American Axle & Manufacturing (AXL) Q4 2021 Earnings Call Transcript

American Axle & Manufacturing (AXL 0.67%)
Q4 2021 Earnings Call
Feb 11, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Rocco and I will be your conference facilitator today. At this time, I would like to welcome everyone to the AAM's fourth quarter 2021 earnings conference call. [Operator instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Mr. David Lim, head of investor relations. Please go ahead, Mr. Lim.

David Lim -- Head of Investor Relations

Thank you and good morning. I'd like to welcome everyone who is joining us on AAM's fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 2021 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.aam.com, and through the PR Newswire services.

You can also find supplemental slides for this conference call on the Investor page of our website as well. To listen to a replay of this call, you can dial +1 (877)344-7529, replay access code 7323464. This replay will be available beginning at 1 p.m. today through February 18.

Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.

With that, let me turn things over to AAM's chairman and CEO, David Dauch.

David Dauch -- Chairman and Chief Executive Officer

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the fourth quarter and full year of 2021. Joining me on the call today are Mike Simonte, AAM's president; and Chris May, AAM's vice president and chief financial officer. Begin my comments today, I'll review the highlights of our fourth quarter and full year 2021 financial performance.

Next, I'll cover how we are pivoting to electrification while securing our core business. Lastly, I'll discuss our 2022 financial outlook and our three-year new business backlog before turning things over to Chris. After Chris covered the details of our financial results, we will open up the call for any questions that you may have. So let's begin.

AAM delivered solid operating results and cash flow performance in the fourth quarter and full year 2021 despite market dynamics and continuing challenges with the global supply chain. Fortunately, our team did an outstanding job managing the areas under their control. AAM's fourth quarter 2021 sales were $1.24 billion, and for the full year 2021, AAM's sales were approximately $5.2 billion. In 2021, we experienced volume recovery from the impact of the 2020 global pandemic, but semiconductor supply chip shortages impacted AAM by over $600 million.

From a profitability perspective, AAM's adjusted EBITDA in the fourth quarter of 2021 was $164.6 million, or 13.3% of sales. For the full year 2021, AAM's adjusted EBITDA was $833.3 million, or 16.2% of sales. In 2021, we were negatively impacted by supply chain disruptions, namely semiconductors, and we received very little forewarning to changes in production schedules, which disrupted our operations and cost structure. However, I'm proud to say the AAM team managed through these obstacles and delivered strong EBITDA margins and conversion for the full year.

AAM's adjusted earnings per share in the fourth quarter 2021 was a loss of $0.09 per share. For the full year 2021, AAM's adjusted EPS was $0.93 per share, compared to $0.14 per share in 2020. AAM continued to deliver strong free cash flow generation in 2021. AAM's adjusted free cash for the fourth quarter of 2021 was $43.6 million.

And for the full year of 2021, AAM's adjusted free cash flow was $423 million. This is a record adjusted free cash flow performance for AAM and I'm extremely proud of my team. Our goal has been to strengthen the balance sheet, and last year we delivered. We reduced our gross debt by approximately $350 million and a turn of leverage.

We will continue to work to improve our balance sheet strength going forward. Chris will provide additional information regarding the details of our financial results in just a few minutes. Let me talk about some key highlights for 2021 and the start of 2022, which you can see on Slides 4 and 5 of our slide deck. We secured an agreement with REE on electric drive units.

We were named the sole supplier front and rear pickup axles for GM's Oshawa truck plant. We won two new pace awards for our partnership and innovation for our electric drive line technology. We secured Neo differential business for their electric vehicles. We were selected to supply track rate differentials for the new GM Hummer EV program.

We were supplying PTUs for the all-new Ford Bronco Sport and Maverick programs. We secured a traditional core axle business to fund our electrification future. And we were selected as a GM Overdrive award winner and received multiple other customer awards for our performance, and we advanced our environmental sustainability and DEI initiatives. And just most recently here in the beginning of the year, AAM was recognized as one of America's best large employers and top five in the automotive category.

Now let's talk about the first pillar of our two-pronged strategy, which is securing the core, which is fundamental to the transformation -- to our transformation to electrocution. And earlier today, we announced that AAM has secured multiple next-generation full-sized truck axle programs with global OEM customers with lifetime sales valued at greater than $10 billion. These replacement business awards are key developments as we leverage the cash flow generation to bring the future faster with our electrification technologies. And on the electrification front, we continue to make significant progress with our three-in-one electric drive technology.

Recently, we displayed electric drive technology at CES. The power, density, and compactness of our proprietary design was very well received. The technology platform can accommodate the electric propulsion needs across all light-vehicle segments, from small cars to light commercial applications. The flexibility and modularity provide legacy and start-up OEMs with many options from components, gearboxes, motors, power electronics to full systems, and EBM axles.

Our design was recently given the Altair Enlighten Award, the automotive industry's only award dedicated to lightweighting and sustainability. Again, something we're very proud of. That said, 2022 is an exciting year with multiple expectation launches on top of us, including our high performance e-Drive system for a premium luxury European OEM. This system will be applied across multiple vehicle variants, proof that our technology is not only state-of-the-art but meet the high standards of this iconic manufacturer.

We will also be launching multiple electric propulsion components with several globally -- global OEMs this year. In addition, we recently announced our investment in Autotech Ventures, which is an early stage venture capital firm. This firm invests globally in mobility start-ups, and AAM is leveraging the relationship with Autotech to identify new opportunities with companies aimed at electrification and mobility. The pivot to electrification is well underway, and we embrace this change to make the environment more sustainable.

Our engineering teams continue to develop game-changing electric mobility solutions and AAM is well positioned to support our customers with cutting-edge technology and a strong value proposition. And on the ESG front, I'm also very happy to share that AAM was named to Newsweek's list of America's Most Responsible Companies. We look forward to building on the positive momentum in 2022 as we advance our environmental sustainability and DEI initiatives. Be on the lookout for our new sustainability report in April of this year.

At AAM, we believe in a strong ESG foundation and commitment are critical to running the business for long-term success. Before I turn over to Chris, let me cover AAM's three-year new business backlog and our 2022 financial full year outlook, which we included in our press release earlier this morning. AAM expects our gross new business backlog covering three-year period of 2022 through 2024 to be approximately $700 million. We expect the launch case of this backlog to be $175 million in 2022, $325 million in 2023, and $200 million in 2024.

And as usual, our backlog factors in the impact of updated customer launch timing and our latest customer volume expectations and does not include the replacement business, only new and incremental business. You can also see the backlog breakdown on Slide 6, with about 55% of this new business backlog related to global light trucks, including crossover vehicles, and most importantly, 35% stems from electrification. This is more than double the 15% last year that we had. Our approach to electrification from selling components and subsystems to full electric drive units is gaining traction in our book of business.

Currently, AAM is quoted on approximately $1.5 billion of revenue, but two-thirds of the quotes coming from electrification-based programs. Now, let me turn to our financial outlook, which you can see on Slide 7. And AAM is targeting sales in the range of $5.6 billion to $5.9 billion, adjusted EBITDA of approximately $800 million to $875 million, adjusted free cash flow approximately $300 million to $375 million. And that assumes our capital spending in the range of 3.5% to 4% of sales.

And from a launch standpoint, we have 25 launches here in 2022, which should drive growth over the next several years. And from an end market perspective, we forecast production at approximately 14.8 million to 15.2 million units for our primary North American market. This represents about a 14% to 17% increase over last year's performance. Going forward, an improving production environment stemming from strong demand and inventory replenishment will set up AAM nicely for the future.

In summary, 2021 was an unprecedented year filled with numerous challenges, but AAM delivered solid financial results. In 2022 and beyond, we will continue to focus on securing our core business, generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio, and position AAM for profitable growth. I'm very excited about what lies ahead for AAM. That concludes my remarks.

Let me now turn the call over to our vice president and chief financial officer, Chris May. Chris?

Chris May -- Vice President, Chief Financial Officer

Thank you, David, and good morning, everyone. I will cover the financial details of our fourth quarter and full year 2021 results with you today. I will also refer to the earnings slide deck as part of my prepared comments. Before I begin to discuss the specific details, let me provide a macro overview of our fourth quarter.

On the surface, you will note our sales were down nearly $200 million on a year over year basis. However, understanding the factors driving this change is crucial. AAM's product sales were down more than $300 million on a year over year basis due to semiconductor shortages and overall market dynamics. Partially offsetting the drop in product sales is a $100 million increase in an index-related metal market costs that we passed through to our customers at no margin.

As we talk through the details today, keep in mind that metal market pass-through has a significant adverse impact on the calculation of our margins. However, when it's all said and done, you'll take away three key points about our fourth quarter results. First, AAM sales and profits were impacted by lower industry volumes. Two, AAM's margins were impacted not just by lower sales, but also by rising metal market pass-through recoveries.

And three, and most importantly, we continue to perform and optimize our business despite macro level headwinds. So let's go ahead and get started with sales. On Slide 10, it shows a walkdown of the fourth quarter 2020 sales to the fourth quarter of 2021 sales. In the fourth quarter of 2021, AAM sales were $1.24 billion, compared to $1.44 billion in the fourth quarter of 2020.

We estimate that AAM was unfavorably impacted by the industrywide semiconductor shortage by approximately $137 million in the fourth quarter of 2021. We note that high production volatility experienced in the third quarter continued well into October. Although volatility improved some in November and December on a month-over-month basis, we still experienced shortly time production changes from our customers and reduced output. Other volume and mix in pricing was negative by $200 million.

Overall, we experienced some lowered global light-truck volumes and lower overall component sales in several markets as customer schedules fluctuated and they rebalanced inventories versus a very different environment than we experienced in the prior year. This brings us to the fourth quarter 2021 sales subtotal, which excludes recoveries for index-related metal market costs and foreign currency impacts. We hedged this risk with our customers by passing through the majority, but not all of these index-related changes. The middle portion of this column reflects these elevated pass-throughs on a year over year basis.

Metal markets and foreign currency accounted for an increase of approximately $94 million to our total sales in the quarter. For the full year of 2021, AAM sales were $5.16 billion as compared to the $4.71 billion for the full year of 2020. The primary drivers of the increase was a return of COVID-related volumes, an increase of over $300 million in index-related metal pass-throughs and foreign currency, partially offset by volumes lost due to semiconductor chip shortages that exceeded $600 million for 2021. Now, let's move on to profitability.

Gross profit was $140 million, or 11.3% of sales in the fourth quarter of 2021, compared to $237 million, or 16.4% of sales in the fourth quarter of 2020. Adjusted EBIDTA was $165 million in the fourth quarter of 2021 or 13.3% of sales. This compares to $262 million in the fourth quarter of 2020, or 18.2% of sales. You can see a year-over-year walkdown of adjusted EBITDA on Slide 11.

During the quarter, semiconductor sales disruptions and other volumes and mix had a negative impact of $39 million and $59 dollars, respectively. This was partially offset by the benefits of AAM's continued productivity and restructuring programs and successful recoveries of some of the D&D costs. As I just mentioned earlier in our sales discussion, we're facing year-over-year increases in index-related metal market costs. The retained portion impacting this quarter plus FX was approximately $30 million.

You can see on our EBITDA walk the dynamic this has on our EBITDA margin calculations. If you exclude this impact, our margins would have been meaningfully higher as noted on our walk. For the full year of 2021, AAM's adjusted EBITDA was $833 million and adjusted EBITDA margin of 16.2% of sales. Not I'll cover SG&A.

SG&A expense, including R&D in the fourth quarter of 2021, was $78 million, or 16.3% of sales. This compares to $83 million in the fourth quarter of 2020, or 5.8% of sales. AAM's R&D spending in the fourth quarter of 2021 was approximately $20 million, compared to $31 million in the fourth quarter of 2020. The fourth quarter of 2021 includes higher ED&D recoveries as we prepare to launch multiple key new programs.

This activity drove a significant portion of the net year-over-year reduction in R&D. As we head into 2022, we will continue to focus on controlling our SG&A costs while also capitalizing on the growing number of electrification opportunities that are before us. And we would expect R&D to increase in 2022 by approximately $45 million to support these new multiple new opportunities. This is in line with our previous R&D spend trajectory commentary.

Let's move on to interest, taxes, and pension. Net interest expense was $42 million in the quarter of 2021, compared to $50 million in the fourth quarter of 2020. We expect this favorable trend to continue in 2022 as we benefit from our debt reduction and refinancing actions. In the fourth quarter of 2021, we recorded an income tax benefit of $2.3 million, compared to an expense of $13.9 million in the fourth quarter of 2020.

As we head into 2022, we expect our adjusted effective tax rate to be approximately 15% to 20%. And lastly, during the fourth quarter, AAM completed the transfer of nearly $100 million of pension obligations to an insurance company. This transaction was paid entirely through pension plan assets and continues our journey to strengthen AMM's balance sheet in this area. As a result of this transaction, AAM recorded a non-cash pre-tax pension settlement charge of $42 million.

Taking all these aforementioned items into account, including the pension settlement charge, our GAAP net loss was $46 million or $0.41 per share in the fourth quarter of 2021, compared to an income of $36 million or $0.30 per share in the fourth quarter of 2020. Adjusted earnings per share excludes the impacts of the items note in our earnings press release. Adjusted lost per share for the fourth quarter of 2021 was $0.09, compared to $0.51 earnings per share in the fourth quarter of 2020. For the full year of 2021, AAM earned adjusted earnings per share of $0.93 versus $0.14 in 2020.

Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the fourth quarter of 2021 was $102 million. Capital expenditures, net of proceeds from the sale of property plant equipment in the fourth quarter, was $65 million. And cash payments for restructuring and acquisition-related activity for the fourth quarter of 2021 were $9.8 million.

Reflecting the impact of these activities, AAM generated adjusted free cash flow of $44 million in the fourth quarter of 2021. For the full year of 2021, AAM generated adjusted free cash flow of $423 million, compared to $311 million in the full year of 2020. As David mentioned, this is a record for AAM. As a team, we've been focused on free cash flow conversion, including tightly managing capex, and reducing restructuring charges.

Our results demonstrate success in these areas. From a debt lover's perspective, we ended the year with net debt of $2.6 billion and LTM adjusted EBITDA of $833 million, calculating a net leverage ratio 3.1 times on December 31st. This is a reduction in nearly a full term loan in 2021. In 2021, we prepaid over $350 million of gross debt.

We utilized the free cash flow generating power of AAM, strengthened the balance sheet by reducing our debt and lowering our future interest payments. AAM ended 2021 with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. And we continue to maintain a strong liquidity position and debt maturity profile. Before we move into the Q&A, let me close my comments with some thoughts on our 2022 financial outlook.

In our earnings slide desk, we have included walks from 2021 actual results to our 2022 financial targets. You can see those starting on Slide 13. As for sales, we are targeting the range of $5.6 billion to $5.9 billion for 2022. This sales target is based upon North American production estimates of 14.8 million to 15.2 million units, new business backlog launches of $175 million and attrition of approximately $100 million.

Given the market volatility, our sales guidance assumes a range of semiconductor recovery of approximately one-third at the low end and two-thirds at the high end versus what we experienced in 2021. We continue to experience this issue in January and February of this year. However, we do expect improvements throughout the year. In addition, on a year over year basis, we expect a continued increase in index-related metal markets pass-throughs and foreign currency.

As noted on our fourth quarter walks, the 2021 exit rate on a year over year basis is the highest for the year. Our guidance is based on current trends. From an EBITDA perspective, we're expecting adjusted EBITDA in the range of $800 million to $875 million. As I would expect, you may have some questions in this area.

Let me provide some very direct comments on the key elements of our year-over-year EBITDA walk. First, yes, we expect to convert our year-over-year product sales increases and expected contribution margins of approximately 25% to 30%, as shown on our year-over-year walk. Two, yes, we intend to invest in our future through more in R&D as we continue to have growth opportunities with a variety of customers and products. And yes, we are experiencing inflation.

By way of perspective, this net amount reflected on our walk represents only slightly more than 1% of our annual purchase component buy. And yes, lastly, we expect AAM to continue to deliver operational productivity to mitigate some of these costs, as well as offset core cost pressures we are experiencing inside of our own operations. You can see continued year-over-year performance on our walk of nearly $35 million. From an adjusted free cash flow perspective, we are targeting approximately $300 million to $375 million in 2022.

And the main factors driving our cash flow change are as follows: we have slightly higher capital expenditures as we are coming upon some key launches. However, our capex to sales ratio is still very low by our historical measures as we are targeting capex as a percent of sales of approximately 3.5% to 4%. We also expect higher taxes and we would expect working capital outflows as our sales and related activity are increasing year over year. And lastly, we estimate our restructuring payments to be in the range of $20 million to $30 million for 2022.

This is a year-over-year reduction by nearly half of our cash restructuring payments from the prior year. We expect to use free cash flow generated in 2022 to continue to reduce leverage and further solidify our positional expectation and take advantage of select market opportunities to support growth. So in conclusion, the tenets of our business approach are already yielding results. As David mentioned, we've secured significant new awards with our legacy business with strong free cash flow potential.

Our new three-in-one electric drive platform and components are driving global interest, and as such, our backlog of electrification is now at 35%. And we generated strong free cash flow, a company best in 2021. And we look to generate solid free cash flow in 2022 while ramping up new business launches to drive growth. We're looking forward to a great year for AAM and building value for all our stakeholders.

Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David so we can start the Q&A. David?

David Lim -- Head of Investor Relations

Thank you, Chris and David. [Operator instructions]

Questions & Answers:

Operator

[Operator instructions] Your first question today comes from John Murphy of Bank of America. Please go ahead.

David Dauch -- Chairman and Chief Executive Officer

Good morning, everybody.

Good morning, John.

Chris May -- Vice President, Chief Financial Officer

Good morning, John.

John Murphy -- Bank of America Merrill Lynch -- Analyst

A first question on your North American volume assumptions, up 14% to 17% is a little bit higher than we were at, and I think some folks are at. So I'm just curious your comfort in that. But also, does that actually really matter that much when you do it sort of a bottom up forecast on your specific programs? I'm just trying to gauge how -- the 14% to 70% seems kind of aggressive. But if you drop into your programs when the mix has been pretty strong, and probably will continue to be, that might not be that aggressive.

So I'm just trying to gauge your thoughts there and how you're building that up.

Chris May -- Vice President, Chief Financial Officer

Yeah, John. Good morning. This is Chris. So you're exactly right in your comment where when we build our forecasts, we do a bottoms up approach clearly very focused on select key platforms that drive our business, such as the General Motors Full-Size truck, the RAM heavy duty and a few other the key crossover platforms.

But that production element that we use 14.8 to 15.2, it does drive some of our component business, which we look to do. So what we're trying to signal here is while we see a market estimates out there by third parties, call it, 15.2, we certainly see some of the challenges in the early part of the year associated with delivering that semiconductors and otherwise. We wouldn't expect that to happen, but would be at the high end of our ranges. So we do build some conservativism and associated with the macro market assumptions.

But at the end of the day, it's a bottom up build by the specific platforms we support and the unique volumes associated with them.

John Murphy -- Bank of America Merrill Lynch -- Analyst

OK, that's helpful. And then just a second question on Slide 6 on the backlog, I appreciate the electrification is going up from 15% to 35% year over year in the backlog, so that's great. But if we think about sort of the cadence of that mix changing over time, I don't know if you have this breakdown for us right now, but how much would electrification be of your '23 and '24 backlog versus what it is in 2022? How much is this growing sequentially?

Chris May -- Vice President, Chief Financial Officer

Yes, John. We don't disclose the specific by-year element but what I would tell you, as you see the market transitioning more to electrification, our backlog is experiencing that same trend and dynamic. It increases year over year over year.

John Murphy -- Bank of America Merrill Lynch -- Analyst

So it would be fair to say probably in '23 and '24, it's probably above 50% by the time we get out to 2024. And the quoting opportunities are much higher on EVs than anything else, as David mentioned, right?

Chris May -- Vice President, Chief Financial Officer

Clearly, by the last year, meaning '24, as some of these programs are starting to come online, we do have some significant launches in '23 that are a balance between electrification and also some of our traditional business as well. That concept would be more orientated toward '24.

John Murphy -- Bank of America Merrill Lynch -- Analyst

OK, great. Thank you very much, guys.

Operator

And our next question today comes from Ryan Brinkman of J.P. Morgan. Please go ahead.

Ryan Brinkman -- J.P. Morgan -- Analyst

Hi, thanks for taking my question. I guess it's surprising to me that your 2021 free cash flow yield is as high as 46% of today's market cap. And in your guidance for '22 suggest another year of, I think, like 37% free cash flow yield at the midpoint. And it's just interesting that you can generate the amount of cash that you do with the free cash conversion that you do and consistently positive cash flow in years with vastly different macro and industry backdrops with debt repayments -- mandatory repayments sort of pretty far out there.

And that you can do all this without more of an impact on the share price. I think it suggests that investors suppose that the amount of cash flow you're generating is, I guess, not sustainable. What do you think are the primary contributing factors contributing to just this almost distress level of FCF yield? Is it transition to electrification, which you've highlighted as a positive, or maybe the financial leverage, which I know you're focused on lowering? And I'm curious how you think about capital allocation in the context of this FCF yield. I mean, on the one hand, if leverage is the investor concern weighing on the multiple at which you trade, then allocation of free cash flow toward debt pay down does seem appropriate.

On the other hand, if the valuation is so disconnected or if it's driven by doubts about electrification or something else, does that maybe suggest that share repurchase or a more balanced approach is maybe more warranted relative to being as focused on debt paydown, as you have been?

David Dauch -- Chairman and Chief Executive Officer

Ryan, there was a lot there, but let me try to comment on what I think I've heard then I'll Chris comment. This is David. We're very proud of what we've been able to do consistently year over year in regards to our free cash flow generation. We've only gotten stronger as a company over the last several years.

We've used this crisis to really optimize our business and really focus on other things that we need to do in the business to generate that sustainable cash flow. Yes, we do feel we're going to continue to generate strong cash flow as we go forward here. And as you mentioned, it's a significant percentage of our overall market cap. Clearly, the investors aren't recognizing the full potential and performance of American Axle when it comes to our EBITDA and our cash flow performance.

The two things that are really impacting us that we hear in the marketplace is just our balance sheet. Yes, we knew we were levered. At the same time, we took almost a full turn off of our leverage this past year. We've demonstrated our commitment to strengthen that balance sheet.

We're going to continue to focus on improving that balance sheet going forward. We don't see it being a problem in the future, OK, because of our strong resolve and our strong performance not only on what we've delivered, but what we will deliver going forward in the future. Only the investors can make those decisions. The other issue associated with our stock price today is largely the pivot to electrification.

People want to see our backlog of do business grow, which they're now seeing. We expect that to continue to grow as we go forward. As I indicated, we're quoting a billion and a half and two-thirds of that is electrification. We've already increased our backlog already year over year and greater penetration on the electrification side from 15% to 35%.

So we're delivering on everything that we said we're going to deliver on and the things that we can control. And we said when we did the MPG acquisition that we were going to generate significant free cash flow in our business, we're doing just that. At the same time, it's allowing us to fund -- paying down the debt. It's allowing us to fund the advancement of our electrification portfolio.

It's allowing us to fund our launches. Yet at the same time, we've been able to bring our capex as a percentage of sales down over the past several years in addition to it. And yes, it's going to be up a little bit because we've got 25 launches this year. But at the same time, we expect to convert a lot of our equipment over to electrification.

But obviously, there's going to be some uniqueness in some of the applications that we have that are electrification-based but I think that would be my initial response to your question. Chris, I don't know if there's anything else you want to add to what I just commented on.

Chris May -- Vice President, Chief Financial Officer

No. Ryan, your observation on our cash flow generating power, if you look back over the last five years, our conversion of EBITDA to cash flow was about 20%, maybe five years ago. It's driving into the 40%, 50% range at this point, and that's a concentrated effort by this team, as David mentioned, to manage our capex, utilize and maximize the use of our assets, reduce our interest cost, strengthen our balance sheet. And we're seeing that play out just I think as we articulated over the last couple of years.

As it relates to capital allocation and electrification and valuation, I think David's comments on those up nicely. We'll continue to drive our backlog of electrification. We'll continue to have a nice, balanced capital allocation, and continue to stay focused on de-risking our balance sheet and also looking to grow where we can. So I think that's a positive and turn it back if you have any other questions?

Ryan Brinkman -- J.P. Morgan -- Analyst

All right. That's helpful. Thanks. Just lastly, specifically curious what you've planned for GM production in North America? I think they gave like a 25% to 30% global growth.

I don't think they broke that down by region, but obviously they're looking for -- they're very optimistic. Not all the suppliers offload that, so they're just curious what your revenue guidance assumes there. Thanks.

Chris May -- Vice President, Chief Financial Officer

Yeah. This is Chris. Look, our revenue guidance, you can see what we think at the macro level for that. In terms of key platforms, we typically don't articulate our views on that.

Obviously, the largest GM platform we supply would be the full-sized truck platform. You know what IHS estimates are there. We're close to that. At the higher end of the ranges, we're probably a little bit more a tad bit more bullish than that, but we're close to IHS in terms of how we think about their large platform.

Ryan Brinkman -- J.P. Morgan -- Analyst

Thank you.

Chris May -- Vice President, Chief Financial Officer

Yeah.

Operator

And our next question comes from Joseph Spak with RBC Capital Markets. Please go.

Joseph Spak -- RBC Capital Markets -- Analyst

Thanks, everyone. Maybe just to follow up on that and going back to John's question as well on production. I mean, your growth -- your revenue growth that you're calling for, especially if sort of back out the metals market, seems to be below not only what maybe people are looking for in North America broadly, but even if we sort of look at T1XX or just broadly North American truck production. So is there some other element where we're missing there or are you just sort of taking a fairly conservative stance here? It didn't sound like that specifically because you just mentioned you're sort of more aligned with IHS on some of those programs.

Chris May -- Vice President, Chief Financial Officer

Yes, Joe, this is Chris. Good morning. Yeah. Let me let me take that.

I think there's a couple things you need to think about. I'm assuming when you're making that comment in terms of growth, you're talking from '21 production levels of 13 million stepping into -- in North America anyway, stepping up to 15.2 million in terms of IHS. So yes, as John's previous question, trying to articulate were below, just in a macro level, I would argue that's a little bit conservative there. But when you think about our business, you have to think about really that trajectory of our sales, not just from '21 to '22, because you actually have to go back to 2020.

And why do I say that? If you think about North America production, in 2020 was 13 million units. In 2021, it was 13 million units. Yet you can exclude metal from my commentary here, our sales ex metal group. Why is it because the platforms that we support, think of full-sized trucks and otherwise, had an outsized proportion of growth in '21 versus '20.

So some of that year-over-year growth in terms of absolute volumes you're seeing is really over a two-year span. So as we step into 2022, some of the full-sized platforms that we supply are not experiencing that same level of year-over-year growth because they started to capture that in 2021. Where we're seeing that growth now is back on our crossover vehicle platforms to a lesser -- much lesser extent into our passenger [Inaudible] elements inside of our business, which are tracking more with those type of growth elements. And then you have to look at the balance of our business so that we know a little bit flat in China and Europe, probably similar to North America.

Hopefully that helps articulate it but you really have to look at over how this volume stepped up in the some platforms over the last two years.

Joseph Spak -- RBC Capital Markets -- Analyst

Yeah, I mean, it is helpful. I mean, maybe we can sort of take this offline, but when I look at least the latest side chest, it looks like the T1 program is still up like a double digits. So that think what's maybe causing some confusion, but we could we could follow up. I guess the other question is just sort of on inflation and that's obviously sort of hitting you now.

How do you -- how do we sort of think about that more midterm? Is there more you could do to offset what seems to be clearly a more inflationary environment, not just on materials, which might fluctuate, but labor and such, and logistics, etc.

Chris May -- Vice President, Chief Financial Officer

Yeah, Joe, obviously that's a very hot topic, not only for us, but the entire industry and almost every industry, quite frankly. But if you think about some of our core strength as a company, our operating system, our productivity is driving focus to mitigate inflationary factors outside of that purchase component element. So automation, throughput optimization, things of this nature are helping contain some of the inflation impact that we experience on labor, in particular, for example, entry-level wages or inflation that would creep through indirect things that we buy, such as tooling and utilities. So that's a critical factor to keeping some of that inflation at bay.

Joseph Spak -- RBC Capital Markets -- Analyst

OK. Last, real quick. Have you, thus far, seen any impact from the issue at the Canadian border?

David Dauch -- Chairman and Chief Executive Officer

John, this is David. Our operations have not been impacted directly because of the impact at the Canadian border. Clearly some of the OEM customer plants are adjusting their shifts or changing their line rates just because of some of the bumps that are taking place right now. Hopefully, level heads will prevail and that'll subside here going forward, but it's just another variable thrown into everything else that we've been juggling.

But address your direct question, no, we have not been impacted directly by the border constraint.

Joseph Spak -- RBC Capital Markets -- Analyst

Thank you.

David Dauch -- Chairman and Chief Executive Officer

yeah.

Operator

And our question today comes from Dan Levy with Credit Suisse. Please go ahead.

Dan Levy -- Credit Suisse -- Analyst

Hi. Good morning. Thank you for taking the questions. First, I want to just go into the contribution margin that you're assuming for '22, the typical pretty standard for you guys 25% to 30%.

But I think there are some moving parts in here and I'm hoping you can just disaggregate those, if possible. I mean, you're talking about more growth from crossovers that's generally going to be lower contribution margin but -- then I'm wondering what the offset is. Is it just that you had some inefficiencies in the system in '21 and those reverse in '22? So maybe could you just unpack that contribution margin assumption?

Chris May -- Vice President, Chief Financial Officer

Yeah. At the purest level of our contribution margin, this is just on our product volume changes. And so typically we said, look, it can range anywhere from 25% up to 35%. And of course, 35% would be much more heavily weighted on our full-sized truck applications.

And you've seen that in time to time when our full-sized truck applications have been impacted. But the sort of absolute volume and mix, net it all together we have on our walk, at the midpoint is around 29%. So what you have happening is sort of our new business backlog and attrition is probably rolling off a little bit at the lower part of that. Our semiconductor sales recovery is right in line with the sales mix that we estimate was lost in 2021.

And there is some full-sized truck elements associated with it. It's predominantly a little more weighted toward crossovers. Yes. That's why you sort of see that below the 30% range in terms of contribution margin and then the all other volume in mix also kind balance of some full size truck, but also some of our crossover vehicles.

So that's why you see this sort of kind of resonating on a contribution margin basis, sort of near to just below the midpoint of our typical contribution margins. Hopefully that helps.

Dan Levy -- Credit Suisse -- Analyst

OK. And then just as far as maybe inefficiencies or trapped labor beyond just you're going to cost inflation of $40 million. What did you have in aggregate in 2021 for inefficiencies, trapped labor, premium freight, and what are you assuming for '22?

Chris May -- Vice President, Chief Financial Officer

Yeah. Look, I think as David mentioned in his prepared remarks, our ability to sort of navigate these challenges operationally, the teams have done a fantastic job. Think of premium freight, for example, which I know several companies are getting hit pretty significantly through the course of 2021, we were maybe a couple of million dollars a quarter and we'll still have some of that here in 2022. A little bit of that may go away as we continue to refine our operations and some of these disruptions, especially that we saw sort of in the mid part of '21 go away.

So some of that is a little bit included in our productivity, to be frank. In terms of labor and things like that, the the point we face there is inflationary pressures, not necessarily cost optimization pressures, because our intense focus has been on optimizing our factories through the course of 2021 and trying to navigate these disruptions from a production standpoint.

Dan Levy -- Credit Suisse -- Analyst

OK. Cool. And then the second question is just on the on the backlog. So A, usually this is a gross backlog because maybe you can just give us some indication of actually what it is on a net basis.

And then any color on that 35% electric mix, what the composition of that is between drive units, subassemblies, etc. Thank you.

Chris May -- Vice President, Chief Financial Officer

Yeah. And this is Chris again. On the new business backlog is gross 175. We also disclosed our attrition is 100 million.

So you should think of those sort of combines, so net plus 75 million going from '21 into 2022. And typically each year, we have attrition somewhere between $100 million to $200 million. Our product in 2022 would have to be right around 100 million. So it's sort of at the lower end of that range.

And as it relates to electrification backlog mix, think about the announcements that we have made through the course of this past year, 18 months, right, wins with Neo and General Motors/Hammer on the component side. We are launching drive units with companies such as REE is also our European manufacturer. We've yet to disclose a name on that. That'll be a big driver unit win and also drive units that we've been in China.

So it's a really nice, healthy mix across our entire product suite and many, many different customers.

Dan Levy -- Credit Suisse -- Analyst

Great. Thank you very much, appreciate the color.

Operator

[Operator instructions] Today's next question comes from Brian Johnson of Barclays. Please go ahead.

Brian Johnson -- Barclays -- Analyst

Thank you. Just kind of a follow on to that, just to get more specific on that 35% electric slice of the pie. when I think about the legacy metal down businesses heavily involved in producing parts for transmissions and combustion engines, to what extent is some of this backlog coming in, not necessarily to the drives you talked about, but into e-motor or other e-gearing components that can utilize your metal down footprints?

David Dauch -- Chairman and Chief Executive Officer

Brian, this is David. Clearly a lot of our equipment can be converted over from making your traditional forge mints and gears for high point type applications to more helical type applications that are more utilized from a business standpoint. So we're seeing wins and opportunities on a gear side and shaft side of the business. So we're very happy with what we're seeing there.

We're also, as Chris just commented earlier, we've had a number of differential awards that plays right into our metal forming business in regards to their gear capability and then our overall machining capability, assembly capability as a company. So we're still seeing growth within our traditional products on the metal forming side, especially as the market starting to consolidate even further, but we're also positioning ourselves and seeing an experience and realizing growth on the electrification side of the metal forming business.

Brian Johnson -- Barclays -- Analyst

I want to pick up on the first part of the last thing you said, which is consolidation. So over in the truck engine space, Cummins is benefiting from consolidation of engine platforms and outsourcing. Are you seeing a similar dynamic in internal combustion engines in terms of in particular, the metal down product line and competitors dropping out, moving on to other segments leaving more business for you?

David Dauch -- Chairman and Chief Executive Officer

Yeah, the answer is yes. Clearly there's some of our competitors or some of the peers in the auto space have indicated that they want out of some of the powertrain or the driveline technologies. We don't have a problem being a consolidator in that space. We started that with the MPG activity and that's benefited us greatly.

We know how to do it. We know how to realizethe integration synergies. At the same time, our buying power continues to get stronger there when it comes to steel, especially in a volatile market like like where we're dealing with here today. So we do see opportunities for further consolidation in that space.

And obviously, we need to balance that with the strength in our balance sheet and then also making the necessary investments in R&D to support the pivot to electrification.

Brian Johnson -- Barclays -- Analyst

OK, thank you.

David Dauch -- Chairman and Chief Executive Officer

Thanks, Brian.

Chris May -- Vice President, Chief Financial Officer

Thank you, Brian.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Lim for any closing remarks.

David Lim -- Head of Investor Relations

Great. Thank you, Brian, for the last question there and thank you, Rocco. And we thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future.

Thank you.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

David Lim -- Head of Investor Relations

David Dauch -- Chairman and Chief Executive Officer

Chris May -- Vice President, Chief Financial Officer

John Murphy -- Bank of America Merrill Lynch -- Analyst

Ryan Brinkman -- J.P. Morgan -- Analyst

Joseph Spak -- RBC Capital Markets -- Analyst

Dan Levy -- Credit Suisse -- Analyst

Brian Johnson -- Barclays -- Analyst

More AXL analysis

All earnings call transcripts