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Fiat Chrysler Automobiles N.V. (NYSE:FCAU)
Q3 2020 Earnings Call
Oct 28, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon or good morning, ladies and gentlemen, and welcome to today's Fiat Chrysler Automobiles Group results for third quarter 2020. For your information, today's conference is being recorded.

At this time, I would like to turn the call over to Joe Veltri, Head of FCA Global Investor Relations. Mr. Veltri, please go ahead, sir.

Joe Veltri -- Vice President

Thank you, Andre, and welcome to everyone joining us today for our review of FCA's 2020 third quarter results. The presentation material that we're going to use today was posted under our website earlier and you can find it, along with the related earnings press release, under the Investors section of our Group website. This call is going to be hosted by Mike Manley, our Group CEO; and Mr. Richard Palmer, who is our CFO. After Mike and Richard do a brief presentation, they will be available for question-and-answer from the analyst community.

Before we begin, I need to point out that any forward-looking statements that might be made during today's call are subject to the risks and uncertainties that are noted in the Safe Harbor statement, which is included on Page 2 of today's presentation, and of course, the call will be governed by that language.

Now, with that, I'm going to turn the call over to Mike.

Michael Manley -- Chief Executive Officer

Yeah. Thank you, Joe. Good afternoon, good morning to everybody, and welcome to the call and thank you for joining us today. As customary, I'm going to take you briefly through our operational highlights for the quarter and then Richard will walk you through the financials in more detail. And as Joe mentioned, we'll then end with our normal Q&A session.

So to begin with, obviously, I'm pleased with our results, as we delivered a record quarter for the Group, which I think was well above expectations. And I want to stress that these results were achieved while maintaining our first priority, which has been and will continue to be to ensure the safety and well-being of the FCA family and our communities.

As I mentioned before, all of our plants are now back up and running, and they all have a comprehensive multi-layered program of health and safety protocols. And nearly most of them now have turned to, what I would call, near pre-pandemic production levels. And on the back of an industrial machine which is now fully operational and thanks to our team's tremendous performance in North America, we achieved record Group adjusted EBIT of EUR2.3 billion, which was up 16% over last year, and a margin of 8.8%, which was up 160 basis points. And as I noted, North America continued to be a stand-out for the Group, delivering a record adjusted EBIT of EUR2.5 billion and a margin of 13.8%. These results were achieved despite having two plants down for planned retooling activities related to future product actions. And as you know, during the quarter, we had 14 weeks of downtime at our Warren Truck plant to retool for the upcoming launch of the all-new Grand Wagoneer in Q2 next year and a full month at our Toluca Plant, which was retooled for the refreshing of the Jeep Compass.

Now, in addition, operations in Latin America returned to profitability during the quarter despite significant challenges as the market continues to be hard hit by COVID-19 and the Brazilian reals continue to weaken. Now, as Richard guided during our last call, we had a strong rewind of working capital during the third quarter which, coupled with our robust operating performance, resulted in an all-time high industrial free cash flows of EUR6.7 billion. This strong cash flow was achieved while we continued to make substantial investments in our future products as capex spending for the quarter was EUR2.2 billion which, as you remember, is consistent with prior years.

And thanks to the decisive actions we took during the early stages of the pandemic to preserve cash, increase liquidity and strengthen our financial flexibility, our available liquidity was up nearly EUR10 billion from last quarter to just over EUR27 billion at the end of September. And this puts us in a strong position to address future challenges from COVID-19 and as we transition into Stellantis.

In addition to our strong operating results, we also performed very well from a commercial standpoint in our key markets. In Latin America, we maintained our market leadership in the region, gaining 430 basis points of market share year-over-year to a record 18%. We also maintained our leadership position in Brazil with our share increasing by 540 basis points to 23.8%. This remarkable performance was driven by the success of the all-new Fiat Strada pickup truck which became the overall best-selling vehicle in Brazil for September, as well as share growth from our Jeep products and our Fiat B segment hatchbacks. This has enabled our Betim plant to run at production levels even higher than before the pandemic.

In the US, our Q3 retail share was up 40 basis points year-over-year to 12.3%, which was primarily driven by stronger demand for Ram and Jeep vehicles. In fact, the Jeep Wrangler had its best ever sales month in September. In addition, this marks our second consecutive quarter of year-over-year retail share growth in the US. And in Europe, notwithstanding the general disruption in demand, we were able to deliver positive news during the quarter. Our strong sales performance resulted in our LCV market share increasing 130 basis points year-over-year, while our share in passenger car market increased by 30 basis points. And I do want to say that I was pleased to finally see progress on margin, sales channel and dealer retail that the team had been working so hard on, and I think that this bodes well for the four quarter.

Now, moving on to our future plans, based on the tremendous progress we've made at our new Mack plant in Detroit, the successful retooling at Warren Truck and the collective work done by our product development teams, we confirm that all three major Jeep launches for 2021 remain on track. And this includes the all-new Grand Wagoneer, the all-new three-row full-size SUV, as well as the next-generation Grand Cherokee with the full-size three-row SUV being the first to go into production in late Q1.

Now, as you know, in mid-September, we announced an amendment to the terms of our Combination Agreement with PSA, which I will cover in more detail later. So let me just say, this represents yet another sign of each company's commitment to finalizing the merger within our planned timeline.

So, now turning to the product side, we had an exciting quarter with a number of important introductions to the Group that are the result of all the extraordinary work our teams continue to carry out despite the new working protocols resulting from COVID-19. These new products showcase our brand diversity, as well as the reach of our portfolio and will continue the momentum of our electrification strategy. Now, not only are these products moving us into new segments, they will also make measurable contributions to our future profitability.

During an impressive event held in Modena, Italy on September 9, we unveiled the all-new Maserati MC20 Super Sports Car, which marked the beginning of a new era for the brand. And it also represented a tribute to the extraordinary spirit of Maserati and its new team. In early September, we also revealed the highly anticipated Grand Wagoneer concept, providing a truly contemporary expression of what is widely acknowledged as the original ultimate premium SUV. With Wagoneer and Grand Wagoneer arriving mid-next year, Jeep will make its long-awaited return to the premium SUV segment, a segment which it created almost 60 years ago. We also revealed the all-new Ram TRX, which began production earlier this month, equipped with a 702-horsepower supercharged Hellcat engine, the quickest, fastest and most powerful pickup truck in the world. And the groundswell of demand for the launch addition validated the end product as orders were 100% filled in only three hours.

And finally, last month, we revealed our fourth plug-in hybrid vehicle for the Jeep brand, the Wrangler 4xe, which joins the already available Grand Commander in China and Renegade and Compass being sold across Europe. The Wrangler plug-in hybrid remains true to the iconic Wrangler, while providing new levels of efficiency, environmental responsibility, performance and capability, both on and off road. And this was recently proven as the Wrangler 4xe successfully completed the legendary Rubicon trail with all events performed in pure electric mode. Therefore, with this launch, we've shown that electrification is a natural evolution for the Jeep brand in its nearly 80-year history.

So, we go on to the next page, and I'll turn to our commercial performance during the quarter. With the exception of Asia-Pacific, the industry in each region was down year-over-year due to the impact of COVID-19. And while our overall market share in North America was flat, we gained share in the critical US retail segment of the market as we prioritized production for dealer deliveries to fulfill the strong level of dealer orders. Also, our US dealer inventories remained low with dealer stock at the end of September just under 390,000 units, which was substantially flat from the end of June but down nearly 200,000 units from the end of December.

For APAC, while the overall industry showed a slight improvement over last year, our sales were down year-over-year, reflecting lower sales of both locally produced and imported Jeep vehicles. In EMEA, our performance outpaced the industry, which was down 5% year-over-year. And as I mentioned earlier, we were able to gain market share in Europe with our passenger cars and LCVs, thanks to higher sales for the Fiat and Fiat Professional brands. And finally, in Latin America, as noted, we remained the overall market leader in the region on the back of a significant share gain of over 400 basis points, while the industry was down 26%. And once again, we continued to have a higher share in important segments such as SUVs with the Jeep brand and pickup trucks with the Fiat brand.

Now, as I said, Richard will take you through the financials in detail. So I'll just give you a quick overview of our results, which, as I noted earlier, were exceptional and significantly better than expected, thanks to the solid performance by our teams. Despite our consolidated shipments being down 6%, we achieved record Group adjusted EBIT margin, thanks to prioritizing dealer deliveries with dealer stock levels actually ending the quarter in all regions versus the end of June down, while we also maintained disciplined pricing and continued focus on strict cost containment. And as I noted earlier, North America delivered a record adjusted EBIT and margin despite shipments being down 8%. And as anticipated, we experienced strong industrial free cash flows, which amounted to EUR6.7 billion for the quarter. This not only reflected the positive impacts from our strong profitability, but also a working capital rewind of EUR5.6 billion. And now, as you can imagine, I was pleased with this because it represented a very nice turnaround to the cash burn we've had in the first half of the year due to the pandemic.

And lastly, we significantly strengthened our available liquidity from the end of June to more than EUR27 billion at the end of September. And overall, our teams around the world, I think, did a phenomenal job of resuming full-scale industrial activities across all regions and all functions, and above all, creating an environment in which we can keep everyone safe.

So with that, Richard, I'm going to hand over to you. Thank you.

Richard Palmer -- Chief Financial Officer and Business Development

Thanks Mike, and good morning or good afternoon to everybody. I'll continue a second on Page 6. As mentioned by Mike, our consolidated shipments were down 6% year-over-year but increased nearly 2.5 fold compared to the prior quarter to 967,000 units. Group revenues reached EUR25.8 billion, also down 6% year-over-year with positive mix and price, mainly in North America, offsetting negative FX translation. Adjusted EBIT was EUR2.3 billion with a record margin for the Group of 8.8% and drove adjusted net profit to EUR1.5 billion, up 21% year-over-year.

Finance charges were up EUR15 million year-over-year, due principally to actions to bolster liquidity, offset by lower interest charges on pension and OPEB. The adjusted tax expense was EUR450 million with a 23% effective tax rate compared to EUR417 million and 25% in Q3 last year, and in line with our expected effective tax rate of around 26%. Net profit included EUR325 million of unusual charges, related mainly to a EUR220 million estimate for settlement of US investigations on diesel emissions and EUR90 million of impairment charges.

Industrial free cash flows are very strong as mentioned, with working capital rewinding as volumes recovered, and included EUR2.2 billion of capex investments. As a result and also due to a further EUR3.5 billion of drawdown of the Intesa Sanpaolo facility, the available liquidity end-September was EUR27.1 billion, increased by EUR9.66 [Phonetic] billion from end-June.

Moving to Page 7, we review the adjusted EBIT by driver. Consolidated shipments, being down 6%, equated to 64,000 lower shipments and then approximately EUR300 million negative impact to adjusted EBIT. That was, however, offset by positive mix, mainly in North America. North America volumes were down in large part due to the Warren Truck plant being down for the whole of Q3. Net price was positive due to North America and EMEA performance. Negative industrial costs were driven mainly by increased cost of product in EMEA due to launches of electrified powertrains and cost inflation in Latin America. SG&A cost reduction continued across all regions, although spending was up compared to Q2 levels as marketing spending was increased to more normal levels as markets recovered.

Next, on Page 8, we show the industrial free cash flow for the quarter which, as commented previously, represented a very strong performance as the operations returned to more normal levels compared to the first half. Adjusted EBITDA was EUR3.4 billion at a 13.6% margin, up 1.5% from prior year. We continued to invest in key products and technologies and spent EUR2.2 billion of capex in the quarter, in line with prior year and focused on some of the products Mike mentioned earlier. On our Q2 call, we had indicated that we expected a substantial part of the first half negative working capital to reverse in H2. And in fact, substantially, all of that happened in Q3 as production levels were restored, generating EUR5.6 billion of cash flow in a quarter which is typically seasonally negative due to summer shutdowns and model year changeovers. Almost all of the decrease in working capital was due to a restoration of accounts payable balances. Our shipment levels for the two months of August and September were around 700,000 units, 50,000 below the same period of last year. We finished the quarter back in a net industrial cash position of EUR1.3 billion from the net industrial debt of EUR5.1 billion at the end of June.

On Page 9, we show the adjusted EBIT by segment, all segments showing improvements from Q2 levels with North America at a record 13.8% margin and LATAM back in profit, as well as EMEA showing a significant quarter-over-quarter improvement.

On Page 10, we review North America performance in what was a very strong quarter. As Mike mentioned, our US retail share increased and our overall North America market share was flat in an industry that was down 10%. Our US retail sales were down 2% with industry down 5%, while our fleet sales were down 40% compared to industry down 35%, mainly due to us favoring our retail channel to fulfill dealer demand. Our shipments were 554,000 units, down 8% due to the Warren Truck downtime and the discontinuation of the Grand Caravan product. Our US dealer inventories were basically flat compared to June 2020 at 387,000 units as mentioned. Revenues were down 3% with positive mix and price offsetting some of the 8% shipment reduction and negative FX translation due to a weaker dollar. Adjusted EBIT increased to EUR2.5 billion, up 26% versus a strong Q3 in 2019. The lower shipment volume was more than offset by positive mix from more US retail and less US fleet and better car line mix due to fewer light-duty Classics and Grand Caravans. Net price was positive, driven mainly by Jeep and Ram brands. And SG&A benefited from reduced advertising spend and reduced G&A costs for the remainder of the quarter. All of that was due to FX translation, as mentioned, due to the weaker US dollar.

Next, on Page 11, we have Asia Pacific's results. Consolidated shipments were down 12% due to lower Japan and China volumes. The China JV shipments were down 44% to 10,000 units from 18,000 units last year. As a result, combined shipments were down 29%. Revenues were down 17% due to shipment volumes down 12% as well as negative FX. Despite some improvement from the Q2 loss of EUR59 million, the adjusted EBIT was still a loss of EUR32 million, down EUR22 million versus last year, due both to reduced volumes on consolidated business, partly offset by cost actions, and a EUR10 million deterioration in the FCA's share of the GAC JV result.

Turning to Page 12, we can review EMEA's numbers. Combined shipments were up 10%, primarily due to a strong performance of the joint venture in Turkey. Consolidated shipments were down 5%, consistent with the EU 27 plus EFTA industry sales for Q3, and at 240,000 units were below consolidated sales at 261,000 units. Therefore, dealer inventory was further reduced compared to end-Q2 to 159,000 units and is down from 250,000 units a year ago. Net revenues were flat at EUR4.6 billion with lower volumes offset by positive channel mix and net pricing, partly related to shipments of newly launched Jeeps, Jeep PHEVs and BSG units. Industrial costs were negative due to product cost increases for technology for emissions compliance and emissions credits costs, partly offset by reduced SG&A spending.

On Page 13, we look at Latin America. As Mike mentioned earlier, our team in Latin America had a very strong commercial performance with improved share allowing sales to be down just 2% to 147,000 units despite the industry being down 26% due to a strong performance from the new Fiat Strada pickup in particular. As a result, shipments were down just 3%. Revenues were down 30% due to FX translation as the Brazilian real weakened significantly year-over-year. Adjusted EBIT was EUR46 million with 3% margins. Negative industrial costs, driven by FX and inflation, were set off by aggressive price recovery actions in the quarter. However, the adjusted EBIT was negatively impacted by the non-repeat of a 2019 indirect tax credit of EUR60 million.

On Page 14, we turn to Maserati. Sales were down 17% with China down 13% and North America down 20% for total sales of 5,000 units. Shipments were at the same level and up 7% versus last year. Revenues were flat year-over-year. Adjusted EBIT was a loss of EUR70 million, down EUR19 million from last year due to increased incentive spent to complete model year '20 sell-out prior to the MTA launches in Q4 with model year '21. Global Network stock was 5,500 units compared to 5,700 units at the end of June and 9,500 a year ago.

On Page 15, we review our outlook for the rest of the year. It is important to note that in these uncertain times, our outlook assumes no further significant disruptions from COVID-19. That caveat aside, following the strong Q3 performance and with two months of the year to go, we feel the business is performing well and we expect a strong Q4.

In terms of the group's main markets, we expect North America and the EU 27 plus UK, plus EFTA to be down around 5%, with Brazil down 10% in Q4. Based on these forecasts, we see our full year adjusted EBIT to reach EUR3 billion to EUR3.5 billion, implying a Q4 of EUR1.6 billion to EUR2.1 billion with the top end of the range in line with a strong Q4 of last year.

In terms of industrial free cash flow, we forecast the full year to be between minus EUR1 billion and zero with substantially all the negative EUR10 billion in the half of H1 recovered in H2. That means the Q4 Industrial free cash flow of between EUR2.2 billion and EUR3.2 billion compared to EUR1.5 billion last year.

And with that, I will hand the call back to Mike.

Michael Manley -- Chief Executive Officer

Yeah. Thank you, Richard. So I'd just like to talk a little bit about Maserati. As I mentioned earlier, after we initially delayed it because of the coronavirus outbreak, we hosted the much-anticipated Maserati brand event in the beginning of September in Modena. And I talked openly in the past on the calls about the challenges Maserati's faced and the things we needed to fix. So in addition to our plans to expand Maserati's portfolio with the reveal of all new MC20 super sports car, and of course, the teaser that we showed the all new Grecale SUV, we laid out our plans to bring Maserati into its new era and provided ambitious, yet I think achievable targets for the brand.

The key elements and expectations for our plans in Maserati include targeting at least one major launch per year, starting next year, electrifying over half of the brand's portfolio within the next 18 months and equipping all Maserati nameplates with a better offering by 2024 when we expected completed the renewal of the entire line-up. And from a financial perspective, targeting Maserati's return to profitability next year and achieve an adjusted EBIT margin of approximately 15% by 2023.

And I'm more than confident than ever that Maserati's new course with a regular cadence and new product launches, cutting-edge technology, genuine innovation and a new strategy for electrification will restore the brand to its rightful position in the global luxury segment. And I believe that these elements coupled with Maserati's new management team will successfully execute this plan, and just as important, we will have laid the foundation to ensure the continued success of this iconic luxury brand.

And lastly, before we move on to Q&A, I'd just like to provide you an update on the status of the Stellantis merger, including some comments on the important agreement we announced in mid-September with PSA, which amended certain terms of our combination agreement, as well as our announcement made earlier today regarding changes in the distribution of PSA's stake in Faurecia.

Now I believe these changes which were approved by the boards of both companies and with the support of their reference shareholders are a smart and responsible solution to address the liquidity impact of COVID-19 that both companies have experienced and to ensure that Stellantis does not acquire control of free share consistent with the terms of the original combination agreement. The changes were specifically designed to ensure that Stellantis has a strong balance sheet while preserving the original balance value equation governance set out in the original agreement.

Now, as you know, one of the key provisions of the amendment relates to a change in the special dividend to be distributed to FCA shareholders. The special dividend will now be EUR2.9 billion versus a previously announced EUR5.5 billion. And as a result, Stellantis will have EUR2.6 billion more cash on its balance sheet at inception to create additional value for all stakeholders. However, the balancing provision to the special dividend reduction is that PSA will now distribute its current 46% stake in Faurecia to all Stellantis shareholders after closing. And that distribution will be in two forms, the first will be the proceeds from PSA selling the equivalent of up to 7% of Faurecia's total shares outstanding prior to the merger closing. And the second will be the distribution of the unsold portion of PSA's current 46% stake in Faurecia.

In addition, the revised annual run rate synergies are now estimated to be over EUR5 billion, up significantly from the EUR3.7 billion originally estimated, which is a clear indication of the excellent progress already made by the various merger work streams over the past several months. There's also a potential additional shareholder upside if the boards of both companies agree that the conditions permit for the distribution of a EUR500 million dividends to each company's respective shareholders prior to the closing or a distribution of EUR1 billion dividend to all Stellantis shareholders after closing.

Now that we're at the threshold of finalizing this merger, I believe this solution provides additional important clarity and momentum and is a strong indicator of the focus both companies have on moving forward and completing this deal in spite of everything that's happened in the wider world since our original announcement.

Now there's been a lot written regarding the antitrust review currently under way in Europe. And as you know, the Phase 2 competition review by the European Commission is ongoing. And I'm pleased to say that the exchange has so far have been very constructive. As previously announced, FCA and PSA have offered commitments to address questions raised by the commission. These commitments are currently being evaluated by the commission and we expect to reach a satisfactory outcome with the commission well within our merger closing timetable.

So let me end by reaffirming that preparations for the merger with PSA is advancing well and our shared objective to close the transaction by the end of the first quarter of 2021 remains intact. And most importantly, we're committed to put Stellantis in the best possible position to create long-term value for all of its stakeholders.

And Joe, I think with that, we can move on to Q&A.

Joe Veltri -- Vice President

Thank you, Mike. Andre, I think if you can now proceed to the queue and we'll start the Q&A session.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We are now taking our first question from the line of Horst Schneider from Bank of America. Please go ahead.

Horst Schneider -- Bank of America Merrill Lynch -- Analyst

Yes, good morning. Good afternoon, everybody, and thanks for taking my questions. Yeah, impressive results, I've got to say. And of course, I'm looking at the new guidance that you provided for the full year. I don't want to be greedy, but of course, it implies that Q4 could be a little bit weaker than Q3. So could you maybe explain what could be the driving factors then in the fourth quarter? Why the results could be weaker?

I know you're off at the range, so maybe Q4 won't be that different. But I just want to understand what will be the drivers in Q4? And to what extent was Q3 then really exceptional? And to which extent the business normalize? And in that context as well, maybe you can update us on the cost savings. I think you targeted for the full year something like EUR2 billion. And yeah, to which extent that has been achieved now? What will be the reversal in Q4? And you stick to the assumptions that you made in Q2 regarding cost reversals in 2021. Thank you.

Michael Manley -- Chief Executive Officer

Hi Horst, this is Mike. Richard will -- I'll speak a little bit and then Richard will obviously correct everything that I say. Firstly, Q4 last year was a strong quarter for us. So when you look at the end of the year and the guidance that's been given, I think the range suggests that, and Richard confirmed this in his commentary, that if conditions remain as they are today, and I think that's obviously the thing that we're watching on a day-by-day basis, and Q4 we're expecting to be strong this year as well.

Obviously, even though there's only two months really left to the year, obviously, the conditions make people I think, understandably cautious in terms of any guidance that they're giving, which is why it's always coveted in the way that is coveted. But it is true to say that the momentum that we had in Q3 continues, at least through the opening part of Q4. So I'm expecting the quarter to be a good one as well.

With regard to the cost actions, we are on track with the numbers that we've talked about before, very close to EUR2 billion with somewhere between EUR600 million to EUR800 million at this current moment flowing through into 2021. What is true though is that the cadence of those cost savings is very different between the quarters because as we see much more commercial activity in Q4, some of the savings that we were able to deliver in Q2 and Q3 will be released back into the market to make sure that we remain competitive, particularly with regard to the promotion of our brands and the maintenance of our retail position, which we feel has been one of the strong parts of our performance across the regions, in particular, North America, LATAM and as you saw what I thought was really good progress in EMEA. Hopefully that's kind of my commentary.

Richard, do you want to add anything with regard to guidance and moderate anything that I said?

Richard Palmer -- Chief Financial Officer and Business Development

No, Mike, I think he hit the high points. We clearly need to try and maintain the cost benefits as much as possible going into Q4 and then into '21. And that's clearly a factor in Q4 potentially being a little bit weaker than Q3. And when you look at North America's margin at 13.8 and the CFO of this company for the last X years, you're a little bit prudent about just projecting 13.8 forward, Horst.

So I think 13.8 number obviously benefits from a number of actions on costs, some of which will not be long-term, mainly due to sales and marketing spend coming back up in Q4 and also some fixed costs as plants continue to increase their output. It's also true that we have more Warren track back up in Q4, which will help us going around that, so we won't get a full quarter of volume.

And then obviously the 13.8 is also benefiting from a very strong mix, as I mentioned, which is very much bias toward U.S. retail and fleet is down from sort of 23%, 24% of volume in the U.S. to 14%. So that was only the last, it will obviously help our margins, but will start to normalize I seem as the COVID situation improves, we will hope.

And then our pricing has been very strong as well. And we need to obviously maintain the strong pricing and trying to tell how much of that is because of the market conditions and how much is also because we have reduced our dealer stock significantly. And so there's a much more efficient distribution process, I think we'll see as we go forward. So I think the guidance on the adjusted EBIT is a little bit prudent, maybe if we can do a good job in Q4 and conditions allow us to. But I still think we're pointing toward on the high end, a very strong quarter at EUR2.1 billion.

On the cost side, we're trying to get to basically zero the cash burn we had in the first half. And that would mean that in Q4 we have to have a pretty strong cash flow generation. So I wouldn't underestimate EUR2.2 billion to EUR3.2 billion of cash flow with our working capital position, pretty much already reversed in Q3 is basically something that we're pushing very hard for, but it's not a walk in the park.

Horst Schneider -- Bank of America Merrill Lynch -- Analyst

That's great and very helpful. Just quick follow-up on this working capital. Since the reversal is not done, we should not expect another positive effect in the fourth quarter, right?

Richard Palmer -- Chief Financial Officer and Business Development

I think we will get a bit because there's a seasonality in Europe, which is normal seasonality. So in August, our production was very low compared to what it will be like in November. So we will get positive working capital from EMEA. We'll also get some positive working capital from North America with Warren truck back and Toluca back. So we expect positive working capital.

Also, we're still pushing very hard on continuing to reduce our own balance sheet inventory. And also the seasonality of shutdowns in the end of the year normally give us some positive working capital on work in progress, etc. So we still expect a strong contribution from working capital, but not as obviously anything like the size we saw in Q3.

Horst Schneider -- Bank of America Merrill Lynch -- Analyst

It's very helpful. Amazing. Thank you.

Operator

We're now taking our next question from the line of Charles Coldicott from Redburn. Please go ahead.

Charles Coldicott -- Redburn -- Analyst

Yeah. Good afternoon, guys, and congratulations on a great result. I had just a couple of questions on EVs and CO2 actually. So on electric vehicles, you've only sold a small amount of Fiat 500 electrics and plug-in hybrid jeeps so far. So I'm just wondering if you could give us some sort of expectations on the volume for those models once production is fully ramped up, particularly in Europe I guess?

And then on the CO2 side. So for 2021, can you just clarify, are you locked into paying Tesla for the benefit of the European CO2 pool, which I think you previously said would be a sort of EUR400 million to EUR500 million cash payment next year or is it conceptually possible that you could pool with [Indecipherable] and therefore comply with the regulations as just Stellantis and therefore not require the Tesla pool? Thank you.

Michael Manley -- Chief Executive Officer

Sorry, Charles. It's Mike. Obviously, so close to the launches, you're right in terms of the actual sales of other plug-in hybrids. But what I would tell you is that if we look at all of our electrified vehicles, including mild electrification, obviously, our shares, you've seen across Europe, has increased fairly significantly, and electrified vehicles in the quarter something like 12%, 13% of our total sales that focused being on the very mild hybrid.

Dealer orders, however, and advanced orders for Fiat 500 are well in line with our expectations and what we were hoping for, particularly with the 500 bet. And as you know, it's really just making its commercial, its market debut with progressive launches across Europe. So I have to say that I'm pleased with the volumes. They are in some instances ahead of where we thought they would be, which is why we think that the combined strategy we put in place will be successful for this year.

In terms of volumes for next year, I don't want to forecast those at this moment in time. But it does lead into your second question, which is, are we locked with Tesla? Yes, we are. We put in a multi-year strategy, which enabled us to, as I've spoken to in the past, transition to fully compliant with regard to our product plan because we've worked very hard to address our European product plan in particular because of the investments that were originally directed toward North America. And to some extent, Latin America left EMEA behind. They're rapidly catching up now with the launches that you've seen and upcoming launches that will happen over the next 12 months. But we are effectively locked with Tesla. And we look to continue the growth in our electrified vehicles to make sure that we're complying '21 as well.

Charles Coldicott -- Redburn -- Analyst

Great, thanks.

Operator

We're taking our next question from the line of Martino De Ambroggi from Equita. Please go ahead.

Martino De Ambroggi -- Equita -- Analyst

Thank you. Good morning. Good afternoon, everybody. The first question is a follow-up on the North American return on sales. I understand it is difficult to have a precise indication of all the sectional variables in Q3, but let's say in normal market environment, you could have been able to achieve a double-digit return on sales in Q3. And in your guidance, you did estimate double-digit Q4.

Richard Palmer -- Chief Financial Officer and Business Development

Mike, do you want me to go?

Michael Manley -- Chief Executive Officer

Yeah. I just don't know if the question was related to me Richard because I couldn't clearly hear it. I think the question was in a normal environment can we continue to achieve double-digit margins in North America. And the answer to that one is, yes.

Martino De Ambroggi -- Equita -- Analyst

Yes, that's correct.

Michael Manley -- Chief Executive Officer

For sure we can in my opinion, and I think we got the product portfolio and the momentum to prove that. And when I think about our performance in Q3, which has always been one of the stronger months, obviously with multi-year changeovers, I think that the question about guidance on how Q4 looks. I think, as we said, we've come into Q4 with some good momentum. So we'll see how we end up.

You can handle the second part of the question, Richard.

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. I mean, we're expecting double-digit margins, Martino, in Q4. And I think the other thing that's exciting is the fact that the products Mile talked about at the beginning of the presentation in North America next year, should allow us to continue to operate with strong double-digit margins for 2021. So the margin story has been very positive over the last couple of years with North America and it should continue.

Martino De Ambroggi -- Equita -- Analyst

Okay. Thank you. The second question is on the net working capital. You mentioned Q4 should be once again positive. I remember in the previous call you mentioned EUR5 billion in the second half. So if I ask you what could be the -- or what is the underlying assumption in your guidance in terms of working capital in Q4? And if you confirm capex? Maybe they are confirmed in the presentation, I missed it probably at EUR8 million, EUR8.5 million?

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. Capex is confirmed at EUR8.5 million and working capital plus provisions should be around EUR2 billion positive.

Martino De Ambroggi -- Equita -- Analyst

Okay. And very last on the financial structure indirectly because you are guiding for zero minus EUR1 billion free cash flow. I guess, it was guiding for positive free cash flow. Is it an asset to think about the second portion of the extraordinary dividend or is there any other condition to be achieved, I suppose the visibility on the market and so on?

Richard Palmer -- Chief Financial Officer and Business Development

Well, Mike?

Michael Manley -- Chief Executive Officer

I'll take this one, Richard.

Richard Palmer -- Chief Financial Officer and Business Development

Go ahead.

Michael Manley -- Chief Executive Officer

Obviously, we're in a much better position with regard to the potential for the boards to pay the additional dividend than we were a quarter ago. We said in the second quarter that we expected a positive rebound in terms of cash, and we've seen that. What we -- well obviously, it's going to be a long two months to close out the year, but I think it gives the board more options than they had before. They'll make the decision with the same prudence that they've made decisions in the past and that's to make sure that Stellantis has all the resources that it needs to get off to a good start and be successful. So I want to pre-empt what the boards do. We're just giving them more optionality. And if we're able to maintain our performance, which I expect us to, we'll continue to build on the position that we're in today.

Martino De Ambroggi -- Equita -- Analyst

Okay. Thank you.

Operator

We're now taking our next question from the line of Stephen Reitman from Societe Generale. Please go ahead.

Stephen Reitman -- Societe Generale -- Analyst

Yes. Good afternoon. Question about North America again and industrial costs. So obviously very strong performance despite downtime at Warren and Toluca. What is the impact of those downtimes roughly, if you could quantify the cost? And also, could you just repeat again the net financial position at the end of September, it went very quickly?

Michael Manley -- Chief Executive Officer

You can do this one, Richard.

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. So the net financial position end of September was EUR1.3 billion, I believe. And the impact of -- obviously, we lost volume, Stephen. But aside from the impact of volumes, I think the actual impact of costs as we work on both plants was about EUR50 million.

Stephen Reitman -- Societe Generale -- Analyst

All right. And can you give some idea as well, next year about the ramp up cadence on Grand Wagoneer and on the reworked Cherokee as well, Grand Cherokee?

Michael Manley -- Chief Executive Officer

Yeah, sorry. This is Mike. Some issues with my microphone. As I mentioned before, we will launch the three row full-size SUV first, which will happen into Q1, into Q2, and Grand Wagoneer will effectively come on stream in the first half and ramp through the various models through the back half of next year. Obviously, I don't want to give you indications or expectation for volume, but both of those products are white space for us. So we're pretty excited about that. And then as we get toward the end of the year, Grand Cherokee will be -- the new Grand Cherokee will be added to our fleet.

Stephen Reitman -- Societe Generale -- Analyst

Thank you.

Operator

We're now taking our next question from the line of Jose Asumendi from J.P. Morgan. Please go ahead.

Jose M. Asumendi -- J.P. Morgan -- Analyst

Thanks very much. Jose, J.P. Morgan. Just a few items please. Can you speak a bit about where you see -- where was production in Q3 across Europe and North America and where do you see it in Q4 in terms of output? Second, can you speak a bit about the industrial costs in Europe, Richard, please? And maybe just give us some color as to what happened during Q3 and how do you see those industrial costs evolving in the fourth quarter?

And then Mike, on strategy, can you speak about -- a little bit about FCA Waymo? Where do you stand on the collaboration? What have you achieved, let's say, in the last 12 months? And as we think also about hydrogen applications either on the passenger car or light commercial vehicles, can you speak about a little bit how do you see this segment? And do you think you have the right tool kits to also to approach this segment going forward? Thank you.

Michael Manley -- Chief Executive Officer

I'll talk about production, and Richard, you can take the second one, and then I'll come back and pick up the third one. As we've talked about, our plants really are, if not, are approaching pre-COVID production levels, particularly with regard to shift patterns all the way across the world. So our expectation, if conditions remain as they are and as we have to caveat every forward-looking statement, particularly with regard to the plants with a way that we will reach pre-COVID production levels and efficiency levels that are very, very similar to pre-COVID as well because we have constantly continued to refine the things that we are doing in our plants to ensure safety of our people, but also, like the working conditions as efficient as possible for everybody.

So the actual annual impact in terms of our production really is related to that end of the first quarter through the second quarter, which will be about a 25% impact, for example, for the full year in our North American plants and a similar number I think for our EMEA plants. But we're expecting, as I say, if current conditions continue to reach production levels that we've seen before.

Over to you Richard.

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. Thanks, Mike. Yeah. So regarding our industrial costs in EMEA in Q3, as I mentioned, the main drivers of the costs were compliance costs. About half of them related to shipments of vehicles, between mild hybrids and PHEVs in the quarter with the delta cost. And then you can see also in the walk some of the price recovery we're getting on those technologies in the marketplace. And then on -- and the rest of it is basically credit purchases under the pooling agreement with Tesla. Going into Q4, we expect the industrial costs to be actually more negative because we're going to have more shipments of PHEVs, and that's in Q4.

Jose M. Asumendi -- J.P. Morgan -- Analyst

Got it. Mike, can you come back please to the Waymo collaboration please on hydrogen. Strategically, how you see these two elements?

Michael Manley -- Chief Executive Officer

Sure, absolutely. I'm also going to comment on some of the industrial costs because they've come up on a couple of occasions, probably likely for next year because of our levels of electrified vehicles continue to grow, and we launch more electrified vehicles. Our view in terms of the use of credits dropped year-over-year sequentially. And I've talked about this before that, obviously this year, peaking next year dropping as we increase and ramp up our level of electrified vehicles that are sold.

So on Waymo, I've got to say that since our announcement in terms of the expanded partnership, we've continued to work very well with them. They remain and if you like our level four plus solution going forward and the work has started. It will be at very early stages with regard to the commercial vehicle project that we announced in terms of testing level four autonomous technology for deliveries, particularly utilizing our ProMaster fleet.

So the relationship that we've had over a long period of time, I think just continues to get deeper. And as you saw, Waymo also expanded their autonomous operations, which I think really clearly indicates that they not only maintain their leadership in this area, but are also accelerating their deployment as well. So I was very pleased when we were able to expand the partnership, and I'm pleased with the early development that we've had. And frankly, I continue to put a lot of pressure on the teams because I think even though it is not clear when this will be deployed on mass, I think, increasingly, with the use of Geofencing, particularly around commercial vehicles, there's an opportunity that will come maybe sooner than people expect.

In terms of our tool kit for the future, people have often looked at our strategy and compared and contrasted it with a number of other OEMs' strategies and their plans. What I've tried to communicate is that the end we all have in mind is very, very similar in terms of electrification, the technology that you're going to need for that era. The only difference really has been a difference of opinion in terms of how fast we can get there. So, notwithstanding the fact that we are now in the process of ramping up and launching our electrified vehicles, given the range of vehicles that we successfully build and sell today includes very heavy duty pickup trucks, for example, our toolbox has to envisage different technologies that will also continue to meet the consumer demand in those segments, while provide either significant or complete reduction in CO2. And ultimately, that brings you on to hydrogen. Again, we could spend much time debating about when that will be, but we obviously have technical skills in FCA as we sit today and partnerships as well. So I'm comfortable that we have all of the tools. I am hopeful that we have forecasted and predicted the transition in the right way. And I'm pleased with the work that happened and the ramp-up that we're now seeing with regard to electrified vehicles.

Jose M. Asumendi -- J.P. Morgan -- Analyst

Thanks Mike. Thank you.

Operator

We're now taking our next question from the line of George Galliers from Goldman Sachs. Please go ahead.

George Galliers -- Goldman Sachs -- Analyst

Thank you, and thank you for taking my call. If I may, I really want to revisit North America and focus on this mix effect. So, Q3 was obviously a record result and record margin. But even backing out the SG&A gain and the positive pricing, you would have been at an 11% plus margin, and very close to 4Q '19's record EBIT, despite the negative FX translation effects. So, mix must have played a huge role here. And historically, you've talked about the opportunity to increase fleet share. However, has 3Q and the strong mix effect made you rethink the strategy and whether you might actually want to pull back on fleet going forward? And if we look over the last decade, a change in strategy led to an adjustment to mix, which played a big part in FCA's North America margins growing from 4% to 6%, to a kind of 8% to 10% range. Based on what we learn today, could a shift in strategy not see your North American margins grow from 8% to 10%, to 10% to 12% and maybe even mid-single, teen in the future?

Michael Manley -- Chief Executive Officer

So, George, this is Mike. I'll pick up the second half of the question, and Rich, you can pick up the first half of the question. I think we have all learned a huge amount during this year and been forced into doing things in a different way. And I think that your observation is a very interesting one. We've always tried to change our mix of our fleet being less reliant on the retail side -- the rental side of the business and performing better in commercial and government, and that will not change. I think some of our product changes, for example, the loss of the Dodge minivan, which was very heavily in rental, forced a mix change on us in terms of not just our fleet business, but also our ability to fulfill that business. I think what we have learned is that if we balance dealer inventory well and the market remains reasonably buoyant, then it is clear, our best channel is through the dealers. And that has led us to be able to, as you've mentioned, improve not just on transaction price, but it has also helped us get a lot more stability in terms of our supply chain, which obviously helps us with our cost base as well. So, I think continued focus on the right fleet business will be part of our strategy going forward. But we're going to obviously try and maintain the discipline that we've put in place in the business in North America to drive our margins up.

And then finally, in terms of what's the potential for margin, the two white spaces that we will enter into next year have historically been very high margin segments. We have not played in them and we expect them to remain strong margin segments when we enter them. So, I think that that's clearly upside potential for us in North America going forward into the latter half of 2021 as well.

Richard, do you want to answer the specifics on the mix question?

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. Well yeah, George, the mix number, you can see on Page 10, we have EUR100 million of volume and mix. Volume was down about EUR300 million and mix was up about EUR400 million. And the mix being up about EUR400 million, half of that was related to lower shipments of Grand Caravan, which is a discontinued product, and the classic Ram DS which, while it makes very good margins, is still lower than our average margins because of the channel historically it's gone into. And then, the retail piece, which is the other half, is a 10% shift from fleet in Canada into US retail. So those are the mechanical reasons why we had a positive mix in the quarter.

George Galliers -- Goldman Sachs -- Analyst

Great detail. Thank you very much.

Richard Palmer -- Chief Financial Officer and Business Development

Thank you.

Operator

We're now taking our next question from the line of Monica Bosio from ISP. Please ask your question.

Michael Manley -- Chief Executive Officer

Monica, are you there?

Monica Bosio -- ISP -- Aanalyst

Good afternoon. Sorry, I was on mute. Good afternoon. Thanks for taking my question. Most of the questions has been already answered. But I would like to ask you, your view on the raw material scenario, the impact for this year and what do you view for 2021. And the second question is on Maserati. Can you give us an update on the inventories level at the dealer -- the dealer inventories level? And what do you expect for the fourth quarter of the year? Thank you very much.

Michael Manley -- Chief Executive Officer

Yeah, sorry, I was on mute as well. This is Mike. In terms of purchasing, obviously, we've had a very significant headwind with regard to PGM. I think the purchasing team has done a good job and continue to do good job, trying to offset that with our other technical teams to obviously minimize the impact. And they've performed, as I said, I think, well, in regard to that. But I do see continued pressure as we get into 2021 in that area.

From Maserati's perspective, their inventory ended Q3 around 5,500 units, which is very much contained. That's about, I guess, 4,000, 4,500 something lower than it was Q3 last year and broadly in line with the end of Q2 this year. So, one of the things that Maserati and we've talked about in the past is the discipline of making sure that our shipments and our sales are in line so that we don't build. We've reached the level of inventory that I think there are pockets that we need to slightly rebuild, but it's in line with where we wanted it to be at this point. And absent of building some inventory levels as, we now ramp up the launch of the refresh models and new models, carryover models, my expectation is inventory levels will remain, as I say, in line with our sales.

Monica Bosio -- ISP -- Aanalyst

Okay, thank you very much.

Operator

Our next question comes from the line of Patrick Hummel from UBS. Please go ahead.

Patrick Hummel -- UBS -- Analyst

Yes, thank you. Good afternoon, everybody. Congrats on the great quarter. A couple of questions remaining on my side, regarding the EU clearance of the deal, there were some headlines in the last few days that clearance could be just around the corner. So if you were to receive EU clearance really quickly, would that change anything regarding your Q1 2021 deadline? Is there any chance to bring that closing date forward?

My second question relates to the cost of electrification. How long will it take to see any meaningful contribution from using PSA platforms and power trains? Is that more a 2021 theme -- sorry, 2022 theme? Or will we already see something next year as far as technology transfer is concerned?

And very lastly, regarding Maserati, Mike, you touched on it, and I'm happy to take your private view because you're not going to be executing on it. But do you think Maserati should be part of Stellantis in the long term? Was that sort of the pitch in September for being a stand-alone company?

Michael Manley -- Chief Executive Officer

Yeah, Patrick, this is Mike. Obviously, Europe is just one of the jurisdictions that we're going through various filings and antitrust reviews. I think we're making expected progress in all areas. So, I would say that that's why not just we but also PSA are expressing confidence of our forecast to close in the first quarter of Q1. We still have a number of things to go through. Everything at this moment in time is on track with that. So I think I'll leave it at that.

What was the second question?

Patrick Hummel -- UBS -- Analyst

Regarding cost of electrification and the contribution from PSA, powertrains and platforms when that would kick in.

Michael Manley -- Chief Executive Officer

Yeah, assuming that -- that really will begin to kick in some toward the end of 2021, but obviously, rapidly accelerating as you get into '22 and '23.

Patrick Hummel -- UBS -- Analyst

Thank you, and Maserati?

Michael Manley -- Chief Executive Officer

Oh, Maserati, yeah. From my perspective, we've got all the building blocks in place that we talked about for Maserati. I think the onus is on us to demonstrate to the market, to our shareholders that we have the right formula, not just for short-term profitability for that brand, but for long-term profitability. And I think that that's the most important thing for us to demonstrate. And that will be demonstrated in Stellantis. What that means in terms of options into the future, let's accomplish the first thing and that's strong 15% plus margins, sustainable levels of profitability, and as I said, returning Maserati to where it absolutely should be as one of the premier luxury brands in the world.

Patrick Hummel -- UBS -- Analyst

Okay. Thanks Mike.

Operator

We are taking our next question from the line of Philippe Houchois from Jefferies. Please go ahead.

Philippe Houchois -- Jefferies -- Analyst

Yes, good morning. Thank you, and congratulations. A couple of questions from me. One is, if we think about the North American situation and the pace at which the industry is rebuilding normal production, when do you think that inventory at dealer levels will actually normalize? Now, let's keep COVID caveat out of the picture for a moment. But is it possible that we could be tight in terms of dealer inventory through the summer of 2021? Or are dealers considering or revisiting the historic level inventory? Do they want to carry less inventory than it did in the past? Or do they want to go back to the levels of 90 days or so that we've seen historically in the US, is my first question.

Then the second one is, so hopefully, we're close to get EU approval for the merger. I think the situation in Brazil is still pending. You have a strong position there. Curoe has a decent position there. Renault is pulling back for this [Indecipherable] again, not clear what they're doing in Brazil. Is there an issue from an approval standpoint that you are potentially as Stellantis is quite a large -- I wouldn't say dominant, but quite a large player in the Brazilian market? And would that be an issue in terms of securing approval? Thank you.

Michael Manley -- Chief Executive Officer

Hi, Philippe, this is Mike. Let me address the inventory question first. I don't think our dealers want to go back to historic inventory levels. There's always been a distinct difference between what I would call the domestic US players and the historical imports in terms of their approach to inventory. And I think that it was driven by two key things. The first one was differences in segments that they play in, truck segments and other body-on-frame segments often have a higher degree of complexity, and therefore many, many more commercial combinations than other segments, for example. I think what we've seen from all of the domestic OEMs in the US is a big focus on reducing that level of complexity in commercial combinations. And with that means you can increase your turn rates, as you know, and reduce your inventory. So, what I think we see now is somewhat closer to the new normal of inventory levels that I sincerely hope it is. There is no doubt there is pockets of inventory that does need to be increased because if you look across the country, we are -- there are there various trims or models that we are short on and there are various geographies that are shorter than other geographies. So, we certainly have to continue to work hard to rebuild certain portions of the inventory. So, I would see, if conditions continue as they are, lower levels of dealer inventory for sure into the first half of next year. And if we see retail continuing for a prolonged period beyond that and I think we get more and more used to turning that inventory quicker, as we put more and more efficiencies into our supply chain to get our vehicles to our dealers. So, that for me is -- and it's a good change. And I think our deal is benefiting from it.

With regard to Brazil, we are still in the middle of that process. We are working through it. I don't see any particular issues with regard to getting the approvals that we are seeking. But we obviously are working very closely with the authorities and that all of the jurisdictions are factored into our forecast of a close in Q1 next year.

Philippe Houchois -- Jefferies -- Analyst

Right. If I maybe squeeze the last one, I think on the Q2 call, I asked you a question about electric pickups and I got a bit of a cryptic answer. I'm just wondering if you have more to share about how you see Ram and the electrified version of Ram now. Since we last spoke, we had the presentation of the Hummer, as well as the Lordstown. And so has your -- are you ready to share a bit more about how you see a Ram electric?

Michael Manley -- Chief Executive Officer

Pardon me, my answer to be cryptic, apologies. I do see that there will be a electrified Ram pickup in the marketplace. And I would ask you just to stay tuned for a little while, and we'll tell you exactly when that will be.

Philippe Houchois -- Jefferies -- Analyst

All right. Thank you very much.

Michael Manley -- Chief Executive Officer

Welcome.

Operator

We are taking our next question from the line of Pierre-Yves Quemener from MainFirst. Please go ahead.

Pierre-Yves Quemener -- MainFirst -- Analyst

Yes. Good morning, good afternoon to you all. Thanks for taking my question. [Indecipherable] MainFirst. First, general but a crucial question for both of you. Both of you [Indecipherable] instrumental in turning around FCA. Still, we don't have a clear picture of what would be or could be a future within Stellantis. The only thing we know that we could have expected Mike to be appointed at the board of Stellantis. This is another case. So first question would be, what's going to be your future roles and position within Stellantis if you have some more color to share today?

The other two questions I would say are on the bridge related. I understand your comments and explanation on the EMEA bridge, which has been burdened by electrification costs and also purchase of credits from Tesla. Going forward into 2021, do that addition of electrified [Phonetic] vehicles prevent the region to be profitable before end of '21 or before 2022? Because I think, the more -- the higher the share of electrified vehicle, the higher the industrial cost and the lower potentially the [Indecipherable] purchase from Tesla. But I think that could continue to be a significant headwind. Last and third part of my question would be on Latin America. Could you come back on the 77 [Phonetic] industrial cost headwind in the quarter? How should we think of these industrial costs going forward? Once again, not into Q4, but into 2021, so to have a flavor of the profitability trends of the region. Thank you.

Michael Manley -- Chief Executive Officer

Thanks. It's Mike. With regard to Stellantis, I've worked very hard with my colleagues on pulling this together. I intend to be part of the group. I've been very clear with regard to that. There will be a moment in time, not yet, when roles are announced, and you will have to wait for that time to understand what my role will be within the organization. But as I said, there's many of us that have been working hard on this. We believe it's for sure the absolute right thing to do. I want to make sure that I'm part of this transition.

With regard to the industrial cost walk, I don't know, Richard, do you want to handle that one and pick up the LATAM one as well?

Richard Palmer -- Chief Financial Officer and Business Development

Sure. So, Pierre, obviously, in terms of the EV challenge and the pricing for the product, I think that's the theme through the industry. And so, we're seeing in EMEA, increase in the level of electrification that will continue going into next year. And we will continue to put out great products that we can market and recover price to cover the cost increases. And that is obviously the challenge for everybody. So, I think stay tuned on that. And clearly, as we get more products into the marketplace, I think we'll all be very focused on the market pricing as a result.

In terms of LATAM, LATAM historically has always had inflation on the cost base that we have always -- our team in LATAM has always been very effective at managing through price and mix. And this quarter was no different but actually also very negatively affected by the devaluation of the real through the year. A 30% devaluation of real against the Euro hit the cost base very hard for those imported components for LATAM. So I think the team did a really good job offsetting a lot of that with price. You don't see that in this walk because last year, we had a positive good guy for a credit -- a tax credit that we didn't have a repeat of. But if that hadn't been the case, you would have seen 90% of the industrial costs actually being offset by pricing actions. So I think the 3% margin for the quarter was a good one. And I think our North America -- sorry, our Latin America team is very focused on continuing to improve our profitability in LATAM going into next year with the launches of the new pickup that we talked about, the Strada, and the continued focus on Jeep. And obviously, hopefully, the FX headwind will abate.

Pierre-Yves Quemener -- MainFirst -- Analyst

Okay, thank you.

Michael Manley -- Chief Executive Officer

I think the LATAM team has done a tremendous job. Just imagine the conditions that they work under, not just in terms of FX, but the effects of the pandemic in that region. And I think for them to turn their business around in the quarter and produce a profitable result just talks to the quality of the people that we've got there, and my congratulations to all of them. And one thing I will tell you about those guys and girls in LATAM is, they're determined to continue to grow their profitability, regardless of the conditions that's presented to them. So, we've got a very strong team.

Pierre-Yves Quemener -- MainFirst -- Analyst

Okay, thanks. Just one last I would like to squeeze in on the EMEA. Is it reasonable to assume that you will still be, on an ongoing basis, loss making in EMEA next year? That's what you have in your budget? Or do you have now more aggressively stuff?

Michael Manley -- Chief Executive Officer

No, not reasonable to assume that. No, it's reasonable to assume that.

Pierre-Yves Quemener -- MainFirst -- Analyst

Okay, thank you.

Operator

Our final questions come from the line of Cosman Henning from HSBC. Please go ahead.

Henning Cosman -- HSBC -- Analyst

Yeah. Hi, Mike and Richard. It's Henning from HSBC. I just had a follow-up for Richard maybe about the reversal of provisions. As far as I remember, you were commenting at the H1 stage to reverse the EUR1.8 billion or so provisions from the first half as well. And I think, Richard, you said in an earlier answer that you're expecting EUR2 billion for working capital and provisions combined. I just wanted to clarify if that was a statement for Q4 alone and if that doesn't make the full year free cash flow guidance appear a bit lower. And I just wanted to completely be able to reconcile that. That's my first question.

And then, maybe one for Mike on the synergies. I think in your opening remarks, Mike, you said that the teams have obviously made great progress in the work streams around the synergies. I was just wondering if that also enables you, if you were to give us a bit of a cadence about when those synergies would materialize and how they would phase through the first few years of the combined company? Thank you.

Michael Manley -- Chief Executive Officer

Richard, you can answer the first part of the question.

Richard Palmer -- Chief Financial Officer and Business Development

Yeah. So in terms of the EUR1.7 billion on provisions, because then obviously -- mostly, that is basically related to incentive accruals and warranty accruals related to dealer stock. So at present, as Mike mentioned, we don't expect dealer stock to increase significantly through Q4. So really, the level of impact from provisions in Q4 is relatively minimal. Most of the EUR2 billion I talked about is related to working capital payables because of EMEA and inventories because of continued reduction in inventories. And that EUR2 billion will be hitting Q4.

Henning Cosman -- HSBC -- Analyst

So, for no longer, a reversal of the provisions of H1? I don't know if I misunderstood that at the H1 stage. But was that the indication at the time and is no longer true? Or did I misunderstand it at the time?

Richard Palmer -- Chief Financial Officer and Business Development

No. I think we've talked about it. Sometimes we talk about working capital provisions as an aggregate because this is sort of the balance sheet in general. So we had EUR5.6 billion of working capital and EUR1.7 billion provisions. We've always talked about a large proportion of the working capital reversing. But I think we've been specific about the provisions because frankly, the dealer stock levels have never looked like returning to anything like the levels that they were at the end of last year, also because, as Mike mentioned, we don't necessarily want them to in most of the regions.

Henning Cosman -- HSBC -- Analyst

Understood. Thank you.

Richard Palmer -- Chief Financial Officer and Business Development

Thanks.

Michael Manley -- Chief Executive Officer

And with regard to your question, I think we said before that we anticipated 80% of the synergies to be realized in the Group by year-four. The improvement in the synergies that we've identified, the cadence hasn't really changed materially. So we're expecting a similar delivery over those first four years in terms of the synergies to Stellantis. Thank you.

Henning Cosman -- HSBC -- Analyst

Thank you very much.

Operator

That will conclude the question-and-answer session. I'd now like to turn the call back over to Mr. Mike Manley for closing remarks.

Michael Manley -- Chief Executive Officer

So, thank you, everybody, for your time and your questions. And I'm just going to wrap up by saying that from our perspective, this was a remarkable quarter for our group, despite the lingering effects of COVID-19. And I talked about LATAM and how pleased I was with their work, but frankly, deliver a quarter like this with everybody working exceptionally hard, and I'd like to thank each of our employees for their contribution to achieving these record results and their continued dedication, resilience and creativity. And I think Richard and I have tried to communicate, we remain committed to building an even stronger future that provides additional value for our shareholders, and that's demonstrated by our introduction of several key new products, laying out the new strategy for Maserati, as well as effectively amending our Combination Agreement with PSA, and as you've seen, maintenance of our investment in terms of capex, making sure that we continue to invest in the future.

So, I think we continue to navigate through this crisis by taking decisive actions. And as always been the case from the start, these actions are taken while always keeping the safety and well-being of our employees and communities at the forefront. And toward this, we remain committed to executing the FCA and PSA merger by the end of the first quarter of 2021. A lot of questions on that topic, as we can completely understand. But we're obviously clearly excited about the future prospects of being part of Stellantis, and we're even more convinced than ever the potential this landmark merger will give us. And finally, while the last quarter of the year will have its own set of challenges, we believe we're going to have a strong finish to the year, successfully positioning at us as we embark on this new era as a combined entity. So, once again, I'd just like to thank you for your time, attention and questions, and wish you a good remainder of your day. Thank you, everybody.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Joe Veltri -- Vice President

Michael Manley -- Chief Executive Officer

Richard Palmer -- Chief Financial Officer and Business Development

Horst Schneider -- Bank of America Merrill Lynch -- Analyst

Charles Coldicott -- Redburn -- Analyst

Martino De Ambroggi -- Equita -- Analyst

Stephen Reitman -- Societe Generale -- Analyst

Jose M. Asumendi -- J.P. Morgan -- Analyst

George Galliers -- Goldman Sachs -- Analyst

Monica Bosio -- ISP -- Aanalyst

Patrick Hummel -- UBS -- Analyst

Philippe Houchois -- Jefferies -- Analyst

Pierre-Yves Quemener -- MainFirst -- Analyst

Henning Cosman -- HSBC -- Analyst

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