Good afternoon, everyone, and welcome to our second 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. If you can advance the slide. Before I begin, I will draw your attention to the disclaimer that is currently being broadcast. Okay, I'm going to start off with an update on the COVID-19 crisis and Linamar's reaction to such. As you know, we took a four-step approach to dealing with COVID-19. Assemble a team, gather data, make a plan, execute on the plan, and of course, communicate broadly throughout. We have continued to make excellent progress in this regard. Our focus right now is very much on the next phase of this crisis, restarting, rejuvenating, and recovering.
First and foremost, we are determined to create a work environment where people feel and are as safe or safer coming to work than not coming to work. More than 90% of our employees are now back at work, which is great to see. We have had a few positive cases pop up, which is to be expected given the easing of restrictions broadly. The key is to stop any chance of the virus spreading within our facilities, and I believe we are doing a really good job of that. We have had no serious outbreaks in any of our plants. We're learning as we go, of course, and adjusting our protocols as required to address any concerns that do pop up. At the same time, I think it is really important for us all to play a role in rebuilding confidence to spur our economic recovery.
Confidence in our ability to work safely, which we absolutely are, in the economy to weather the storm, and governments to manage the debt incurred in trying to mitigate the personal and economic impact of what we've experienced. Our safe work protocol is based on five key principles, screening, PPE, including masks and/or face shields, distancing, increased cleaning and hygiene, and contact tracing. We are regularly surveying our employees as to how safe they feel at work and the adequacy of the safe work protocols, and have had great, consistently strong scores for both metrics since we have started doing so. If there's a concern in any one plant or any one region in terms of how people are feeling, we can quickly focus in on that through this data that we're gathering, which does allow us to drill down by region and by plant.
We're making excellent progress on the cash management and cost control aspects of our Linamar Health First Action Plan, as you see with our second quarter results. Capital spending was cut by more than 80% in the quarter to just CAD 24 million. We implemented cost savings of more than CAD 30 million realized just in Q2 alone. Our global cost team has identified and implemented nearly CAD 30 million of annualized savings, and every plant, group, and region has implemented significantly more savings in their areas as well. In terms of our balance sheet, we continue to be in a very strong position, thanks to the success of our cost and cash initiatives. I'd like to point out that we have not lost focus on these areas as we believe there is still a lot of uncertainty out there, and now is not the time for us to become complacent.
We look in detail at forecasts at least two quarters out every single week on sales, earnings, and cash, and we stress test to ensure we're aware of any potential weaknesses. We've run stress models in which we model another two-month shutdown, which by the way, we feel is very unlikely to happen, and others where we cut output significantly for the remainder of the year. In both cases, we remain profitable for the year, generate cash for the full year, and do not breach our covenants. We do not have any debt maturing this year. We early paid a private placement note in the quarter that was due 15 months from now from a risk mitigation perspective and to take advantage of lower cost current borrowing rates. Dale will provide more information for you shortly on that transaction.
Here you can see the stress scenarios I described, which basically cut in half current expected operating earnings levels, and as noted, still leave us profitable, still leave us generating cash, and not breaching any covenants. Another key area of focus for us, of course, has been community support. I think we've done an excellent job in rapidly retooling lines for ventilator components and full assembly production, and I think it's just a great example of Linamar's innovation, our responsiveness, and our flexibility. We were in part production on several orders for ventilator parts within two weeks of the first phone call. We were assembly-ready to build UV disinfection units for CleanSlate UV in just four weeks, and we were assembly-ready to build our ICU in a box integrated ventilator and life support systems for Thornhill Medical, comprised, by the way, of 1,700 different components, in only six weeks.
How did we manage to do that? Well, we were able to do it because we are a remarkably agile, flexible company, both in our management style, in our engineering and supply chain management capabilities, and in our actual equipment, which can be easily and rapidly retooled to new programs. We are technically incredibly deep. Our team is fantastic, and it's adaptable, and our lean manufacturing skills are transferable. Now, I'm blowing this horn a little bit because we're often questioned and challenged about how Linamar will handle a changing landscape of design and technology in the fields in which we focus. Linamar is an advanced manufacturing company through and through. We can design and manufacture products for all kinds of industries and do and will continue to do so long into the future, regardless of where technologies take us.
We see technology change as only one thing, opportunity, and we will, as we always have, chase those opportunities down and continue to prosper. We're at various stages of completion for these different products. For the component work for GM, ZOLL and O-Two, we are complete or nearly complete. For Thornhill, we've built about 100 units, and we will have the full order of around 1,000 units complete within a few months. There is some potential for additional volume on this product as well. Similarly, we've built around 100 units for the CleanSlate disinfection system, and we'll continue to ramp up on production there as we get into the fall. Okay. With that, let's jump into some of the specifics around the quarter, starting with sales, earnings, and content. Sales for the quarter were CAD 924 million, down 56% from last year.
The pandemic, of course, was the key driver of our results, having cost us an estimated CAD 1.13 billion in sales in the quarter and an estimated CAD 345 million in operating earnings for decremental margins of 31% at the OE level. Lower agricultural sales, as expected, put a bit of a drag on the quarter as well. All of that was mitigated by some fantastic cost-saving execution by our team. Launching business on the transportation side also helped, as to some extent did some government support programs around the world. If I strip out COVID-related sales, earnings, and any of the subsidy impact, we did actually see margin growth in both the transportation segment and overall, thanks to this great cost-saving work that was done as well as launches. Overall, EBITDA as well remained positive despite the pressures from the pandemic with double-digit margins.
In North America, content per vehicle for the quarter was CAD 192.74, up quite a bit over last year with customers we have a heavy weighting with also seeing the biggest market share gain. The story in Europe and Asia is the same, with content per vehicle growth for the quarter in both regions at CAD 86.53 and CAD 14.11 respectively. Production levels were down dramatically in each market, most significantly, of course, in North America and Europe, given the lag to China. China was still down but recovering from a tough Q1. Global content per vehicle was down a little, which isn't a surprise. We're most heavily weighted in our auto business in North America and Europe, which saw the biggest production decline, thus disproportionately impacting global content per vehicle.
Commercial and industrial sales were down 54% in the quarter due to lower Skyjack sales on global markets down nearly 50%, as well as lower MacDon sales on soft agricultural markets. The draper header market was down in double digits over last year in Canada, where MacDon has strong market share. These declines were partially offset by great market share growth for MacDon in Europe and CIS. In fact, MacDon sales in Europe in the first half of this year were up 86% over prior year levels despite the market being down. This has been a key strategy of MacDon since our acquisition, and it's great to see them delivering on it so strongly. Rapidly cutting back on CapEx was a key priority in the quarter, given the headwinds faced, of course, due to the pandemic.
As noted, CapEx is down more than 80% compared to last year at CAD 24 million. We intend to finish the year with CapEx down at least one-third from last year. As already mentioned, we saw another strong quarter of free cash flow despite weeks of no receivables following customer shutdown. We saw another CAD 170 million of cash generated. We paid down debt, and we kept our liquidity at CAD 1.1 billion. In fact, we have paid down nearly CAD 600 million of net debt from where we stood a year ago, despite the pressures of the pandemic. Leverage turned up somewhat to 1.8x EBITDA due to that soft EBITDA. Q2 will be the peak quarter for leverage, with the ratio improving already in Q3 under current forecasts. Free cash flow is something Linamar is quite good at managing.
We've seen strong free cash flow over the last five years and expect to see positive free cash flow this year as well. In addition, we are seeing strong levels of free cash flow yield. Our strong balance sheet and liquidity mean we have the ability to weather the financial impact of this situation over the next couple of quarters in a way that a lot of suppliers will not be able to. This means we will have the ability to take on takeover work or potentially acquisitions as they arise and drive even more market share growth to mitigate soft markets and accelerate future growth. Turning to market outlook. We are seeing markets down across the board this year, which shouldn't be a surprise.
Industry experts are predicting steeply declining light vehicle volumes globally this year to 12.6 million, 15.9 million, and 37.3 million vehicles in North America, Europe, and Asia, respectively. It's expected each market's going to see a strong double-digit recovery in 2021, as I'll show you in a minute. On highway, medium heavy truck volumes are predicted to be down significantly in all markets this year, with growth in most regions next year, except Asia. In the access market, the industry is predicting significant declines globally this year, but most notably in North America and Europe, where the market will drop as much as 50%, with the COVID-19 pandemic adding significant pressure to an already soft year in terms of demand. Next year should see some growth resume, although it is difficult to predict at this point in time.
In the agricultural market, the industry expectation is for decline in combined draper header markets in the double digits this year in North America, thanks mainly to a tough harvest last year, as well as tariffs and political backlash that is hurting North American farmers and dampening demand, particularly in soybean and canola, and particularly in Canada. The European and CIS markets are also expected to decline this year, although Australia may see some improvement and South America likely to stay fairly flat. The ag market seems to have not been adversely impacted by the current pandemic. Our market expectations are basically unchanged from our expectations going into the year. MacDon continues to build market share in its international markets, most notably in Europe, to partially offset global market declines, as I just mentioned.
Nevertheless, we will see sales down in double digits at MacDon this year, with growth resuming next year. As noted, almost all of these markets bounce back meaningfully in 2021 if you look pretty much across the board. On the auto side, you can see an increase in 2021 in every region globally after a very tough, obviously, 2020. Now, not surprisingly, 2020 is expected to be the trough for global production levels at nearly 70 million, 69.5 million. Q2 of this year will of course be the low point in production from a quarterly basis, with production expected to bounce back up over Q1 levels in Q3, although still shy of last year's Q3. Production recovery, of course, derives from consumer demand. You can see here-- I think we may be one slide ahead, if you could just go back a slide. One more. Yeah. Nope.
If we can go back to the consumer slide with the consumer-- Hmm, okay. Yep. Sorry. We seem to be off a little bit on our slides. I had a slide that showed consumer demand, and how that was reacting in China, in North America, and in Europe. I'll just talk through it a little bit. I apologize that it's not displaying on the screen at the moment. This is for our auto business. In China, the consumer retail demand was quite negative right out of the gate. China was quite sharp and deep, in terms of the reaction, but then quickly bounced back up well over last year in terms of vehicle demand and consumer demand, which for the last few months has actually been in the double digits. Europe's curve is deep but broad, with low levels of demand lingering for much longer.
We did just see July numbers out today, which is basically back up to 2019 levels. In the U.S., the curve is a lot shallower. It only went down half the level that we saw in Europe and in China. It is taking a little longer to come back up, it's broad like Europe, it didn't go down as deeply. Actually July was only down 12% to prior year. Not nearly as big a drop in North America, which is great to see. Not surprisingly, this is driving higher production levels at the moment in North America and also in China. Should bode well for European production when we get back from shutdown in a few weeks as well.
On this slide, you can see the changes to both Q2 and Q3 from what was predicted last quarter in terms of global light vehicle production. Q2 basically turned out exactly as predicted. Lighter production levels for Europe were offset by stronger-than-expected levels for Asia. Q3 is expected to be just marginally down from last quarter's estimates. Mainly dropping out at a little bit less production in Asia Pacific, offset by a little bit stronger production in North America. It's very consistent to what we're seeing in our customers' behavior at the moment as well. This slide illustrates where volumes are now predicted for both 2020 and 2021, both of which are again, basically very consistent with expectations last quarter. Tiny changes, as you can see.
I think it's really good to see that these predictions have leveled off and not continuing to degrade as frankly we've seen happen pretty consistently over the last couple of years. In terms of patterns of correction in North America, this correction fits a standard level of reduction that we've seen historically, which is great news. Although COVID-19 did accelerate this change painfully for us, it does mean we can now look forward to volumes starting to build again. Looking in more detail at the access market, you can see on the right-hand graph the sharp declines in both North America and the European market June year-to-date. That's the blue bars, is the actual year-to-date.
Predictions for 2020 full year as of Q2 are represented by the gray bar, which as you can see for both North America and Europe, are roughly 50% and a little bit changed from the orange bar, which was the prediction for 2020 in Q1. Asia has a more positive outlook, but is also a much smaller market and one that we're just getting established in. We're definitely more affected by the North American and European markets. On the positive side, equipment utilization levels were trending up in North America, certainly as we got into the summer. In fact, in June, utilization levels of equipment were at 93% of what they were in June 2019, although we have seen some softening in that regard in July. Here is a little more detail on the agricultural market.
You can see North American combine retail trending up in Q2 after a tough first quarter. Notably, most of that is driving out of the U.S. Canada is down 31% year-to-date and down 26% in Q2, where, as noted earlier, [the backline] has dominant market share. Turning to an update on growth and outlook. You will be pleased to know that we have had a solid quarter in new business wins despite not being able to physically visit our customers. I will highlight a couple of our more strategic wins in a moment. Electrified vehicles, I'd like to point out, continue to provide great opportunities for us. You can see a steady build in our global content per vehicle for both battery electric vehicles and hybrids as a result of recent wins.
The lines of internal combustion engine, battery electric vehicle, and hybrid global content per vehicle are converging, which of course, is the goal. Now, interestingly, our content per vehicle in electric vehicles is now predicted to surpass that of hybrid vehicles a few years out for the first time, with continued solid wins in that market seen in the last couple of quarters. Also importantly, our global content per vehicle for battery electric vehicles in only three years is actually equivalent to what our global content per vehicle for internal combustion engine vehicles is today, which is fantastic news. Our addressable market across a range of vehicle propulsion types continues to look excellent, with our total addressable market for us today with around CAD 80 billion growing to more than CAD 300 billion in the future, an increase of more than 3x .
We have recently updated this analysis to include additional content potential for battery electric vehicles, fuel cell electric vehicles, as well as hybrids. As you can see, the market potential for each is really starting to even up. This is largely driving from the higher potential content we now have in the battery electric, fuel cell electric, as well as hybrid vehicles, thanks to continued product development efforts such as the assembled battery tray we talked to you about last quarter as an example. In fact, our potential content for battery electric, hybrid electric, and fuel cell electric vehicles are now equivalent, in fact, a little higher than the content potential we have for internal combustion engine vehicles, which is great to see. Our launch book is solid and expected to peak at more than CAD 4.3 billion in sales, thanks to new wins this last quarter.
We saw a shift of CAD 100 million of programs that moved from launch to production last quarter. Launching programs continue to mitigate market declines despite some delays. As usual, we are summarizing all of these market expectations and changes on our outlook slide that's now being displayed. Obviously, uncertainties about the coming months are still making it difficult to be very specific about our expectations. We do expect to be profitable overall and in both segments, and 2021 should see strong growth on rallying markets and of course, solid expansion on the margin side. We expect to maintain leverage levels well under two for the year and improve significantly from that level in 2021, and we do expect to generate positive free cash flow in both years.
Looking specifically at Q3, the COVID-19 pandemic will certainly continue to impact our results, but we should see steady improvements. As noted, North America and Asia are nearly back to pre-global COVID-19 forecast levels, and the EU is improving. That said, the industrial segment has not yet shown signs of bouncing back and frankly is not normally better than Q2 and Q3 in any case. I will add, as the lawyers insist I do, that impacts from COVID-19 outbreaks are currently not fully understood or determinable in terms of their impact to all segments at this point, so of course, risks remain. That said, if current market conditions persist, Q3 should see a meaningful improvement back towards Q1 levels for both sales and earnings. I'm going to finish up highlighting a few of our more interesting wins this quarter, which were notable again, mainly for electrified vehicles.
First, we picked up a package of e-axle gearbox components for a battery electric vehicle in the quarter, representing a meaningful level of annual sales. This job is for a new entrant into the battery electric vehicle space. They're headquartered in the U.S. with a great and innovative vehicle design and concept. We are excited to, again, be expanding our portfolio of battery electric vehicle customers. Secondly, we were awarded a significant camshaft assembly job in the quarter. The design is very innovative and meant to drive much lower emissions in an internal combustion engine design. The job will launch from one of our Guelph facilities and is substantial in its revenue potential as well. Finally, a win for hybrid electric vehicles. This one is in China. It is for a balance shaft module, a key product for smaller-sized engines, which are often used in hybrid design.
The balance shaft module is key to reducing noise, vibration, and harshness in those smaller engines. An interesting growth product for us in hybrid vehicles. 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, over to you.
Thank you, Linda. Good afternoon, everyone. As Linda noted, Q2 was significantly impacted by COVID-19, as expected, given the shutdowns that occurred. Despite these impacts, it was a great quarter for cash generation, as we generated CAD 170.5 million in free cash flow, which brings the year-to-date total to CAD 317.6 million. Additionally, we were able to maintain our strong level of liquidity at CAD 1.1 billion, which is unchanged from December 2019 levels. For the quarter, sales were CAD 924 million, down CAD 1.2 billion from CAD 2.1 billion in Q2 2019. Earnings are normalized for FX losses related to the valuation of the balance sheet and any unusual items that occurred in the quarter. In Q2, earnings were normalized for the cost impact of prepaying the 2021 notes.
We made the decision to prepay the notes early, as at the time, there was a high level of uncertainty around OEMs restarting their operations and around their production ramp-up schedules. This caused significant uncertainty for Linamar's own recovery and restart plans. To mitigate any potential capital or liquidity risk, and given the 30-day notice period within the notes, we decided in May to prepay the notes early. The prepayment was funded with available cash, and as such, there will be a benefit over the next 15 months of removing the higher fixed interest rates on the notes in comparison to current market rates. As a result, we are expecting a payback of just over 15 months at today's current rates. The impact from prepaying the notes was CAD 0.11 per share on EPS.
Earnings were further normalized for FX losses related to the revaluation of the balance sheet, which impacted EPS by CAD 0.13 per share. Normalized operating losses for the quarter were CAD 19.4 million. This compares to earnings of CAD 225.3 million in Q2 2019, a decrease of CAD 244.7 million or 108.6%. Normalized net earnings decreased to CAD 180.3 million or 113.9% in the quarter to a loss of CAD 22 million. Fully diluted normalized EPS decreased by CAD 2.74 or 114.2% to a loss of CAD 0.34. Included in earnings for the quarter was a foreign exchange loss of CAD 11 million, which resulted from a CAD 5.9 million loss related to the revaluation of operating balances and a CAD 5.1 million loss due to the revaluation of financing balances. As I mentioned, the net FX loss impacted the quarter's EPS by CAD 0.13.
From a business segment perspective, the Q2 FX loss due to the revaluation of operating balances of CAD 5.9 million was a result of a CAD 12 million loss in Industrial and a CAD 6.1 million gain in Transportation. Further looking at the segments, Industrial sales decreased by 56.7% or CAD 339.9 million to CAD 259.2 million in Q2. The decrease for the quarter was due to the sales declines associated with the global COVID-19 pandemic and the expected agricultural sales declines due to the ongoing issues in these markets, as we have discussed over the last number of quarters. Normalized Industrial operating earnings for Q2 decreased CAD 71 million or 66% over last year to CAD 36.5 million. Primary drivers impacting Industrial were the lower volumes, as I just discussed. This was partially offset by various government support programs related to COVID-19.
Turning to transportation, sales decreased by CAD 822.6 million over Q2 last year to CAD 664 million. The sales decrease in the second quarter was driven by the impact of COVID-19 and the resulting customer shutdowns that occurred in the quarter. This was lessened by a favorable FX impact due to the changes in rates since last year. Q2 normalized earnings for transportation were lower by CAD 173.7 million, or 147.5% over last year. In the quarter, transportation earnings were impacted primarily by the COVID-19 shutdowns, which was partially offset by the targeted cost reductions achieved in the quarter, the various government support programs for COVID-19, and a favorable FX impact due to the changes in rates since last year.
Returning to the overall Linamar results, the company's gross margin was CAD 41 million, a decrease of CAD 293.4 million primarily due to the lower earnings from the reduced volumes in both segments due to the impact of COVID-19. The lower volumes in agriculture, which was mitigated by the targeted cost reductions achieved and the impact of various global government support programs. COGS amortization expense for the second quarter was CAD 109.4 million. COGS amortization as a percent of sales increased to 11.8%, primarily to the significant decline in sales related to COVID-19 in the quarter. Selling, general, and administration costs decreased in the quarter to CAD 60.4 million from CAD 111 million. The decrease is mainly due to targeted cost reductions to help offset the COVID-19 impact on our earnings and due to the impact of various government support programs.
Finance expenses increased CAD 4 million since last year due to the impact of prepaying the 2021 notes, which was mitigated by the impact of lower interest rates and lower debt levels. The consolidated effective interest rate for Q2 declined to 2% from 2.9% last year. The effective tax rate for the second quarter decreased to 21.2% compared to last year, which was mainly driven by the impact of a tax adjustment related to prior years that was recorded in the quarter. We are expecting the 2020 full year effective tax rate to be at the high end of our range of 23%-25%. Linamar's cash position was CAD 375.6 million on June 30th, a decrease of CAD 62 million compared to June 2019. Second quarter generated CAD 193.5 million in cash from operating activities, which is used mainly to fund CapEx and note repayments.
This also resulted in free cash flow generation of CAD 170.5 million in the quarter. Net debt to EBITDA increased slightly to 1.8x in the quarter as a result of the COVID-19 shutdowns, which was lessened by the strong cash generation in the quarter. Based on current estimates, we are expecting to remain well under two times by the end of the year. This is subject to change, as the impacts of COVID-19 is still very fluid and may not be currently fully understood. The amount of available credit on our credit facilities was CAD 754 million at the end of the quarter. Our available liquidity at the end of the Q2 was CAD 1.1 billion, and as a result, we currently believe we have sufficient liquidity to satisfy our financial obligations during 2020. To recap, sales and earnings for the quarter was a story of COVID-19.
With the dramatic impact the pandemic is having on Linamar, the critical story is one of cash and liquidity. Linamar had a remarkable cash generation quarter as we generated CAD 170.5 million in the quarter and CAD 317.6 million year-to-date in free cash flow, and maintaining strong liquidity at 2019 levels of CAD 1.1 billion. That concludes my commentary. I'd now like to open up for questions.
As a reminder, if you'd like to ask a question, please press star, then the number one on your telephone keypad. That is star one to ask an audio question. We will pause for just a moment to compile that Q&A roster. Your first question comes from Mark Neville with Scotiabank.
Good afternoon. Thanks for taking my questions. First, Linda, you made a comment, I think, during the outlook. I just want to clarify that Q3 would be back towards or trend towards Q1 levels for sales and profitability. I wasn't sure if that was consolidated or industrial.
No, I was talking about our overall Q3 results. If you look at the outlook slide that's being displayed right now, over on the side, you can see our outlook for Q3. We're talking a little bit about the industrial specifically. At the bottom, we're talking about the overall consolidated results that we feel will be bouncing back up in a meaningful way to get towards where we were in Q1.
Okay. I know you're not providing sort of an outlook or, this is good color, but I guess we can make our own assumptions around the transport. Around the Industrial, are you willing to sort of make a ballpark estimate of what you think sales may be down for the year? Like consolidated Industrial?
Well, no. As you know.
Sure
that specific ever, really, around what our forward-booking information is going to be. Certainly right now with so much uncertainty around what's happening, is certainly not the quarter to start giving you a number in terms of what's going to be happening with our industrial business.
Sure, understood. It is the quarter to ask. Thanks anyway. Dale, just a point of clarification for you. The government grants or subsidies in the quarter, I think it was CAD 52 million or CAD 53 million. Is that correct? Maybe how does that flow through the P&L? Does it hit in different segments? Does it run through the corporate line? Just trying to understand how it sort of helps each business segment in the quarter.
Yes. The CAD 52.8 million does flow through the statements in various locations because most of it is related to wages and benefits.
Okay.
It does hit cost of sales and SG&A. We haven't split out it by segment, though. Obviously, the majority of our employees are in the transportation segment, where we have the biggest impact.
Sure. Maybe just one last question, if I can. Just on the working cap, obviously, it was a great quarter. I assume some of that reverses in the second half as the business ramps. I'm just trying to get an idea sort of what the second half investment might look like, or if you'd still see some cash coming out of working cap.
Yeah. Certainly on the CapEx side, we're going to start to need to spend again. We ratcheted back quite significantly in the second quarter. We will start spending again, but still for the year should be down significantly from last year. In terms of non-cash, obviously, as we ramp up, there's a pull on non-cash working capital, but also an opportunity for managing the receivables, particularly on the auto side, through some programs we have in place. That sort of offsets that. We don't see a huge sucking sound on the non-cash side.
Okay.
Do actually expect to continue to generate free cash flow throughout the back half of the year. Dale, did you have anything else you wanted to add to that?
I thought that was an excellent answer.
All right. Thanks a lot. We'll get back to you. Good job managing through the quarter.
Thanks, Mark.
Your next question comes from Krista Friesen with CIBC.
Hi, good afternoon. Just a question on your free cash flow. It was quite good this quarter in spite of the pandemic. I was just wondering how you think about returning cash to shareholders as production improves, what sort of metrics you're looking at before becoming more active on your NCIB or returning your dividend to pre-pandemic levels?
Yeah. On the dividend side, the cut to half was always meant to be temporary, and we'd always envisioned it for a couple of quarters. If things go well, hopefully we'll be seeing that come back up quite soon. In terms of the NCIB, obviously we want to support our share price, but given continued uncertainties out there, I think it's definitely premature to do that. That said, if things continue to transpire as we currently expect, both the dividend and the buyback will be firmly back on the table and open for discussion because we're seeing some great levels of free cash flow and expect to have good free cash flow next year as well.
Perfect. Thanks. Just a question on your CPV. There was a pretty big spike this quarter, and I was wondering how sticky is that number as production increases?
I think that when there's volatility in production, the content per vehicle number tends to flop all over the place, right? I think that it's probably not that sticky, especially the North American number of 192. It was driven up because customers that we are more heavily weighted with were the ones that were driving the most of the production in the quarter. As other OEMs start to ramp back up to more meaningful levels of production, that's going to dilute back down again as well.
Perfect. Thanks. That's it for me.
Your next question comes from Peter Sklar with BMO Capital Markets.
My first question is the government support levels that you've benefited from, the CAD 53 million which is quite substantial. Was that the major reason why you revised your guidance for the second quarter, is that you started to be able to see the benefit coming and you were able to, I guess, calculate what the amount was?
No, not at all. That was one piece of the puzzle, right? I'd say hugely influential in comparing where we thought we'd be when we released first quarter results. As opposed to where things started to look like where they panned out, was first and foremost, much stronger North American production levels than we had been expecting. We weren't really sure what was going to happen in terms of the ramp-up. I don't think our customers really did either. What ended up happening was a much more rapid ramp-up in production than anybody had expected. That was a really big piece of the puzzle. Also very influential was the significant cost saving. More than CAD 30 million in the quarter. That's not an annualized figure, that's in the quarter cost savings that were realized that it was implemented a lot quicker than, frankly, we had expected.
Then, the government subsidy is a piece of it, but don't forget that that was designed to help employers bring employees back to work, right? That they could get paid at either 100% of their wage or at least 75% of their wage. Of course, we wanted to tap into the program for the benefit of those people who were laid off. Also, it enabled us to bring more people back to full-time work than we would have originally done. The cost of that, of course, was not netted off that CAD 50 million, because we did have additional costs for them as well. There were some costs there that are not netted off.
Maybe just to add to that, Peter. Back in the sort of early May timeframe, when we're working with our customers, they're weekly telling us, "Watch the EDIs, check the releases" and all those type of things. We never really anticipated them jumping back to three shifts or two shifts on some of these applications. That was really an important factor. Then also, as Linda said, the cost reduction, we created a team basically around the world, and things that people wouldn't think of, right? Like, stop doing subscriptions, stop doing uniform cleaning, stop picking up garbage. Things that you don't have the full workload going, just stop those things. We really focused in on that.
I think the bringing people back to work, if you look at what we did on ventilators and the CleanSlate UV on that UV disinfection system, also working with local communities on PPE, like distributing and making things to really support some of those things in the community to get people back to work. I thought that was really important as well at the time.
Okay, what's the timeline for these government subsidies to expire? I assume you're seeing them in Canada, U.S., I'm not too sure if you're seeing them in Mexico, I don't know where you're at in Europe. Also, on these cost savings, Jim, CAD 30 million in the quarter, they will creep back in, won't they? You can only defer them. At some point, you have to clean your uniforms and you need garbage pickup.
Certainly. Some of them are-
Yeah, I mean.
Yeah. Go ahead, Linda.
Sorry, Jim. Yeah, some of them are gonna come back. A lot of it, there was travel costs that were significantly cut and conferences, all these kind of things that people aren't going to. Those things are not gonna come back by any stretch. Putting something off that, Okay, we're just not gonna do that this year, there's a lot of cost savings that are sticky and are going to hang on, at least for another few quarters. With regards to the government subsidy itself, it depends on the country, obviously, what's happening and how long it's gonna last. Certainly, the Canadian program is changing dramatically over the next couple of months as well. Again, to encourage people to come back to work, and that's the whole point of it, right?
We had costs associated with bringing all those people back to work that is not considered when you look at that CAD 50 million. You do need to keep that in mind as well. I'm sorry, I interrupted you, Jim. You go ahead.
No, I think we're on the same page. It was the same sort of thing. Anything associated with production, Peter, certainly would come back. I was gonna say some of the things, the sustaining stuff about travel and things like that that people are just not doing, those are sort of longer term until that sort of gets back to a normal state of having a cure, a vaccine or something, right? I think that'll be sort of stay status quo.
Okay.
I would just lastly say as well that we're still remaining extremely cost-conscious and, as I mentioned in my formal comments, not becoming kind of complacent that, "Okay, we're coming out of it," because there's risk out there. We're keeping it pretty tight for a while.
Okay. Switching gears. As you point out, the outlook for the two industrial markets that you're involved in It's kind of cloudy to really put your finger on how those sectors are gonna perform for the rest of the year and into 2021. Can you comment, what are you seeing in your order book for Skyjack and for MacDon? Is the order book stable or is it building or is it declining? What are you seeing for yourselves?
For MacDon, as noted, we're expecting the market to be down, and it is down. It's not 50% down. It's not down at anything close to that. It's like 10% down. It's double digit, but it's pretty low double digits decline. We had a chart that I showed on that. I think year to date was 9% down. It'll be around that for the year. For ag, actually, the outlook is pretty good because although this year is pretty rough year, we are seeing great market share growth, like in Europe, for instance, which is really helping to offset that. We feel like things are not that bad on the ag side. On the access side, for sure, we're not seeing signs of the market bouncing back yet.
It's very reliant on construction levels and that's reliant on people being able to leave their houses and work. I thought it was quite positive that we were seeing the equipment utilization levels really ramping up. June being at 93% of where it was one year ago, that was great. With the sort of resurgence in the U.S. of the virus, we've seen things slow down in July. It's a little uncertain. When it's uncertain, rental houses aren't buying. We're not seeing the momentum there yet. We're seeing the agricultural business performing not too badly. Jim, can you give a little more color on that?
I was just going to maybe add on the ag side, we watched the dealer inventories, and they're at sort of the right levels that we've been thinking through. That's a pretty important thing that we're watching, Peter. Also, farmer confidence and stuff like that, and those seem in lines with what Linda said. On the access market, I would say in general, we're seeing sort of maybe some postponement of stuff. Just things like that where we're expecting order intake, it might be getting postponed or deferred a little bit, right? That's more what we're seeing there on sort of day to day feel and touch, right? That, as Linda was saying, is a little less clear on where that's going to go in the next couple quarters.
Right. Just remind me of the seasonality and the access in terms of the order patterns. Q3 is a weaker quarter than Q2 in terms of order development. Is that true?
Yes.
Sorry. Just bear with me. I just have one more question, which is, this ramp that we've had in the North American automotive industry, as you point out, where they're really ramping back quite quickly to try and resolve these depleted inventory levels. How has it gone in terms of the industry? Have parts suppliers been able to perform, so you're seeing limited interruption? Has there been kind of stops and starts as you've ramped up? Not saying that Linamar is an issue, other parts suppliers, Mexico and else been an issue and slow down?
Yeah. I think overall it's been reasonably smooth. Surprisingly so. Certainly there's been the odd issue here and there, and certainly things regionally like Mexico is having issues with some states are forcing shutdowns and less shifts. Jim, why don't you add some more color to that?
It's been really fluid. Yes, there has been some stops and starts and things like that with some suppliers struggling. Obviously there has been and there will be more COVID-19 cases that pop up in the OEM, in the supply base. I got to say overall, in general, I think the protocols at the automotive side and the supply base have been excellent and people are following those. I think there's a commitment on the OEM side to keep going, that they're not going to stop things again. I think we all know we've got to be doing both things, right? We've got to keep people safe, but we also got to keep livelihoods going. The demand's there, right? Which is really incredible to see as well. There's been a little bit of here and there, but nothing.
I thought we would see more of it, quite frankly. We've seen some pretty good action.
Okay. Those are my questions. Thank you.
Great. Thanks.
There are no further questions. I would like to turn it back over to Linda for any closing remarks.
Okay, great. Thanks very much. To conclude this evening, I'd like to, as always, leave you with three key messages. First, we have executed strongly on our cost reduction and cash generation action plans with excellent results this quarter, including more than CAD 30 million of realized cost savings and free cash flow of CAD 170 million. I just have to say it one more time. Second, our balance sheet is in strong shape with debt reduced further and liquidity held despite a very demanding quarter in terms of market pressures. Finally, we are very proud of our teams for their outstanding execution on launching complex ventilator and UV disinfection systems in record time, and at the same time, flawlessly ramping production back up globally with now more than 90% of our workforce back to work and working safely. Thanks everybody, and I hope you all keep well.
That does conclude today's call. You may now disconnect.