THRM
#<UNK>, the phenomena where we see some customers making some switches to their portfolio, actually introducing heat vent where they didn't have it before in some of their products, is really a forward-looking phenomenon.
We've seeing a little bit in the past year, but it will affect us more as we get through 2017.
Keep in mind that when we look at switches, it's not always a lower price.
There's sometimes additional content we are able to capture.
Generally it's a lower price; but we view it as a positive effect more because our customer's looking at having two solutions to go to the market with.
That covers more potential products that they have in the marketplace.
It is going to be pretty small in the fourth quarter.
The exciting thing for us is that we'll actually be shipping real product-for-sale production by the end of the year.
It doesn't really start to become meaningful until 2018.
If you recall, we announced that our annual run rate will be around $35 million or $40 million when it gets to full ramp up on both projects that we have, both contracts.
That takes about 18 months, and that 18-month period starts at the end of this year.
It's a little too early to tell right now and give a forecast of numbers and growth rates at this point.
Yes, the early indications are that the first quarter has been a little bit light, driven by the North American business being some inventory adjustments.
Particularly Ford and GM have backed off a little bit, and it's primarily just to adjust inventory.
They ran hard in the fourth quarter, and now they had a little bit of extra stock.
We don't see any indications that there is a dramatic reduction in demand.
The North American marketplace is running at an all-time high rate.
Frankly, customers are still buying like crazy.
So we don't see any indications in the rest of the markets worldwide that would cause us to be concerned about 2017's automotive rates.
Europe is still running at a good rate, but they're not running at records.
The Chinese market is stabilized.
They are not doing fantastic, but they are doing good.
We see a generally good (technical difficulty).
I think it's sequentially higher.
Keep in mind that we had an easy comp and that we didn't own CSZ in the first quarter.
That was going to be my point.
The first quarter, we are going to be picking of a quarter from CSZ, which we didn't have last year.
So you will see substantial growth for us for that.
In the automotive business, I think you will see about the same as you saw in the fourth quarter.
We are as confused as the Trump administration appears to be about what their policies are.
Our physical plant and facilities in North America are driven by a Mexican presence.
That's where we have set up our business.
That's the way we run.
We don't really have capacities and facilities to be able to make dramatic shifts in our production.
Our North American manufacturing base is primarily based upon presence in Canada for our global power systems and a large presence here in the US for our medical products division.
Obviously if the rules change, we will evaluate those rules and change our strategies or adjust our strategies as necessary.
From what we've seen so far, there's a lot of rhetoric about a 20% tariff on products produced in Mexico.
We have a very good and strong operation in Mexico.
They would be described in traditional terms as a machiladora.
So lots of product materials are gathered from around the world, brought into the Mexican facilities.
They are assembled, and the value added there is primarily labor and testing.
Then those products are distributed to our customers in Mexico, US and in Canada.
We would have to evaluate what the impact these tariffs or duties might have on our operations.
Obviously, these are costs that would be passed on to our customers.
So it's not exactly an easy thing to do.
But it is certainly not easy for us to plan for some unknown threat of an economic war between these countries.
In general, we are going to take a wait-and-see attitude and try to see what really comes out of the government.
The administration is making a lot of (inaudible) noise.
The full government has to vote and pass new laws, and we will review those laws and make our plans based on that.
The only thing I would add to that, <UNK>, is that our manufacturing strategy has been to serve our customers locally.
When we look at our facilities in China, in Asia generally ---+ we also have a plant in Vietnam and in Eastern Europe ---+ those plants do not bring products back to the North American locations from those plants.
They serve those local regions.
I certainly wouldn't describe the oil and gas markets as anything close to normal at this point.
There's still a great depression going on in oil and gas.
It's much more pronounced in oil than it is in gas.
It has been described that oil is global and gas is local.
Gas demand is still very strong, and it is strong by region around the world.
We have adjusted our strategies to focus on markets where gas distribution and research is high.
South America, Southeast Asia and a little bit into the Mid-East ---+ the activity there is very high.
Canada and the US, the activity has flattened out a bit although the demand for natural gas is very strong.
That is one of our stronger market segments in this global power unit.
We do see the 2017 backlog increasing.
2016 was a 100-year event in oil and gas, and we were impacted by that.
We continue to be under pressure from the softness in the oil and gas businesses.
We see 2017 as a stronger year.
Will it achieve what we saw in 2015.
I don't know.
It's a very good possibility.
You have to remember that business is not at all like all of the rest of our businesses.
It is basically a contract business.
We get contracts, we build the equipment, deliver the equipment.
We can only do that when the customers are building pipelines or servicing pipelines.
It's a very good business.
2016 was a very bad year.
2015 was a very good year.
We are expecting 2017 to be somewhere probably in between.
Hopefully billions and billions.
We are starting with our own direct team.
We will add people as the demand requires.
But the United States is a very large and diverse marketplace in the medical industry.
We are probably going to be adding somewhere around 15 to 30 people in total.
We are well into that process now.
We are very excited about the caliber of people that we are attracting and the types of opportunities that this new team is going to bring us.
In our models, we use the low 20%s as we look into the 2017 period, say somewhere between 22% and 23%.
