Hello, everyone. My name is Jamie, and I will be your operator today. I would like to welcome everyone to the Garrett Motion Quarterly Earnings Conference Call. This call is being recorded, and a replay will be available later today. After the company’s presentation, there will be a Q&A session. I would now like to hand the call over to Paul Blalock, VP, Investor Relations. Please, go ahead.

Thank you, Jamie. Good day, everyone, and thanks for listening to Garrett Motion's second quarter 2020 conference call. Before we begin, I'd like to mention that today's presentation and press release are available on the Garrett Motion website, at www.garrettmotion.com, where you will also find links to our SEC filings along with other important information about Garrett. Turning to slide two, we note that this presentation contains forward-looking statements regarding our business, prospects, goals, strategies, anticipated financial performance, payments to Honeywell, and the anticipated impact of the coronavirus on our business. We encourage you to read the risk factors contained in our financial filings to become aware of the risks and uncertainties in this business and understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations, only as of today, and the company disclaims any obligation to update them. Today's presentation also uses numerous non-GAAP measures to describe the way in which we manage and operate our business, and we reconcile each of those measures to the most directly comparable GAAP measure. You are encouraged to examine those reconciliations, which are found in the appendix to both the press release and the slide presentation. Also in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. With us today is Olivier Rabiller, Garrett's President and CEO; Sean Deason, our Chief Financial Officer; and Peter Brock, our Chief Transformation Officer. I'll now hand it over to Olivier.

Thanks, Paul, and welcome everyone to Garrett's second quarter 2020 conference call. First, I would like to welcome our new CFO, Sean Deason, to today's call. Sean joined Garrett in June after serving as CFO at Wabco, a successful commercial vehicle technology company that was acquired earlier this year. Sean brings to our company more than 20 years of financial leadership, with extensive experience in the auto industry. We are excited to have him as a member of our executive team, as he continues to work closely with Peter to ensure a smooth transition. Peter has transitioned to the newly created role of Chief Transformation Officer. I would like to personally thank him for his numerous contributions over the past nine months as Interim CFO and look forward to many more as he orchestrates Garrett's continuous evolution in preparation for the future. Turning to the second quarter and first half of 2020, Garrett continued to build upon its long-standing track record in operational excellence. These have indeed been challenging times on a massive global scale, requiring Garrett to rapidly adjust its operations around the world and reduce costs to conform to the COVID-19 pandemic. Of course, the health and safety of our colleagues, partners, and communities in which we operate remains our top priority, and our hearts go out to everyone affected by the ongoing crisis. I'm very proud of the dedication and results our employees have shown during this difficult period, working tirelessly to keep our business running in a safe and highly efficient manner. The speed at which we responded to the substantial disruption emanating from China to the rest of the world during the first quarter and then disruptions around the rest of the world alongside the restart in China in the second quarter was exceptional. The resiliency of our operating structure is directly related to our decades of experience in developing quality suppliers worldwide and maintaining a low level of vertical integration, enabling Garrett to quickly adapt to such extraordinary circumstances. Throughout this time, several of our sites worldwide have gone above and beyond in collecting masks, gloves, and other personal protective equipment for those serving on the front line. In India, we made a donation to provide hospital beds, PPE kits, as well as nutritional meals for people in need. By the end of the second quarter, we safely resumed operations at all of our production facilities with a rebound in China, which returned to pre-crisis levels in May. The gradual reopening across the rest of our global footprint is consistent with the restart of the auto industry as all began in the middle of Q2 and continues to progress slowly. As we focus on ramping up production outside of China, we continue to successfully manage our global supply base with minimal interruption but remain very concerned about a potential return to a lower production level, plant shutdowns, and a challenging demand environment extending into 2021. I am pleased to report that in Q2, Garrett generated $63 million adjusted EBITDA for a margin of 13.2% despite the substantial drop in our customer demand. This important accomplishment is testimony to the team's ability to maximize the flexibility of our business model, led by a world-class global manufacturing footprint and integrated supply chain, combined with the resilient workforce and extensive managerial experience in navigating downturns. We believe it will likely take years before we recover from this unprecedented humanitarian and economic crisis, and the situation remains quite fluid. We continue to monitor Garrett's developments but have dismissed the notion of a quick V-shaped recovery. We also obtained near-term covenant relief in the quarter and further postponed payment to our former parent Honeywell, resulting in total liquidity of $482 million at the start of the third quarter. Although this is a positive development for the management of the current crisis, the delay of the payments related to the subordinated obligation to Honeywell creates a significant cash burden for 2023 and beyond. This cash burden limits our ability to expand on our strategy now and in the future and its negative impact will further intensify in the event of additional headwinds. Sean will indeed provide more details later in the presentation to explain the revised expected cash flows to Honeywell. So all in all, this crisis highlights the strong fundamentals of Garrett: one, the ability to outperform the industry thanks to our growing share demand and strong underlying macros; and second, the operating excellence combined with a variable cost model that helps preserve cash and an attractive margin profile even in an unprecedented crisis like the one we are in. But at the same time, it also exposes the ill-suited capital structure that the company inherited from its former parent spinoff. Turning to slide 4, we provide an update on the impact of COVID-19 on our business. Starting on the left, we offer an overview of the global production landscape. As I just mentioned, China has surpassed our expectations since reopening mid-March, posting 57% organic growth in Q2 compared to the prior year period. The strong performance in this country continues to be driven by new product launches and share of demand gains. In addition, we have benefited from an improving commercial vehicle market, which has been under pressure over the past year. Having said that, we do anticipate more moderate growth in the second half of 2020 as local stimulus programs in China are expected to end their course. Our businesses in South Korea and Japan continue to produce at a low level of output and our plant in India reopened in May after closing for approximately five weeks in Q2 and is slowly ramping production. In Europe and North America, the major OEMs gradually restarted production between the end of April and mid-May after closing their factories in late March. As a result, car sales reached historic growth for most of the second quarter. This sudden drop-off in market activity combined with local government mandates, particularly in Mexico, forced Garrett to temporarily close or significantly reduce production at many of its manufacturing facilities in those regions. All of our plants worldwide are now operating mostly on flexible schedules across all product lines, and we have seen an uptick in demand beginning in June. While we anticipate relatively modest improvement in volume during the second half of the year, we believe global auto production will still be down year-over-year by approximately 23% to 30% in 2020, assuming no further shocks or disruptions. For now, we continue to roll out a gradual and comprehensive return-to-work program that follows WHO guidelines and the advice of local government and public health officials. This includes health and safety audits prior to site reopening, followed by access restrictions, strict sanitation and hygiene protocols, global temperature checks, and high visibility safety markings and posters to guide our employees regarding proper social distancing and other precautions. To further promote confidence in returning to the workplace, we have installed daily employee rotations in certain of our work locations while maintaining a work-from-home policy. Another key priority for Garrett is to ensure we meet customer commitments by working closely with our partners and making sure production levels match the changes in customer activities. Although we have not experienced any significant delays to date for our new product launches, we have modified our schedule to reflect a slower ramp up stemming from lower expected volumes given the current environment. We will also continue to flex our organizational cost structure. The short-term working schemes, including furlough, reduced work schedules, and state-funded leaves have been highly impactful and will still play a role, albeit on a lesser scale compared to Q2. And as we stated before, we intend to reduce or postpone our capital expenditures, which are typically low and mostly related to volume growth, by up to 40% in 2020, excluding commitments from prior years. Since the beginning of this year, we have also launched several permanent cost reduction programs to make our organization more efficient. Although these cost reduction initiatives are part of the way we run the company, they have been taken to another level this year to ensure we adapt our cost structure to a revenue profile that may not return to pre-COVID levels for several years. In looking ahead, the overall demand in our operating environment remains highly uncertain. The full impact of the COVID-19 pandemic on our global business continues to depend on many unpredictable future developments, including the potential for a second wave of coronavirus or longer-than-anticipated first wave. Based on the current dynamics, we expect to see a sequential improvement in the current third quarter, but bear in mind that this is coming off a low base and our results are expected to be down year-over-year. So until conditions become more stable, we believe it's prudent to refrain from resuming a full-year outlook at this time. On Slide 5, we reiterate our long-term technology growth strategy. As we have stated in the past, the positive long-term drivers of our business remain intact despite the near-term disruptions across the auto industry and global economy. The rollout of stringent global fuel economy and energy standards, combined with the growth in electrification of powertrains, continue to provide both short-term and long-term macro tailwinds. Garrett's position as a market leader enabling OEMs to deliver cleaner and safer vehicles has enabled our company to consistently outperform global auto production, and we expect this trend to continue. For one thing, new engine and powertrain programs are crucial to meeting new regulatory mandates, and to-date we have not seen a desire among Chinese authorities or the European Commission to meet such requirements in light of the current crisis. Even if the implementation of certain standards is temporarily delayed, we would not expect to be materially impacted given programs are often established years in advance. As a result, it's unlikely automakers would take the liberty to delay their launches in the short term but instead manage the platform mix among the scheduled deliveries. So as the turbo industry recovers at a faster pace than global auto production, we believe our future performance will be further supported by Garrett's growing business. Since going public, we have achieved a strong win rate in our global business. As you know, we publish an update of our win rate every year in Q3. But at this stage, I can already say that we remain on track for another year of strong win rate performance, reinforcing our industry leadership. Our approach to building collaborative long-term relationships with global OEMs is to provide a distinct competitive advantage that has placed Garrett at the forefront of value-added innovation and services. Last month, we received the 2020 Group PSA Quality First Award in recognition of the automakers' highest performing suppliers. This illustrates well the emphasis we have put for the last few years on working relentlessly to improve customer experience. In June, Mercedes AMG also announced plans to launch a new hybrid powertrain featuring Garrett's 48-volt E-turbo. The type of public recognition coming from a client is rare in our industry and once again underscores our long-standing relationship with a major manufacturer, reinforcing our role as a premier technology innovator. As mentioned in the past, we expect to be first to market with the turbo, which is rooted in Formula One technology and transferable to the masses beginning next year. The E-Turbo reflects Garrett's expertise in automotive engineering, building complex electric motor systems and associated power electronics running at unmatched speeds and temperatures, and will pave the way for more growth opportunities in electrification. On the software side, we recently entered into a new partnership with Congo to expand our smart diagnostics and prognostic technologies for use among commercial vehicle fleets. Congo is a leading international telematics provider, and by selecting our software solution for inclusion in their applications, we intend to broaden the reach of Garrett's IVHM tools, enabling end users to maximize vehicle uptime and increase reliability. In a crisis like this one, our focus is on preparing the company to exist here, and this is the reason why we continue to press ahead on developing new technologies not only for our core turbo business but also in electrification and software. With that, I will hand it over to Sean to provide additional color regarding our financial results.

Thanks, Olivier, and welcome everyone. I'm thrilled to join such a talented and experienced leadership team and look forward to working with management to help Garrett achieve its strategic long-term objectives. I will begin my remarks on slide 6. In the second quarter, Garrett reported net sales of $477 million, down 39% at constant currency. As Olivier mentioned earlier, our performance for the quarter was adversely affected by the COVID-19-related plant shutdowns in Mexico and India, as well as production slowdowns across Europe, partially offset by China. Adjusted EBITDA for the quarter was down 59% to $63 million and for a margin of 13.2%, which is attributable to lower volumes stemming from the coronavirus outbreak. Our year-over-year decremental margin was 28%, which includes mixed headwinds resulting from significantly higher demand for gasoline products beginning in the second half of 2019 and into 2020. Further, the sequential decremental margin from the first to the second quarter was approximately 16%, driven by the impact of various initiatives to flex our global operating structure and reduce costs that we put in place at the end of the first quarter. Our adjusted free cash flow was minus $174 million, which reflects the deterioration in market conditions and the associated impact on working capital. Lastly, adjusted diluted EPS, which excludes Honeywell indemnity obligation expenses and related litigation fees, was $0.07 per share in the quarter. Turning to slide 7, we illustrate our net sales by region and product line. The strong rebound in China, which grew 57% organically in Q2 compared to the same period in the prior year, during a time when the rest of the world was dealing with production curtailments from COVID-19, led to an outsized proportion of net sales in Asia. As a result, the percentage of net sales declined 20 percentage points in the second quarter, largely at the expense of Europe, which was down 18 percentage points. These regional changes in the quarter are an outlier and are not an accurate representation of a normal course of our business. On the product side, we show the percentage of net sales from gasoline at 36% in the second quarter, up five percentage points from the year-ago period. Although gasoline remains our strongest product category, the mix shift from diesel to gasoline has also been clouded by the pandemic. We continue to benefit from new gasoline product launches and penetration gains as diesel remains in decline. This rate of decline, however, was much lower at the start of the year before the onset of the coronavirus, which has significantly impacted diesel sales in Europe. Lastly, on this slide, you see an increase in the percentage of sales from both commercial vehicles and aftermarket products. However, these higher-margin businesses continue to face global headwinds consistent with the overall auto industry. Turning to slide eight, we provide our net sales bridge for the second quarter. While all of our product lines were impacted globally by the COVID-19 pandemic as expected, China was the only country to post year-over-year growth, which was more than offset by the demand drop in the rest of the world. When we break down the sales decline by product line, gasoline products were down $72 million, representing a decrease of 29% at constant currency over the same period last year, despite the growth in gasoline volumes in China we discussed earlier. Overall, the performance of our light vehicle sales when combining both gasoline and diesel products at constant currency was in line with the decline in global light vehicle auto production of approximately 47% in Q2. Commercial vehicles declined by $60 million or 37% at constant currency, which was partially offset by CV growth in China, and aftermarket sales decreased $27 million or 28% at constant currency. Turning to slide nine, you see our adjusted EBITDA walk for Q2 2020 compared to Q2 2019. For the quarter, Garrett's adjusted EBITDA of $63 million was down 59% compared to the same period last year. Despite $104 million in lower volumes stemming from COVID-19, as discussed earlier, we achieved an adjusted EBITDA margin in the quarter of 13.2%. This performance highlights the effectiveness of our flexible operations and reflects the favorable challenges in price as well as productivity gains, net of low-volume leverage—considerable accomplishments in light of the substantial market disruption we faced. We also benefited from a mixed tailwind in the quarter, mainly due to the relative quarterly performance in aftermarket in North America and commercial vehicles in China. SG&A expenses decreased $7 million in Q2 due to the implementation of our ongoing cost controls to mitigate the impact of the COVID-19 pandemic on our results. R&D expenses were down $4 million in the quarter mainly as a result of our flexible working schedules. In all, our numerous cost control and cash management actions generated savings in the quarter totaling approximately $33 million. Our cost savings benefit combined with the inherent flexibility of our global operating platform, as well as mix and pricing tailwinds, enabled Garrett to improve the sequential decremental margin from the first to the second quarter to approximately 16%. For Q3, we expect our sequential decremental margin to be higher due to the lower expected savings from short-term working schemes, as mentioned earlier on the call, and other governmental supported programs, as well as a less favorable product mix versus Q2. Turning to slide 10, we provide our net debt walk for the second quarter. In Q2, our net debt increased by $203 million to $1.43 billion, largely driven by a use of cash of $172 million from working capital and accrued liabilities. Historically, Garrett's high working capital turnover provides a source of cash on an annual basis. However, in the current environment, with unusually low volumes, our customer collections were down in Q2 as expected and were only partially offset by lower disbursements to suppliers. The benefit from these lower disbursements will most likely take effect in Q3, given the payment terms for our suppliers are longer and typically extend approximately 60 days over collections. So, the timing of payments between our customers and suppliers had a significant impact on our working capital in Q2. Cash interest of $30 million includes $11 million in financing fees and $10 million in biannual interest payments on our unsecured bond. Additionally, our cash taxes of $3 million in Q2 were lower than usual mainly due to a decrease in our pretax income. Other cash items in the quarter included higher outlays for professional services as well as cash compensation and new stock following our previously disclosed continuity awards. For the second quarter, our adjusted free cash flow was minus $174 million, including indemnity-related litigation fees incurred by Garrett totaling $2 million; our Q2 free cash flow was minus $176 million compared to minus $29 million in the same period last year. Turning to slide 11, during the second quarter, we announced an agreement with our senior lenders under Garrett's credit agreement that provides for covenant relief for up to a two-year period through June 30th, 2022. These modifications, which include an adjusted maximum leverage ratio and a waiver of interest coverage ratio requirements, enhance our ability to manage the ongoing impact of the COVID-19 crisis. We appreciate the support of our lending group and we maintain our focus on ensuring the near-term liquidity of our company. We ended the second quarter with available liquidity of $482 million, including cash and cash equivalents of $139 million, and funds available under our revolving credit facility of approximately $347 million, partially offset by $4 million in uncommitted debt. Total gross debt, excluding cash, increased to $1.57 billion as of June 30, mainly driven by a net drawdown on our revolver of $66 million to finance the use of cash in the second quarter. Pursuant to our amended credit agreement, our secured net debt to consolidated EBITDA ratio was 3.07 times as of June 30, and we have no material debt maturities before September 2023. As a final note on this slide, the substantial doubt language raised in our previous 10-Q regarding our ability to continue as a going concern has been removed this quarter following the Q2 completion of our amended credit agreement. But as Olivier mentioned earlier, our capital structure remains a significant challenge, and I will further describe our situation on the next slide. Moving to slide 12, we outlined the potential expected payments to Honeywell based on the amendment to the subordinated indemnity agreement completed in the second quarter and also note select balance sheet items associated with this agreement. As of June 30, Honeywell liabilities totaled $134 billion. As you can see from the graph, the delay in payment to Honeywell will help us with our short-term liquidity issues over the next two years. However, they also put a significant burden on our capital structure from 2023 onward, as the deferred indemnity amounts are not subject to the annual $175 million payment cap. Based on the catch-up provisions under the indemnity agreement, the deferred payments are expected to be repaid beginning in Q2 2023, assuming we are in compliance with our credit agreement financial maintenance covenants. Total indemnity payments for 2023 are currently expected to total approximately $375 million when combining the potential $200 million in deferred amounts with the regularly scheduled payments. To be conservative, the forecasted payments assume all regularly scheduled payments beginning in the second half of 2022 will be made at the $175 million annualized cap as defined in the indemnity agreement. The annual mandatory transition tax payments to Honeywell will continue on an annual basis as planned, with the exception of the 2020 payment of $19 million, which has been postponed until the end of this year. As a reminder, our MTT payment schedule amortizes over an eight-year period at 8% of the total of each of the first five years before increasing to 15% in 2023, 20% in 2024, and 25% in 2025. In summary, while the deferral of the subordinated indemnity payment is helpful to support our near-term liquidity, it is clear that post-2022, we will face a significant cash flow drain for the years thereafter. This situation accurately depicts the impact of our former parent's decision to impose an inappropriate capital structure on Garrett that was ill-suited to cope with any meaningful challenges at the macro level, much less those we face amid a global pandemic. As a result, we will continue to pursue our rights with Honeywell to ensure the sustainability of our operations over the long-term while actively defending our company against any intent to interfere with our operations as an independent company.

With that, I will now turn the call back over to Olivier. Thanks, Sean. On slide 13, we summarize our Q2 performance and year-to-date actions. All of our plants have safely resumed operations led by China, which has already returned to pre-crisis levels, and we expect our remaining plants to gradually increase production over time as customer demand slowly improves. Indeed, our results for the second quarter reflect significantly lower volumes stemming from the impact of the COVID-19 pandemic. But despite the unprecedented shutdowns across the global automotive industry, Garrett posted $63 million in adjusted EBITDA for a margin of 13.2% in the quarter, highlighting our operational excellence by leveraging our highly variable cost structure and exhibiting strict cost control measures to respond rapidly to the abrupt deterioration in the business environment. Going forward, we will strive to take full advantage of our resilient business model to mitigate the impact from the current crisis. But as global infections for the coronavirus have yet to stabilize and in fact are increasing in many countries, we consider that there is much uncertainty that lies ahead in our industry and the global economy. I am also encouraged by our strong ongoing win performance in our core turbo business and the continued accelerations across our innovative E-Boosting and software solutions. I am pleased that we successfully amended our credit agreement and further postponed payment to our former parents. But the set of information we shared today about the consequences to Garrett of postponing obligations related to Honeywell's subordinated indemnity payment highlights our concerns about our capital structure and remains a point of focus for us. In conclusion, I want to share my appreciation for our teams around the world who have done extraordinary work under such conditions. This concludes our formal remarks today, and I will now hand it back to Paul for the Q&A.

Thank you, Olivier. Operator, we are now ready to open the call for questions. Thank you, Olivier. Operator, we are now ready to open the line for questions. Operator? Operator, this is Paul. We are now ready to open the line for questions.

Ladies and gentlemen, we will now start the question-and-answer session. Our first question today comes from Aileen Smith at Bank of America. Please go ahead with your question.

Good morning, guys. First question, obviously your free cash flow was very much hindered by the working capital unwind in the quarter. How much of this would you estimate gets reversed in the second half of the year? And is it dependent on certain volume levels at all?

Yes, this is Sean. Hi, good morning. It definitely is something that's dependent on volumes as we move into the third and fourth quarters. The trend we see coming out of June will naturally unwind a bit but it's very tough to predict, as we mentioned earlier, what will happen in the fourth quarter. It's very volume dependent and sales dependent in that regard. But we will see an unwind as I mentioned earlier in the third quarter.

Okay. As a follow-up, some suppliers had outlined or estimated free cash flow breakeven levels versus production or production declines on a full-year basis. Is this something that you've contemplated at all, or any guidepost that you can give us as we think about 2020 in total?

I would say that you will see cash flow improve in Q3 and continue to Q4 depending on where volumes end up. But again, we're not providing guidance. But I would hope that if the improvement continues, we would not see the use of cash. We would not exit the year with the use of cash at 150 or 170; we would be better than that. But again, it's very, very dependent on where we see the biggest risk and that net volumes in the second half but primarily September, October, and November.

Okay. And then a second question, you've commented that all your planned operations. Do you have an estimate for rough capacity utilization levels that you're running at across your various regions based on the volume trends? And then based on your variable cost structure, do you have any estimates for cap out levels in plants or regions that are required for profitability?

Yes. I'm sorry, I missed part of your question. Could you please repeat?

Yes. So first, I said more profitability. So when we think about utilization levels required for profitability, we've historically benchmarked about 70% to 80%. But I'm wondering based on your variable cost structure whether that could be lower?

Sorry, it's difficult to hear that you are saying that we were at the point we got is that we are benchmarked that I got. I thank you for that. But I did not get the metric you wanted to point out.

I think we can take this offline. But broadly, do you have an estimate right now that you're running at in terms of capacity utilization levels across your plants in various regions?

Capacity utilization?

Yes.

When comparing to the industry at the end of 2019, we don't expect the volumes to return to those levels before 2022. This gives you an idea of our capacity utilization going forward.

Okay. Great. Thanks for taking my questions.

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

Hi, guys. It’s A.J. Ribakove on for Joe Spak. Two quick questions. First, I believe that I heard in the beginning of the call you mentioned 2020 global production down about low 20% to 30%. That seems a bit more conservative than what we're seeing on third-party assumptions. Was that more customer specific, or can you talk through some of your regional assumptions?

That’s not really tied to any specific customer. We prefer to take a cautious approach. Given the volume trends over the past few months, the economy appears to be quite unstable in the near term. In fact, if you look back at what the original equipment manufacturers projected for returning to work in May and June, none of their forecasts have aligned with actual outcomes. We made a prudent choice to adjust our supply chain and factory operations to lower levels than what they indicated. We are being very careful about the second half of the year. While we are seeing gradual improvement, particularly strong dynamics in China, as Sean mentioned, July looks relatively positive. However, it’s still too early to determine that the second half of the year won’t be influenced by the COVID-19 infection rate. It’s also important to remember that many companies worldwide, including those in the automotive sector, are still in the process of implementing permanent cost reduction measures. The effects of these actions on consumer sentiment and the potential impact on vehicle purchases could be felt in the latter half of the year. Therefore, we prefer to remain cautious because it's premature to say that everything has returned to normal and is completely stable.

Got it. That's helpful color. Alright. Thanks. And then I guess on the cost reduction measures, there was obviously some strong sequential decremental performance in the quarter, and there's obviously some mix to that as well. But how should we think about those temporary cost measures and the ability of them to take hold permanently?

So I will start on this one and Sean will complete. But quite frankly obviously, we've been leveraging everything we could. And when you are having the flexible scheme that we have, it's easier because we have a high level of temporary workforce that we always maintain in our operations, as you know. Therefore, we have been able to combine that with the different schemes that we have in different countries, and we have been even working very closely with some governments where we are quite relevant in terms of size to make sure that we would benefit, or the governments would put in place search measures. And obviously there is a temporary effect of that that at some point needs to be compensated by more permanent measures. In the more permanent measures, I would say you have two categories. You have the first one that's related to indirect costs. And quite frankly, if you take the example of TME, we are not expecting anyone to get on the plane anytime soon. So obviously there is a long-lasting effort of a lot of the cost reduction things that we have done. And then there are more permanent measures that are linked to the structure of the business, namely, making sure that we adjust our resources to the amount of activity that we are seeing moving forward. So I would say on this one that first, as we said in the presentation, this is an exercise that we've been doing always in this company. Every year, we are having repositioning plans, every year. And that's a culture. It's a little bit like going to the gym. If you don't do that, at some point you get fat and then you get to get to a surgery. And this is what we are trying to avoid. So this year, obviously, the plans that we have launched are much bigger than what we usually do on a year-on-year basis. But I will let Sean comment on that.

Yes, as we mentioned, there is a $30 million impact in the second quarter. Of that, $20 million was primarily from short-term state-funded leads. Ten million will carry over, but we are actively assessing which government programs will be renewed. Additionally, we are considering further actions. I would say that ten million is a baseline carryover into the next quarter, and there is potential for upside.

Got it. Thanks.

And our next question comes from Teresa Kutch from MNG. Please go ahead with your question.

Hi. Just two questions from me. First, can you talk through your margins and continue to plan B? How much of it is due to the portfolio mix as we shift away to gasoline? And how much of it is due to other factors? I think in Q1, we talked about the increase in freight costs? And then secondly, can you talk through your supply chain? And if there have been any challenges there?

So, I'll let Sean comment on the decremental margins because I think we are clear in the presentation to say that year-on-year, we have a 28% decremental. But if you do the quarter-over-quarter, which excludes a significant piece of the mix effect, we have year-on-year, then we get to 16, which is quite low. But I will comment on the supply chain disruption first, and Sean will come back to that. So in terms of supply chain disruptions, quite frankly, supply chain disruptions due to COVID we have numbers of them. You can imagine that we were shut down for six weeks in one. We have some suppliers in the one region that are used for global operations. We had a number of suppliers in China feeding the rest of the world. So Q1 was really a stretch for us from a supply chain standpoint. I'm amazed by the flexibility that the teams have put in place in order to keep on supplying the rest of the world. And then immediately after that, we started with the shutdown of the rest of the world. And then China is restarting extremely fast, and we are not at 100% local content, although we are very high in China. We are not 100%. And that created some other challenges as well. So from a supply chain disruption standpoint, obviously, now we are returning to normal. I don't think there is any major one that remains. And we are very happy with the way we went through all of that, minimizing at the same time as much as we could the impact on our costs. From a supplier risk management standpoint, we are monitoring that as we said before very, very carefully. I think the fact that we have a lot of our suppliers in Asia, which is the region that has restarted fast and that has been less affected overall when you look back from a cash standpoint has made us probably so far, I would say, so far a little bit more immune to that point. But that remains a point that we are watching extremely carefully.

To expand on the topic of decremental margins, we anticipate that in the third and fourth quarters, as previously mentioned, we will not experience a significant sequential decremental margin. In particular, Q3 may face some pressure, and Q4 will likely encounter additional challenges due to our strong pricing performance in Q2. We expect pricing pressure to reemerge in the third and fourth quarters if the slow recovery persists. Additionally, the impact of any extra state-funded leave programs and our ongoing initiatives aimed at achieving permanent cost savings will also play a crucial role.

Alright. So for normalized margins in the near term, should we think of it as roughly 16%?

We discussed this at the end of last year, mentioning that the impact of gasoline mix would allow us to maintain margins in a typical environment, excluding COVID, similar to what we presented previously. We anticipate a gradual improvement as we implement new technology for gasoline, particularly with significant increases in the second half of 2022 and into 2023. However, the ongoing effects of the coronavirus are complicating this situation. We are actively working to adapt the business to address reduced volume, but for now, I won’t provide a specific range.

Alright. That's very helpful. Thank you for the color.

Our next question comes from Milind Gupta. Please go ahead with your question.

Hi, guys. Thanks for taking my questions. I know you guys are giving guidance, but can you at least say whether you expect CapEx to be up or down for the year? And what your outlook is for the second half? It's running higher in the first half, so I was just wondering what it looks like in the second half.

Maybe just to introduce the question, and that's probably a follow-on to where we are going with your colleague from RBC earlier. From a capacity standpoint, a lot of what we invest in CapEx is related to capacity. And that's the reason why we've been able to adjust our CapEx very quickly to something down 40% versus what we are expecting. So quite frankly, we are adjusting that. We will be adjusting our ramp-ups in terms of generic capacity linked to our own outlook of where the industry is going. The good thing for us is that when you look back, due to the fact that the penetration rate of turbo is increasing, and due to the fact that our revenue was expected to increase on top of that due to sharp demand gains and program launches, we obviously expect a drop of volume, or I would say time to return to pre-COVID-19 crisis, probably faster for our business than the rest of the automotive industry. So we should not suffer as long as some components that are driven by the same macros. And in the meantime, we are adjusting the capital of the company, the capital needs of the company according to that. And the beauty is that we have lower CapEx as a percentage of revenue. And on top of that, a lot of that is driven by capacity needs, so this is the reason why we can flex. I don't know if I've answered your question.

Okay. That's helpful. Can you provide some insights on how your market share has performed in the quarter, particularly in North America and Europe? I'm trying to reconcile your strong win rates with the sales decline in those regions compared to the deliveries by the major OEMs. I understand there can be a significant lag between deliveries and production schedules in this environment. I'm looking to clarify the impact of what you've done in North America and Europe and how your market share has changed.

We have mentioned that we are gaining market share while maintaining our position in the diesel sector. However, our growth is significantly faster in the gasoline sector, where we are capturing most of the market share, particularly in China. Our volumes in China are more than 50% higher than they were a year ago. This growth is not solely due to the recovery of the Chinese market, but primarily because of our product launches driving performance above market levels. In a quarter like this, it's challenging to state that we are outgrowing the entire industry. Although the industry has faced disruptions, it is clear that our growth rate surpasses that of the industry. However, claiming such significant outgrowth feels like an overstatement and might be too bold in my opinion.

Okay. That's fair. Last question. The market’s gotten really excited about fuel cells recently. And Eric talked about that as being a potential growth market for you guys. Are there any updates you guys can offer on the fuel cell front in terms of customer wins or product launches?

Fuel cell is very hard. I’ll tell you, fuel cell is very hard. We are very happy with the technology we have. We are engaged in discussions with about ten big customers on that. The technology we have is really differentiating and provides a big help for these guys to improve the efficiency of the fuel cell system. It's obvious that we are entering and participating in the hydrogen movement. And quite frankly, we are seeing a lot of traction with commercial vehicles. We are seeing also some car makers that have been looking very actively at that and are now planning for super high volume products. So everything we've said so far has just been reinforced by all the movement that's happening to H2 investments over the past months. At the same time, let's keep in mind that we are not expecting fuel cell to take over the automotive industry by 2025, so that's a long-term investment. That's a good bet for ourselves because we think that the powertrain industry moving forward will be much more diverse than it was a few years back. It will play with multi-forms of hybrid fuel cells, batteries, IC, and we want to be positioned on the technologies of these opportunities.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. The conference has now also concluded. We thank you for attending today's presentation. You may now disconnect your lines.