results and commentary through our network. With me are Pat D'Eramo, Martinrea's CEO and President; and our Chief Financial Officer, Fred Di Tosto. Today, we will be discussing Martinrea's results for the quarter ended September 30 and 2021. I refer you to our usual disclaimer in our press release and filed documents. A few general comments from me at the outset to set the context. Pat and Fred will echo some similar thoughts and provide more context, and then we will finish up with some Q&A. First, we don't like seeing a loss for the quarter. We are shareholders too, and we don't get bonus when we lose money. Largely because of the chip and other shortages, inflationary trends, higher labor and commodity costs, higher energy costs and efficiency costs that occur when customers shut down. The third quarter was significantly worse than our second quarter. Launch costs, by the way, are expected and okay. But they are a different kind of cost, of course. Fred will go through cost issues in more detail. Q3 kind of stuck. Having said that, we anticipate Q4 will be somewhat better, it should suck less, with improvement in 2022, leading to a robust 2023 and beyond. More specifically, we don't have a demand problem here. Sales volumes are down because of lack of supply. Demand, we recall, was robust heading into the year and will be, we anticipate, for years. We are at the beginning, we believe, of a strong multiyear cycle, especially in North America, where we have most of our operations. Not only will demand be high but it is going to be a long time before production levels will see inventories built up to normal levels. Our view on demand is buttressed by many economic indicators on growth and stimulus. But let me give 1 stat that shows the purchasing power of consumers and likely pent-up demand. In Canada, prepandemic, Canadians held approximately $40 billion in their savings accounts. Today, that number is something like $310 billion. In the U.S., the savings number is something like $4 trillion to $5 trillion. In addition, people's holdings of real estate and stocks have appreciated overall. And all of this portends well for the economy, for growth and for auto purchases. Let us recall that autos are a depreciating asset. Over time, people both need and want to replace vehicles, and there's pent-up demand to do so. Many are holding on to vehicles they want to replace when they have supply and choice and hopefully, some cheaper prices. We have just finished our Board approved budgets, which support our targets in 2023 of $4.6 billion to $4.8 billion in revenues, a greater than 80% operating margin and $200 million plus of free cash flow, unless we have another pandemic or supply shortages extending beyond Census predictions. 2024 looks better than 2023. Our budgets don't go out further than that. The value proposition remains intact. There's a lot of value in our company. Indeed, from a value perspective, I think our value is likely increasing or has increased. Over the past year, we have seen the value of our nonautomotive assets increase. We hold a fair bit of real estate, for example, and are considering some sale leaseback activity. For example, our newly acquired Mexican plant from the Metalsa acquisition has a value we understand of approximately USD 36 million, with a cost base much lower. Separately, we outlined for you today in a separate news release, our Martinrea innovation development initiative, which we've been working on for a while and which we outlined to you in part on our Q3 call last year, we are a company focused on innovation and development. In that context, we have made 3 equity investments over the past few years. NanoXplore the graphene company, where we are the largest shareholder. VoltaXplore, the graphene enhanced battery initiative, where we are in a 50-50 JV with an NanoXplore and AlumaPower, an aluminum air battery initiative where we were an early-stage investor. In each of these areas, we do more than invest money. We provide much more than that, our expertise in people, for example. But from an equity perspective, we are up over $200 million on markets and equity raise values since the beginning of the pandemic. In sum, despite the chip shortages and the quarterly loss our net present value and equity value have been increasing in a real sense. Indeed, our company is seeing the same experience in a way as a lot of individuals in the pandemic. Income has been hit to a degree, long-term prospects remain good. real estate value has gone up and our equity portfolio has gone up. I think we're undervalued. And over time, I am bullish that as the supply shortages lessen, we will see our equity value increase to meet intrinsic value. With that, I will turn it over to Pat.
Thanks, Rob. Hello, everyone. As noted in our press release, we've generated an adjusted net loss per share of $0.21 and an adjusted operating loss of $16 million in Q3. This was on production sales of $797 million, which is down 15% year-over-year as chip and other supply shortages continue to weigh our industry volumes. While we didn't provide them for Q3, given the uncertainty in the industry, has also ended up being worse than what we had contemplated at the time of our last call. The drag on results has 4 components volume reduction, mix, launch costs and most notable, the inflation of wages, materials and energy that are weighing negatively. Wage inflation is more of an issue in the U.S. and Canada while material and energy costs are having a wider global impact. Compounding the issue is the recent practice of holding labor in plants for scheduled production from our customers. We then call off the schedule at the last minute based on a diminished line of sight from their supply chain. In normal times, when customers call off production, there is time to flex labor. However, the labor market is hot. So if you lay people off, even short term, there's a good chance they'll land another job and not return. In order to protect the customer of the supply base in many cases, is not flexing labor due to the probability of not having enough people to support the customer when production resumes. [indiscernible] weighs heaviest in plants with new model launches. New launches mean high investments in training team members. It is important to a hold on to these newly trained team members to assure a high-quality product. The difficulty is the new program volumes are being inhibited due to the chip shortage, hence the plant volumes are not met, and the revenue is not being generated to cover the cost of the additional people for the original plan. We expect this to be more of a short-term financial burden which we are currently bearing to ensure we can successfully meet planned launch volumes. Labor and materials are always part of the product cost that our customers cover in the product price. In these unprecedented times, these costs have become disproportionate to the base. Hence, we are having discussions with our customers to negotiate recovery of inflationary costs. We're working to do this in the right way. So it will take time. When it's all said and done, we expect to achieve some additional compensation for our products. Despite the current volatility in the market, we continue to work through a heavy new business launch cycle. Our launch activity has been especially high due to the combination of the late 2020 launches and scheduled 2021 launches getting compressed. These being some of the largest programs our company has launched in recent history. These compressed programs represent approximately $800 million in annual sales. Key program launches include the Pathfinder and Rogue, the new Jeep Grand Cherokee and Grand Wagoneer, the Mustang Mach-E and Maverick, the Mercedes core EV platform and C-class. The GM Silverado uplift at our Oshawa, Canada facility and the new [ lucidare ] among others. At any given time, in any given year, we have a launch activity and associated costs. They have been abnormally high this past year given the heavy launch schedule and a slower than planned ramp-ups, as I mentioned earlier. Despite these short-term launch costs, these programs will ultimately drive strong sales growth and healthy margins in the year ahead. The demand for vehicles is high, the inventory is almost nonexistent and the outlook is still very good. As we move into 2022 and 2023, our plant launch activity dropped by nearly half and launch costs over the time frame dropped to a lower level as well. As I indicated earlier, mix was also a significant issue this quarter. We have spoken at length about some key programs that have undergone a number of shutdowns, such as the Chevrolet Equinox, GMC Terrain and Ford Escape and this pattern continued to impact us this quarter. It actually got worse on a relative basis. Even GM's large pickup truck platform, our largest program and the 1 that GM has favored and its allocation of chips was impacted during the third quarter. I do believe that we have reached a bottom. And as we move forward over the next few quarters, we expect to see some incremental improvement in volumes. This will not be a hockey stick. It will be gradual for a time and then later in 2022, we may see a faster rise. When the supply issues abate, we will likely see record production numbers and plants running at capacity across our operations. As such, we still feel confident in our ability to meet the 2023 outlook that consists of adjusted operating income margin north of 8% and over $200 million in free cash flow. In the meantime, we continue to manage costs, protect the balance sheet and ensure the sustainability of our business well into the future. Fred will have more to say on this in a moment. Taking a look at our operations, I just discussed at length the chip shortage and how it's affected us across our operating regions to varying degrees, primarily in North America. In Europe, we're making this progress as our ability to allocate resources and the plans to drive operating cost reduction has improved. This progress is currently being masked by supply chain-related volume headwinds and cost inflation, in particular, energy costs, which were up 60% this year in some regions. We expect these efforts to translate into an improved bottom line result once production normalizes. Our Rest of World segment was impacted by lower volumes, again as a result of the supply shortages as well as launch-related costs incurred during the quarter. This is not unusual given the small size of this segment, hence, the impact of the results is more visible. Of course, the continuum or lean journey and are taking advantage of the downtime where possible to improve the operations, so that once the ticket is turned back on, we will be able to take full advantage of what will likely be a multiyear tailwind starting at some point in 2022, strengthening in '23 and beyond. I'm pleased to announce that we have been awarded $40 million in new business since our last call. This includes approximately $30 million from Zeta and $10 million from General Motors, both in our Propulsion Systems group. New business awards for 2021 to date are now about $200 million. A number of new programs that were expected to be awarded by the OEMs in 2021 are migrating into 2022. There's a school of thought that we may see some current production models get extended [ live ] from current planned end of production date. Some reasons could include the demand for current products is high. Inventory is low, and there will be a desire to fill the empty cupboards quickly along with meeting immediate demand program launches inhibit short-term volumes from assembly plants, which means lost sales. There may be a desire to properly depreciate assets that were inhibited due to the lack of normal annual production rates this past year. and newer model vehicles typically need more chips. In fact, EVs can demand 10x more chips than current ICE vehicles. This is somewhat speculative, but with extending vehicles, given this unique situation, could benefit some OEMs as well as suppliers. In any case, when supply chains return to normal, Martinrea expects to be very busy. With the launches I discussed earlier, Martinrea has managed to fill our plans to historic levels, and we are anxious to harvest the fruits of our labor. Now I wanted to take a moment and elaborate on Rob's earlier comments on Martinrea Innovation Development or what we call MiND. MiND was formally established earlier in 2021 and we've been working on it for some time. This initiative is dedicated to incubating, developing and funding innovative technologies that can be directly applied to or, in some cases, supported by our own operations. MiND is led by Bruce Johnson, Executive Vice President. Bruce has been with Martinrea for almost 15 years. And prior to his involvement with MiND was Executive Vice President of our Lightweight Structures Group; and the head of our Metallics steel-metal forming business unit. Bruce reports to me but also works very closely with Rob Wildeboer. As Rob mentioned, we currently have 3 equity investments within MiND, by our 22% stake in NanoXplore; our VoltaXplore JV with NanoXplore in a minority equity position in AlumaPower, a private company that is developing an aluminum air battery technology for a variety of end markets, including automotive. MiND is also evaluating a number of other initiatives such as additive manufacturing, intelligent robotics and software to name a few. These initiatives may involve equity investments, but not necessarily. Regardless, in each case, Martinrea provides operational and strategic support to its partners including manufacturing excellence, product development, supply chain support and other areas in order to advance exciting technologies that we believe can change the world we live in. From an investment standpoint, we've done well. In fact, the value of our investments has multiplied more than fivefold, which demonstrates that we are adding value to our shareholders and areas that are strategic to our business. We're excited about MiND and its potential, and we believe it will be a key differentiator for us as we move forward. With that, I'd like to thank the entire Martinrea team for their continued dedication and commitment in these challenging times, challenging but exciting nonetheless. With that, I'll hand it to Fred.
Thanks, Pat, and good evening, everyone. As Pat noted, Q3 was challenging more so than anyone expected at the time of our last call. The global semiconductor shortage and other supply chain issues as well as cost inflation and labor, material and other inputs are currently wrecking havoc on our industry and the supply base. Meanwhile, our product mix, a heavy new business launch cycle, and a diminished ability to fully flex costs driven by volume volatility and production lines being stopped and restarted unexpectedly based on OEM production priorities are compounding the challenges. We don't know exactly when these issues will get resolved. We know we will get through it like we have gone through other challenges in our history. And once we do, we know our future looks bright. This quarter, we thought we'd forego the typical discussion of year-over-year financial performance as we think it's more relevant to talk about the quarter-over-quarter variance from Q2 to Q3, to paint a picture what impacted our business this quarter. Looking at our Q2 adjusted operating income of $39 million as a starting point, the impact of lower industry production volumes at a typical rate of flow-through or normalized decremental margin represent a $12 million hit to adjusted operating income. Next, a negative sales mix, which we have discussed highlighting examples such as the GM Equinox and train, Ford Escape and GM pickup truck and large SUV platforms, combined with weaker labor and cost absorption given our diminished ability to fully flex costs in the current volatile environment resulted in a $25 million unfavorable impact to adjusted operating income. This was the big factor impacting results in the third quarter. Ultimately, like most in our industry, including OEM customers, certain programs and product mean more to us than others from a margin and contribution perspective with the very ever-changing puts and takes regarding production and production volumes during the quarter, we came out of the quarter on the short end. It was a perfect storm to some extent with lower margin product up during the quarter. while higher-margin products were are down, resulting in this high and abnormal flow-through effect. And all this is being exaggerated by this complicated labor market, which has also led to us carrying more costs than we otherwise would under normal circumstances. The good news here is that when volumes do come back to more normal levels, in particular with our core customers, the mix factors should adjust. In addition, cost inflation on materials, labor, energy and other inputs, as Pat discussed, was another $7 million quarter-over-quarter impact while launch-related costs subtracted another $6 million. As Pat outlined earlier, our launch activity this year has been especially high, which will ultimately add to sales in the future, but is dampening margins in the moment. Lower COVID subsidies and some other items amounting to approximately $5 million made up the remainder of the quarter-over-quarter variance. The accumulation of these factors resulted in an adjusted operating loss of $16 million for the quarter. Inflationary pressures Pat talked about are real and currently costing us approximately $40 million on an annualized basis, a big impact, no matter how you slice it. Labor availability remains an issue and we have had to adjust wages and [ site locations ] in response. As Pat mentioned, we are engaging with essentially all our customers commercially in how to deal with these cost increases. Ultimately some of these costs will normalize, but some will likely stick. So offsetting these cost headwinds is clearly an area of focus for the organization. We have had some success here, and we expect to have more going forward. Turning to our balance sheet. Net debt increased quarter-over-quarter to $860 million in Q3. Our net debt to adjusted EBITDA was 2.5x at the end of the quarter, an increase from approximately 1.8x last quarter is still below our covenant maximum of 3x. An increase in noncash working capital, both production and tooling related has contributed to the increased debt levels. Noncash working capital was increased by approximately $120 million since the beginning of the year. The disruption caused by the global semiconductor shortage and specifically the short notice or low lead times we are getting on production releases from our customers and other material shortages is forcing us to carry a higher-than-normal level of inventory. The pace of that increase did feel in the third quarter. Ultimately, the elevated production inventory level should reverse over time as production volumes normalize. We will likely see some level of reversal in the fourth quarter depending on volumes and volatility. Should the chip shortage in corresponding lower and volatile production volume environment continue, it seems likely at this point, there is a risk the company could be outside with financial covenants at some point in the future. Given the pressures in the industry, we don't think we'll be alone in that regard. In response, and as a proactive measure, we initiated discussions with our lenders under an amendment to our covenant structure. Similar to the in the coverage shutdowns, in order to provide the company with flexibility as we navigate our way through these challenging times. We are comfortable with our position in this regard. Our banking relationships are strong, and we are confident our lenders will be there for us if and as required they too see the current supply chain bottlenecks and overall challenging environment is temporary given the strong demand for vehicles. Turning to the longer-term outlook. We remain as confident as ever meeting our 2023 objectives, which calls for total sales, including tooling sales of $4.6 billion to $4.8 billion and adjusted operating income margin north of 8% and more than $200 million in free cash flow, all consistent with our recently completed Board approved budgets, as Rob noted. We are committed and motivated to achieve these targets and have [indiscernible].A few things to consider when looking at our long-term outlook. First, chip shortages and other supply chain issues should improve over the next year. I don't know exactly when, but we have seen some recent customer announcements indicating that things should get incrementally better, albeit perhaps slowly.Second, while IHS recently cut its 2022 North American production forecast materially by 2 million units, the 2023 forecast did not change by much. It actually went up. The industry is currently dealing with a supply issue with inventories at an all-time low. Meanwhile, the demand is as high as it's been in years and is expected to remain high for several years once production normalizes. This is the assumption underpinning the longer-term forecast of IHS and others and few would argue to the contrary. Third, while we are launching a substantial amount of new business this year, the cadence of our launches is expected to normalize in '22, '23, as Pat mentioned. With this should come to reduction of costs and better margins. We're also continuing to execute on our lean journey, which should bring further margin enhancements. All told, the potential to rebound to historical margin levels or even exceed them remains once production bottlenecks are worked out. Finally, we continue to expect our capital spending to normalize to a range of approximately depreciation as a percentage of sales. Again, this too is consistent with this completed Board-approved budgets. The 2 main drivers continue to be second-generation programs in our flexible well lines, which require less capital than their first iteration and getting past their heavy investment cycle in aluminum. We've been winning a lot of business in recent years, and this has required investment. But ultimately, this is really good news given our strong return profile. In closing, it is clear that the industry is currently in some challenging and volatile times. The good news here is that it is temporary. Once we get past these near-term supply challenges, we expect a multiyear period of rising production bond sales, margins, free cash flow and the rising stock price. So we encourage all our investors to remain patient and to focus on the long term. Our track record of delivering on our financial targets speaks for itself, and we are confident that this will continue to be the case as we deliver on our 2023 outlook. Thank you for your support. And with that, I'll now turn it back over to Rob.
Thanks, Fred, and Pat. And with that, we conclude our formal remarks. Thank you for your attention this evening. Now it's time for questions. We see we have shareholders, analysts and competitors on the phone, so we may have to be a little careful with our answers, but we will answer what we can. Thank you for calling.
[Operator Instructions] And the first question is from Michael Glen with Raymond James.
Pat, maybe just to start on the call off activity from the OEMs. Are you seeing -- like clearly, through Q3, they were dealing with some very unique situations that didn't have visibility. But is that behavior improving at all as you track through Q4?
Well, our expectation, if you recall, earlier in the year was it would get better by Q3 and it actually got worse. So far in Q4, we've seen some unexpected call offs, but the next -- well test will be this next month because some of the OEMs, GM in particular, has announced their expectations for the month that all starts to grind up next week. So I think over the month of November, we'll really get a better judgment. But if you took a look at the deterioration at the end of Q3 versus how we've started off I'd say we've started off better than we ended in Q3, but it's still volatile for lack of a better term.
And is there a way for the OEMs? I'm just asking the question, like, can they pace the volumes more steady versus calling it off? Is that something that could take place to help you plan better?
Well, that's a really good question because we've had those discussions. If you built the inventory, so to speak, of chips, parts with chips, and this isn't as easy as I'm making it sound. So -- and sort of held up until you knew you had enough. And then when you said I'm going to go they go and they say, we're going to go 4 weeks and then we're going to run out again. Yes, that would be a lot easier because part of the problem is you're expecting to run Monday it's Thursday, and you get a call in the evening or the next day and they pull the schedule. By that time, what little flexing you can do is pretty much lost. So certainly, if they had a method to say, let's build up enough chips and wait until we can really rock, yes, that would make a difference for the supply base.
Okay. And then could you just talk a little bit about what is the outlook for the plant in the GM plant in Ingersoll and how you see things evolving at your Alfield's plant over the coming year?
Well, the plan at CAMI is to run 1 shift for the rest of this year. There are plans to continue to run it the first quarter of next year. Of course, you know that will be chip-dependent we'll supply as we have. There is some new business we've won and put into Alfield. There is a potential to put some more in if we can make this space. So it's kind of an interesting dilemma that we have where we could possibly put some work in there if we can coordinate things with our customers. So the plant will be open regardless, but how many people work there could definitely be impacted depending on what GM does next quarter.
Okay. And maybe just one on the balance sheet. So just a question regarding the dividend. I guess with the balance sheet at 2.5% and Fred, you're maybe talking about the risk of a breach is what was the dividend put into a big conversation this quarter, maintaining it?
No. We kept our dividends going through Q2 last year. We've got a strong balance sheet, strong value, and we'll maintain it. So it's a pretty easy discussion.
The next question is from David Ocampo, Cormark Securities.
I really appreciate the color that you provided on the quarter-over-quarter breakdown and the onetime related costs or the elevated costs that you're seeing and you guys may have talked about this in the past, but I'm not too sure. But in Europe, there is an inability to flex labor compared to here in North America. So just curious was the impact proportional between your dividends between North America, Europe and the rest of the world? Or was there 1 segment that higher elevated costs because of your inability to flex?
Yes. I think North America has been the region that has been impacted the most on chips and other headwinds as well. It is our largest segment. We did see some trip related shutdowns and headwinds in Europe as well, but not to the expense of North America. So I would characterize the impact there is as less.At the same time, we're making some progress there with our facility in Bergneustadt. The facility came from Metalsa acquisition. So that improvement is kind of being masked by some of these other costs and headwinds and so forth. But all in, North America was by far the biggest impact in the third quarter.
Just supplemental for that. I mean everyone is trying to get labor everywhere, particularly in the United States and Canada. So you cannot simply lay people off. They may not come back. And so the reality is, and I think you've seen this macro level, a lot of people have not reentered the workforce in part because they've been paid not to work for a long period of time and kind of give kind of used to that a little bit. And we're seeing wage inflation in the United States that we're dealing with as well. So we train people. We have good people. We want to keep them in the plant. Back to what Pat said, it's easier to do that type of labor flexing in North America. When you know what the production schedule is. And indeed, last year, Q2, when we're all shut down, it was actually in many ways, easier to deal with your labor situation and labor costs than it is now. And so in that sense, that's the reality that's out there.
Okay. And then just thinking a little bit more long term here. You guys noted that you're speaking to your customers now to potentially get some price increases to offset some of those more permanent inflationary pressures, whether it's labor. But can you guys also find cost-cutting initiatives? And if so, what does that look like?
Certainly, while we're down -- so it's kind of a double-edged sword. You can't lay them off, as Rob said, because you lose people. But if you're not running, you got to have something to do. So we do use people work on lean activity. So when the schedules return to normal, we'll be able to go forward with less labor, scrap cost improvements, those types of things. We've also taken people and put them in our plants where we're launching where you could use an extra hand type of thing. And certainly, the more you can progress on the launch, the quicker you can bring money to the bottom line. But 1 of the inhibitors of the launch currently is that we're not getting a steady launch schedule, and that's really critical. But almost at every launch we're having right now, we're being inhibited by again, short call offs. So it's made it difficult.
Maybe just as a supplement to that, you recall last year, Q3, we came out of basically a lockdown situation. And we torqued up really quickly, and we had a really profitable quarter. So this can turn around really quickly. And last year, we did a lot of that activity that Pat talked about this year, we're doing the same thing.
Yes. It's important that when the OEMs are ready and they can provide steady production that we're ready to. So we're taking a hit right now by having to hold people. It's not going to be sustainable forever by any means. But being prepared for when the volumes go up is going to be key because this could look like 2010 all over again, where they want to run every vehicle and every plant as much as they can because everything is empty. And I would almost guarantee that's going to happen as long as there's chips and other supply. So we really -- the industry really needs to be ready to provide parts at a very high production level.
Right. And I'm asking the question a little bit more specifically as it relates to the numbers. Would price increases be required to get to your 8%? Or is that something that you guys can do with just finding efficiencies?
Well, I mean, in some cases, you have to find a lot of efficiency, especially when it comes to material, material is very basic in a product. It always gets covered. So it makes sense, that will all get covered, and we have a lot of confidence that it will. Labor, you expect 2% to 3% labor raise increases every year, maybe more on the year. And you cover that with efficiency. So this is -- you're talking 20%, 25% labor increases so it's a little bit more work. Can we achieve the high margins with all of this? I'd say we're going to have some help how much we really need to dig in and see. But over time, we'll improve at the same time as well.
The next question is from Peter Sklar, BMO Capital Markets.
Fred, when you gave that roll forward from Q2 EBITDA to Q3 EBITDA, 1 of the reconciling items was $25 million. And was that the combination of sales mix and these labor issues you're referring to? I just want to make sure I understand what the $25 million is?
Yes, it's a combination of both sales product mix as well as some of the challenges we're having with labor and excess costs as it relates to that.
Okay. And what's the large -- and just curious, why you lump them together like because they're not related what was the larger issue? Was it mix or labor?
Well, I'm not going to get into all the detail, I'm sure customers would like to know that. So I'll just leave it at that for now, how is that?
Okay. So you would have at least in preliminary numbers for October. Is October any better than what you experienced in Q3? Or is it kind of more of the same?
I'll say, October was better than probably September, but still some room to improve there. As Pat alluded to earlier, I think the key for the fourth quarter is to make sure that the General Motors falls through on their current production schedule. That's going to be key. If you look at the OEM shutdown during the third quarter, and we've been tracking it since the beginning. The GM was hit by for the most of, Detroit 3 in particular. So if they scale up in the fourth quarter to some extent, that will definitely help in the November and December production schedule will be key to them.
Yes. And then, Pat, you referred to the GM truck program in Oshawa. What exactly is GM doing on the truck in Oshawa? And what have you got on the truck there?
Well, it's the -- if you recall, I don't remember it was a couple of years ago, GM announced they're going to start building Silverado and Oshawa. I can't sit here and remember the volume you remember.
It's about 100,000, if I remember off the top of my head.
100,000 or so a year, maybe it's more. But anyway, we provide the same parts on the truck in Oshawa as we do in the U.S. and Mexico. So we can take some additional capacity, which we're putting in the Canadian plant and then other parts will come from other places in North America. The volume move on GM's part, they see a need for more volumes. So they decided to put it back in the Oshawa plant. Good for us. We're excited about it.
Okay. And then just lastly, this program you're awarded from ZF, what are you doing for ZF?
Transmissions. So ZF is a big transmission provider for just about every automaker around the world. And it's 1 of their main transmission cases, it's volume up.
Oh, so this is aluminum.
Yes this is aluminum, correct.
Very increasingly large customer for us.
You're doing the aluminum case.
Correct.
[Operator Instructions] And the next question is from Ben Jekic, PI Financial.
I just have one question. My one question is just with regards to the 2023 guidance and maintaining the 2023 guidance I'm assuming -- and if you could share sort of -- if there are any numbers to be shared, like what is base -- what do you base your confidence for 2023 on? And is it feedback from OEMs, some internal estimates? Or is it -- I'm assuming it's not what they call escalation of commitment.
As it relates to '23, I think you're asking about potential [ advanced ] volume environment we're seeing. So we essentially project and budget based on IHS. And IHS was calling for a fairly robust 2023 volume environment. I think the numbers right now is north of $17 million for 2023 and probably higher than $24 million. So they're anticipating that the supply chain bottlenecks will be behind us right in the '22 and then '23 should be a very strong year of volume. So our outlook is predicated on that. Just to give a sense of the IHS volumes in the auto news last week or earlier this week, they posted what they anticipated were going to be volumes from 2023, 2024, 2025, 2026, 2027, each of those numbers was about $17 million. And that would be very robust long period term. And then we look at that and say, okay, why is that going to happen because there's a lot of buying activity. And also with respect to the rebuild of inventory, it's not going to come very fast because inventories are very low. We lost, don't forget, almost 3 months of production last year. So it's 3 million plus [ we have lost ]. It's very hard to catch up. when you're pretty well at full production as OEMs and demand is high. So we're going to see a number of tailwinds. And it's almost not quite analogous, but it's almost like vehicles that aren't made and sold today are going to be made and sold and added to what's going to be done in the next 5 years. And so that's a very good position to be as a supplier.
The next question is from Michael Glen, Raymond James.
Fred, you talked about the Metalsa plant in Mexico, the real estate opportunity there. Can you give some insight into what the entire Martinrea real estate portfolio looks like?
We haven't necessarily done a full end analysis on that. But needless to say, we've looked at some properties as a potential opportunity. We haven't decided what we're going to do there yet, but clearly, there's quite a bit of value sitting out there just based on the work that we've done so far on that matter.
I think to give you a broad sense, I don't know the exact number, but we've probably rent about half our real estate and own about the other half approximately. Some of them, some of the real estate is not in necessarily great areas for value, but some are really good. If you go back to the Metalsa transaction, I mean, we paid $18 million for the whole business, nice to have a real estate asset worth $36 million.
Quite frankly, we did that acquisition. I mean, we figured there'd be some value with the real estate, but it's actually gone up quite a bit since then. So have actually done well from that perspective.
When we saw that appraisal we were smiling.
And just in terms of the capital commitments, your near-term CapEx, it's -- is there any ability that you have to scale back on any of the capital? Are you fully committed to such spending at this time?
At this point in time, you just book majority of it is program capital. And throughout this semiconductor situation, OEMs have continued to work on their new program cadence normal course. So they're not slowing down and they're expecting supply base not to slow down as well. So we have some ability to defer and delay in some areas. But for the most part, it's based in at the core of our sales projections as well.
[indiscernible] you put all this together, it's like $800 million in the annual business, which is huge [indiscernible] for a lot of companies.
Sorry, you may have said this, but what's the CapEx number for this year, should be what?
It's going to be about $325 million, give or take. That's been the guidance.
There are no further questions at this time. I would now like to turn the meeting over to Mr. Rob Wildeboer.
Well, thank you very much for all of your attendance this evening. If you have any further questions, would like to discuss any uses concerning us, please feel free to contact us at the number in the press release. Thanks very much. Have a great evening.
Good night, everybody.