Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)

Management'sDiscussion and analysis of our results of operations pertaining to 2020 compared to 2019 not included in this Form 10-K can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2020. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes in Item 8.

Management Overview

We are a global provider of high-technology products to virtually every major vehicle manufacturer in the world. We also serve the stationary industrial market. Our technologies include drive systems (axles, driveshafts, transmissions, and wheel and track drives); motion systems (winches, slew drives, and hub drives); electrodynamic technologies (motors, inverters, software and control systems, battery-management systems, and fuel cell plates); sealing solutions (gaskets, seals, cam covers, and oil pan modules); thermal-management technologies (transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding); and digital solutions (active and passive system controls and descriptive and predictive analytics). We serve our global light vehicle, medium/heavy vehicle and off-highway markets through four business units – Light Vehicle Drive Systems (Light Vehicle), Commercial Vehicle Drive and Motion Systems (Commercial Vehicle), Off-Highway Drive and Motion Systems (Off-Highway) and Power Technologies, which is the center of excellence for sealing and thermal-management technologies that span all customers in our on-highway and off-highway markets. We have a diverse customer base and geographic footprint which minimizes our exposure to individual market and segment declines. In 2020, 51%2021, 47% of our sales came from North American operations and 49%53% from operations throughout the rest of the world. Our sales by operating segment were Light Vehicle – 43%42%, Commercial Vehicle – 16%17%, Off-Highway – 28%29% and Power Technologies – 13%12%.

Operational and Strategic Initiatives

Our enterprise strategy builds on our strong technology foundation and leverages our resources across the organization while driving a customer centriccustomer-centric focus, expanding our global markets, and delivering innovative solutions as we evolve into the era of vehicle electrification.

Central to our strategy is leveraging our core operations. This foundational element enables us to infuse strong operational disciplines throughout the strategy, making it practical, actionable, and effective. It enables us to capitalize on being a major drive systems supplier across all three end-mobilityend mobility markets. We are achieving improved profitability by actively seeking synergies across our engineering, purchasing, and manufacturing base. We have strengthened the portfolio by acquiring critical assets;assets, and we are utilizing our physical and intellectual capital to amplify innovation across the enterprise. Leveraging these core elements can further expand the cost efficiencies of our common technologies and deliver a sustainable competitive advantage for Dana.

Driving customer centricity continues to be at the heart of who we are. Putting our customers at the center of our value system is firmly embedded in our culture and is driving growth by focusing on customer relationships and providing value to our customers. These relationships are strengthened as we are physically located where we need to be in order to provide unparalleled service, and we are prioritizing our customers’ needs as we engineer solutions that differentiate their products, while making it easier to do business with Dana by digitizing their experience. Our customer centriccustomer-centric focus has uniquely positioned us to win more than our fair share of new business and capitalize on future customer outsourcing initiatives.

We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.

Expanding global markets means utilizing our global capabilities and presence to further penetrate growth markets, focusing on Asia due to its position as the largest mobility market in the world with the highest market growth rate andas well as its lead in the adoption of new energy vehicles. We are investing across various avenues to increase our presence in Asia Pacific by forging new partnerships, expanding inorganically, and growing organically. We continue to operate in this region through wholly owned and joint ventures with local market partners. We have recently made acquisitions that have augmented our footprint in the region, specifically in India and China. All the while, we have been making meaningful organic investments to grow with existing and new customers, primarily in Thailand, India, and China. These added capabilities have enabled us to target the domestic Asia Pacific markets and utilize the capacity for export to other global markets. We continue to enhance and expand our global footprint, optimizing it to capture growth across all of our end markets.

Delivering innovative solutions enables us to capitalize on market growth trends as we evolve our core technology capabilities. We are also focused on enhancing our physical products with digital content to provide smart systems, and we see an opportunity to become a digital systems provider by delivering software as a service to our traditional end customers. This focus on delivering solutions based on our core technology is leading to new business wins and increasing our content per vehicle. We have made significant investments - both organically and inorganically - allowing us to move to the next phase, which is to Lead electric propulsion.

Over the past yearlast several years we have achievedcontinue to deliver on our goal to accelerate hybridization andvehicle electrification through both core Dana technologies and targeted strategic acquisitions and are positioned today to lead the market. The nine recent investments in electrodynamic expertise and technologies combined with Dana’s longstanding mechatronics capabilities has allowed us to develop and deliver fully integrated e-Propulsion systems that are power-dense and achieve optimal efficiency through the integration of the components that we offer due to our mechatronics capabilities. With recent electric vehicle program awards, we are well on our way to achieving our growth objectives in this emerging market.

The development and implementation of our enterprise strategy is positioning Dana to grow profitably due to increased customer focus as we leverage our core capabilities, expand into new markets, develop and commercialize new technologies, including for hybrid and electric vehicles.

Capital Structure Initiatives

In addition to investing in our business, we plan to continue prioritizing theprioritize a balanced allocation of capital to reduce debt and maintainwhile maintaining a strong financial position. We continue to drive toward investment grade metrics as part of aour balanced allocation approach to our capital allocation priorities and ourwith a goal of further strengthening our balance sheet.

Shareholder return actions — When evaluating capital structure initiatives, we balance our growth opportunities and shareholder value initiatives with maintaining a strong balance sheet and access to capital. Our strong financial position has enabled us to simplify our capital structure while providing returns to our shareholders in the form of cash dividends and a reduction in the number of shares outstanding. Our Board of Directors authorized a $200 share repurchase program effective in 2018 which expires at the end of 2023. Through December 31, 2020, we have used $50 of cash to repurchase common shares under the program. Through the first quarter of 2020, we had declared and paid quarterly common stock dividends for thirty-three consecutive quarters. In response to the global COVID-19COVID pandemic, we temporarily suspended the declaration and payment of dividends to common shareholders and the repurchase of common stock under our existing$200 common stock share repurchase program. With the impacts of the COVID pandemic largely behind us we resumed the declaration and payment of quarterly common stock dividends during the first quarter of 2021. In addition, we resumed the repurchase of common shares using $23 of cash to repurchase common shares under the program in 2021. The share repurchase program expires on December 31, 2023, and $127 remains available for future share repurchases as of December 31, 2021.

Financing actions — Over the past few years weWe have taken advantage of competitive debt markets, eliminating our secured debt and extending and restructuring our senior note maturity schedule. Our current portfolio of unsecured senior notes is structured such that no more than $400 of senior notes comes due in any calendar year, with no maturities until the lower interest rate environment to complete refinancing transactions that resulted in lower effective interest rates while extending maturities. During 2019second quarter of 2025. In addition, we expanded our credit and guaranty agreement, entering into $675 of additional floating rate term loans to fund the ODS acquisition (see Acquisitions section below) and increased our revolving credit facility to $1,000$1,150 and extended its maturity to August 2024. We completed a $300 2027 note offering and used the proceeds to repay $300 of higher cost 2023 notes. During 2019, we terminated one of our U.S. defined benefit pension plans, settling approximately $165 of previously unfunded pension obligations and eliminating future funding risk associated with interest rate and other market developments. In response to the global COVID-19 pandemic, during June 2020, we completed a $400 2028 note offering and a $100 add on to our 2027 notes. With the impact of the global COVID-19 pandemic on our operations dissipating, we paid down $474 of our floating rate term loans (the "Term A Facility") in the third and fourth quarters of 2020.March 25, 2026. See Note 14 to our consolidated financial statements in Item 8 for additional information.

Other Initiatives

Aftermarket opportunities — We have a global group dedicated to identifying and developing aftermarket growth opportunities that leverage the capabilities within our existing businesses – targeting increased future aftermarket sales. Powered by recognized brands such as Dana®, Spicer®, Spicer Electrified™, Victor Reinz®, Glaser®, GWB®, Thompson®, Tru-Cool®, SVL®, and Transejes™, Dana delivers a broad range of aftermarket solutions – including genuine, all makes, and value lines – servicing passenger, commercial and off-highway vehicles across the globe.

Selective acquisitions — Although transformational opportunities like the GKN plc driveline business transaction that we pursued in 2018 will be considered when strategically and economically attractive, our acquisition focus is principally directed at “bolt-on” or adjacent acquisition opportunities that have a strategic fit with our existing core businesses, particularly opportunities that support our enterprise strategy and enhance the value proposition of our product offerings. Any potential acquisition will be evaluated in the same manner we currently consider customer program opportunities and other uses of capital – with a disciplined financial approach designed to ensure profitable growth and increased shareholder value.

Acquisitions

Ashwoods Innovations Limited — On February 5, 2020,Over the past several years we acquired Curtis Instruments, Inc.'s (Curtis) 35.4% ownership interest in Ashwoods Innovations Limited (Ashwoods). Ashwoods designs and manufactures permanent magnethave actively grown our electric motors for the automotive, material handling and off-highway vehicle markets. The acquisition of Curtis' interest in Ashwoods, along with our existing ownership interest in Ashwoods, providedcapabilities through multiple acquisitions, positioning us with a 97.8% ownership interest and a controlling financial interest in Ashwoods. We recognized a $3 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in Ashwoods to fair value. The total purchase consideration of $22 is comprised of $8 of cash paid to Curtis at closing, the $10 fair value of our previously held equity method investment in Ashwoods and $4 related to the effective settlement of a pre-existing loan payable due from Ashwoods. During March 2020, we acquired the remaining noncontrolling interests in Ashwoods held by employee shareholders. The results of operations of Ashwoods are reported within our Off-Highway operating segment. The Ashwoods acquisition had an insignificant impact on our consolidated results of operations during 2020. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in Ashwoods.

Nordresa —On August 26, 2019, we acquired a 100% ownership interest in Nordresa Motors, Inc. (Nordresa) for consideration of $12, using cash on hand. Nordresa is a prominent integration and application engineering expert for the development and commercialization of electric powertrains for commercial vehicles. The investment further enhances Dana's electrification capabilities by combining its complete portfolio of motors, inverters, chargers, gearboxes, and thermal-management products with Nordresa's proprietary battery-management system, electric powertrain controls and integration expertise to deliver complete electric powertrain systems. The resultse-Propulsion systems with in-house electrodynamics. Our acquisitions of operations of Nordresa are reported within our Commercial Vehicle operating segment. Nordresa had an insignificant impact on our consolidated results of operations during 2019.

Prestolite E-Propulsion Systems (Beijing) Limited — On June 6, 2019, we acquired Prestolite Electric Beijing Limited's (PEBL) 50% ownership interest inTM4 Inc. (TM4), S.M.E. S.p.A. (SME), Prestolite E-Propulsion Systems (Beijing) Limited (PEPS)., Ashwoods Innovations Limited (Ashwoods), Oerlikon Drive Systems, Nordresa Motors, Inc., Rational Motion GmbH and Pi Innovo Holding Limited have enhanced our portfolio of core technologies including e-motors, power inverters, software and controls, and advance mechatronics. Our strategic partner, Hydro-Québec, owns 45% redeemable noncontrolling interests in TM4, SME, PEPS manufactures and distributes electric mobility solutions, including electric motors, inverters, and generators for commercial vehicles and heavy machinery. PEPS has a state-of-the-art facility in China, enabling us to expand motor and inverter manufacturing capabilities in the world's largest electric-mobility market. The acquisition of PEBL's interest in PEPS, along with our existing ownership interest in PEPS through our TM4 subsidiary, provides us with a 100% ownership interest and a controlling financial interest in PEPS. We recognized a $2 gain to other income (expense), net on the required remeasurement of our previously held equity method investment in PEPS to fair value. We paid $50 at closing using cash on hand. Reference is made toAshwoods. See Note 2 ofand Note 9 to our consolidated financial statements in Item 8 for the allocation of purchase consideration to assets acquired and liabilities assumed. The results of operations of PEPS are reported within our Commercial Vehicle operating segment. The PEPS acquisition contributed $8 of sales and de minimis adjusted EBITDA in 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in PEPS.

Oerlikon Drive Systems — On February 28, 2019, we acquired a 100% ownership interest in the Oerlikon Drive Systems (ODS) segment of the Oerlikon Group. ODS is a global manufacturer of high-precision gears, planetary hub drives for wheeled and tracked vehicles, and products, controls, and software that support vehicle electrification across the mobility industry. We paid $626 at closing, which was primarily funded through debt proceeds. Reference is made to Note 2 of our consolidated financial statements in Item 8 for the allocation of purchase consideration to assets acquired and liabilities assumed. The results of operations of ODS are reported primarily within our Off-Highway and Commercial Vehicle operating segments. The ODS acquisition added $630 of sales and $87 of adjusted EBITDA during 2019.

SME — On January 11, 2019, we acquired a 100% ownership interest in S.M.E. S.p.A. (SME). SME designs, engineers, and manufactures low-voltage AC induction and synchronous reluctance motors, inverters, and controls for a wide range of off-highway electric vehicle applications, including material handling, agriculture, construction, and automated-guided vehicles. The addition of SME's low-voltage motors and inverters, which are primarily designed to meet the evolution of electrification in off-highway equipment, significantly expands Dana's electrified product portfolio. We paid $88 at closing, consisting of $62 in cash on hand and a note payable of $26 which allows for net settlement of potential contingencies as defined in the purchase agreement. The note is payable in five years and bears annual interest of 5%. Reference is made to Note 2 of our consolidated financial statements in Item 8 for the allocation of purchase consideration to assets acquired and liabilities assumed. The SME acquisition added $21 of sales and de minimis adjusted EBITDA during 2019. See Hydro-Québec relationship discussion below for details of the subsequent change in our ownership interest in SME.

TM4 — On June 22, 2018, we acquired a 55% ownership interest in TM4 Inc. (TM4) from Hydro-Québec. TM4 designs and manufactures motors, power inverters and control systems for electric vehicles, offering a complementary portfolio to Dana's electric gearboxes and thermal-management technologies for batteries, motors and inverters. The transaction establishes Dana as the only supplier with full e-Drive design, engineering and manufacturing capabilities – offering electro mechanical propulsion solutions to each of our end markets. TM4's technology and advanced manufacturing facility in Boucherville, Quebec will add to our global technical centers, and their 50% interest in PEPS provides an opportunity to enhance our position in the fastest growing market for electric vehicles. See PEPS acquisition discussion above for details of the subsequent change in our ownership interest in PEPS. Dana is consolidating TM4 as the governing documents provide Dana with a controlling financial interest. We paid $125 at closing, using cash on hand. Reference is made to Note 2 of our consolidated financial statements in Item 8 for the allocation of purchase consideration to assets acquired and liabilities assumed. The results of operations of the TM4 business are reported in our Commercial Vehicle operating segment. The TM4 acquisition contributed $11 of sales and de minimis adjusted EBITDA in 2018.

Hydro-Québec Relationship

On June 22, 2018, we acquired a 55% ownership interest in TM4 from Hydro-Québec. On July 29, 2019, we broadened our relationship with Hydro-Québec, with Hydro-Québec acquiring an indirect 45% redeemable noncontrolling interest in SME and increasing its existing indirect 22.5% noncontrolling interest in PEPS to 45%. We received $65 at closing, consisting of $53 of cash and a note receivable of $12. The note is payable in five years and bears annual interest of 5%. Dana will continue to consolidate SME and PEPS as the governing documents continue to provide Dana with a controlling financial interest in these subsidiaries. See Acquisitions section above for a discussion of Dana's acquisitions of PEPS and SME. On April 14, 2020, Hydro-Québec acquired an indirect 45% redeemable noncontrolling interest in Ashwoods. We received $9 in cash at closing, inclusive of $2 in proceeds on a loan from Hydro-Québec. Dana will continue to consolidate Ashwoods as the governing documents continue to provide Dana with a controlling financial interest in this subsidiary. See the Acquisitions section above for a discussion of Dana's acquisition of Ashwoods.additional information.

Segments

We manage our operations globally through four operating segments. Our Light Vehicle and Power Technologies segments primarily support light vehicle original equipment manufacturers (OEMs) with products for light trucks, SUVs, CUVs, vans and passenger cars. The Commercial Vehicle segment supports the OEMs of on-highway commercial vehicles (primarily trucks and buses), while our Off-Highway segment supports OEMs of off-highway vehicles (primarily wheeled vehicles used in construction, mining and agricultural applications).

Trends in Our Markets

We serve our customers in three core global end markets: light vehicle, primarily full frame trucks and SUVs; commercial vehicle, including medium-and heavy-duty trucks and busses; and off-highway, including construction, mining, and agriculture equipment. 

In 2020, all of our end-markets were impacted to varying degrees by the global COVID-19 pandemic, which initially resulted in lower demand driven by production shutdowns related to virus mitigation efforts in the regions we serve.  Each of our end-markets has unique cyclical dynamics and market drivers. These cycles are impacted by periods of investment where end-user vehicle fleets are refreshed or expanded in reaction to demand usage patterns, regulatory changes, or when the age of vehicles in service reach their useful life. Key market drivers include regional economic growth rates; industrial output; commodity production and pricing; and residential and nonresidential construction rates. Our multi-market coverage and broad customer base help provide stability across the cycles while mitigating secular variability. In 2020, all of our end-markets were impacted to varying degrees by the COVID pandemic, which initially resulted in lower demand driven by production shutdowns related to virus mitigation efforts in the regions we serve. During 2021, we generally saw improvement across all of our end markets despite production levels being muted by continued global supply chain disruptions driven in part by transportation inefficiencies and labor, commodity and semiconductor chip shortages.

Light vehicle markets — Our driveline business is weighted more heavily to the truck and SUV segments of the light-vehicle market versus the passenger-car segment. Our vehicle content is greater on rear-wheel drive, four-wheel drive, and all-wheel drive vehicles, as well as hybrid and electric vehicles. Global light-truck volumes have seen steady growth over the last three years, with the largest gains being in North America. The impact of COVID-19the COVID pandemic in 2020 saw the global light-truck market contract by 13% from 2019 levels. During 2021, light-truck markets improved across all regions and were up 5% on a global basis compared to 2020. The outlook for the full year of 20212022 reflects full-frameglobal light-truck production to be up by a similar percentage,10%, with growth across all regions, exhibiting a strong rebound and returning to at or above 2019 levels as production constraints have eased,continue to ease, inventory returns to more normal levels, and constrained customer demand is fulfilled.

Commercial vehicle markets — Our primary business is driveline systems for medium and heavy-duty trucks and busses, including the emerging market for hybrid and electric vehicles. Key regional markets are North America, South America (primarily Brazil) and Asia Pacific. The Class-8 truck market in North America has experienced steady growth from 2017 through 2019, peakingpeaked at 345,000 trucks produced in 2019. Production of Class-8 trucks in 2020 was 38% below the record production in 2019 due to normal cycle dynamics and the impact of COVID-19.COVID. During 2021, production of Class-8 trucks increased 20% over 2020 as the impacts of COVID lessened and the economy exhibited improvement. The outlook for 20212022 is for stronger demand with production up 35%22% over the prior year driven by continued improving economic outlook and cyclical growth.

Medium-duty truck production in North America has grown steadily over the last several years before experiencingexperienced a 20% year- over-year decline from 2019 to 2020, primarily due to COVID-19.COVID. During 2021, production increased a modest 3% over 2020. The outlook for 20212022 is for a 6%13% increase in production over the prior year. Outside of North America, production of medium-and heavy-duty trucks in South America had been slowly improving priordeclined 22% in 2020 due to the COVID-19 pandemic asCOVID and deteriorating economic conditions had started to stabilize. Pandemic and economic conditions drove a 22% decline inconditions. During 2021, production in 2020. The 2021 outlook for South America is for a 30% increase in productionincreased 76% over 2020 as the region recoversrecovered from the impact of the pandemic and the age of existing vehicles drivesdrove a replacement cycle for new trucks. The outlook for South America is for a modest 3% reduction in production from the prior year as local economic conditions remain relatively stable. In contrast to the rest of the world, Asia Pacific, driven by China, did not experience lower truck production in 2020, but is expected to slow output slowed by 12%8% in 2021 as production matchesmatched lower demand, primarily driven by India where the recovery from the pandemic haswas been slower than in China. The 2022 outlook for Asia Pacific is for a 6% reduction in production from the prior year as the Indian market recovery continues to lag.

Off-highway markets — Our off-highway business has a large presence outside of North America, with 64%65% of its 20202021 sales coming from products manufactured in Europe; however, a large portion of these products are utilized in vehicle production outside the region. The construction equipment segment of the off-highway market is closely related to global economic growth and infrastructure investment. This segment has experienced a 5% market contraction, which began in late 2018 and further accelerated due to COVID-19,COVID, with 2020 production ending down an additional 10%. The global construction market began to rebound in 2021 with production up 12% over 2020. The 2022 outlook has production demand in the global construction market reboundingshowing continued strength with production increasing by 5%10% over the prior year. End-user investment in the mining equipment segment is driven by prices for commodity products produced by underground mining. The global mining equipment market has been mostlymostly stable over the past several years as industry participants have maintained vehicle inventory levels to match commodity output, and this trend is expected to continue in 2021.2022. The agriculture equipment market is the third of our key off-highway segments.  Like the underground mining segment, investment in agriculture equipment is primarily driven by prices for farm commodities. From 2018 to 2019, global demand for agriculture equipment fell by 3% due toContinued low farm commodity prices drove a slump7% reduction in commodity prices. As prices have remained low, production in 2020 fell an additional 7%.2020. Farm subsidies in response to the global pandemic drove a 10% increase in production during 2021. The outlook for 20212022 is for end-market demand to improve by 5%6% compared to the prior year, as farm subsidies in responseare expected to the global pandemic have bolsteredcontinue to bolster the commodity market and is expected to drive the replacement of aging equipment.

Foreign currency — With 52%55% of our 20202021 sales coming from outside the U.S., international currency movements can have a significant effect on our sales and results of operations. The euro zone countries and China accounted for 51%50% and 10% of our 20202021 non-U.S. sales, respectively, while Brazil and India each accounted for 7%9%. Although sales in South Africa are less than 5% of our non-U.S. sales, the rand has been volatile and significantly impacted sales from time to time. International currencies weakenedstrengthened against the U.S. dollar in 2020, decreasing 20202021, increasing 2021 sales by $53.$138. A weaker Brazilian real,stronger euro, Chinese renminbi, British pound and South African rand and Indian rupee more than offset a stronger euro.weaker Brazilian real.

Argentina has experienced significant inflationary pressures the past few years, contributing to significant devaluation of its currency among other economic challenges. Our Argentine operation supports our Light Vehicle operating segment. Our sales in Argentina for 20202021 of approximately $78$116 are 1% of our consolidated sales and our net asset exposure related to Argentina was approximately $21,$33, including $5$12 of net fixed assets, at December 31, 2020.2021. During the second quarter of 2018, we determined that Argentina's economy met the GAAP definition of a highly inflationary economy. In assessing Argentina's economy as highly inflationary we considered its three-year cumulative inflation rate along with other factors. As a result, effective July 1, 2018, the U.S. dollar is the functional currency for our Argentine operations, rather than the Argentine peso. Beginning July 1, 2018, peso-denominated monetary assets and liabilities are remeasured into U.S. dollars using current Argentine peso exchange rates with resulting translation gains or losses included in results of operations. Nonmonetary assets and liabilities are remeasured into U.S. dollar using historic Argentine peso exchange rates. Reference is made to Note 1 of our consolidated financial statements in Item 8 for additional information.

Commodity costs — The cost of our products may be significantly impacted by changes in raw material commodity prices, the most important to us being those of various grades of steel, aluminum, copper, brass and rare earth materials. The effects of changes in commodity prices are reflected directly in our purchases of commodities and indirectly through our purchases of products such as castings, forgings, bearings, batteries and component parts that include commodities. Most of our major customer agreements provide for the sharing of significant commodity price changes with those customers based on the movement in various published commodity indexes. Where such formal agreements are not present, we have historically been successful implementing price adjustments that largely compensate for the inflationary impact of material costs. Material cost changes will customarily have some impact on our financial results as customer pricing adjustments typically lag commodity price changes. Lower commodityCommodity prices increased significantly during 2021, reducing year-over-year earnings in 2020 by approximately $37, as compared to year-over-year earnings reductions of $30 from higher commodity prices in 2019.$367. Material recovery and other pricing actions decreasedincreased year-over-year earnings by $80 and $10$223 in 2020 and 2019, respectively.2021.

Sales, Earnings and Cash Flow Outlook

* Our 2021 outlook does not include our pending acquisition of a portion of the thermal-management business of Modine Manufacturing Company, as the timing of closing the transaction is uncertain.

Adjusted EBITDA and adjusted free cash flow are non-GAAP financial measures. See the Non-GAAP Financial Measures discussion below for definitions of our non-GAAP financial measures and reconciliations to the most directly comparable U.S. generally accepted accounting principles (GAAP) measures. We have not provided a reconciliation of our adjusted EBITDA outlook to the most comparable GAAP measure of net income. Providing net income guidance is potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items that are included in net income, including restructuring actions, asset impairments and certain income tax adjustments. The accompanying reconciliations of these non-GAAP measures with the most comparable GAAP measures for the historical periods presented are indicative of the reconciliations that will be prepared upon completion of the periods covered by the non-GAAPnon-GAAP guidance.

Our 20212022 sales outlook is $8,050$9,625 to $8,550,$10,125, reflecting improving post-pandemic global market demand and $500$400 of net new business backlog. Based on our current sales and exchange rate outlook for 2021,2022, we expect overall stability in international currencies with a modest benefitheadwind to sales. At sales levels in our current outlook for 2021,2022, a 5% movement on the euro would impact our annual sales by approximately $125.$140. A 5% change on the Chinese renminbi, Indian rupee or Brazilian real and Thai baht rates would impact our annual sales in each of those countries by approximately $10 to $20.$25. At our current sales outlook for 2021,2022, we expect full year 20212022 adjusted EBITDA to approximate $860$900 to $960.$1,000. Adjusted EBITDA Margin is expected to be 11.0%9.6%, a 27070 basis-point improvement over 2020,2021, reflecting higher margin net new business and a modest benefit from material recovery and other pricing actions as commodity costs begin to abate toward the benefitend of operational inefficiencies associated with the global COVID-19 pandemic not repeating in 2021,year, being partially offset by increased investment to support our electrification strategy. In addition, we anticipate higher commodity costs to be largely offset by material recovery and other pricing actions. We expect to generate adjusted free cash flow of approximately $250,$310, or 3.0%3% of sales for 2021. The2022, reflecting the benefit of year-over-year higher year-over-year adjusted EBITDA and lower year-over-year use of cash for working capital. We anticipate capital spending will be partially offset by an elevated level of capital spending supporting new customer programs, as spending on certain projects was deferred during 2020flat in response the global COVID-19 pandemic.comparison with 2021.

Among our operational and strategic initiatives are increased focus on and investment in product technology – delivering products and technology that are key to bringing solutions to issues of paramount importance to our customers. Our success on this front is measured, in part, by our sales backlog – net new business received that will be launching in the future and adding to our base annual sales. This backlog excludes replacement business and represents incremental sales associated with new programs for which we have received formal customer awards. At December 31, 2020,2021, our sales backlog of net new business for the 20212022 through 20222024 period was $700.$800. We expect to realize $500$400 of our sales backlog in 2021,2022, with incremental sales backlog of $200 being realized in 2022.both 2023 and 2024. Our sales backlog is evenly balanced between electric-vehicle and traditional ICE-vehicle content.

Consolidated Results of Operations

Summary Consolidated Results of Operations (2020(2021 versus 2019)2020) 

Sales — The following table shows changes in our sales by geographic region.

Sales in 20202021 were $1,514 lower$1,839 higher than in 2019. Weaker2020. Stronger international currencies decreasedincreased sales by $53,$138, principally due to a weaker Brazilian real,stronger euro, Chinese renminbi, British pound and South African rand, and Indian rupee, partially offset by a stronger euro. The acquisitions of ODS in last year's first quarter, PEPS in last year's second quarter and Ashwoods in this year's first quarter, generated a year-over-year increase in sales of $125.weaker Brazilian real. The organic sales decreaseincrease of $1,586,$1,729, or 18%24%, resulted from weaker light and medium/heavy truck markets and lower global off-highwayimproved overall market demand in January and February 2020 and the rapid dissipation in production volumes across all of our end markets beginning in March 2020 as a result of the global COVID-19 pandemic. The impact of the global COVID-19 pandemic on our operations as well as those of our customers, suppliers and the global supply chains in which we participate, was most notable during April 2020, with a measured ramp up in production beginning in May followed by a rapid increase in customer demand through the third quarter. Sales in the fourth quarter of 2020 were $121 higher than the same period of 2019, primarily due to strong customer demand in, and the conversion of sales backlog by, our Light Vehicle operating segment. The conversion of sales backlog contributed $348 on a full-year basis, while pricingbacklog. Pricing actions, including material commodity price and inflationary cost adjustments, reducedincreased sales by $80.$223.

The North America organic sales increase of 17% was driven principally by stronger light-, medium- and heavy-duty truck production volumes, higher-light vehicle engine production levels and the conversion of sale backlog. Full-frame light-truck production was up 13%, Classes 5-7 were up 3% and Class 8 was up 20% compared with 2020. Light-vehicle engine production was up 2% compared with 2020. Excluding currency effects and the impact of acquisitions, sales in Europe were up 23% compared with 2020. With our significant Off-Highway presence in the region, stronger construction/mining and agricultural markets were a major factor. Organic sales of this operating segment were up 28% compared with 2020. Excluding currency effects, sales in South America increased 68% compared to 2020 due primarily to improved light- and medium/heavy-duty truck production. Light-truck production was up 35% and medium/heavy-truck production was up 76% in 2021. Excluding currency effects and the impact of divestitures, sales in Asia Pacific increased 38% compared to 2020 due to improved light-truck production and stronger construction/mining and agricultural markets. Light-truck production was up 4% in 2021. The global semiconductor chip shortage impacted our 2021 sales as customers of some of our more significant programs were forced to take down time during the last nine months of the year.

The North America organic sales decrease of 20% was driven principally by weaker light and medium/heavy duty truck production volumes resulting from the global COVID-19 pandemic, partially offset by the conversion of sales backlog. Full frame light truck production was down 20% during 2020 while production of Class 8 and Classes 5-7 trucks were down 38% and 20%, respectively.

Excluding currency and acquisition effects, sales in Europe were down 19% compared with 2019. With our significant Off-Highway presence in the region, weakening construction/mining and agricultural markets due to the global COVID-19 pandemic were a major factor. Organic sales in this operating segment were down 22% compared with 2019.

Excluding currency effects, sales in South America decreased 15% compared to 2019 primarily due to the global COVID-19 pandemic. Medium/heavy truck production was down 22% and light truck production was down 17% compared to 2019.

Excluding currency and acquisition effects, sales in Asia Pacific decreased about 11% as China's economy showed signs of weakening even before the onset of the COVID-19 pandemic. Light truck and light vehicle engine production were down 9% and 13%, respectively, while medium/heavy truck production was up 12% compared to 2019.

Cost of sales and gross margin — Cost of sales for 2020 decreased $1,004,2021 increased $1,623, or 13%25% when compared to 2019.2020. Cost of sales as a percent of sales in 2020 was 44070 basis points higherlower than in the previous year. CostIncremental margins provided by increased sales volumes were partially offset by higher year-over-year commodity costs of sales attributed$367, higher standard and premium freight costs of $61 and incremental investment in electrification initiatives. Commodity cost increases are being driven by higher prices for certain grades of steel and aluminum. Year-over-year freight costs increases are primarily due to acquisitions was approximately $137. Excludinghigher freight rates, driven by container shortages and port congestions due to pandemic-related operational disruptions, and the effectsincurrence of acquisitions, cost of sales as a percent of sales was 90.9%, 400 basis points higher than in the previous year. The increase in cost of sales as a percent of sales is attributablepremium freight to the rapid dissipation ofsupport customer demand across all of our end markets primarily during the second quarter of 2020, as a result of the global COVID-19 pandemic, followed by a dramatic increase in demand during the third quarter of 2020. During the second quarter of 2020 actions to flex down our cost structure lagged the rapid dissipation of customer demand across all of our end markets, our inability to effectively reduce labor costs in certain countries due to government requirements, as well as our inability to reduce fixed costs including depreciation and rent expense. During the third quarter of 2020 we experienced operational inefficiencies and premium costs associated with taking a number of our plants from being idled just a few months prior to running at full capacity. Partially offsetting the impact of the global COVID-19 pandemic were lower commodity prices which lowered material costs by $37 and continuedlevels. Continued material cost savings and supplier recoveries provided a partial offset, reducing costs of sales by approximately $75.$129.

Gross margin of $621$837 for 2020 decreased $5102021 increased $216 from 2019.2020. Gross margin as a percent of sales was 8.7%9.4% in 2020, 4402021, 70 basis points lowerhigher than in 2019.2020. The declineimprovement in gross margin as a percent of sales was driven principally by the cost of sales factors referenced above. Gross margin during 2021 was negatively impacted by costs associated with continued global supply chains disruptions and operational inefficiencies driven by labor shortages at certain of our facilities and customer down time resulting from the global semiconductor chip shortage. In addition, gross margin during 2021 was negatively impacted by material cost recovery mechanisms with our customers lagging material cost increases charged by our suppliers by approximately 90 days.

Selling, general and administrative expenses (SG&A) — SG&A expenses in 20202021 were $421 (5.9%$460 (5.1% of sales) as compared to $508$421 (5.9% of sales) in 2019.2020. SG&A attributed to acquisitions was $9. The year-over-year decrease of $96 exclusive of acquisitions wasexpenses were $39 lower in 2020 primarily due to lower year-over-year incentive compensation as well as lower salaried employee wages,wage and benefits travel expenses, marketing expenses and professional fees resulting from the execution of cost reduction initiativesausterity measures taken in response to the global COVID-19COVID pandemic.

Amortization of intangibles — Amortization expense was $14 in 2021 and $13 in 2020 and $12 in 2019. The increase in amortization expense is primarily due to higher levels of intangible assets as the result of acquisition activity.2020.

Restructuring charges, net — Restructuring charges of $34 in 2020 were comprised of severance and benefit costs primarily related to headcount reductions across our operations in response to the global COVID-19COVID pandemic and exit costs related to previously announced actions. Restructuring charges of $29 in 2019 were comprised of severance and benefit costs primarily related to integration of recent acquisitions, headcount reductions across our operations and exit costs related to previously announced actions. See Note 4 of our consolidated financial statements in Item 8 for additional information.

Impairment of goodwill — During the first quarter of 2020, we recorded a $51 goodwill impairment charge. During the fourth quarter of 2019, we wrote off the goodwill recognized as part of a 2016 acquisition. See Note 3 of our consolidated financial statements in Item 8 for additional information.

Pension settlement charges — During 2019, we recorded a $256 settlement charge related to the termination of one of our U.S. defined benefit pension plans and a $3 settlement charge related to the termination of one of our Canadian defined benefit pension plans. See Note 12 of our consolidated financial statements in Item 8 for additional information.

Other income (expense), net — The following table shows the major components of other income (expense), net.

Strategic transaction expenses relate primarily to costs incurred in connection with acquisition and divestiture related activities, including costs to complete the transaction and post-closing integration costs. Strategic transaction expenses in 2021 were primarily attributable to our pursuit of the acquisition of a portion of the thermal-management business of Modine Manufacturing Company and certain other strategic initiatives. Strategic transaction expenses in 2020 were primarily attributable to the acquisition of ODS and Nordresa and certain other strategic initiatives. Strategic transaction expenses in 2019 were primarily attributable to the acquisition of ODS. We held $16 of convertible notes receivable from our investment in Hyliion Inc. On October 1, 2020, Hyliion Inc. completed its merger with Tortoise Acquisition Corp. The business combination resulted in the combined company being renamed Hyliion Holdings Corp. (Hyliion), with its common stock being listed on the New York Stock Exchange under the ticker symbol HYLN. Effective with the completed merger, our notes receivable were converted into 2,988,229 common shares of HYLN. Our investment in Hyliion will bewas included in noncurrent marketable securities and carried at fair value with changes in fair value included in net incomeincome. During the third quarter of 2021, we sold all of our Hyliion shares. We had previously entered into fixed-to-fixed cross currency swaps as a hedge against our June 2026 Notes. In June 2021, we redeemed all of the June 2026 Notes and de-designated the fixed-to-fixed cross currency swaps. In conjunction with our acquisition of ODS, we acquired a controlling financial interest in future periods.a joint venture in China. We were required to divest our interest in this joint venture as it violates competitive restrictions of another of our China joint venture shareholder agreements. During the first quarter of 2019,2021, we wonrecorded an impairment charge of $7, as we determined the carrying value of the disposal group exceeded its fair value less costs to sell. We completed the disposal of this business in April 2021. During December 2021, we completed a legal judgment regardingsale-leaseback transaction on three of our U.S. manufacturing facilities. We received proceeds of $77 from the methodology used to calculate PIS/COFINS taxsale of the properties, which had carrying values totaling $11, resulting in a $66 gain on imports into Brazil. During the fourth quarter of 2019, we liquidated a foreign subsidiary. The resulting non-cash gain is attributable to the recognition of accumulated currency translation adjustments.sale transaction. See Note 19 of our consolidated financial statements in Item 8 for additional information.

Loss on extinguishment of debt —During May 2021, we redeemed our December 2024 Notes. We incurred redemption premiums of $8 in connection with these repayments and wrote off $3 of previously deferred financing costs associated with the December 2024 Notes. These charges were partially offset by the recognition of $3 related to an unamortized fair value adjustment associated with a fixed-to-floating interest rate swap that was terminated in 2015. On June 10, 2021, in connection with the issuance of our July 2029 Notes, we redeemed all of our June 2026 Notes. We incurred redemption premiums of $12 in connection with these repayments and wrote off $4 of previously deferred financing costs associated with the June 2026 Notes. On November 30, 2021, in connection with the issuance of our February 2032 Notes, we fully paid down our Term B Facility. We wrote off $5 of previously deferred financing costs associated with the Term B Facility. On June 19, 2020, in connection with the issuance of our June 2028 Notes, we terminated our $500 bridge facility and wrote off $5 of deferred fees associated with the bridge facility. On December 31, 2020, we fully paid down our Term A Facility. We wrote off $3 of previously deferred financing costs associated with the Term A Facility. During the fourth quarter of 2019, we redeemed $300 of our September 2023 Notes. We incurred redemption premiums of $7 in connection with these repayments and wrote off $2 of previously deferred financing costs associated with the extinguished debt. See Note 14 of our consolidated financial statements in Item 8 for additional information.

Interest income and interest expense — Interest income was $9 in 2020both 2021 and $10 in 2019.2020. Interest expense increaseddecreased from $122 in 2019 to $138 in 2020 to $131 in 2021 due to higherlower average debt levels in 2020. The increase in average debt levels is primarily attributable to outstanding borrowings under the Revolving Facility during the first half of 2020 and the issuances of $4002021. See Note 14 of our June 2028 Notes and anconsolidated financial statements in Item 8 for additional $100 of our November 2027 Notes in June 2020.information. Average effective interest rates, inclusive of amortization of debt issuance costs, approximated 5.1% in 2021 and 5.0% in both 2020 and 2019.2020.

Income tax expense (benefit) — Income taxes were an expense of $72 and $58 in 20202021 and 2020. During 2021, we recognized tax expense of $46 to record valuation allowance in the US due to reduced income projections.  We also recognized tax benefit of $32$46 for the release of valuation allowances in 2019.several foreign jurisdictions based on recent history of profitability and increased income projections.  The contrast of these two positions is representative of the jurisdictional mix of results and relative attributes. We also recognized tax expense of $18 related to the expiration of federal tax credits. During 2020, we recognized tax expense of $60 for additional valuation allowances in foreign jurisdictions due to reduced income projections. We also recognized a benefit of $26 for the release of valuation allowance in a subsidiary in Australia, based on recent history of profitability and increased income projections. In conjunction with the completion of the intercompany sale of certain assets to a non-U.S. affiliate, net tax expense of $12 was recorded, including the corresponding foreign derived intangible income benefit. For the year, we also recognized tax benefits of $37 related to tax actions that adjusted federal tax credits. A pre-tax goodwill impairment charge of $51 with an associated income tax benefit of $1 was recorded. During 2019, we recognized a benefit of $22 for the release of valuation allowance in a subsidiary in Brazil based on recent history of profitability and increased income projections. A pre-tax pension settlement charge of $259 was recorded, resulting in income tax expense of $11 and a valuation allowance release of $18. For the year, we also recognized benefits for the release of valuation allowance in the US of $34 based on increased income projections and $30 based on the development of a tax planning strategy related to federal tax credits. Partially offsetting this benefit in the US was $6 of expense related to a US state law change. During the second quarter of 2019, we also recorded tax benefits of $48 related to tax actions that adjusted federal tax credits. See Note 18 to our consolidated financial statements in Item 8 for additional information.

In countries where our history of operating losses does not allow us to satisfy the “more likely than not” criterion for recognition of deferred tax assets, we have generally recognized no income tax on the pre-tax income or losses as valuation allowance adjustments offset the associated tax effects. In the fourth quarter of 2020, we recognized a benefit of $26 for the release of valuation allowance in a subsidiary in Australia.  During the third quarter of 2019, we recognized a benefit of $22 for the release of a valuation allowance in a subsidiary in Brazil.

Equity in earnings of affiliates — Net earnings from equity investments was $28 in 2021 and $20 in 2020 and $30 in 2019.2020. Equity in earnings from Dongfeng Dana Axle Co., Ltd. (DDAC) was $22 in 2021 and $15 in 2020. On December 16, 2020, and $18we sold a portion of our ownership interest in 2019. After experiencing significant impacts resulting fromROC-Spicer, Ltd. (ROC-Spicer) to China Motor Corporation, reducing our ownership interest in ROC-Spicer to 50%. In conjunction with the global COVID-19 pandemic duringdecrease in our ownership interest, the first quarterROC-Spicer shareholders agreement was amended, eliminating our controlling financial interest in ROC-Spicer. Our retained investment in ROC-Spicer is being accounted for by applying the equity method. Equity in earnings of 2020, DDAC experienced higher demand levels during the balance of 2020 primarily driven by increased demand for certain medium/heavy vehicles by the Chinese government.ROC-Spicer was $3 in 2021. Equity in earnings from Bendix Spicer Foundation Brake, LLC (BSFB) was $4 in 2020 and $12 in 2019. The year-over-year decrease in BSFB's earnings is primarily attributable to the global COVID-19 pandemic and the2020. On October 1, 2020 sale ofwe sold our 20% ownership interest in BSFB to Bendix Commercial Vehicle Systems LLC. See Note 22 of our consolidated financial statements in Item 8 for additional information.

Segment Results of Operations (2021 versus 2020)

Light Vehicle

Light Vehicle sales in 2021, exclusive of currency effects and the impact of divestitures, were 24% higher than 2020 reflecting improved global markets and the conversion of sales backlog. Year-over-year North America full-frame light-truck production increased 13% while light-truck production in Europe, South America and Asia Pacific increased 2%, 35% and 4%, respectively. Net customer pricing and cost recovery actions further increased year-over-year sales by $66. The global semiconductor chip shortage impacted our 2021 sales as customers of some of our more significant programs were forced to take down time during the last nine months of the year.

Light Vehicle segment EBITDA increased by $35 in 2021. Higher sales volumes provided a year-over-year benefit of $134 (20.6% incremental margin). The year-over-year performance-related earnings decrease was driven by commodity cost increases of $167, higher standard freight costs of $25, operational inefficiencies of $15, union ratification bonuses of $10, benefits of the CARES Act and austerity measures taken in response to the COVID pandemic during 2020 not repeating in 2021 of $5 and $8, respectively, higher program launch costs of $7 and higher warranty costs of $13. Partially offsetting these performance-related decreases were material cost savings and supplier recoveries of $73, net customer pricing and material cost recovery actions of $66, lower premium freight costs of $10 and lower incentive compensation of $2.

Commercial Vehicle

Commercial Vehicle sales in 2021, exclusive of currency effects and the impact of acquisitions and divestitures, were 29% higher than 2020 reflecting mixed global markets and the conversion of sales backlog. Year-over-year North America Class 8 production was up 20% and Classes 5-7 production was up 3%. Year-over-year medium/heavy-truck production in Europe and South America were up 13% and 76%, respectively. Asia Pacific medium/heavy-truck production was down 8% compared to 2020. Net customer pricing and cost recovery actions further increased year-over-year sales by $86.

Commercial Vehicle segment EBITDA increased by $8 in 2021. Higher sales volumes provided a year-over-year benefit of $68 (25.9% incremental margin). The year-over-year performance-related earnings decrease was driven by commodity cost increases of $95, operational inefficiencies of $32, higher standard and premium freight costs of $22, benefits of the CARES Act and austerity measures taken in response to the COVID pandemic during 2020 not repeating in 2021 of $2 and $9, respectively, union ratification bonuses of $3, and higher warranty costs of $1. Partially offsetting these performance-related decreases were net customer pricing and material cost recovery actions of $86, material cost savings of $17 and lower incentive compensation of $2.

Off-Highway

Off-Highway sales in 2021, exclusive of currency effects and the impact of acquisitions, were 28% higher than 2020 reflecting improved global markets and the conversion of sales backlog. Year-over-year global construction/mining and agricultural equipment markets reflected marked improvement with global production increasing 12% and 10%, respectively, over 2020. Net customer pricing and cost recovery actions further increased year-over-year sales by $61.

Off-Highway segment EBITDA increased by $123 in 2021. Higher sales volumes provided a year-over-year benefit of $116 (24.1% incremental margin). The year-over-year performance-related earnings increase driven by net customer pricing and material cost recovery actions of $61, material cost savings of $31, operational efficiencies of $16 and lower incentive compensation of $3 were offset by higher commodity costs of $78, higher standard and premium freight costs of $14, benefits of the CARES Act and austerity measures taken in response to the COVID pandemic during 2020 not repeating in 2021 of $1 and $13, respectively, higher warranty costs of $3 and union ratification bonuses of $2.

Power Technologies

Power Technologies primarily serves the light-vehicle market but also sells product to the medium/heavy-truck and off-highway markets. Net of currency effects, sales for 2021 were 11% higher than 2020, reflecting generally improved global markets and the conversion of sales backlog. Year-over-year North America, South America and Asia Pacific light-vehicle engine production was up 2%, 9% and 3%, respectively, compared to 2020. Year-over-year light-vehicle engine production in Europe was down 5% compared to 2020. Net customer pricing and cost recovery actions further increased year-over-year sales by $10.

Power Technologies segment EBITDA increased by $29 in 2021. Higher sales volumes provided a year-over-year benefit of $34 (39.1% incremental margin). The year-over-year performance-related earnings decrease was driven by commodity cost increases of $27, higher standard and premium freight costs of $10, benefits of the CARES Act and austerity measures taken in response to the COVID pandemic during 2020 not repeating in 2021 of $2 and $9, respectively, union ratification bonuses of $3 and higher incentive compensation of $1. Partially offsetting these performance-related decreases were operational efficiencies of $21, net customer pricing and material cost recovery actions of $10, material costs savings of $8 and lower warranty costs of $5.

Segment Results of Operations (2020 versus 2019)

Light Vehicle

Light Vehicle sales in 2020, exclusive of currency effects, were 15% lower than 2019. Full year 2020 full frame light truck production declined in North America, Europe, South America, and Asia Pacific by 20%, 20%, 17%, and 9%, respectively, compared to 2019. Full frame light truck production rapidly dissipated across all regions beginning in March 2020 as a result of the global COVID-19 pandemic. The impact of the global COVID-19 pandemic on our Light Vehicle operations was most notable during April 2020, with a measured ramp up in production beginning in May followed by a rapid increase in customer demand through the third quarter. Light Vehicle sales in the fourth quarter of 2020, exclusive of currency effects, were $135 higher than the fourth quarter of 2019 primary due to the conversion of sales backlog and continued strengthening of customer demand. Net customer pricing and cost recovery actions further decreased year-over-year sales by $49.

Light Vehicle segment EBITDA decreased by $199 in 2020. Lower sales volumes provided a year-over-year headwind of $140 (28.3% decremental margin) as actions to flex down our cost structure during the second quarter of 2020 lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. Performance during the third and fourth quarters was negatively impacted by taking a number of our Light Vehicle plants from being idled just a few months prior to running at full capacity. The year-over-year performance-related earnings decline was driven by operational inefficiencies of $86, lower net pricing and material cost recovery of $49 and incremental safety costs of $2 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment. Partially offsetting these performance-related earnings decreases were material cost savings of $32, commodity cost decreases of $26, lower salaried employee wages of $10, certain benefits of the CARES Act of $5, lower incentive compensation of $3 and lower warranty expense of $2.

Commercial Vehicle

Commercial Vehicle sales in 2020, exclusive of currency effects and the impact of acquisitions, were 24% lower than 2019. Declining market conditions coming out of 2019 deteriorated further with the rapid dissipation in customer demand resulting from the global COVID-19 pandemic. Full year North America Class 8 production was down 38% and Classes 5-7 production was down 20% from 2019. Year-over-year medium/heavy truck production in Europe and South America were down 30% and 22%, respectively. Asia Pacific was impacted by the global COVID-19 pandemic earlier than the other regions, with its most significant year-over-year production decline occurring during the first quarter of 2020. Asia Pacific medium/heavy truck production was up 12% compared to 2019. Net customer pricing and cost recovery actions further decreased year-over-year sales by $12.

Commercial Vehicle segment EBITDA decreased by $102 in 2020. Lower sales volumes provided a year-over-year headwind of $98 (25.9% decremental margin) as actions to flex down our cost structure during the second and third quarters of 2020 lagged the rapid dissipation of customer demand resulting from the global COVID-19 pandemic. The year-over-year performance-related earnings improvement was driven by material cost savings of $14, lower salaried employee wages of $6, commodity cost decreases of $3, lower incentive compensation of $2, certain benefits of the CARES Act of $2 and lower warranty expense of $1. Partially offsetting these performance-related earnings increases were lower net customer pricing and cost recovery actions of $12, operational inefficiencies of $7 and incremental safety costs of $3 directly related to the global COVID-19 pandemic, including facility sanitization and personal protective equipment.

Off-Highway