Good morning, ladies and gentlemen. This is Stefan Orfmann speaking on behalf of Daimler. I'd like to welcome you on both the telephone and the Internet to our Q3 results conference call. We're very happy to have with us today, Harald Wilhelm, Member of the Board of Management of Daimler, responsible for Finance and Controlling and Daimler Mobility. In order to give you maximum time for your questions, Harald will begin with an introduction directly followed by a Q and A session.
Thanks, Stefan, and good morning and welcome to everybody on that call here. Thanks for joining us. Well, on the 6th October, I think we had a pretty intense Mercedes Benz strategy update. So therefore, I suggest that today we focus on the Q3 performance and that we will give an update on the outlook for the Q4 and the full year 2020. Therefore, please understand that we will not focus on the longer term perspective nor on 2021 today.
As we already informed you last week, the Q3 shows a very strong performance and provides further proof that we are on the right path to reduce the breakeven point of our company. At the same time, we continue to size opportunities from improving markets with our great products at Mercedes Benz Cars, Daimler Trucks and Buses and Mercedes Benz Benz. This gives us confidence to push ahead with our work both on the strategic and the operational side of the business. The strategy laid out on the 6th October, the operational focus, the Q3 achievements and allow us to look with some confidence ahead into the Q4 and therefore to give you that quantitative guidance here for the full year 2020. First, let me turn a bit to the highlights of the Q3, however, on Page number 2.
Well, I already mentioned in our Mercedes Benz strategy update 3 weeks ago. I think you could take away very clearly that we will focus our strategy on profitable growth in the luxury segment and that we also target the leadership in electric drive and car software. At the same time, we are very focused to work diligently to improve our breakeven point. Furthermore, in mid August, we informed you that we have reached another milestone towards the resolution of regulatory authorities have approved a settlement of civil and environmental claims in the United States. We will not be subject to external monitorship as we have successfully launched our internal technical compliance system that will serve as a blueprint for the wider automobile industry.
We are glad that we are making progress in resolving these legacy issues. Then on the quarter 3, we have seen a faster than expected market recovery and particular strong September performance. This combined with our diligent cost discipline, extensive cash preservation measures and further efficiency enhancement have had a significant impact this quarter. We were able to generate a free cash flow of 5,000,000,000 dollars This is reflected in the net liquidity, which amounted to $13,000,000,000 at the end of the quarter. But also on the sustainability side, we had been doing some progress.
It's clearly in our focus and you can see that also in the green financing where we issued the first green bond with €1,000,000,000 ticket in September. So CO2 neutral mobility and production is a clear goal and integral part of our sustainable business strategy. If we now turn to Page 3 on the key numbers. Despite the ongoing COVID-nineteen pandemic, unit sales and group revenues were only slightly lower than the prior year figure with minus 8% and minus 7% respectively. Whereas in Q2 unit sales were down 34% and revenues were down 29%.
Despite these lower revenues, adjusted EBIT was up 11% on prior year quarters at €3,500,000,000 reflecting the impact of our group wide cost measures. Earnings adjustment came mainly from the restructuring measures in Mercedes Benz Cars and Vans segment. The unusually strong industrial free cash flow of €5,100,000,000 dollars reflected in particular extensive costs and cash preservation measures, strong operating performance across all divisions, leading to very favorable cash conversion rate. In addition, the quarter saw the expected receipt of 1 point €2,000,000,000 dividend from our joint venture in China, BBAC and some seasonal phasing impacts. Let's have a look more in-depth on the net industrial liquidity evolution on Page 4.
We start with a Q2 net cash of €9,500,000,000 We achieved a healthy level of net cash during the 3 months ending with €13,000,000,000 So if you go from the left to the right, earnings and other cash flow impacts amounted to $4,300,000,000 driven by a strong net profit from industrial operations. Furthermore, the €1,200,000,000 dividend, as I mentioned already before, helped here. The positive working capital impact came from Mercedes Benz cars and vans in the amount of €435,000,000 and from trucks and buses, also another 184,000,000 those mainly due to a favorable development of payables and additional positive inventory development at trucks. In the next column, you can see as well that our effort to limit investment was successful in quarter 3 with investments now being lower than depreciation and amortization. The net industrial liquidity reflects as well EUR 1,000,000,000 of the dividend we paid in July to our shareholders after the AGM and some FX effect that is covered in the other column.
Besides the cash flow management, we further strengthened our financial flexibility with good access to capital market. Our revolving credit facilities, 3 issues which we issue 3 bonds which we issued this year and a high level of gross and net industrial liquidity to protect our financial flexibility. I think it's pretty obvious from this that we therefore see no need for equity raise. We now move to Mercedes Benz Cars and Vans on Page 5. We can see worldwide recovery of the passenger car sales, which continued in the quarter.
We had a favorable model mix, improved pricing and a significant reduction of fixed cost and accelerating headcount reduction and all of that, I mean, obviously helped the profitability. On the sales side, we see an increasing demand for low and 0 CO2 emitting cars, especially in Europe received rising orders and particularly for the plug in hybrids and Mercedes Benz cars we delivered more than 45 1,000 XEVs to our customers from July to September. Current and for quarter 4 expected XCV sales bring us in striking distance to achieve our CO2 emission target this year. With the factory 56 at the beginning of September, we opened our first fully CO2 neutral production site. At the same event, we revealed our all new S Class.
We are glad that we can utilize this new sustainable production facility for serious production of our Mercedes Benz flagship and for the EQS, which will come to the market in 2021. The new S Class stands for a new lecture experience for more aspects, comfort, safety, user interaction and connectivity with next generation of our MBUX system. And of course, the new S Class will help us on our path towards higher profitability. And I hope you will all have soon the possibility to enjoy a ride in it. Besides focusing on the Mercedes Benz car segment, it is also great to see how well the van business has developed lately.
Advance, we go through a massive operational turnaround. The profitability advance in the Q3 was very much in line with the profitability of the Mercedes Benz Cars business. Furthermore, with EQV, we start we are setting new standards for electric mobility also in its class. Since September, the first purely battery electric EQV has been driven off the production line. Let's have a look a bit closer into the sales development in the Q3.
Page 6, demand from our customers was significantly higher than we had expected earlier. Despite the COVID-nineteen pandemic deliveries from July through September benefited from a recovery in many markets. This increased demand was met even at short notice in particular by reducing dealer inventories. Europe, the Q3 unit sales were 5% lower compared to last year's figure. Year to date, we are at minus 22%.
In China, Mercedes Benz Cars' largest market, passenger car sales increased by 24%, setting a new record for the Q3. Year to date, unit sales are up 7%. In the United States, Q3 units sales are minus 31 year to date minus 24. In general, the Q3 also shows how regionally diverse the situation still was in the market. We will therefore monitor developments very closely in the Q4 and continue the prudent approach in terms of supply of markets that we follow through this year.
However, from today's perspective demand for Q4 is encouraging higher than Q3, but slightly lower than Q4 2019. One further comment I might like to make here is, as mentioned on the chart, you see group sales. It is important to note that again for all 3 months in the quarter, retail sales were above group sales, indicating that we enjoy a healthy market pool. What goes hand in hand with markets pulling and diligently balancing the supply side are favorable stock levels for new cars, residual value stabilizing, used car stocks are being on the low levels. Considering the low levels that we have reached at the moment, we probably need to refill the pipeline slightly in Q4, but carefully.
Now key figures on page 7 for cars and vans. Unit sales, I mentioned already were 4% lower in that segment compared to prior quarter. Now all in all to 673 vehicles. You might remember in Q2, we were down minus 30%. So we had a strong run on SUV sales, in particular the GLA, the GLB and the GLS, which increased by 23% and reached a new record for the Q3.
Advanced, the unit sales increased by 7% to 107,000 units in the quarter, particularly due to positive developments in China and Europe. Supported by strong pricing, revenues at the cars and vans segment were down 3% at €26,000,000,000 compared to minus 4% on the unit sales side. The division adjusted EBIT is 2.4%, which we'll explain a bit more in the second, 29% up versus last year's quarter. And the SEI bit amounted to $4,600,000,000 a significant step up. Looking at Page 8, the EBIT walk, the EBIT adjusted increased to $2,400,000,000 with a return on sales adjusted of 9.4%, sitting above the 7% of the previous year quarter.
Model mix and pricing of the vehicles continue to develop well. However, not compensating the lower volume and negative volume structure impact from XEVs, which you can see in the minus 3.37% here. A smaller negative impact on earnings came from unfavorable mid development of foreign exchange currencies. We had a significant positive impact on EBIT on the cost side. Performance was slightly positive.
What does it mean? Production efficiencies, and if you see it means slight positive. That also means that we could more or less mitigate production related fixed cost redundancies. Also like unlike in the Q2, there was no short term labor benefit anymore. Furthermore, a significant reduction in all fixed cost areas that boosted earnings, G and A, R and D, in particular selling expenses were lower than in the same period of last year.
In addition, an adjustment to retirement and healthcare plan in the U. S. Also helped a positive impact on selling expenses. This was in the magnitude of a low triple digit million figure. Furthermore, EBIT was adjusted by expenses for the initiated personal cost reduction program and restructuring expenses for the adjustment and the realignment of capacities.
So in the EUR 297,000,000 restructuring measures, the intended sale of the Hamburg plant is included also with additional €68,000,000 On the cash flow side, we achieved a CFBIT adjusted of 4 point €8,000,000,000 Obviously, that includes the enhanced profitability, the working capital change and the BBAC dividend. If we go again a bit from the left to the right, so we see €435,000,000 from a change in working capital driven by trade payables. Inventories were slightly restocked in quarter 3 in order to prepare for the increasing demand and fill lower dealer stocks as I already mentioned before. In terms of CapEx and R and D, we have presented to you a plan on 6 October with concrete committed commitments, how we will lower spending on a year over year basis. As you know, last year, we have introduced an investment cap.
With the COVID-nineteen unveiling, we initiated further CapEx saving measures and actually cut back on non pressing topics. At the same time, we made sure that the key products like the S Class, the C Class or the EQS are not compromised and we continue to invest in the technologies of the future, including electrification and software. So consequently, we have said that going forward, the relative CapEx reduction will be even stronger than the reduction in R and D. The Q3 figures that you see here confirm these efforts. Net investments went down and were below the D and A level.
In the column labeled others, I wanted to highlight main three points here. First, dividend of €1,200,000,000 for the full year 2019, which amounted to €1,200,000,000 had been cashed in the 3rd quarter. 2nd, we have other liabilities improving the cash flow by 586,000,000. Dollars This position includes tax provision based on the strong Q3 sales and restructuring measures with an expected cash out in Q4. So some seasonality.
And 3rd, there were remaining cash ins in the 3rd quarter for the short term work that took place in 2nd quarter and influenced the EBIT in Q2 cashed in, in the 3rd quarter. Now let's turn to trucks and buses on Page 10. We could also see a significant sales recovery compared to the first half of the year on the trucks and bus on the truck side. Unit sales in the Q3 of 2020 decreased to 99,000 vehicles versus Q3 2019, primarily due to the ongoing worldwide effects of the COVID-nineteen pandemic. Nevertheless, incoming truck orders in most of the key regions in the Q3 were significantly above Q2 numbers and even exceeding the Q3 2019 level, including core markets in Europe and North America.
Obviously, also at Trucks, we're keeping a strong focus on cash preservation measures, strict cost control and progressive execution of restructuring activities resulted in a noticeable reduction of fixed cost as well. On the product highlights of the quarter, in trucks was presentation of the hydrogen based fuel set concept truck for the long distance segment with a range of up to 1,000 kilometers. Additional, the purely battery electric eActros long hole will be ready for Furthermore, we introduced 2 more new models to the market, the new Western Star 49X in the North America and Mercedes Benz Intuvo with active brake assist in 5 in Europe. With a brand new vocational Western Star truck, we see opportunities to gain market share in the vocational segment, same as we did with the Cascadia in the highway segment, which is the first of its kind that was specifically developed for the vocational segment. On the sales, a bit more in detail on Page 11.
The major markets improved visibly in the 3rd quarter after the severe losses in the first half of the year. At the same time, the market share increased in almost all markets. In most regions, however, unit sales were still significantly lower than in the Q3 2019. We're coming from an extraordinary high level of sales in 2019. As we know, by the end of Q3, we were able to see some signs of normalization in the core markets in North America and Europe, as I mentioned, on the order side already.
Recovery in the Asian market is somewhat more difficult, as in particular in India and Indonesia demand slumped and is still suffering from the ongoing severe effects from COVID. So looking at the key numbers on Page 12, the revenues decreased by 20 percent to 9,200,000,000 percent to 5,100 units. The EBIT adjusted is at 603,000,000. Dollars Adjusted return on sales was at 6.5%. Incoming orders exceed the prior year figure by 3%, in particular in North America.
The September numbers were strong and more than doubled compared to August numbers. Trucks Asia oil orders declined, mainly driven by Indonesian and Japanese market cooldown. Book to bill was at 105 percent coming in particular from Asia and the solid level in Europe and North America. And on the cash flow before interest and tax, we see EUR 1,100,000,000
which is
an increase of 55% and a pretty decent cash conversion rate. Page 13 on the EBIT walk, we see a negative year on year change, obviously, due to the decline in the volume. On the industrial performance, we see a charge, which is actually the 2019 quarter 3 favorable adjustment on Takata, which obviously we don't have again this year. Without that, we're more or less almost balanced on the industrial side. Cost and capacity adjustment in response to the COVID-nineteen pandemic and the significant reduction in fixed costs, especially in selling expenses and reduction of functional and overhead costs helped to soften the decrease in earnings and to get to €600,000,000 EBIT adjusted and 6.5% return on sales also with some support of lower R and D.
Page 14 on the cash flow walk. So the sales bit of the 3rd quarter was more or less twice as high as a quarter. 3 EBIT cash conversion rate therefore increased to 2.1%, which probably cannot repeat it each and every quarter, I would say. One key lever was the working capital development with an impact of €184,000,000 similar to Mercedes Benz and Cars. Depreciation exceeded the net investments by far and made a positive contribution to cash flow.
New vehicle stock levels remained stable compared to prior year. Used vehicle stock could be reduced significantly in the 3rd quarter by 18 percent. The provisions and other column mainly include the following elements: contract liabilities in connection with extended warranty contracts increased as more extended warranty volume was added than payout needed. 2nd, liabilities from signed but not yet paid contracts from the restructuring program were materialized and the affected EBIT already did not lead to a cash out flow so far. And furthermore, there has also been some provisioning, which will reverse in Q3.
So we have some seasonality between Q3 and Q4. Turning to Mobility, Page 15, we could see the business stabilizing in the 3rd quarter. In the first half of the year, we supported our customer base with temporary payment holidays to handle the financial burden from the COVID-nineteen. These payments restructuring programs expires in most markets and the majority of our customers are returning to normal payment modes. We are back to around 95% of expired deferrals in 0 days past due.
After the fast reaction in the first half of the year, no further increase of credit provision was necessary in quarter 3. Actual credit losses were at a normal level. The current level of credit reserves provides adequate coverage for projected net credit losses, taking market and economic uncertainties into consideration. At Daimler Mobility, the execution of our efficiency measures shows a positive impact on the earnings. Absolute OpEx figures go in the right direction.
Due to the ongoing pandemic and therefore reduced customer traffic at our dealerships, we were able to further sustainably rollout digital self-service usage by our customers and our dealers. Maybe to say as well that for DMO, we are putting financial services at the front and the center again. We focus on customer loyalty and retention in our core business, financing, leasing, insurance and fleet management, and we also manage diligently our shareholdings in mobility services. Page 16, if we look at the numbers, you already said that the business stabilized and there was 2% up compared to the Q3 last year. So amounting in terms of new business to 18,700,000,000 the contract volume is 150,000,000,000 by the end of September.
That's 8% down. We could see a slight improvement in the insurance business with around 640,000 policies being brokered in the 3rd quarter. The level of acquisitions is slightly higher year over year, mainly driven by the business in China. The EBIT adjusted was up 28% to EUR 601,000,000 Let's have a look at that on Page 17, how we could get there. The development was mainly driven by lower cost of credit risk versus last year due to the quick recovery.
So sorry, no, due to the quick response we did to COVID-nineteen earlier this year in quarter 12. And obviously, the cost saving measures which we implemented, we can see the traction. If we move from the left to the right, we see a pretty minor FX development. Besides that, in terms of cost of risk, the proactive and conservative approach, which we took in H1 means that we did not have any further increase in credit provisions in quarter 3. As in last year's quarter 3, we had a risk provision.
The year on year effect obviously is positive. In the context of streamlining our IT architecture, this is what you can see in the volume and in the margin bucket and a bit also in G and A bucket. We had an impairment of software assets. And overall, as I emphasized already, we also manage diligently the cost base and the fixed cost in DMO, allowing the €600,000,000 EBIT adjusted. So on the group Page 18, if we sum it up, we're basically over there.
We commented already, I mean, the division. So the only other point I would highlight here is that in the Recon, we included impairment for our participation in bike motors of EUR 118 million. On the group level, we had adjustments of EUR 409,000,000 altogether, €407,000,000 comes from the efficiency restructuring measures, €68,000,000 is another adjustment and alignment of for the production network in particular for the intended sale of our plant in Hambach. The total legal proceedings and related measures for the group amounted to a net of €2,000,000 On Page 19, if we wrap it up also on the cash flow side for the group, the particularly high free cash flow at the group level this quarter came mainly from the various elements we discussed for the divisions in cars and vans and trucks and buses. We see minus €24,000,000 in income taxes, which includes internal tax prepayments.
Furthermore, we received tax refunds in the U. S. That were overcompensated by tax payments in other countries. The bucket other reconciling items contains among others the reversal of positive non cash effects and safe bit of cars and vans from adjustments in the pension and healthcare plans in the U. S.
In the magnitude of a low triple digit million figure. Well, now let's turn to the short term future, Page 20, in terms of the outlook for the Q4 and the guidance. What does it mean now for the remainder of the year? First, I think I really want to emphasize that given the very, very recent events in terms of the pandemic, I mean, somehow coming back with quite a lot of uncertainty. Therefore, we assume and again, it's important, we assume that the economic conditions in most of our important markets continue to normalize in the Q4.
And that in particular, no further setbacks occur or shutdowns as a result of the COVID-nineteen, this is the underlying assumption in this guidance here, please. Furthermore, we assume that the significant sales losses, which we recorded in the 1st 9 months due to COVID-nineteen will only be partially offset by the end of the year. We therefore expect the group revenue in 2020 to be significantly lower than in previous year. Same applies for cars and vans, trucks and buses. In DMO, we anticipate a slight decrease in revenues on the basis of the expected market development and the current assessment of our divisions.
We assume that group EBIT in 2020 will be at prior year level. At Cars and Advanced division were adversely affected by substantial special items in 2019. We anticipate EBIT for this division significantly above the prior year level, despite the effects of COVID-nineteen. For trucks and buses and DMO, we expect EBIT significantly below prior year. We anticipate a significant increase in the free cash flow of the industrial business compared with the previous year.
The free cash flow of the industrial business does not take into account possible expenses in connection with legal and the governmental proceedings. As part of the measures we are taking to safeguard liquidity and cut costs, we are also reducing our investment in PPE and R and D. However, we'll continue to maintain the advanced expenditures to serve to secure the future viability of the company. Overall, we assume that investments in PPE will be significantly below prior year and R and D expenditure will be slightly lower than 2019. Page 21, if we look at the outlook for the divisions, again, on the basis of the assumptions I highlighted before for the development of the major markets, The division's current assessment is that we will have total unit sales in all divisions in 2020 significantly below previous year.
We expect for Q4 at cars, vans, trucks to be above quarter 3 2020, but below quarter 3 quarter 4 2019. Besides positive momentum from the markets, we expect the cost measures that have shown the favorable impact in quarter 3 to continue in Q4, despite some seasonal ramp up in cost in Q4. The individual divisions have the following expectations for adjusted returns in 2020 full year. Cars and vans adjusted return on sales of 4.5% to 5.5% Trucks and buses adjusted return on sales 1% to 2%. DMO adjusted return on equity 9% to 10%.
On the cash side, we'll continue our cash preservation measures in the 4th quarter. As pointed out earlier, however, there were some favorable cash elements in quarter 3 that will lead to cash out in quarter 4. For the full year 2020, we expect the adjusted cash conversion rate for cars and vans to be at 1 target being maybe above. For trucks and buses, the adjusted cash conversion for the full year is at 2. So please keep in mind that this assumes the economic conditions in most of the markets to materialize and again no further setbacks from COVID-nineteen.
So now it's time I think to wrap it up. Page 22, you can see that it was a solid quarter, but we will not rest on that. Some of the cash and the cost measures are one timers. So some of the costs will return to us. For example, I mean, on the marketing side that have been largely kept down this year.
Nevertheless, this quarter shows us that we are able to achieve as what we are able to achieve as we focus on our core and our strengths. We have communicated the main strategy for cars, but it is also set for vans, for trucks, for buses and for DMO and the whole group. We have gone through a target setting. You saw it for passenger cars, but we did the same thing for all of the elements of the group for trucks and buses, for vans and DMO and the whole group. We presented it, I mean, for cars and vans to you on the 6th October.
We have successfully pushed forward, I mean, the efforts regarding cost control and cash management. And with this momentum, we are on track to make our business more waterproof. However, the transformation of Daimler is a long distance race, a multiyear endeavor. We are keeping up the pace with focus and full disciplines. Quarter 3 has shown what we can do in this respect with all hands on deck and hard work.
And with this, we tackled our quarter 4 with confidence. And as you can see it in our full year guidance. Think I was a bit too long today. Apologies. So I'm looking forward for your questions now.
Thank you very much, Harald. Ladies and gentlemen, let's directly start with your questions now. Please ask your questions in English. And as a matter of fairness, please limit the amount of questions to a maximum of 2 to give sufficient opportunity to ask questions. The operator will again explain the procedure.
The first question is from Arndt Ellinghorst of Bernstein. Your line is now open.
Good morning, everyone. Thanks for taking the question. One question, please. So you will report a free cash flow of about SEK 4,000,000,000 to SEK 5,000,000,000 this year, which is amazing, in a year of some of the most historical challenges for your business. Harold and Ola, if you keep and accelerate some of the cash cost savings, and as you said, you're moving to a better managed supply side.
So you should strive to have better pricing more sustainably in your business. What speaks against the conclusion that Daimler should be able to conservatively generate €6,000,000,000 to €8,000,000,000 of free cash flow in the normal year, if not €8,000,000,000 to €10,000,000,000 of free cash flow? Thank you.
Well, thanks, Arnd. Is that a question or is it a statement? I like your numbers. And as you can see in the quarter 3, we're working hard on it. I think with the quarter 4 guidance, you see that we were to continue in that direction.
Even so Q3, I have to emphasize included some seasonality, which we will see the impact of that, I mean, in the Q4. You could see as well with the margin targets, which we announced on the 6th October for cars events that we're very serious about that. And I think I reminded you as well that we have the objective to convert that into cash at cars at around EUR 0.8,000,000 at trucks closer to EUR 1,000,000,000,000. So I think for 1,000,000 Rands we said 0.7 to 0.9. And that's really what we're working hard.
And yes, I mean quarter 3 is a bit of a testimony for that, but certainly a lot of work remains to be done.
Thanks for that.
The next question is from Josh Gadlier of Goldman Sachs. Your line is now open.
Thank you for taking my question. Just on the cash flow, I actually wanted to just ask the lower investments in PPE, can you just help us to understand, is this coming from efficiencies, reduction in complexity and curtailment of model programs? Or has there also been any change in Daimler's approach to investments in vendor tooling? And I'm not sure the extent to which you actually pay for vendor tooling today.
Thanks, George. Well, I mean, in 2020, when we started the year with investment cap, we talked about that last year. So we put that into place. But then, I mean, with COVID, we clearly accelerated and took that cap down. And therefore, I mean, in 2020, it's really about the prioritization of BPE.
What does it mean each and every project related investment on the R and D side as well as on the PPE side, I mean, in essence has been continued, as you can see with the timely and successful launch of the S Class. And I mentioned before that we'll not compromise on the new C Class and will not compromise on the EQS nor will we compromise on an investment in software and electric. But non product related, I mean, PPE has been really, I mean, scrutinized. But we did not change structurally the approach towards the suppliers in terms of them taking the
a second a second question. Obviously, a very strong quarter in China, as you pointed out. And BBAC, I think your share was over 3 €60,000,000 Just in terms of the opportunity there going forward, given Chinese dealers are talking about extremely strong order books for your cars and other premium brands. Are you facing capacity limits in China today? Or is there actually room to increase production and see stronger results through 2021?
Well, I mean, we let's talk a minute here about the mid-twenty 20. We gave the outlook the Q4. I mean, definitely, I mean, you're right, I mean, a very strong quarter also expected in China for the Q4. And definitely, I mean, we are using our global worldwide and industrial network to support the demand, I mean, in China from the local ones, but also obviously, I mean, from the ones in the U. S.
And Europe. On top, I mean, we are ramping up production footprint also in China with an additional plant in the north of Beijing, which will allow for us more capacity from next year onwards. So definitely, we're getting ready to take our decent share.
Great. Thank you very much.
The next question is from Jose Asumendi of JPMorgan. Your line is now open.
Good morning, Jose, JPMorgan. Good morning, Harald. A couple of questions, please. The first one, on the labor reduction that you have target in terms of EUR 1,000,000,000, how far are you through this labor reduction, maybe 50%, 60% through? And can you comment a bit on the selling expenses both for Q3 and what kind of magnitude should we expect for the Q4, please?
The second question relates to China dividends. Should we expect another inflow in the Q4? Thank you very much.
Thanks, Jose. So first, I mean on the labor. No, we're not 60%. So I mean, we you can see that. I mean, the workforce level is turning.
So we're coming down at the group level and at the division level. I mean if you look in the spreadsheet and the fact sheet, I didn't emphasize so much, I mean, the headcount numbers here, but I mean, it's definitely turning at the group level with a lot of emphasis obviously on the white color reduction. But I mean the bulk of white color reduction, which we announced last year and which we stepped up in terms of effort, I. E. Going beyond that and in terms of size as well as in terms of time is yet ahead of us.
But the momentum we could generate, you can measure it as well in the charges related to the restructuring in the adjustments is ramping up. If you compare the numbers I gave on the 6th October, I think I was talking about 1100 packages being signed up in the by the end of August. That number is, as we speak, moving closer, I would say, to 2,000 already. So I mean, I don't want to overemphasize, but I think we're moving in the right direction here. On selling expenses, I mean, I commented before that we had a really, I mean, a pretty brutal break on it.
So we might lose some of it as we will support the key market entrants in terms of products end of year and next year. So we'll not compromise on that. We also had a bit of a favorable impact from the pension stuff in the Q3 in the U. S.
At the
low three digit amount as I commented. So on the run rate basis, I think you need that you need to add back a bit of cost in the Q4 and also for 2021 obviously. And your third question on China dividend, well, we cashed in the full dividend for 2019. Need to see the phasing of dividend for 2020.
Thank you. Thanks very much.
The next question is from Timur Costa of Deutsche Bank. Your line is now open.
Yes, good morning. Thank you for taking my questions. Harold, a bit into Arndt and Georges' direction. Obviously, the majority of investors are asking us right now how sustainable this free cash flow generation is. So can you help us understand similar type of run rate volume pricing in China dividend wise?
Would a normal free cash flow in Q3 been something like €4,000,000,000 or even slightly above €4,000,000,000? Or can you at least give us some sense in how much of this was unique to Q3 and probably still a little bit to Q4? And then the second question, when you do say CO2 targets are in striking distance, is that in Daimler language basically meaning that you're going to make it? Or do you see some real risks still that you will miss this? And is this related to 2020 only or also 2021?
Thank you.
Well, I think my comment was on 2020 on the CO2. If I pick up on this first, I mentioned 45 1,000 XCVs being sold in the Q3. If I add the first half to it and we see the level of demand really picking up in the Q3, it's a matter of product availability, if I may remind you that, the demand for the plug ins offering, I think, an unmatched autonomy and range availability makes us confident that we will see that demand continuing in the Q4. And this altogether brings us in striking distance to the CO2 targets for 2020. Definitely, we'll carry on with that momentum in 2021, but I think it's to comment about that at a later point in time.
So let's focus now first on 2020. In terms of the cash flow normal run rate, well, maybe if you look in the quarter 3, I think it's pretty obvious if you look at MVC, but also at the group level that you cannot take, I mean, the €1,200,000,000 dividend from China as a run rate. So I mean, so I would take it that off. Net obviously has been you have the reversal of the equity result in the Q3 on the other side, you need to take the net of the 2. And you could see as well that there were some seasonality in the quarter 3 in the other column, which I commented.
So all in all, I think in the Q4, you will therefore see a cash conversion rate, both I would say for cars advance as well as for trucks and bus below 1 as we will see the reversal of these impacts. On a normal level moving forward, I make reference to the cash conversion targets, which we outlined sitting at 0.7 to 0.9 for cars and vans and the 0.9 for trucks. I think that's what we're striving for. That doesn't mean that we might not catch one or the other one time working capital opportunity in the future. But on a sustainable basis, that's what it should be.
And obviously, our margin aspirations should come through in terms of cash flow.
Thank you.
The next question is from Horst Schneider of Bank of America Merrill Lynch. Your line is now open.
Yes, good morning and thanks for taking most of my questions. I've got 2 follow ups, please. The first one relates to the selling expenses where we continue to see quarter by quarter significant surprises in terms of savings. Can you maybe let us know I mean, I know you talk about this normalization in Q4, you alluded on that. What is the sustainable level of selling expenses as percent of sales that we can assume going forward?
Then the second question that I had that was related to a more general one on working capital. I have the impression that you have even not yet started to restructure the working capital significantly. So can you maybe explain to us again why you don't do to a larger extent, for example, factoring and then also in general on the working capital, to which extent you expect basically the structural level of inventory to come down? I mean, you want to be more luxury in the future and luxury means to me also that you should increase the build to order basically. So can we assume a structural improvement of inventory levels going forward?
Thank you.
Thanks, Arstel. So maybe on the 6th October, we said that we want to take the fixed cost down all in all by more than 20% compared to 2019 level. So that's what I would assume as the long term run rate. I mean, therefore, I mean, if you depart from 2019, so there was therefore see some of the costs compared to the quarters we had now in 2020 coming back a bit. On the other side, other areas, I mean, we'll step up obviously structural cost adjustment in other areas, including the operational side.
On the operation side, take a bit longer time and to be implemented. So you will see, therefore, I mean, the mix of measures changing over time. So more on selling this year, more on others in the quarters and in the years to come. On working capital, well, you've allowed me to say 2020 was really or is the emphasis on managing diligently production and sales with a huge volatility as we all know. And I think that worked pretty well so far as you could see with the quarter 2 cash flow and even more with the 3rd quarter cash flow and we'll continue to do so in the 4th square.
I mean, and that has very beneficial element impact, not only on the inventory side, I commented before. I would also say that the diligent, I mean, prudent supply of the markets is helpful for pricing, is good for the residual values and it's also good for the used car level. I commented before that on trucks, we had a good reduction of the used vehicle level in the Q3. I can say as well that in the cash flow of cars, we have reached, I mean, a very decent lower level of used vehicles as well. That's the emphasis for 2020, balancing and matching here supply and demand.
I clearly still see a potential in terms of further working capital structural improvements. We'll not keep lose our focus and an eye on it. But I think that's more for 2021 and beyond to address it. Once market situation hopefully will stabilize again, then I think you can address more structural inventory improvements and also turn back in terms of payment terms. So if you think about, I mean, payables, probably it's not the right moment in time.
I mean, right now, where the supply chain and some of the suppliers going through quite some stress and pressure, I mean closer probably to insolvency risk, I mean, to knock at the door for extension of payment terms as well. But definitely it's on our agenda, but I would say more for 2021 and beyond.
But you don't consider to do additional factoring, right?
We don't consider in the numbers we've reported nor the ones we gave you today any material factoring.
And on SG and A, I think you don't want to comment on the level of reversal in 20 21 that you mentioned, right?
I think I said, I mean, at the beginning, let's focus here today on the quarter 3 and the full year 2020 guidance and we'll talk about 2021 probably more in February.
Okay. Thanks very much.
The next question is from Patrick Schummer of UBS. Your line is now open.
Thank you. Good morning, Harald and Stefan. Two questions also from my side. The first one regarding the XEV sales. It's good to hear you're in striking distance.
I was wondering on the contribution margin side for the plug in hybrids, it really looks like a strong demand environment. Consumers happily take the incentives granted by the government. So where are we in terms of the contribution margins for the plug in hybrids relative to conventional gasoline and diesel cars? Any indication
would be helpful. And the
structural measures, harsh decisions also structural measures, harsh decisions, also correcting things that might have gone in the wrong direction in the past. And I'm just wondering, we haven't heard much about trucks here in a group context. Do you still think that trucks should be 100% owned by Daimler AG? And why do you think that is the best solution for shareholders? Thank you.
Thanks, Patrick. Let me start with the second one. I think with what you see in the Q3, there is traction also on truck side in terms of cost adjustment next to market recovery in the Q3. So really focused on improving the operational performance of the business. That's our priority.
And therefore, I have nothing new to say with regard to the structure and the shareholding of trucks here. On the XCV into the plug in margin, What can I tell you at this stage, we have a positive contribution margin definitely? That is for sure. But it obviously sits, I mean, somehow, I mean, below, I mean, the conventional, the ICE margin is the variable cost of the car, I mean due to basically 2 propulsion systems being on board is impacted. We'll see how that will develop moving forward.
We definitely mean are working on the contribution margin of the XCVs, the plug ins as well on the best moving forward. Clearly, we have an ambition to improve that over time by various levers, in particular, obviously, on the battery side, but not limited to it. So positive contribution margin, but not at the same level as the ISA as of today. In the Q3, we have some dilution in from the step up to the 45,000 XVs. As I commented, it is included in the minus 333 in the EBIT walk.
But you can see that globally, managing all levers, including cost, obviously, fixed cost, pricing, mix, I think we can deal with it. So I'm looking with more confidence after the quarter in terms of being able to manage the dilution of XCVs.
Great. Thanks, Harald.
The next question is from Steven Reitman of Societe Generale. Your line is now open.
Good morning, Harold and Stephan. I have two questions. Just again on the subject of meeting the EU CO2 mandate or being close to that in 2020. Looking at the last data from the ICCT, which put you at sort of 15% below your target at the end of August on an EDC basis, with a share of new energy vehicles of about 21 percent in August alone. How high do you think you have to go in the Q4 in order to get closer to the target?
And would you rule out joining an emissions pooling scheme? And my second question is about the mobility services and there's been some speculation in the press about Uber being interested in the you're now in the taxi business. What is Daimler's thinking about the future direction of that business? And do you think still it should be part of the Daimler group? Thank you.
Thanks, Stephen. Well, if you look at the quarter 3, you see a pretty impressive ramp up of the XEVs. I gave the number already several times now, 45,000 altogether, majority of that obviously being plug ins. So our expectation for the Q4 definitely is that the number is going to be higher than the quarter 3 as we'll continue the ramp up rates, which we could see now decently July to August, August to September. So we'll keep going on that path, I mean, for the Q4.
And again, it's supported by the strong demand for these products with the exceptional range they offer. And I think more and more people are really convinced of that. And therefore, I mean, we enjoy that high level of demand. So the Q4, again, expectation in terms of sales for the XCVs is in excess of the Q3. This altogether brings us in that striking distance.
We're reviewing obviously the grid on a permanent basis, including the phase in credits and all of the other measures to bring us into the target zone. On mobility services, well, maybe thanks for the question. We didn't talk during the call so much or not at all about it. In the first half of the year, I mean, they had been hard by the COVID-nineteen as well. I think a good recovery now in the Q3.
On the operational side, they also had been doing, I think, an outstanding job in terms of cost control and discipline here. We don't have time to go much more into that in detail. So they have a clear slope in terms and path to recovery in 2020. Jointly with BMW. We define as well, I mean, the way forward for each of them towards a breakeven and beyond.
So there is a clear direction from a strategy side as well as from an operational business standpoint. At the same time, I think we said from the very beginning that we are open, I mean, to partnerships in the various verticals. That was the spirit of the GV, the partnership with BMW from the very beginning. And this is the same. And in this respect, I mean, we are exploring several options.
That's what I can tell you on this today.
So ladies and gentlemen, we're running out of time. Thank you very much for your questions and for being with us today. And also thank you very much to Harald for answering all your questions. Now, Investor Relations remains at your disposal to answer any further questions you might have. To all of you listening in from Internet and on the phone, have a great morning, great afternoon or great evening.
And we obviously look forward to talking to you soon. Thanks and goodbye.