Ladies and gentlemen, thank you for standing by, and welcome to the Linamar Q4 2020 Earnings Call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. Thank you. I'll now turn the conference over to Linda Hasenfratz, Chief Executive Officer. You may begin.
Thanks very much. Good afternoon, everyone, and welcome to our fourth quarter conference call. Joining me this afternoon are members of my executive team, Jim Jarrell, Dale Schneider, Roger Fulton, Mark Stoddart, as well as members of our corporate IR marketing, finance, and legal team. Before I begin, I'll draw your attention to the disclaimer currently being broadcast. I'll start off with a short essay on the COVID-19 crisis on Linamar's current focus. It's actually hard to believe it's already been a full year since COVID-19 began impacting the world, and we jumped into action with our Linamar Health First task force. We worked on data gathering, communication, and development of our Linamar Health First plan. The Linamar team did an excellent job of executing on that action plan in the last 12 months.
For shareholders, we mitigated the negative impact of the global shutdowns and market declines with rapidly implemented cost-saving and cash management programs. In fact, we were able to turn the second half of 2020 into a period of growth over 2019 after a tough first half. We also generated 50% more cash than we ever have in our history in 2020 with or without government subsidy. For our people, we successfully created a working environment that is as safe or safer for them to come to work than to not come to work, which was our goal. We are not seeing transmission of the virus in our facilities, which is excellent. We have also been able to bring 99% of our global workforce back to fully paid work at this point. 98% of them are working safely on-site, which is also excellent.
For our customers, we managed a rapid restart of our global facilities flawlessly, keeping in step with a robust ramp-up to normal volumes. Markets are in good shape, with auto and ag running strong and access recovering now as well. For our communities, we were there every step of the way with PPE, ventilator programs, COVID-19 testing programs, and most recently, a newly launched vaccine clinic. More on that in a moment. I believe that a huge part of the reason we successfully navigated the challenges of the last year is the strong culture we have at Linamar. Our leaders are strong communicators who kept connected to their teams at all times. We balanced our actions, as we always do, to ensure the success of our people, our customers, our communities, and our financial performance.
Our responsive, fast-moving culture was laser-focused on execution and made decisions fast and got things done. Our self-contained decentralized teams kept our global operations running smoothly. They didn't need a centralized group to help them launch or run their business. Finally, our focus on flexibility allowed us to pivot operations rapidly to manufacture much-needed equipment to support our communities. Our culture at Linamar ensured our success in this crisis, as it has time and again in the past. Our focus now turns to the final stages of this pandemic, where we believe that the rapid vaccination of our communities is the key to recovery and getting back to a more normal life. The vaccine rollout is gathering steam globally.
Just in Ontario and Canada, we already have more than three times the number of vaccinations completed compared to the number of positive cases, and that number is growing dramatically every day. Other global regions are even farther down this road, which is great to see. Our current focus now is on three key areas. First, continuing to ensure a safe workplace, as now is not the time to become complacent around our safety protocols. Second, we're focused on testing to help reduce community spread. Finally, we're focused on vaccinations, both in terms of encouraging our global employee base to get vaccinated and also helping to deliver those vaccines. To that end, we have launched a community vaccination clinic at Linamar. We are working closely with our local public health unit in Wellington- Dufferin- Guelph to establish a capacity of 2,000 injections per day.
We will launch on Thursday of this week, tomorrow, with our first patients. Our health unit will handle all the registrations and bookings in line with provincial prioritization guidelines, and we will simply administer the vaccines. We're putting together a playbook on launching a vaccine clinic with all the necessary information, documents, and best practices, and we'll be posting that on our website as a guideline for any business out there who wants to do the same thing in their community. We believe the faster we all get vaccinated, the faster we all get our lives back, and we are happy to offer support to get that done. Okay. With that, let's jump into some of the specifics about the quarter, starting with sales, earnings, and content. Sales for the quarter were CAD 1.70 billion, up 5.5% from last year.
The auto sector continues to perform well in North America and Asia, and launching programs are driving better volumes and margins. Skyjack sales continued to drag in the fourth quarter in a slow market, but market share gains in the core North American business helped to mitigate these declines. In terms of earnings, normalized net earnings are up 71.2% to CAD 129.1 million, driven by Transportation segment's strong sales growth and improved margin on launches, as well as cost reductions implemented and government support programs. Although the latter was to a much lower extent than seen in Q3 as markets stabilized. In North America, content per vehicle for the quarter was CAD 171.57, up 9.4% over last year with customers we have a heavy weighting with also seeing the biggest market share gains. Vehicle production levels were up 0.8% versus last year, meaning automotive sales in North America grew 10.2%.
In Europe, content per vehicle dropped to CAD 70.65 in a market up 2.5% due to our customer mix resulting in automotive sales declines in comparison to last year. The market in Europe continues to be difficult, with continued showroom shutdowns and resultant impact on consumer demand, as well as complications now arising in Q1 2021 from supply chain issues such as the semiconductor chip shortages. Production levels, and as a result, content per vehicle, are likely to remain volatile until the region settles and we move farther into the post-pandemic period. In Asia, content per vehicle was also up significantly at CAD 13.55, up 36.6% over last year, again, due to our key customers seeing strong market share gains in certain products in a market that was up 6.6%. This gave us a 45.8% boost to auto sales in the region to a record CAD 178.7 million.
Global content per vehicle was also up in the quarter, driven mainly by the strong growth in North America to CAD 54.92. Commercial and Industrial sales were down 1.7% in the quarter. Skyjack sales were down on lower markets, but offset by new medical equipment sales. MacDon continues to see solid market share gains in Europe, South America, and Australia, helping offset a flat market in North America. Carefully managing CapEx continues to be a key theme for us in Q4. We were down 37% from last year, which took us to a full year total of CAD 264 million, down 50% from 2019. In 2021, we will be back to a more normal range of spending. Linamar's utilization of flexible programmable equipment is the key factor in allowing us flexibility in times of market softness to continue to tool up new business without requiring significant CapEx.
This is a massive advantage that Linamar has in comparison with our competitors, who may invest in more dedicated equipment, which although cheaper and often requiring less labor, is not easy to reallocate to new programs or to scale the line to match actual customer capacity needs. Of course, the big story this quarter again is free cash flow. We again had an absolutely outstanding quarter in terms of free cash flow, with CAD 422 million generated, taking us to a whopping CAD 1.2 billion for the year. This is a new record and more than 50% better than any prior year in our history. We have CAD 1.6 billion of liquidity available to us, which is also outstanding. Our strong balance sheet and liquidity means we have the ability to take on takeover work or acquisitions as they arise in an opportunistic market and drive even more growth.
In addition, our strong cash position has allowed us to increase the dividend again to CAD 0.16 per share. The solid cash flow has allowed us to reduce net debt levels. Net debt now sits at CAD 442 million, which is down over CAD 1.6 billion from early 2019, despite the pressures of the pandemic. Leverage likewise improved dramatically to 0.5x last 12 months EBITDA. Turning to our market outlook, we're seeing markets sharply up across the board this year, which shouldn't be a surprise after a tough 2020. Industry experts are predicting strong growth in light vehicle volumes globally this year to 16.2 million, 18.9 million, and 44.4 million vehicles in North America, Europe, and Asia, respectively. On-highway medium heavy truck volumes are predicted to be solidly up in North America and Europe this year, but down in Asia.
The ag industry is predicting solid growth in the combine harvester market this year in North America and Europe after a slow 2020. The order book is up significantly over last year, with farmers feeling more confident with a rally in commodity prices, a good harvest last year, and a perception of a more stable international trade environment. Industry experts predict double-digit growth in the access market in North America and Europe this year, coming off a very tough 2020 as construction projects start to ramp back up and consumer confidence builds post-pandemic. Asia will continue to grow, although a little less strongly than seen in 2020. Looking at these markets in a little more detail, on the auto side you can see a pattern of recovery in every region on vehicle sales versus prior year. China is quite consistently up in double digits.
Europe and North America, a bit up and down. That's really based on lockdowns. In looking at production levels compared to what was forecast at our last conference call in November, you can see a stronger Q4 than we had forecast, mainly driving out of Asia. Q1 2021 will be a little softer than we had expected due to the semiconductor chip shortage, which is trimming somewhere around 1.1 million units out. Interestingly, 2021 is now forecast to be better by 1.5 million units than we had forecast in November, indicating the shortfall will be more than made up for in the back half of the year. The impact of the chip shortage and other supply chain issues seems to be changing day to day, and it is very difficult to predict. Clearly, we're going to feel an impact in Q1, but the extent of such is not clear.
We will have a better sense for you in the coming weeks, and we'll provide an update with our mid-quarter market update in early April. Looking at the access market in more detail, you can see the more positive trend in Q4 market declines in comparison to the full year, a sign that the market is recovering. Equipment utilization levels continue to look more positive as well. In the last two months, utilization levels are between 94% and 106% of 2019 levels, which is a very good sign. Double-digit growth is expected in core North American and European markets in 2021, and a stronger backlog at Skyjack supports this, which should drive double-digit sales growth this year. In the agricultural business, we are seeing a very optimistic outlook in North America, in particular, for double-digit growth this year after a soft 2020.
Q4 combine retails in North America ended in line with prior year, although notably, Canadian retails were down versus U.S. retail sales that were up. MacDon continues to build market share in international markets with strong growth in Australia, South America, Europe, and CIS in 2020. Order intake is significantly ahead of last year at this time, indicating double-digit sales growth for MacDon this year as well. Turning to an update on growth and outlook, you'll be pleased to know that we had another solid quarter in new business wins, as is often the case at year-end. I'll highlight a couple of our more strategic wins in a moment. First, electrified vehicles continue to provide great opportunities for us. You can see a steady build in our global content per vehicle for battery electric vehicles as a result of recent wins.
The lines of internal combustion engine and battery electric vehicle global content per vehicle are converging, which of course is the goal. Our content per vehicle in electric vehicles is now predicted to surpass that of hybrids within a couple of years as we see more and more battery electric vehicle wins. Our addressable market across a range of vehicle propulsion types continues to look excellent, with our total addressable market for us today, which is around CAD 80 billion, growing to more than CAD 300 billion in the future, an increase of more than three times. As you can see, the market potential for each type of vehicle, internal combustion, hybrid, battery electric, fuel cell electric, are all really starting to even out.
This is largely driven from the higher potential content per vehicle we now have in the battery electric, fuel cell electric, and hybrid vehicles, thanks to continued product development efforts such as the assembled battery tray, hydrogen fuel tank, and other products we've discussed in past quarters. Our potential content for battery electric vehicles, hybrid, and fuel cell electric vehicles are equivalent to the content potential of internal combustion vehicles at roughly CAD 3,200 per vehicle, which is great too. I think it's also critically important to point out that the type of equipment utilized to machine parts for electrified vehicles is literally identical to the equipment used to machine parts for internal combustion engine vehicles. Electric vehicles use gears, they use shafts, structural parts, and a variety of housings, just like internal combustion engine vehicles.
A gear grinder or a shaper used to make a gear for an internal combustion engine vehicle is the very same equipment we would use to make a gear for an electric vehicle. I highlight this point as it means we will not have significant levels of stranded assets to deal with as the world transitions into electric vehicles. With respect to launches, we are back to seeing ramping volumes on launching transmission, engine, and driveline platforms, which are predicted to reach 40%-50% of mature levels this year, generating incremental sales of CAD 500 million-CAD 600 million. These programs will peak at nearly CAD 3.8 billion in sales. We saw a shift of more than CAD 600 million of programs moving from launch to production last quarter, the majority of which was offset by solid business wins in the quarter.
Total business launched in 2020 was about CAD 380 million, given tough market conditions, and reached in total CAD 1.2 billion on the launch curve. As usual, we are summarizing all of these expectations of market changes on our outlook slide, which is now showing. With markets recovering as described, we are expecting to see double-digit growth on the top line and strong double-digit growth on the bottom line in 2021. This derives from double-digit growth at both Skyjack and MacDon as well as market growth in auto and continued ramping of launching business. Margins will be getting back towards our normal range of 7%-9% at the net level, driving from Transportation segment margins getting back into the normal range, and Industrial margins getting close to that.
Leverage levels will continue to improve based on continued positive free cash flow for the year. Looking specifically at Q1, you should expect to see auto growing from launches and market growth, but I am cautious about the level of growth given the supply chain challenges our customers are facing at the moment, as described. Agricultural will see growth driving out of that solid backlog, and access will start to see some growth as well. Q1 normally sees a big increase in non-cash working capital as we move away from the typical year-end lows and see the impact of growing sales, which will result in a quarter of cash use rather than positive free cash flow. This trend will reverse in future quarters to result in a year of positive free cash flow. We will also see continued dial back on government support as our recovery continues.
I will add, as our lawyers insist I do, that impact from COVID-19 outbreaks and subsequent supply chain challenges are currently not fully understood or determinable in terms of their impact to all segments at this point. Of course, risks remain. I will highlight a few of our more interesting wins this quarter. First, we picked up another significant program for next generation battery electric vehicle delivery vans and trucks. We will be manufacturing more than 110,000 units per year of these driveline differential assemblies for this customer from one of our plants in Mexico. Next is another major gear program win, more than 300,000 units per year for a high-efficiency eight-speed transmission. This is for an Asian customer new to Linamar, but long targeted. We're really excited to see this win. We picked up a camshaft module assembly program for a highly efficient three-cylinder engine program.
We're seeing more in the way of much smaller, ultra-efficient engines to be used either on their own or in hybrid applications, which are creating opportunity for us. This program is an example. It is about 50% focused on supply for hybrid vehicles. Another key driveline program is this carrier program, which launches in a few years here in North America at a rate of 180,000 units per year. Finally, we were awarded several new cylinder head programs for next-generation engines in various global centers, including a win with a domestic Chinese OEM that we have been targeting. In aggregate, these programs will generate about CAD 150 million in sales at peak volume. Turning to an innovation review, I'd like to highlight a few great technology developments launched this quarter. The spotlight for this quarter is on Skyjack.
Despite a trying year, Skyjack continued to develop and deliver new and enhanced products. On our current boom product, an initiative for 2020 was to revisualize and repower the machine. Using the telematics and data gathered from ELEVATE in cooperation with our customers, we looked at machine power requirements and were able to reduce engine horsepower, reduce machine waste, reduce maintenance requirements, and increase, as a result, customer return. This work offers solid energy savings, supporting our green technology focus, as well as optimizing our customers' business models. This year, we have also developed and are bringing into the market our first micro class machine with a 3013, that means a 13 ft platform height model for North American ANSI markets, and a 3014 or 14 ft platform height model for EU and CE markets.
Both of these machines feature electric drive as well as a total machine weight less than 2,000 pounds. Lastly, with the pandemic disrupting the traditional trade shows and customer interactions, we needed to pivot to a virtual world. Skyjack created SKYWORLD, a virtual experience which created the ability for our customers to walk through our equipment virtually. SKYWORLD was launched in February of 2021 to a great reception from our customers. Finally, a quick look at the continued digitization of our shop floor. As you can see, we continue to rapidly deploy global robotics to automate repetitive work, data collection systems, and connections to ensure that our global machine base is fully digitized. With that, I'm going to turn it over to our CFO, Dale Schneider, to lead us through a more in-depth financial review. Dale?
Thank you, Linda, and good afternoon, everyone. As Linda noted, Q4 was a strong quarter for sales and earnings, in addition to being a great recovery from the COVID-19 shutdowns that occurred earlier in the year. It was also a great quarter for cash generation, as we generated CAD 422.3 million in free cash flow, which brings the 2020 year total to CAD 1.2 billion, a record year. Additionally, we were able to increase our strong level of liquidity to CAD 1.6 billion. For the quarter, sales were CAD 1.7 billion, up CAD 88.7 million from CAD 1.6 billion in Q4 2019. Earnings are normalized for FX losses related to the revaluation of the balance sheet and any unusual items that may have occurred in the quarter. In Q4, earnings were normalized for the cost impact of a restructuring during the quarter. The restructuring costs were primarily in our European operations.
Earlier in 2020, our European casting, forging, machining, and assembly operations were reorganized. Since the reorganization, a number of operational efficiencies were identified and implemented in Q4, which resulted in these one-time costs. The impact on EPS from the restructuring was CAD 0.10 per share. The earnings were further normalized for FX losses related to the revaluation of the balance sheet, which impacted EPS by CAD 0.14 per share. Normalized operating earnings for the quarter were CAD 176.4 million. This compares to earnings of CAD 112.6 million in Q4 2019, an increase of CAD 63.8 million or 56.7%. Normalized net earnings increased CAD 53.7 million or 71.2% in the quarter to CAD 129.1 million. Fully diluted normalized EPS increased CAD 0.82 or 71.3% to CAD 1.97. Included in earnings for the quarter was a foreign exchange loss of CAD 12.4 million, which is fully associated with the revaluation of our operating balances.
As I mentioned, the net FX loss impacted the quarter's EPS by CAD 0.14. From a business segment perspective, the Q4 loss of CAD 12.4 million was a result of a CAD 7.3 million loss in Industrial and a CAD 5.1 million loss in Transportation. Further looking at the segments, Industrial sales decreased by 6% or CAD 20.3 million to CAD 315.6 million in Q4. The sales decrease for the quarter was primarily due to the access equipment sales declines associated with the global pandemic, which were partially offset by increasing market share at Skyjack in all three product families. Normalized Industrial operating in the quarter increased by half a million or 1.3% over last year to CAD 39.9 million.
The primary drivers impacting Industrial were the ongoing focus on cost savings, the utilization of government COVID-19 support programs, which were partially offset by an increase in provisions for receivables and the net lower sales volumes at Skyjack. Both of these reductions to operating earnings were the result of the impact of COVID-19 that it's had on the access equipment markets. Turning to Transportation. Sales increased by CAD 109 million over Q4 last year to CAD 1.4 billion. The sales increase in the fourth quarter was driven by the increasing volumes on both launching programs and on certain programs with some of our more significant customers. The sales increase resulted from the labor disruptions in Q4 2019 at a significant customer that did not recur, the impact of positive FX changes in rates since last year.
These are partially offset by a decline in European sales as these markets did not fully recover from the impact of COVID-19 in Q4. Q4 normalized operating earnings for Transportation were higher by CAD 63.3 million or 86.5% over last year. In the quarter, Transportation earnings were primarily impacted by the net sales increase for the reasons I just described, the utilization of government support programs related to COVID-19, the positive impact of the changes in FX rates since last year, and the cost reductions achieved in the quarter. Returning to the overall Linamar results, the company's gross margin was CAD 273.5 million, an increase of CAD 76 million compared to last year due to the same factors that drove the segment results. COGS amortization expense for the fourth quarter was CAD 123.1 million.
COGS amortization as a percent of sales did increase to 7.2%, primarily due to the impact of launching programs and products in the quarter. SG&A costs increased in the quarter to CAD 106 million from CAD 98.9 million last year. The increase is primarily the result of receivable provisions less cost savings achieved in the quarter. Finance expenses decreased by CAD 11.8 million since last year due to the reduction of our average daily debt levels by CAD 830 million since Q4 2019, and reducing our effective interest rate by 110 basis points. The consolidated effective interest rate for Q4 declined to 1.7% from 2.8% last year. The effective tax rate for the fourth quarter increased to 23.7% compared to last year, but down since Q3 2020.
As a result, we're expecting the 2021 full year effective tax rate to be in the range of 24%-25% and consistent with the 2020 full year rate of 25.4%. Linamar's cash position was CAD 861 million on December 31st, an increase of CAD 522.9 million compared to last year. The fourth quarter generated CAD 489.6 million in cash from operating activities, which was used mainly to fund CapEx and increase liquidity. This also resulted in free cash flow generation of CAD 422.3 million in the quarter. As a result, net debt to EBITDA decreased significantly to half a turn in the quarter. Based on the current estimates, we are expecting net debt to EBITDA to continue to improve by the end of 2021. The amount of available credit on our credit facilities was CAD 773.1 million at the end of the quarter.
Our available liquidity at the end of the quarter increased to CAD 1.6 billion, and as a result, we currently believe we have sufficient liquidity to satisfy our financial obligations through 2021. To recap, sales and earnings for the quarter was a story of COVID-19 recovery driving strong financial performance. With the dramatic impact the pandemic has had on Linamar this year, the critical story remained one of cash and liquidity. Linamar had a remarkable cash generation quarter and year as we generated CAD 422 million in the quarter and CAD 1.2 billion for the year in free cash flow while maintaining strong liquidity above 2019 levels to reach CAD 1.6 billion. That concludes my commentary, and I'd now like to open up the call for questions.
At this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. We'll pause for just a moment to compile the call roster. Your first question comes from Mark Neville with Scotiabank.
Hi, good afternoon, everyone. Again, great job.
Thanks.
Very impressive. Maybe just if I can start on with the free cash and maybe just working cap. Again, I appreciate there's a working cap investment coming in Q1. I presume there would be, just given the sales growth expected in 2021, an investment for the year. Just maybe order of magnitude, if it would be something similar to the growth in sales or is there more efficiencies that can be had with the working cap?
Yeah, non-cash working capital ended in a very strong position at the end of Q4. As a percent of sales is definitely lower than we would normally expect. I think a better expectation going forward is somewhere in the sort of 6%-8% of sales range, which is part of why we suggest to expecting Q1 that it's going to pop back up.
Okay. Understood. Maybe I'll just leave the chip shortage for now, but you didn't speak about commodity price inflation. I'm just curious if, and I'm thinking more on the Industrial side, but I guess holistically, if there's any sort of risk or pressure to margin from higher commodity prices.
Yeah, we are seeing some pressures both in terms of supply issues and some commodity pricing on the Industrial side of the business. That said, we did give that consideration in our guidance to expect to see some margin improvement this year. Obviously, we're coming off of a very tough 2020. We might not be quite back into the normal level of operating margin for that segment. But we do expect to see it improve, and we're trying to mitigate those issues as best we can.
Yeah, I would say the volumes are very good on the Industrial and Transportation side. That helps from the supply side efficiency and any productivities that we had are still sort of baked in. As Linda said, like transportation or commodity stuff, there is certainly a drive there that we're trying to manage that cost side.
Okay. Maybe just one last one before I get into the queue. Just on the balance sheet. It's in great shape. You've got tons of liquidity. You bumped the dividend, but I'm just maybe thinking about capital allocation from here. If there's any thoughts around buybacks or how you're feeling about M&A. Yeah. Thanks.
Yeah. As you've noted, we increased the dividend. Recognizing that we always want to balance the needs of our shareholders and that we are in an excellent cash position. With regards to M&A, of course, we are always looking at possible acquisition opportunities, and there are lots of opportunities out there at the moment. It's not our practice to really comment on that unless we have a concrete deal to announce. Obviously nothing more to say at this juncture, but obviously there's opportunities out there.
Sure. Understood. All right. Thanks again.
Your next question comes from Peter Sklar with BMO Capital Markets.
Good afternoon. A few questions here, so I'll just quickly move through them. Last quarter, meaning Q3, I think you said the amount of wage subsidy was CAD 47.5 million. Can you provide us with the amount of wage subsidy and other government benefits for the fourth quarter?
Yes, it dropped significantly as you would expect, and it's now down to CAD 22 million.
Okay.
I will point out that's a combination, Peter, of the wage subsidy program here in Canada and other programs that we've tapped into globally.
Okay. You said you've taken some provision for receivables in the Aerials business. Can you tell us what the amount of the provision was?
It was a general provision, just given the softness in the market. We haven't disclosed the exact amount. As you may expect, some of the rental houses, especially the smaller ones, have had a difficult year. With the increased risk in the market, we took a general provision.
Where are you, Dale, in terms of financing you provided and how much have you laid off to other financial institutions? Can you just kind of summarize where you're going with that?
Yeah. As you may recall, at both Skyjack a couple of years ago and MacDon last year, we entered into financing agreements. We're not selling AR in the Industrial markets. As we do transactions with our customers, those are financed directly with the third-party financing. What you are seeing in 2020, you would have noticed that there was a dramatic decrease in long-term AR, as you would expect, as we're collecting payments from our customers, but we're not adding to it because those financing agreements are taking up most of that sales activity.
So can you-
Sorry, go ahead.
Can you give us the amount of receivables, of those kinds of receivables that are still on Linamar's book and how much provision there is against them?
One second. Let me just look at the number and then I'll finish off on the auto side as I'm looking it up. We also entered into an actual sale of AR program on the automotive side as well. That went in effect end of Q4 last year. We've been trying to be active with it. Obviously, with our sales volumes increasing on the auto, we've been able to be more active with it, by Q3 and Q4 this year, obviously, than we were in the first half with softer volumes.
What do you mean by that? You're selling your auto receivables?
We are selling certain auto receivables, yes, and have been for, like I said, the end of Q4 2019.
Yeah. Okay. Should I keep going while you're looking that up?
Absolutely.
Yeah. Keep going.
Sorry to be a pain here.
No, it's okay.
Would you characterize the tempo of launch activity now as high, low or normal?
I would say probably normal, but we're probably getting to the backside of the launch curve. I would say, a year and a half ago, we were kind of at the worst point where we had not optimal levels of volumes on launching business and suboptimal levels of volume on the business it was replacing. I would say that would've been kind of mid-2019, and since then we've been slowly improving. We still have quite a lot of business that is launching. As I noted on the call, we're about CAD 1.2 billion into the launch of CAD 3.8 billion worth of work. We still have quite a runway in terms of ramping up the rest of the work.
We got a lot of ramp ups still, Peter, and also incremental volume increases, which we're going to have to put extra volume in. That's one area. EV area, there's a lot of activity on the EV area that we are launching. Some of those volumes obviously are not high, but there's multiple launches on EV. Even in MacDon and Skyjack, like Skyjack has about five critical launches going on. At MacDon, we've got the two series. That's a big, big deal for us for MacDon products. Yeah, I agree with Linda. It's sort of normal, but there's a lot going on, though.
Okay. Linda, during your comment, you provided that the launches are going to add CAD 500 million-CAD 600 million of sales this year. If we wanted to turn that into a forecast, should we take that number and then deduct something for the amount of business falling off as well as price give backs? Is that how we should massage that number into a revenue estimate?
Yes.
Okay.
Yeah.
Okay. Lastly, Dale, with all this cash you're generating and interest rates low, can you give us some guidance on how the interest expense or the financing line looks for 2021?
Well, for the quarter, our effective interest rate is 1.7%. We are in the lowest range of our pricing grid, so I'm not really expecting any significant changes in that effective interest rate unless there's movement in the market.
Okay.
And to answer your-
Okay. That's all I have except for that outstanding question.
Yep.
Sorry to take so much of your time.
I can answer that. The long-term AR receivables in the Industrial segment actually improved by CAD 128 million in the year, and it's down to CAD 235 million.
How much is that gross? Is there a reserve against that?
There's general provisions in there, yeah. That's net of that.
Okay. That's the net amount.
Yeah.
Okay. Thanks very much.
Thanks.
Your next question comes from Brian Morrison with TD Securities.
Thanks very much. Well done on the quarter. Couple quick questions, please. Linda, you talked about the order intake being up significantly at MacDon. Wonder if you're able to quantify that. I see some pretty impressive numbers with respect to combined sales disclosed in the supplemental.
Yeah. As we're noting actually on this outlook slide, we're guided to double-digit growth at MacDon this year. It is a pretty substantial increase. It's driving out of a couple of things. Commodity prices are strong. Harvest was good last year. I think people are feeling a little more settled on the trade side. We are seeing order intake meaningfully up.
Yeah, I would think also in North America, the retail side, as Linda said, commodities and lower inventories are also at play here. I would say Europe for sure. We're strengthening over in Europe with drapers. Also the windrower market, I would say we're doing increases there. The other location I would say was really, really good was Australia, right?
Yes.
Australia had, I think, one of their best harvests-
Yes.
... like ever, right? That's really creating demand.
Yeah. Our unit sales were up dramatically, and our market share in Australia is-
Yeah.
... very, very high.
Yeah. Pretty well fully, like almost fully subscribed for 2021 now.
Yeah.
Okay. Thanks, Jim. Dale, are you able to provide maybe ballpark guess of, you've got these benefits from reduction in discretionary costs, specifically in Q3 and Q4 here. I'm wondering if you're able to ballpark what the impact is on the operating margin or give us a degree of sense of what you think's potential to come back.
You mean how much of the cost reduction is going to stick?
Correct.
Yeah. A little hard to quantify. For sure there's quite a few things that, again, when you look at things at it from a different lens, you can retain those cost savings. I would say there's also new ways we've learned to do things, like for instance, travel. I suspect we will start traveling again, I'm sure.
Thank God.
Jim's already got his bag packed. I think what we learned is we don't need to travel as much. We can do things very effectively through video. For a quick meeting, instead of jumping on a plane and going across the world, maybe we can do it through video very efficiently for all parties. I think that will keep some of those types of costs down. For sure, there's some stickiness in the costs. I will say, as you know, we've always been very cost conscious. I feel it's not like there was a lot of low-hanging fruit that, wow, we never thought of doing that. There's always ways to improve and there will be things that stick.
Okay. I guess just a couple of housekeeping questions, too. I guess, with telematics and innovation across Industrial really, does the semiconductor shortage have any impact upon the Industrial segment?
It has had some in the engine side, like the ECU side of it has had some impact, but relatively not a big deal from that side. It has slowed up some of the engine deliveries to us. That's where we've seen it on basically Skyjack. Nothing at MacDon, though.
Will we see any of that in Q1 or it's small?
It's just not material enough.
Okay.
It may push sales around a little bit, let's put it that way.
Okay. The last question I have is, again, housekeeping, I'm curious, with sales coming back so strongly here, why do you still qualify for the Canadian wage subsidy? Should this not be in the past now?
Yeah. As noted, it's dramatically down from the third quarter, and I would say it's also shifting around, right? Skyjack, for instance, has remained at a much lower level in comparison to, let's say, the auto business. There's still some subsidies flowing through on that side. You can certainly expect Q1 to be down again for that exact reason.
Sorry, we shouldn't expect the majority of those subsidies to be in the Transportation division?
I would say yes, the majority, only because that's where the majority of the people are. An increasing percentage was in the Industrial side in the fourth quarter, for instance.
Yeah. As the automotive volumes normalize, you get less impact.
Yeah.
Right? Skyjack has remained soft, their subsidies haven't declined much. It's really hard to tell where we're going to go on subsidies because the government literally has been changing the calculations and eligibility on almost every claim. As you may have heard, they've announced extending it to June. They've provided no guidance yet, we don't know what that means. We're not really expecting much in Q1.
Less than Q4.
Thank you very much. Congratulations.
Thank you.
Your next question comes from Krista Friesen with CIBC.
Hi. Thanks for taking my question. Just on the microchip issue, I realize it's a very fluid situation, but is your guidance assuming that any production lost in the first half of 2021 is made up in the back half?
We are assuming that that's going to happen. I think that's the general assumption. If you look at IHS forecasts, for instance, the latest forecast showed 1.1 million unit impact in Q1, but it's fully being made up in the back half of the year. I would expect a similar kind of pattern. It is a little hard to predict right now just because it's literally changing day to day. I can't really give you a sense for Q1 until Q1's done. Once it is done, I think we'll obviously have a better sense for what the impact on our customers was, and we can communicate that to you in our mid-quarter update.
Right. That makes sense. Just as we look out to 2021 here, looking at operating income, would it be reasonable to, let's say, take your operating income in the back half of 2020, back out the government wage benefits, so that's roughly CAD 287 million. If we were to annualize that and we get to about CAD 575 million, is that a good base level assumption for 2021?
I would say we're going to see continued growth. I wouldn't say that 2021 is going to be at the run rate of 2020 because auto market is recovering, growing in double digits. Both Skyjack and MacDon are also recovering, so they're both going to be in a better position as well. I do expect to see growth over 2020.
Okay, perfect. That's it for me. Thank you.
As a reminder, that is star one to ask a question. Your next question comes from Kevin Chiang with CIBC.
Thanks. I just had a follow-up question here. First, just congrats on a good quarter and I commend the Linamar company with Project Safeguard. Sounds like a great initiative in the Guelph area there.
Thanks, Kevin.
Just on one of the slides that caught my attention was the new business one, just on the BEV delivery vans and trucks. I'm wondering, is that a growing opportunity for Linamar on the commercial vehicle side? It just seems like almost every logistics company out there is accelerating their adoption and replacement of their fleet to electric vehicles or some sort of green solution. Just wondering if you're seeing that on your end in terms of bidding activity and if that's an accelerating opportunity for you.
Yeah. Kevin, I think we've talked about it in the past, but we have a lot of activity happening around the commercial vehicle side. We do have right now, a few products that are actually in test with some of the delivery companies. This is either electrification from pure battery electric, but we've also got two that are in there for fuel cell. We have a lot of activity in both North America, Europe on the commercial vehicle side. We see some activity happening, sort of coming up with some meetings with customers in China. Definitely there's been a lot of activity over the last six to eight months on commercial vehicle.
Yeah, a lot of-
Sorry, go ahead.
I was going to say, does it feel like the replacement cycle of the customer base has also accelerated? You're actually getting a higher level of volume versus whatever normalized level would've been a few years ago, just as these logistics companies and fleet operators look to hit their own ESG targets or carbon emission targets?
Well, I think you're just seeing volumes from class four right up to class eight are all forecasted to increase this year. Yes, they're looking to convert a lot of that fleet over to green trucks. Yeah, I think it's gonna happen quick. The one thing that's advantageous about the commercial vehicle is it's easy to take existing platforms and adopt a battery electric solution to them versus passenger car or small SUVs where you're really space constrained.
You know, I also would say there's a lot of new entrants, right, that are attacking this market and looking at sort of like that final mile delivery concept is really something that we are working on with, as Mark said, commercial eAxle and things like that.
That makes sense. Maybe just last one from me on the MacDon front. I think there's a feeling entering this year that we might be entering an agricultural super cycle, and I know you talked about kind of the expansion opportunity at MacDon. Just wondering how you're thinking about, especially where your leverage ratio sits today, how do you think about those plans? Do you look to accelerate your geographic footprint just to take advantage of this super cycle that some people are predicting?
Yeah, for sure we're seeing great opportunities from an international perspective. Since our acquisition of MacDon, we've spent some time trying to develop product that would be applicable for, let's say, the European market, for instance, which has different technical requirements in terms of harvesting equipment. We have that product now. We're actively selling it, the market is after it. The market growth in Europe, I mean, we've sold double the units this year that we did last year, almost double. Great to see that. As Jim was mentioning earlier, Australia also seeing some great movement. Same in South America actually, which is a huge market, and we saw some really great growth in South America in terms of our footprint there. Seeing some good opportunities right around the world. Of course, North America is expecting double-digit growth as well.
We will absolutely be taking advantage of that as best we can.
That's super helpful. Congrats on a good Q4. Thank you.
Thanks so much, Kevin.
There are no further questions at this time. I will now turn the conference back over to Linda Hasenfratz for closing remarks.
Thanks very much. Well, to conclude this evening, I would like, as always, to leave you with three key messages. First of all, we are thrilled to have generated again an outstanding CAD 422 million in free cash flow for the quarter, taking our full year results to CAD 1.2 billion, a record year, and 50% greater than any prior year in our history. Secondly, I'm incredibly proud of our team for bouncing back from a full shutdown mid-year last year to the exceptional earnings growth realized in Q4, notably in the Transportation segment. Finally, it's great to see market growth resuming in all three of our core markets of auto, ag, and access after a tough 2020. That, coupled with the solid market share gains we're seeing in all of our businesses, intersects to paint a picture of solid growth for 2021.
Thanks very much, everybody, and have a great evening.
This concludes today's conference call. You may now disconnect.