Ladies and gentlemen, my name is Claes Eliasson. I wish you all welcome to this conference call covering the second quarter 2020. We will be listening to a presentation by the Volvo Group President and CEO, Martin Lundstedt, followed by a presentation by Chief Financial Officer, Jan Ytterberg. When done, we will open the line for a Q&A session. With that, Martin, please go ahead.
Thank you, Claes, for that introduction. Welcome from my side to this second quarter 2020 report from the Volvo Group. This is, of course, a very special report after a unprecedented quarter that to almost the full extent, have been hovering around the COVID-19 pandemic and the different related effects from that pandemic. Our various business areas have been severely affected with, initially in this quarter, both disruptions in supply and also gradually then into the quarter, lower level of demand, leading to a drop of sales of 38% or almost SEK 50 billion in one quarter. In the light of that dramatic decrease in revenues, it was a solid and firm execution by our organization and our colleagues and business partners that led to an adjusted operating margin of 4.5%.
In order to reach that level of margin, cost decreased, excluding restructuring charges with SEK 36 billion, whereof short-term layoff programs in various countries were SEK 1.7 billion, and in Sweden, approximately SEK 1.1 billion. We are still in the midst of the COVID-19 pandemic. Even if we see positive signs in utilization of installed fleet and demand of equipment and services, we also must be clear about that numerous uncertainties remain. The risk of further and repetitive lockdowns are still relatively high as we see, and uncertainty about durations and severity unknown that can cause both disruptions in supply moving forward, also how demand gradually will come back, and to what levels, obviously. We are monitoring and working very closely with our supply chain in that respect. That is working well. Still important to be very close there.
The consequences on the general economy is, and I think we all agree on that, still uncertain, and thereby how the short-term demand will develop. Therefore, apart from health and safety as priority number one, moving forward, of course, as it has been also in this quarter, main focus is to continue to balance activity level in the group with actual level of demand of products and services. Moving forward into the fall, because that has been a very important, and I should say, successful activity in our industrial system during the second quarter. That will be moving into the fall, so the group can continue to maneuver from a position of strength into the future, since the ongoing transformation of our industry will mean lots of opportunities also.
That is very important to remember in this situation that we are all seeing a transformation with lots of interesting opportunities for the future. With that, I would like to come back to the slide that we actually showed during the presentation in quarter 1, where we have started to outline our way through this pandemic, even if it was a lot of uncertainty at that time. At that time, we were in the stop phase and had started to plan for a restart of our industrial system in main regions such as Europe and North and South America. We were up and running, you can say, in Asia. The planning in different phases has served the group well, and the organization has done a very strong and solid job during this quarter.
We have now passed the restart phase that in most aspects have been working well, and have now moved into the gradual return in almost all regions in the world. We notice good performance in the entire industrial value chain. In the current situation, we have realized a rather steep return, since there is a mix between a pent-up demand after the four to six weeks of stoppage period, depending on what plants and operations we are talking about, and also a general demand, of course, among our customer. It is, however, still too early to judge on what level the stabilization will be in the short term, and that we are monitoring closely, even if we see that in quarter three, we have a solid filling rate, according also to the production level that we have now. So that gives visibility into the third quarter.
Again, very much focused to balance, of course, the activity levels in the group with the actual demand level, and also balance production and inventories accordingly, but we will come back to that. During the quarter two, just to summarize what has been focused activities for us in the group. Number 1, of course, we call them the four Cs. That has been a cornerstone also in our crisis management here. Number 1 of the C's is our colleagues, business partners and customers. The health and safety first for everyone involved in our business, really great efforts have been made to put in place routines, procedures, physical measures to allow work with good protection in accordance with authorities' requirements, not at least when it comes to the industrial restart. As I said, still a lot of focus in that area.
Second priority is serving our customers, running societal critical activities. It has been functioning really well, I have to say, during the whole quarter, given all the different lockdowns and restrictions in various countries. We have been able to secure good uptime support, repair and maintenance, financial services, fleet management, et cetera, to our customers. We have on the financial services side also supporting customers with the lease payment modifications, and thereby also easing the burden temporarily in order to make sure that they can maintain their operation. We know how important that is also for retention and for future relations. Number 3, of course, during the quarter also, the restart, as I was saying, too, of the industrial system in different steps. Also in that area, a very strong cooperation with all suppliers in the complete value chain here globally. Number 3, cash.
We will hear more about that from Jan. Also in these areas, as you can see, we've had a number of very important areas that have been working fine also. The going concern of receivables and payables, but also a strong focus on reducing inventory, both on new and used equipment, has been executed with a successful outcome. Decreasing, of course, CapEx across the company, partly temporarily with certain measures, but gradually now mitigating those temporary measures into permanent in order to have an aligned activity level with the demand of both product and services. Then also strengthen, of course, liquidity and prolong the credit facilities in order to have the maneuverability when it comes to our financial positions. Finally, then, on the cost side, immediate and forceful actions to reduce cost also.
Short-term layoffs, consultants, salary cuts, activity level decrease, hard prioritization in different areas, and thereby maintaining flexibility. Summarizing, the highlights of the second quarter, net sales decreased, as I said, with 38% in total, 46% for vehicles and equipment, and 15% for services. Good volume flexibility in production, resulting in a gross margin that was not decreasing that dramatically, and holding up rather well in relation to previous quarters, despite the significant drop in deliveries, and even more in certain cases, obviously in production, given also the stock inventory reductions. We are very pleased to see those achievements by the industrial organizations on a global scale here. Cash, R&D, selling, and administration down with 30%, and the adjusted operating margin, as I said, came out at 4.5%.
The group made a restructuring provision of SEK 3.2 billion, with yearly savings as from first half of 2021 in the same magnitude. This provision is related to the redundancy notice that was announced in mid of June and mainly related to white-collar reductions globally of approximately 4,100 positions. The cash flow came out strong, given the very tough period, at SEK -5.7 billion. Coming to volume development, truck deliveries was down with 58% during the quarter. Many of us sitting in this room here, we have been very long in this industry, 30 plus years, and we have never seen something like this. That was reality. Europe, for example, down with 53%, North America down with 79%. Construction equipment deliveries increased with 8%, and the positive side was, of course, Asia, related to China.
Asia up 38%, whereas Europe and North America showed similar patterns as the truck side. Volvo-branded products down with 20%, SDLG up with 31%. Service sales, currency-adjusted, were down with 14%, which is also a big drop that is bigger than we normally see during downturns. Of course, related to the very big hit we had in the beginning of the quarter also related to restrictions in some of the main markets. That has gradually then improved during the quarter, and you will see later on also how that is, with certain time lag also, following the utilization of the fleet.
Buses very heavily affected, -38%, since the coach business and tourist business has been hardly hit, and big part of the fleet has been idling actually during the quarter, related to all the travel restrictions that you see across the globe. If we go into the truck side and managing the COVID-19 impact, as I said, the forecast visibility is still low, but the utilization, as you can see on the left side, is gradually coming back after the initial period of lockdowns and other restrictions. Utilization is currently now around 5% lower in Europe than pre-corona, you can say, and also confirmed by Maut figures from Germany. Also, U.S. show a similar gap of around minus 5%.
Still too early to say what level it will stabilize since there is still a mix of, you can say, societal catch-up of the lockdowns and the current or actual general activity level. The trend so far at least has been clear, and as I said, also service business related to that with certain timeline. The right graph shows the global net order intake and the gradual recovery that has happened after the initial shock and stop phases related to the measures to fight the pandemic. In April, we're down with orders of magnitude up to -90%. You can see has been rather steep increase back and is now currently at the level of approximately -5%. Also in this regard, I think we need to look at this in a humble way.
It is too early to judge at what level we will see a stabilization. It might be so also that we will have a certain overswing after, so to speak, the pent-up demand of the stock period. Really being close here on the demand side, short guidelines in production, good balance with inventories is key factors for a continuous successful moving forward in this crisis mode, so to speak. Given the fact that we still are into the COVID-19 crisis with several remaining uncertainties, both as regard continuous measures to fight outbreaks as such, but also risk for new and repetitive outbreaks, as well as how the short-term consequences on the economy, in general, will look like. The visibility in our review is still too low to provide meaningful forecast figures.
We concentrate instead currently to keep a good balance between order intake, inventory levels, production to keep a good flexibility in the industrial system and also on the service side, obviously. That has been the case during the whole second quarter here. When we look into the book-to-bill situation, orders and deliveries, quarterly orders for trucks were down with 47% and deliveries with 58%. The most important achievement is the organization's work to get a good alignment between orders and deliveries, as you can see here. Worth noticing, maybe in particular, is the very high alignment in Europe during the last three, four quarters, but also other regions are getting to a good alignment, in particular, during the second quarter.
High focus has been put on a correction of the inventory, both in the group, but also among our dealer partners, and the results of those activities have been good. The focus on getting to the right level in the dealer network of dealer inventory in our network in North America has been a special attention, explaining also the steep decline of deliveries and a better alignment with order intake. That was also partly already anticipated with an anticipated downturn in North America also for the market that we guided for already at the end of last year. On the market share side, in North America, can comment that Volvo have a stable development, and we see gains for Mack, partly also related to the mix that the segments where Mack is operating are holding up better, and they are keeping positions there, but a good development.
In Europe, Volvo positive development up to 16.7%, also with rather stable prices given the circumstances. Jan will comment a little bit more on that. Renault stable around, you can say, 8.5%, also knowing that many of the core markets for Renault have been severely, of course, affected by restrictions in Southern Europe. Strong progress in Brazil and all-time high for the group in total in Australia, whereas Japan shows a decline primarily related to a weak start in quarter one, we did see a stabilization in quarter two. The rather weak start in quarter one was partly related also to the announcement of the strategic alliance with Isuzu that temporarily created some lost momentum, you can say, that is back now.
On the construction equipment side, quarterly figures show +11% in orders and +8% in deliveries, with increases almost entirely affected to a strong demand performance in China. For the remaining regions, the figures are showing a similar pattern as for trucks, also in VCE, with a good alignment and balance between order intake and deliveries. The only exception, as you can see, is North America, where the very steep decline in order intake is, in addition to the pandemic, also a result of a very strong order intake in quarter four of last year. As a result, also balancing out that now with stock reduction among dealers. Also we see a continuous softening, you can say, when rental fleets are adjusting their activities in accordance with the market activity levels. Also in the field of construction equipment, we judge it similar to trucks.
It's not meaningful now with the low visibility to provide any forecast for the year here. Moving into Volvo Buses and Volvo Penta. To start with, Volvo Buses had, as I started to say, also a very tough quarter with severe declines in both orders of -55% and deliveries of -68%. The coach and tourist segment came almost into a complete standstill related to travel and tourism restrictions in most parts of the world. Even if the organization has been acting firmly and swiftly, it has not been able to compensate this. You also did see the very steep decline on the service side there. Volvo Penta were a little less effective than trucks and buses, and both orders and deliveries came in at "only" -34%, but of course, still very big declines here.
Finally, on the business update, financial services, high focus has been, as we said, to support customers, also with increased modifications of contracts. VFS has performed this in a very professional way. We know that I have said also that this closeness with customers during rainy days is building strong loyalty retention for the future. An important activity that is ongoing in the financial services area. We see, however, an elevated risk. We have therefore increased our provisions to be on the conservative side, given the very low visibility of future activities. Finally, we see a positive development of penetration of new contracts related to all business areas. That is also an important move forward, where we can actually increase our presence during difficult times. That we will also gain from when the activity is coming back.
With that, Jan, I leave the word to you. Jan, it's back to continue the financial update.
Thank you, Martin. I think we should also take a step back and reflect that a year ago, actually, we presented a peak of the cycle quarter. Now, one year later, we have just passed an unprecedented quarter where truck deliveries decreased 60% compared to last year's service revenues, 15% down, and group net sales 40% down. This is, to put some reflections into more modern times, the worst quarter ever if we compare it also with 2009. Actually, with my 30 years in the business, unheard in this industry. We should remember that when we compare figures here now. Despite this, we were able to deliver over SEK 3 billion of adjusted operating income, passing actually all months with black figures, which was very important for us internally as well, and that due to a strong cost execution.
I will come back to that. Starting on the top of the income statement with the net sales and with the different regions here, you can clearly see how the pandemic and the measures to hinder the outbreak have gradually affected the regions from east to west, both seen in net sales and earnings. The 39% for the group is a combination of decreases in main regions, Europe and Americas, with 40%-60% respectively, reflecting the low deliveries of vehicles and machines. Asia was flat compared to the second quarter last year, that is due to an increased machine delivery volume, then compensating for a more limited drop of vehicles and service sales. China was the main contributor behind this, of course. Prices, Martin was into that, had actually a limited negative effect on vehicles and machines.
We see more of price pressure when we come into inventory reduction vehicles. Whereas we go to the factory, we see more of stable price level. This was compensated for the group by a continued good price realization on services. Moving over to the adjusted operating income in the second quarter, that was close to SEK 3.3 billion, an adjusted margin of 4.5%. Of course, now we're comparing, as I started to say, with the Q2 last year. It's difficult to find good references for this quarter, actually. If we make that comparison, it becomes quite obvious how decisive actually volume is in this industry. If we start with the lower new vehicles, engines, and service volume, that impacted negatively compared to last year then, both related to less gross income of lower sales, but also as a big deterioration of the capacity utilization.
It was, of course, difficult to take out production costs with the same speed and magnitude as the volume decreased. As you heard Martin say, production volume, since we halt the production, was actually more down than we can see on the delivery side out to the customers. The volume flexibility in production was impressive, mitigating a substantial part of the volume effect by reduced fixed and variable costs. Used truck vehicles deliveries actually increased substantially in the quarter, and that is not normal when we are in a crisis mode. The lack of new vehicles during the stoppage period and the reduction of price levels impacted positively on sales that were higher than last year, but negatively on the valuation of residual value commitments and used vehicle inventory.
In total, those effects I've just mentioned, represented an impact in the gross income, represented more or less the full result we had in Q2 last year, SEK 15 billion. If we move further down in the income statement, we had an effect, Martin was into that as well, where we actually, due to the situation of the COVID-19 and the future forecast of the economy, made us increase our credit provisions by some SEK 850 million. The main contributor to the positive operating income was primarily, the hard work to bring down activity and cost level in the group by eliminating and postponing activities, but also by reaching agreements with employees on voluntary salary reductions, both in countries with state-supported short-term work programs, but especially in countries without such programs. Also, the state support for such short-term work programs impacted positively.
Also by reducing activities, we were able to take out, replace consultants, which also contributed to the strong cost execution here. It can clearly be seen then in the operating expenses side, R&D, selling and admin. We also had a positive impact from JVs in the quarter, and that was related to the strong performance of our Dongfeng joint venture, demonstrating the strength of the Chinese market and the recovery of the Chinese market. FX impacted positively with SEK 300 million, and that was despite stronger Swedish krona. We got a positive revaluation effect on our net payable position, which is not normal either. In this situation, it is, in some major currency, and that more than compensated for a negative transaction and translation effect.
The transaction effect for the remainder of the year, now for the H2, is expected then to be minus SEK 1 billion to SEK 1.5 billion, reflecting the stronger krona, and of course, very much depending on the volume assumption as such. We do not provide forecast for the full FX as we do not normally do either for 2020. If we move over to the cash flow, and already in the first quarter, we talked about this, that with the structure we have of the working capital, we were going to face a challenge in second quarter, with a substantial negative effect coming from the trade payables as we had the supply of material in the first quarter to be paid out to the suppliers in the second quarter, and in the second quarter, we had limited production.
Now we see the effect, trade payables have now been paid down to a new, lower level. The focus work and the halted production for some four to six weeks had a positive effect on cash flow on inventories, where both new and used inventory decreased. The receivables contributed slightly positively, as we gradually moved up deliveries, we got less of that effect in this quarter. CapEx level, as Martin was into as well, was one of our focus areas, was kept at a minimum level to safeguard cash. All in all, this meant that we had a cash outflow of SEK 5.7 billion in a normally strong cash flow generation second quarter, that was also then, of course, reflected in our net cash position for industrial operation that actually decreased to SEK 51 billion from the SEK 57 billion we had end of Q1.
We move over to the segments and start with trucks. Low truck deliveries of some all in all 28,000 units, including the full range, not only heavy-duty and medium-duty, and a drop of service revenues of some 14% affected both net sales and operating income negatively for the group trucks. Close to half of net sales disappeared, compared to the second quarter last year. We had a net sale of just about SEK 40 billion and an adjusted operating margin of around 2% and an income of SEK 0.7 billion. Same explanation as for the group, except the credit provisioning, which we will come back to when we talk about VFS. FX had a positive impact of SEK 0.4 billion. We will stay a little longer time on Construction Equipment.
After the first quarter, actually, where we had then the Chinese market being negatively affected by the measures to hinder the COVID-19 outbreak. We saw the Chinese market recovering here substantially, and Chinese deliveries actually doubled compared to the second quarter last year. The increase was particularly strong for our SDLG brands and for compact machines. At the same time, we saw other main markets and regions decrease substantially, service volume dropped 10%. With less Volvo-branded heavier machines and more of compact machines, net sales decreased 15% despite the higher deliveries, which also impacted gross margin negatively. We have a light cost structure in China and a substantial volume effect, so we got a really good leverage.
We can see that the EBIT margin in our Chinese operation have improved compared to last year. Also in construction equipment, a good execution on bringing down activity levels and costs, an impressive achievement, making then the adjusted operating income decrease SEK 1.1 billion to some SEK 3.1 billion, and a drop of two percentage units as regard margin, down to an impressive 13.6% in a challenging quarter. Buses was our most heavily affected segment by measures to stop the outbreak around the globe. As personal mobility was halted, restricted, or avoided, a substantial part of the bus fleet stood idle in parts of the quarter, and with a halt of production, deliveries were also periodically stopped.
The decrease of vehicle sales of two-thirds, more or less, and a drop of service revenue, close to 40%, are very unlike early crisis we have seen, where the bus business, in general, have been holding up better than, for example, trucks as regard demand. Adjusted operating income was negative with over SEK 500 million. Volvo Penta showed a more similar trend as regard demand as we experienced for trucks. Drop of deliveries and services, substantial of course, and also we have got a somewhat negative mix effect here of less heavier machines that impacted negatively. Also here, this was mitigated by a successful execution on the cost side to reduce activities and costs.
Even though we lost adjusted operating income with some SEK 275 million compared to last year, the operating margin showed good resilience and decreased to 13.7%, which is a strong performance, of course, under these circumstances. Coming back to VFS, we have an improved penetration in general for VFS, and we are increasing penetrations compared to last year, and that mitigated partly then the substantial drop of deliveries across the group. New retail volume stayed at SEK 17 billion, similar to what we saw in first quarter 2020, and the portfolio was slightly above second quarter last year if we adjust for currency. Coming back to modifications then. Since we had a high number of requests for modifications in the beginning of the quarter, new requests decreased gradually during the quarter, and we worked through the backlog of modification here in this second quarter.
This together with then a general deterioration of the business environment and also then an effect of lower prices of used vehicles as they are used as collaterals in this business, we needed to have a change of provisioning parameters, and thereby also we increased credit provision for future losses. Write-offs is not increasing. It's still at a pretty low level comparable to what we saw in first quarter. Compared to last year, credit provision expenses were some SEK 650 million higher. We have been last year around SEK 200 million per quarter, so this SEK 850, SEK 650 million higher. Of course, the increased credit provisioning was the explanation behind the drop of operating income and also of return on equity compared to last year. By that, Martin, I move over to you.
Thank you, Jan. To summarize the presentation before moving into the Q&A session, solid execution during an unprecedented quarter. Now it's important to continue to move through this COVID-19 pandemic, because as we said, we are still, in many cases, in the midst of this pandemic, and therefore, continuous focus on a number of activities are the highest priority, obviously. Safety first, goes without saying. It has been executed, as we said, in a good way, but we need to continue to focus on that part. Carefully then monitor also the impact on economies, demand and supply, to continue to keep the balance of activity levels in the group with the actual demand levels globally, but also more importantly, region by region and country by country.
Balance the restart now of the selected activities with the recovery in demand, that goes across the company in all different parts of the value chain and different type of activities. We have been working with this also, obviously, through the whole quarter, where we have short-term cost reductions that we are mitigating and converting them into structural cost savings, we are creating the flexibility, maneuverability and headroom. Also remembering that the prospects of our industry is good. Obviously, there are a lot of mega trends pointing for continuous good development in the marketplace, therefore, we need to make sure that we also have the flexibility and the strength to accelerate the transformation into the new technologies. Electromobility, we are launching as we speak now on the truck side, more broadly.
Automation, new technologies like fuel cells and hydrogen, also the business model development related to these new technologies. By that, I think we are ending the presentation part and moving into the Q&A session. Yes. Thank you, gentlemen. Operator, will you please let the first question through?
Absolutely. Thank you. Ladies and gentlemen, if you do have a question, please press 01 on your telephone keypad now. Our first question comes from the line of Tom Narayan from RBC. Please go ahead.
Yeah. Hi, Tom Narayan, RBC. Thanks for taking the questions. My first question is, could you provide some color on the Chinese construction equipment market, maybe what's driving the strength for you guys in Q2? I'm wondering if this is some pent-up demand from Q1, or is this strength we can expect to continue into Q3? On bus, how much of this business is exposed to the tourism end market? I know you discussed that a little in your prepared comments, versus other end markets, public transport, et cetera. Finally, there's been a bit of chatter recently on new entrants into the fuel cell commercial truck market. Could you comment on how much of a threat that is to the incumbent truck OEMs? What advantages your JV with Daimler may have in this nascent market? Thank you.
Thank you, Tom. Thank you for the three different questions here. If we start with the Chinese construction market, obviously, what we have seen in quarter two is partly related to the pent-up demand since China was in heavy restrictions during quarter one, both, the normal New Year stoppage period, but also then obviously the prolongation then related to the pandemic. That is one factor, but we still see also that the underlying and also support programs for different sectors in China, and not talking about support now, but in the construction sector and different type of initiative approaches are driving demand.
We have been successful in actually participating in that volume increase, both when it comes to the SDLG and the Volvo brand, which is of course important since we have seen a trend where the Chinese players have been acting strongly, not at least wheel loaders for a long time, but also on excavators. There we are very pleased with the development of volumes in our organization. We see that also on a fairly stable level moving into quarter 3 now at the beginning at least. For all sectors now, we need to monitor that development closely, obviously. On the bus side, obviously, it has mainly been related to the coach and tourist segment.
Even if, of course, the public transport segment has been affected mainly by the supply disruptions in the beginning of the quarter where we had delays, et cetera, and we were not able to supply that. You have a little bit long lead times, since you also have body builds to a big extent, et cetera. In total, yes, much more heavy weight on the decline on the coach and tourist segment, but also the public transport affected mainly by the supply disruptions. We see now also an increased activity on the public transport side moving forward, not at least into the light mobility area. Let's see how that development will continue now during the coming quarters here.
When it comes to fuel cells, we think in many aspects it's good that there are a number of players talking about that now, because the fuel cell will be one of the cornerstones, and the hydrogen as the fuel will be one of the cornerstones for sustainable and carbon-free transportation, not at least on the heavy and long-haul applications. Therefore, it was extremely important for us to find a solid way forward since investments are required, but not only investments into the technology as such or fuel cells and the truck side, where, of course, we will do our part, but also giving a strong sign that other actors around this now should move along when it comes to the build-out of network infrastructure, and also, so to speak, green generation of hydrogen.
Also in that area, it's important that you have a full value chain that is actually up to speed when it comes to renewable setup. We are very confident in our setup, a strong parameter of the joint venture that is defining where the space of cooperation is, and that is a space of cooperation in the fuel cell technology, where we have done our job there. We see that there is a strong maturity level on that fuel cell technology. The setup will allow also volume development with players that have the network and that can deploy that also in volumes needed in order to get TCO and total cost of operations to a level that makes also the volume deployment possible. We are very confident in our setup, and we are looking forward to that development also into sustainable transport.
Okay. Thank you. I'll turn it over.
The next question comes from the line of Björn Enarson from Danske Bank. Please go ahead.
Yes, thank you. I have a question on the balancing of the restart. When do you foresee that production will be more in line with the demand situation? Second question refers to truck pricing of new trucks. Can you give some more color on that? Thank you.
Yeah. Thank you, Björn. If we start with the restart, as we said, we have had almost six weeks stop down in our main factories and value chains. We restarted them beginning of May, you can say, and then gradually ramping up. In June, and from end of May and in June, we've had a rather steep ramp up to levels, where we are now, where we see also that we have a good balance between demand and supply. That's the reason also why we gradually have taken out short-term layoff programs in our different plants in order to cope with that. The name of the game now is to continue to keep a short guideline or a short lead time. We call it guideline, lead time between orders to deliveries, obviously.
We can serve our customers with the current demand, both the pent-up part and also the going concern demand, and keep the risks on a low level for us also when it comes to executing these orders and turn them into deliveries and receivables, and eventually cash collection. I can say now, and also after vacation now, as we said, filling rates are good to the level we are, and we feel that they are also satisfying the demand level as we speak.
What did you say about the inventory situation in North America?
As we have already said, after a number of good years, it's always the situation that when you start to see the decline, and that was already pre-corona, you did see that we had an excess stock in the whole industry. We were, in our view, on the lower side, if you compare with other players in the industry. During also the second quarter, we have continued, you can say, successful execution, what have been positive in both our own management of inventories, both on the new and used side, but also on the dealer network, we see also a good execution. Still focus will continue in this area, obviously. Truck prices.
Okay. I can take that since I had that in my presentation. Well, we see sort of the normal pattern in this situation, of course, I commented that with more of price pressure when reducing stock. If you take a look on the globe, Martin was already into that. That, of course, we see more of this in North America than we see it in Europe. The combined effect, if you take a look on truck, is rather limited. Actually, we are talking small percentage numbers as a total. Rather limited in this situation during this stoppage period of second quarter.
Okay. Thank you.
Thank you.
The next question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead.
Thank you very much. Three questions from me. To start up on the order intake, if I remember correctly, January started off better than expected, while that interesting comment on the 5% decline year-on-year. Sorry, compared to January. If you could maybe add some more flavor to that, or if it catch up and where you see the underlying here. Second question, the 10,000 headcount reduction. How much of this is pre-COVID-19, given that we were already entering into slowdown, and even if we would look at a recovery next year, we would still be clearly below last couple of years' volumes. Last question from me is if you could maybe add some flavor on the cost savings related to this government support, and also what other absorption of cost you had during the quarter. I'll stop there. Thanks.
Thank you, Hampus. When it comes to the order intake, you're right, and when I show that slide also here on the truck section of the presentation, we also a little bit intentionally showed also that we had maybe the most pronounced, if I say pronounced, but a slight overswing of the expected level in the beginning of the year, as you said. We have tried also to illustrate that we are taking away that, so to speak, overswing. We are talking a little bit about the levels that we were anticipating moving into 2020, and we are talking about the minus 5%. That is, so to speak, a little bit how you should see it.
I think the more important part is your second part of your question, how much is pent-up demand and how much is, so to speak, the going concern, the normal level as we speak right now. That's a little bit the reason also why we say that there is still low visibility, and it's not meaningful to give a forecast, et cetera. It is still a little bit difficult to judge what is what here. What I think is important to think about is we know from historical downturns and also upturns that our general demand, and then it could be small changes in that trend line, depending on new things happening like e-commerce, et cetera. Generally speaking, we are following the GDP development pretty close.
Therefore, I think in the short term here, when we will have a hit on GDP and the gradual return, et cetera, we must be prepared for a high level of flexibility, and really work with the balance between what is the order intake, keep the guideline short. Make sure that the production have the flexibility to deliver and hover around plus/minus levels in order to really make sure that the guidelines are kept short, inventories in good balance. That is the most important now. Obviously in the medium to long term, the prospect, as I said, of coming back to a positive trend line with the mega trends of increased population, urbanization, e-commerce, et cetera, they are still there. We need to be realistic now with the GDP development, and we can still execute in good levels in such an environment.
That's the reason why we are talking about that focus in that way. On the second part, you are absolutely right. Of course, we had already started to reduce position and resources according to the anticipated downturns and corrections in the market levels. Of the 10,000, you can say ballpark that 50% approximately was related to the already decided measures, and the remaining part then coming on top, related mainly then to the outbreak of COVID-19. Now we are, as we have said also, in the process of continuing to reduce on the white collar side with approximately around 4,000 positions.
Maybe I can comment on the cost savings, and if I understood you correctly, Hampus, it was more on the production side, because what I talked about reducing activities and being very careful with costs is, of course, valid for the whole organization. Also coming back to following the reduction of headcounts, we were coming into that already in a situation that we had brought down the structure into new lower levels that we expected coming in from 2019 then. Where we had in Q1 was something more to do in U.S., but in Europe, we were pretty well-balanced, actually. We were already on a decreasing mode, so to say. When this happened, we were able to adjust costs pretty impressively, I must say.
Normally in this industry, you talk about the volume flexibility of 50%, i.e., if you can reduce cost with 50% of the volume being then excluding direct material in production, that is a really good achievement, at least during a quarter or two. We have been better than that, actually. Of course, part of this is governmental support programs. We must remember that these are programs where both the company is putting in money, the employee is putting in money, and the state is putting in money. Gradually, as we are now moving up and getting back to a good balance in between demand and supply, of course, we are moving out from these programs as well. That is gradually happening here and will also happen here in effect Q3. I hope I gave some more flavor to you then, Hampus.
Thank you.
The next question comes from the line of Klas Bergelind from Citi. Please go ahead.
Yes. Hi, Martin and Jan, it's Klas from Citi. A couple of questions from me. I want to come back to alternative powertrains and on the JV with Daimler on the fuel cell side and your development of full electric separately. When we look at this, the Green Deal is a major thing. The shift to alternative powertrains are really happening, speeding up fast. If you look at Nikola and their valuations since their IPO, things are really speeding ahead. Martin, could you talk a little bit more about the timeline of your upcoming vehicle launches, both on the electric heavy-duty side and also on the fuel cell then? Also if R&D to sales will start to creep up towards the levels we've seen in autos, i.e., 6% of sales over time. Thank you.
Thank you, Klas . First and foremost, I think it's important and good that you're bringing up the two, so to speak, powertrains in combination because they are really combined, because we are talking about battery electric vehicles and fuel cell electric vehicles. Why is that important? Because the modularity of the powertrain is the trick here, meaning that a lot of the electromobility propulsion components when it comes to e-axles, gearboxes, control systems, management systems around this, and then obviously the whole modularity around the vehicle as such. Because when we talk about electromobility and fuel cells, you should still have a high-performing truck, which is sometimes forgotten. Thereby, we see that the parameter of the joint venture providing a modular fuel cell stack will fit into our execution of the electromobility roadmap, both for battery electric and fuel cell electric.
That I think is a strength that we are building up now. Not only for trucks, but that modularity will provide also opportunities for all our business areas when it comes to buses and Construction Equipment and Volvo Penta, et cetera. That is number 1. Obviously, as you say, when it comes to the timeline, first out here is battery electric vehicles. We have been out with that for a number of years in different executions on the bus side. We are rolling out that now when it comes to executions up to 26 tons, you can say. Medium heavy duty executions for mainly then city and regional applications, both on the Renault and the Volvo side, and also now gradually moving into the North American market, both for Volvo and Mack.
We have been showcasing also, meaning that it's not that far away, on the next level when it comes to regional distribution and regional haul, where we have been showcasing that also for Volvo, where the modularity is coming into play and obviously other type of energy layers, et cetera, when it comes to the battery. When it comes to the fuel cell, maturity level-wise, we see that this must have a very important role when we are moving up to the later part of this decade. That's the reason why we think that the construct of the AVZ importers who are given the sign that some of the major players really want to move this way, and a lot of the other actors when it comes to infrastructure and green generation of hydrogen will invest as well.
This is really an ecosystem. From a truck maturity level, we are not that many years away. It will be more about, so to speak, having the system in place, but looks promising.
No, very good. Certainly it seems like Europe is serious with the near SEK 500 billion investments that they're talking about here. On that note, my second question is around the stimulus we got out from Germany and could be a European program now then, when we have Germany from 1st of July holding the EU presidency. When I listened to you during the AGM, on the Q&A with the chairman, you seemed, Martin, pretty optimistic on the Green Deal and what that could do to replacement demand under potential stimulus. Could you comment a little bit about your thinking there?
What we have said, in order to provide a meaningful stimulus into the transport sector, we have said that if we would like to, so to speak, utilize the funds that will be provided for a meaningful transformation, then we have said that take out the rolling fleet that are Euro 3, Euro 4, Euro 5, and then you will get leapfrogging, so to speak, into the next level of technologies, and thereby making big improvements, while also stimulating, so to speak, mainly then the customer side on taking on this. We are not asking for any direct stimulus. We don't think that's the right way to go. It's more about stimulating the right technologies on the customer side and thereby taking the right steps when it comes to sustainable transportation.
Okay. A quick final one on cash flow and the moving parts for you, Jan. Obviously the receivables, I thought that would be bigger, but I guess obviously that is connected to deliveries ramping through the quarter. If you look at the payables and now when you ramp production, the outflow that we've had in the first half, is it your working assumptions that you can compensate at the current, obviously, demand levels when you ramp production, that you can compensate for that outflow completely in the second half?
Well, that will, of course, be a discussion of what volumes do we expect for the coming quarters. What we can say is, of course, what we did here was to bring down the trade payables to a new lower level, i.e., we are in Q3 paying the Q2 suppliers supply, and of course, that was low due to the halt of production. We will, if we are moving in this way, have some positive effects coming into trade payables, but from a pure cash flow quarter by quarter comparison. Receivables is also a mix issue because we have quicker turnover time in markets that were now more affected by the deliveries here, delivery drop being then Americas, whereas Asia, where we have somewhat longer time, is then having a sort of negative impact in that respect.
In general, we were going down, as I said, but gradually going up here since we gradually move up on delivery. That's why the effect was maybe a little lower than you expected.
Still the big hit is payables.
Yeah. The big hit has happened. We are moving from a low level of working capital, you could say.
Exactly. Thank you.
The next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good morning. Actually, I'm just left with a few follow-ups to the prior questions. On the cash point is first question regarding the second half. What shall we expect in terms of CapEx? How progressively would you have to bring back up CapEx? Two questions on the P&L. One related to R&D, which you've decreased, how should we look into R&D going forward? How quickly would you have to ramp up R&D as well? The other question on the P&L relates to, you talked about the structural savings from the measures you've recently announced flowing in the first half of 2021. Do we have the furlough programs lasting until the end of 2020, or do you foresee a little bit of a gap between the temporary measures finish and the structural ones start to pay back? Thank you.
I think that the two first are pretty connected actually, because of course now we made a real stop. Actually, we stopped activity to a big extent completely during the month of April, then we are gradually ramping up. That means that the CapEx was really low in this quarter, and it will, of course, increase as will R&D, as we are ramping up activities there as well. We should remember that this is also connected to what we see on the top-line side than on the order side, et cetera, on the demand side, because we are talking a lot about affordability. What can we afford within this situation? That is, of course, having an impact on what we are taking for decisions, in this respect. Some of them are more legislative or safety driven, and of course we cannot stop them.
We have to do them. We will see a ramp-up, but it will also be connected to what we see on our top line and how the demand is developing. If it's a gap or not, of course, we are trying to avoid a gap here. The programs you were asking about is a little different depending on where you are. As I said also on the question of Hampus, when we are moving up in production and on volumes, we are moving out from these programs. We are still keeping them on the white collar side where we can, of course. We would like to have them in place as long as possible because, at least as a preparation and as a program, and then how we use them, it will depend on the affordability aspect as well.
There are different types depending on where we are in the world, especially than in Europe. Of course, these are, we should remember that gradually also changing because we are part of the economy in total. Of course, society is supporting business here. Let's see where we are. Right now, I mean, for Q3, we have the same programs as we had in Q2, and then we are coming into Q4. Let's see if we can elaborate a little more about that when we have more of a complete picture of the decisions taken. Of course, try for us trying to avoid the gap.
I think it's also important to remember that when it is also a little bit related between furlough and the gradual return of activities aligned with, and in good balance with the top line, is that the furlough is in many cases not just a furlough, but we have the allowance to do the competence development. Which is very important for both individuals, for society and of course the company to utilize this now to drive competence, and thereby increasing the ability to get a good match between individual competence and positions that will also come back now with the gradual return of activities. That is a very positive thing with this, that I think is serving both society, individuals, jobs, and companies.
Thank you very much.
Our next question comes from the line of Kai Müller from Bank of America, Merrill Lynch.
Thank you very much for taking my question. A lot of them have already been asked, but if we jump into the truck side, not on the original equipment but really on your service revenues. You show obviously that chart, on the utilization of your fleet only being down -5% as of the last week. How do you see that progressing? Is there a big shift also? Have you seen any significant trends from sort of online deliveries that have been supportive on that side? I remember on your Q1 call, you said obviously industrial activity is still very low and that has impact on your truck utilization. The -5 doesn't suggest that. Can you give us a bit of color, how you expect the utilization to develop and how that really feeds through then also your services revenue for the second half?
On the second point is, you mentioned obviously you work very closely with your customers, to help them, throughout their difficult time. Can you sort of maybe outline what those conversations are? Is this customers just wanting to extend certain terms? Is that trying to renegotiate monthly payments? How do we need to think of that, what you are negotiating with them?
Thank you. On the first question, you can say that if you look at the utilization then, as we said, there is a rather similar pattern also with other markets, depending on restriction, lockdowns, et cetera. When we showed this graph, for example, it was Volvo Trucks in Europe. We said also that you have a similar gap, for example, in North America. What is interesting there is obviously when we look at the same data country by country, we see also how much it is related to both, when you have the steep decline, the restrictions and lockdowns. Big differences between countries with more severe, if I put it like that, restrictions.
Whereas countries with less severe have had less drop in utilization. That was the first part of it. Gradually, when you are moving out, you are getting more a mirroring of how is the general economy level, because fleets are utilized very much according to how the general economy is moving along. From that reason, we believe that in Europe now, given also what you have seen with GDP and activity levels, it's a pretty reasonable figure with a minus 5%, given that most of the restrictions are lifted, at least unrelated to transportation of goods. It's still a completely different factor when you talk, for example, for coaches, et cetera. When it comes to service revenues related to that, as we said, it's following. That is also the normal pattern.
It's a certain lag because you start to use it again, and then you are starting to get back to the normal service and repair schedules and these type of contracts. There is a lag of a couple of weeks or a month or something like that, depending a little bit on market and penetration. When it comes to What was the second one?
Modification.
Yeah, modifications. Yeah. I can start, then you can add, Jan. The primary discussion, and it has been a little bit, you can say 50/50. Some that really needs it because they are in a financial stressing situation, so to speak, and some of them acting also as to create the headroom for, so to speak, their liquidity positions, et cetera. There are, of course, different reasons, obviously, and different sectors. It's not so much about modifying the terms of the contract. It's more about, so to speak, rescheduling of when payments, et cetera, shall take place.
No, in general, compared to 2008 or 2009, then it was, of course, a liquidity crisis, and we don't see that happening now. Still coming into this with good financials, good business for the transporters. Of course, as Martin said, there are both segments of customers, so to say. Of course, let's see going forward here, we have some segments that are heavily affected, some regions that are heavily affected as well, and let's see how it's going to play out going forward.
Thank you. That's very helpful.
All right. Thank you.
This concludes the call for the second quarter 2020. We are looking forward to meet you in three months' time. Bye for now. Over and out.
Thank you very much. Bye-bye.
Thank you. Nice summer.