UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2019

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36675

Fiat Chrysler Automobiles N.V.

(Exact Name of Registrant as Specified in Its Charter)

The Netherlands

(Jurisdiction of Incorporation or Organization)

25 St. James's Street

London SW1A 1HA

United Kingdom

Tel. No.: +44 (0) 20 7766 0311

(Address of Principal Executive Offices)

Giorgio Fossati

25 St. James's Street

London SW1A 1HA

United Kingdom

Tel. No.: +44 (0) 20 7766 0311

general.counsel@fcagroup.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Shares, par value €0.01	FCAU	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 1,567,519,274 common shares, par value €0.01 per share, and 408,941,767 special voting shares, par value €0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o
Emerging growth company o

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other o

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow: Item 17 o or Item 18 o.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

Fiat Chrysler Automobiles N.V.

Annual Report and Form 20-F

For the year ended December 31, 2019

TABLE OF CONTENTS

	Page
Board of Directors and Auditor	5
BOARD REPORT	6
INTRODUCTION	6
MANAGEMENT REPORT	10
Selected Financial Data	10
Group Overview	13
Our Business Plan	20
Overview of Our Business	21
Sales Overview	30
Environmental and Other Regulatory Matters	38
Financial Overview	46
Results of Operations	53
Liquidity and Capital Resources	68
Risk Management	72
Risk Factors	76
CORPORATE GOVERNANCE	95
Remuneration Report	129
CONTROLS AND PROCEDURES	144
Consolidated Financial Statements at December 31, 2019	146
Consolidated Income Statement	150
Consolidated Statement of Comprehensive Income/(Loss)	151
Consolidated Statement of Financial Position	152
Consolidated Statement of Cash Flows	153
Consolidated Statement of Changes in Equity	154
Notes to the Consolidated Financial Statements	155
OTHER INFORMATION	261
Additional information for Netherlands Corporate Governance	261
Additional Information for U.S. Listing Purposes	265
FORM 20-F CROSS REFERENCE	280
SIGNATURES	283

4

BOARD OF DIRECTORS

Chairman

John Elkann⁽¹⁾

Chief Executive Officer

Michael Manley

Chief Financial Officer

Richard Palmer

Directors

John Abbott

Andrea Agnelli

Tiberto Brandolini d’Adda

Glenn Earle⁽²⁾

Valerie A. Mars^(1),(2),(3)

Ronald L. Thompson⁽²⁾

Michelangelo A. Volpi⁽³⁾

Patience Wheatcroft^(1),(2)

Ermenegildo Zegna⁽³⁾

INDEPENDENT AUDITOR

Ernst & Young Accountants LLP (AFM annual report filing)⁽⁴⁾

EY S.p.A (SEC Form 20-F filing)⁽⁴⁾

________________________________________________________________________________________________________________________________________________

(1) Member of the Governance and Sustainability Committee

(2) Member of the Audit Committee

(3) Member of the Compensation Committee

(4) Refer to “About this Report” for additional information relating to these regulatory filings.

5

BOARD REPORT

INTRODUCTION

About this Report

This document, referred to hereafter as the “Annual Report and Form 20-F”, constitutes both the Statutory annual report in accordance with Dutch legal requirements and the annual report on Form 20-F, applicable to Foreign Private Issuers, pursuant to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, for Fiat Chrysler Automobiles N.V. for the year ended December 31, 2019, except as noted below. A table that cross-references the content of this report to the Form 20-F requirements is set out in the FORM 20-F CROSS REFERENCEsection included elsewhere in this report.

The Annual Report and Form 20-F is filed with the Netherlands Authority for Financial Markets (Autoriteit Financiële Markten, the “AFM”) and unless otherwise stated, all references in this document to “Annual Report” refer to the AFM filing. The following sections have been removed for our Annual Report filing with the AFM:

• FORM 20-F cover page;

• REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (EY S.p.A. in respect of Internal Control over Financial Reporting for the SEC filing);

• REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (EY S.p.A. in respect of the PCAOB audit of the financial statements for the SEC filing); and

• SIGNATURES.

The Annual Report and Form 20-F and related exhibits are filed with the U.S. Securities and Exchange Commission (“SEC”) and unless otherwise stated, all references in this document to “Form 20-F” refer to the SEC filing. The following sections have been removed for our Form 20-F filing with the SEC:

• MESSAGE FROM THE CHAIRMAN AND THE CEO;

• CORPORATE GOVERNANCE - Responsibilities in Respect to the Annual Report;

• NON-FINANCIAL INFORMATION;

• CONTROLS AND PROCEDURES - Statement by the Board of Directors;

• 2020 GUIDANCE;

• FCA N.V. COMPANY FINANCIAL STATEMENTS; and

• Independent auditor’s report (Ernst & Young Accountants LLP in respect of the AFM filing).

Documents on Display

The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s website is provided solely for information purposes and is not intended to be an active link. Reports and other information concerning our business may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005.

We also make our periodic reports, as well as other information filed with or furnished to the SEC, available free of charge through our website, at www.fcagroup.com, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference in this report.

6

Certain Defined Terms

In this report, unless otherwise specified, the terms “we”, “our”, “us”, the “Group”, the “Company” and “FCA” refer to Fiat Chrysler Automobiles N.V., together with its subsidiaries and its predecessor prior to the completion of the merger of Fiat S.p.A. with and into Fiat Investments N.V. on October 12, 2014 (the “2014 Merger”, at which time Fiat Investments N.V. was renamed Fiat Chrysler Automobiles N.V., or “FCA NV”), or any one or more of them, as the context may require. References to “Fiat” refer solely to the Fiat brand and “Fiat S.p.A.” refer to Fiat S.p.A., the predecessor of FCA NV prior to the 2014 Merger. References to “FCA US” refer to FCA US LLC, formerly known as Chrysler Group LLC, together with its direct and indirect subsidiaries.

Presentation of Financial and Other Data

This report includes the consolidated financial statements of the Group as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. We refer to the consolidated financial statements and the notes to the consolidated financial statements collectively as the “Consolidated Financial Statements”.

All references in this report to “Euro” and “€” refer to the currency issued by the European Central Bank. The Group’s financial information is presented in Euro. All references to “U.S. Dollars”, “U.S. Dollar”, “U.S.$” and “$” refer to the currency of the United States of America (“U.S.”).

The language of this report is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

Certain totals in the tables included in this report may not add due to rounding.

Except as otherwise disclosed within this report, no significant changes have occurred since the date of the audited Consolidated Financial Statements included elsewhere in this report.

Market and Industry Information

In this report, we include and refer to industry and market data, including market share, ranking and other data, derived from or based upon a variety of official, non-official and internal sources, such as internal surveys and management estimates, market research, publicly available information and industry publications. Market share, ranking and other data contained in this report may also be based on our good faith estimates, our own knowledge and experience and such other sources as may be available. Market share data may change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, different methods used by different sources to collect, assemble, analyze or compute market data, including different definitions of vehicle segments and descriptions and other limitations and uncertainties inherent in any statistical survey of market shares or size. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Although we believe that this information is reliable, we have not independently verified the data from third-party sources. In addition, we typically estimate our market share for automobiles and commercial vehicles based on registration data.

In markets where registration data are not available, we calculate our market share based on estimates relating to sales to final customers. Such data may differ from data relating to shipments to our dealers and distributors. While we believe our internal estimates with respect to our industry are reliable, our internal company surveys and management estimates have not been verified by an independent expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market data would obtain or generate the same result. The market share data presented in this report represents the best estimates available from the sources indicated as of the date hereof but, in particular as they relate to market share and our future expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section Risk Factors in this report.

7

Forward-Looking Statements

Statements contained in this report, particularly those regarding possible or assumed future performance, competitive strengths, costs, dividends, reserves and growth of FCA, industry growth and other trends and projections and estimated company earnings are “forward-looking statements” that contain risks and uncertainties. In some cases, words such as “may”, “will”, “expect”, “could”, “should”, “intend”, “estimate”, “anticipate”, “believe”, “remain”, “on track”, “design”, “target”, “objective”, “goal”, “forecast”, “projection”, “outlook”, “prospects”, “plan”, or similar terms are used to identify forward-looking statements. These forward-looking statements reflect the respective current views of the Group with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially.

These factors include, without limitation:

• our ability to launch products successfully and to maintain vehicle shipment volumes;

• changes in the global financial markets, general economic environment and changes in demand for automotive products, which is subject to cyclicality;

• changes in local economic and political conditions, changes in trade policy and the imposition of global and regional tariffs or tariffs targeted to the automotive industry, the enactment of tax reforms or other changes in tax laws and regulations;

• our ability to expand certain of our brands globally;

• our ability to offer innovative, attractive products;

• our ability to develop, manufacture and sell vehicles with advanced features, including enhanced electrification, connectivity and automated-driving characteristics;

• various types of claims, lawsuits, governmental investigations and other contingencies affecting us, including product liability and warranty claims and environmental claims, investigations and lawsuits;

• material operating expenditures in relation to compliance with environmental, health and safety regulations;

• the intense level of competition in the automotive industry, which may increase due to consolidation;

• our ability to complete, and realize expected synergies following completion of, our proposed merger with Peugeot S.A., including the expected cumulative implementation costs;

• exposure to shortfalls in the funding of our defined benefit pension plans;

• our ability to provide or arrange for access to adequate financing for our dealers and retail customers, and associated risks related to the establishment and operations of financial services companies, including capital required to be deployed to financial services;

• our ability to access funding to execute our business plan and improve our business, financial condition and results of operations;

• a significant malfunction, disruption or security breach compromising our information technology systems or the electronic control systems contained in our vehicles;

• our ability to realize anticipated benefits from joint venture arrangements in certain emerging markets;

• our ability to successfully implement and execute strategic initiatives and transactions, including our plans to separate certain businesses;

• disruptions arising from political, social and economic instability;

8

• risks associated with our relationships with employees, dealers and suppliers;

• increases in costs, disruptions of supply or shortages of raw materials;

• developments in labor and industrial relations, including any work stoppages, and developments in applicable labor laws;

• exchange rate fluctuations, interest rate changes, credit risk and other market risks;

• political and civil unrest;

• earthquakes or other disasters; and

• other factors discussed elsewhere in this report.

Furthermore, in light of the inherent difficulty in forecasting future results, any estimates or forecasts of particular periods that are provided in this report are uncertain. We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the forward-looking statements in this report or in connection with any use by any third party of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.

Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section Risk Factorsin this report.

9

MANAGEMENT REPORT

SELECTED FINANCIAL DATA

The following tables set forth selected historical consolidated financial and other data of FCA and have been derived, in part, from:

• the Consolidated Financial Statements of FCA as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, included elsewhere in this report; and

• the Consolidated Financial Statements of FCA as of December 31, 2017, 2016 and 2015, for the years ended December 31, 2016 and 2015, except for the classification of Magneti Marelli as a discontinued operation as noted below, which are not included in this report.

This data should be read in conjunction with Presentation of Financial and Other Data, Risk Factors, the FINANCIAL OVERVIEW section and the Consolidated Financial Statements and related notes included elsewhere in this report.

10

Consolidated Income Statement Data

	Years ended December 31,
	2019(1)		2018(1)		2017(1)		2016(1)		2015(1,2)
	(€ million, except per share amounts)
Net revenues	€	108,187	€	110,412	€	105,730	€	105,798	€	105,859
Profit before taxes	€	4,021	€	4,108	€	5,879	€	2,950	€	99
Net profit/(loss) from continuing operations	€	2,700	€	3,330	€	3,291	€	1,713	€	(15	)
Profit from discontinued operations, net of tax	€	3,930	€	302	€	219	€	101	€	392
Net profit	€	6,630	€	3,632	€	3,510	€	1,814	€	377
Net profit attributable to:
Owners of the parent	€	6,622	€	3,608	€	3,491	€	1,803	€	334
Non-controlling interests	€	8	€	24	€	19	€	11	€	43
Earnings/(Loss) per share from continuing operations
Basic earnings/(loss) per share	€	1.72	€	2.15	€	2.14	€	1.13	€	(0.01	)
Diluted earnings/(loss) per share	€	1.71	€	2.12	€	2.11	€	1.12	€	(0.01	)
Earnings per share from discontinued operations
Basic earnings per share	€	2.51	€	0.18	€	0.14	€	0.06	€	0.23
Diluted earnings per share	€	2.50	€	0.18	€	0.13	€	0.06	€	0.23
Earnings per share from continuing and discontinued operations
Basic earnings per share	€	4.23	€	2.33	€	2.27	€	1.19	€	0.22
Diluted earnings per share	€	4.22	€	2.30	€	2.24	€	1.18	€	0.22
Other Statistical Information (unaudited):
Combined shipments (in thousands of units)(3)	4,418		4,842		4,740		4,720		4,738
Consolidated shipments (in thousands of units)(4)	4,272		4,655		4,423		4,482		4,602

________________________________________________________________________________________________________________________________________________

(1) The operating results of FCA for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 exclude Magneti Marelli following the classification of Magneti Marelli as a discontinued operation for the year ended December 31, 2018, and until its deconsolidation on completion of the sale transaction on May 2, 2019; Magneti Marelli operating results were excluded from the Group's continuing operations and are presented as a single line within the Consolidated Income Statement data for the years ended December 31, 2019, 2018, 2017, 2016, and 2015 presented above, and until its deconsolidation on completion of the sale transaction on May 2, 2019.

(2) The operating results of FCA for the year ended December 31, 2015 exclude Ferrari following the classification of Ferrari as a discontinued operation for the year ended December 31, 2015; Ferrari operating results were excluded from the Group's continuing operations and are presented as a single line item within the Consolidated Income Statements for the year ended December 31, 2015.

(3) Combined shipments include shipments by the Group's consolidated subsidiaries and unconsolidated joint ventures.

(4) Consolidated shipments only include shipments by the Group's consolidated subsidiaries.

11

Consolidated Statement of Financial Position Data

	At December 31,
	2019(1),(2)		2018(1)		2017(1)		2016(1)		2015(1,3)
	(€ million, except shares issued data)
Cash and cash equivalents	€	15,014	€	12,450	€	12,638	€	17,318	€	20,662
Total assets(4)	€	98,044	€	96,873	€	96,299	€	104,343	€	105,753
Debt(4)	€	12,901	€	14,528	€	17,971	€	24,048	€	27,786
Total equity	€	28,675	€	24,903	€	20,987	€	19,353	€	16,968
Equity attributable to owners of the parent	€	28,537	€	24,702	€	20,819	€	19,168	€	16,805
Non-controlling interests	€	138	€	201	€	168	€	185	€	163
Share capital	€	20	€	19	€	19	€	19	€	17
Shares issued (in thousands)
Common(5)	1,567,519		1,550,618		1,540,090		1,527,966		1,288,956
Special Voting(5)	408,942		408,942		408,942		408,942		408,942
Dividends paid, per share(6)
Ordinary dividends paid, per share	€	0.65	€		€		€		€
Extraordinary dividends paid, per share	€	1.30	€		€		€		€

________________________________________________________________________________________________________________________________________________

(1) The assets and liabilities of Magneti Marelli were classified as Assets held for sale and Liabilities held for sale within the Consolidated Statement of Financial Position at December 31, 2018, while the assets and liabilities of Magneti Marelli have not been classified as such within the comparative Consolidated Statements of Financial Position at December 31, 2017, 2016, and 2015.

(2) The assets and liabilities of the cast iron automotive components business of Teksid were classified as Assets held for sale and Liabilities held for sale within the Consolidated Statement of Financial Position at December 31, 2019, while the assets and liabilities of the cast iron automotive components business of Teksid have not been classified as such within the comparative Consolidated Statements of Financial Position at December 31, 2018, 2017, 2016, and 2015. Refer to Note 3, Scope of consolidation within our Consolidated Financial Statements included elsewhere in this report.

(3) The assets and liabilities of Ferrari were classified as Assets held for distribution and Liabilities held for distribution within the Consolidated Statement of Financial Position at December 31, 2015.

(4) Refer to Note 2, Basis of preparation within our Consolidated Financial Statements included elsewhere in this report for detail on the adoption of IFRS 16, Leases.

(5) Refer to Note 26, Equity, within our Consolidated Financial Statements included elsewhere in this report.

(6) The Board of Directors intend to recommend to the Annual General Meeting of Shareholders an annual ordinary dividend distribution to holders of FCA common shares of €0.70 (approximately US$0.79, based on the closing spot rate at December 31, 2019) per common share. The distribution, from the Company's 2019 profits, will be subject to the approval by the Annual General Meeting of Shareholders, which is scheduled to be held on April 16, 2020. Refer to Note 26, Equity, within our Consolidated Financial Statements included elsewhere in this report, for further details.

12

GROUP OVERVIEW

We are a global automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems worldwide through over a hundred manufacturing facilities and over forty research and development centers. We have operations in more than forty countries and sell our vehicles directly or through distributors and dealers in more than a hundred and thirty countries. We design, engineer, manufacture, distribute and sell vehicles for the mass-market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation. For our mass-market vehicle brands, we have centralized design, engineering, development and manufacturing operations, which allow us to efficiently operate on a global scale. We support our vehicle shipments with the sale of related service parts and accessories, as well as service contracts, worldwide under the Mopar brand name for mass-market vehicles. In addition, we design, engineer, manufacture, distribute and sell luxury vehicles under the Maserati brand. We make available retail and dealer financing, leasing and rental services through our subsidiaries, joint ventures and commercial arrangements with third party financial institutions. In addition, we operate in the components and production systems sectors under the Teksid and Comau brands. Refer to Note 3, Scope of consolidation in the Consolidated Financial Statements included elsewhere in this report for detail on the announced sale of Teksid's cast iron automotive components business. As announced in December 2019, FCA will continue work on the separation of its holding in Comau, which will be separated promptly following closing of the proposed merger with Groupe PSA.

In 2019, we shipped 4.4 million vehicles (including the group's unconsolidated joint ventures), resulting in Net revenues of €108.2 billion and Net profit of €6.6 billion, of which €2.7 billion was attributable to continuing operations, and generated €2.1 billion of Industrial free cash flows (See Non-GAAP Financial Measures). At December 31, 2019 our available liquidity was €23.1 billion (including €7.6 billion available under undrawn committed credit lines).

History of FCA

Fiat Chrysler Automobiles N.V. was incorporated as a public limited liability company (naamloze vennootschap) under the laws of the Netherlands on April 1, 2014 and became the parent company of the Group on October 12, 2014. Its principal office is located at 25 St. James's Street, London SW1A 1HA, United Kingdom (telephone number: +44 (0) 20 7766 0311). Its agent for U.S. federal securities law purposes is Christopher J. Pardi, c/o FCA US LLC, 1000 Chrysler Drive, Auburn Hills, Michigan 48326.

Fiat S.p.A., the predecessor to FCA, was founded as Fabbrica Italiana Automobili Torino on July 11, 1899 in Turin, Italy as an automobile manufacturer. In 1902, Giovanni Agnelli, Fiat S.p.A.’s founder, became the Managing Director of the company.

FCA US LLC, then known as Chrysler Group LLC, (“FCA US”) acquired the principal operating assets of the former Chrysler LLC in 2009 as part of a government-sponsored restructuring of the North American automotive industry. Between 2009 and 2014, Fiat S.p.A. expanded its initial 20 percent ownership interest to 100 percent of the ownership of FCA US and on October 12, 2014, Fiat S.p.A. completed a corporate reorganization resulting in the establishment of FCA NV as the parent company of the Group, with its principal executive offices in the United Kingdom. FCA common shares commenced trading on the Milan Mercato Telematico Azionario (“MTA”) and the New York Stock Exchange (“NYSE”) on October 13, 2014. As a result, FCA NV, as successor of Fiat S.p.A., is the parent company of the Group.

In January 2011, the separation of Fiat S.p.A.'s non-automotive capital goods business was completed with the creation of Fiat Industrial, now known as CNH Industrial N.V.

The spin-off of Ferrari N.V. from the Group was completed in January 2016. The assets and liabilities of the Ferrari segment were distributed to holders of FCA shares and mandatory convertible securities. 

13

Magneti Marelli Sale

On October, 22, 2018, we announced a definitive agreement to sell our Magneti Marelli business to CK Holdings Co., Ltd, completing the sale on May 2, 2019. Refer to Note 3, Scope of consolidation within the Consolidated Financial Statements included elsewhere within this report for additional information.

FCA-PSA Merger

On December 17, 2019, FCA and PSA entered into a combination agreement (the “combination agreement”) providing for a merger of their businesses (the “merger”). In addition, certain shareholders of FCA and PSA have made undertakings to support the merger and, among other things, vote their shares in favor of the merger at their respective extraordinary general meetings of shareholders. Below is a summary of the transaction and the main provisions of the combination agreement and the shareholders’ undertakings.

The following summary is qualified in all respects by reference to the complete text of the combination agreement and the shareholders’ undertakings, attached hereto as exhibits. You should read the combination agreement and the shareholders’ undertakings carefully as they are the legal documents that govern the terms of the merger.

Transaction Structure and Merger Consideration

If the merger is approved by the requisite votes of the FCA shareholders and the PSA shareholders and the other conditions precedent to the merger are satisfied or, to the extent permitted under the combination agreement and by applicable law, waived, PSA will be merged with and into FCA. The combined company (“DutchCo”) will be named by mutual agreement of FCA and PSA with effect from the day immediately following completion of the merger.

The closing of the merger shall take place on the second Friday after satisfaction or (to the extent permitted under the combination agreement and by applicable law) waiver of the closing conditions and the merger shall be effective at midnight (Central European Time) following the signing of the merger deed (the “Effective Time”), at which time, the separate corporate existence of PSA shall cease, and DutchCo shall continue as the sole surviving corporation, and, by operation of law, DutchCo, as successor, shall succeed to and assume all of the rights and obligations, as well as the assets and liabilities, of PSA in accordance with Dutch law and French law.

At the Effective Time, by virtue of the merger and without any action on the part of any holder of PSA ordinary shares or FCA common shares, PSA shareholders will have the right to receive 1.742 DutchCo common shares for each PSA ordinary share that they hold and each issued and outstanding common share of FCA shall remain unchanged as one (1) common share in DutchCo. There will be no carryover of the existing double voting rights currently held by Exor in FCA pursuant to the existing FCA loyalty voting structure. To that end, the combination agreement provides that at the Effective Time all special voting shares of FCA held by Exor will be reacquired by DutchCo for no consideration.

Governance of DutchCo

The combination agreement provides for certain arrangements relating to the governance of DutchCo, including causing DutchCo to adopt, immediately following the Effective Date, new articles of association, board regulations and a loyalty voting program in the agreed form. The principal terms of such governance arrangements are summarized below.

DutchCo Board Composition

The combination agreement provides that after closing of the merger the board of directors of DutchCo (the “DutchCo Board”) shall be a single tier board initially composed of 11 members, including the following initial directors:

• the CEO of DutchCo;

• two (2) Independent Directors nominated by FCA;

• two (2) Independent Directors nominated by PSA;

• two (2) directors nominated by Exor;

14

• one (1) director nominated by Bpifrance (Bpifrance shall include jointly Bpifrance Participations S.A. and its wholly-owned subsidiary Lion Participations SAS. (or EPF/FFP, as further described below));

• one (1) director nominated by EPF/FFP; and

• two (2) employee representatives.

For these purposes, “Independent Director” means a director meeting the independence requirements under the Dutch Corporate Governance Code and, with respect to members of the Audit Committee, also meeting the independence requirements of Rule 10A-3 under the Exchange Act, and the NYSE listing requirements.

Nomination Rights

The rights of Exor, EPF/FFP and Bpifrance to nominate the number of directors mentioned above also apply to future terms of office of the DutchCo Board; providedthat:

• if the number of DutchCo common shares held by Bpifrance, and/or any of its affiliates, or EPF/FFP, and/or any of its affiliates, falls below 5% of the issued and outstanding DutchCo common shares, such shareholder shall no longer be entitled to nominate a director (in which case, any director nominated by Bpifrance or EPF/FFP, as the case may be, shall be required to promptly resign); and

• if, at the Effective Time, at any time within the six (6) years following the closing of the merger or on the sixth (6^th) anniversary of the closing of the merger, both (i) the number of DutchCo common shares held by EPF/FFP and/or their affiliates increases to 8% or more of the issued and outstanding DutchCo common shares and (ii) the number of DutchCo common shares held by Bpifrance and/or its affiliates falls below 5% of the issued and outstanding DutchCo common shares, then EPF/FFP shall be entitled to nominate a second director to the DutchCo Board to replace the Bpifrance nominee (the “EPF/FFP Additional Director”),

As an exception to the foregoing, if, at the Effective Time or within six (6) years of the Effective Time:

• the number of DutchCo common shares held by Bpifrance and its affiliates, on the one hand, or EPF/FFP and its affiliates, on the other hand, represents between 4% and 5% of the issued and outstanding DutchCo common shares (the “Threshold Stake”);

• either Bpifrance or EPF/FFP has not lost its right to nominate a director in accordance with the preceding paragraph; and

• the number of DutchCo common shares held by Bpifrance, EPF/FFP and their respective affiliates represents, in aggregate, 8% or more of the issued and outstanding DutchCo common shares,

the shareholder which holds the Threshold Stake will maintain its right to nominate a director to the DutchCo Board until the sixth (6^th) anniversary of the closing of the merger (it being understood that while Bpifrance is entitled to nominate a director pursuant to this proviso, EPF/FFP shall not be entitled to nominate the EPF/FFP Additional Director).

Additionally, Exor’s right to nominate directors will decrease in the event Exor and/or its affiliates reduce their equity ownership in DutchCo as follows:

• if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to 8% of the issued and outstanding DutchCo common shares, Exor will be entitled to nominate one (1) director instead of two (2); and

• if the number of shares held by Exor and/or its affiliates falls below the number of shares corresponding to 5% of the issued and outstanding DutchCo common shares, Exor will no longer be entitled to nominate a director;

In such cases, the director designated by Exor for resignation from among the directors nominated by Exor shall be required to resign as promptly as reasonably practicable after the number of DutchCo common shares held by Exor and/or its affiliates falls below the applicable threshold.

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Any event or series of events (including any issue of new shares) other than a transfer (including transfer under universal title) of PSA shares or DutchCo shares shall be disregarded for the purpose of determining whether the applicable shareholder reaches the relevant threshold(s).

Initial Management of DutchCo

The combination agreement provides that the following positions shall be filled by the following individuals from the day immediately after the closing of the merger:

• Chairman: John Elkann;

• CEO: Carlos Tavares;

• Vice Chairman: a director nominated by EPF/FFP; and

• Senior Independent Director: an Independent Director nominated by PSA.

The initial term of office of each of the Chairman, CEO, Senior Independent Director and Vice Chairman shall be five (5) years, in each case beginning at the day immediately after the closing of the merger. The initial term of office for each of the other directors shall be four (4) years. Mr. Elkann and Mr. Tavares will be the only executive directors.

The board regulations provide that in addition to the Chairman’s other powers set out in the board regulations, if the Chairman is an executive director, he or she will be consulted and work together with the CEO on that basis on important strategic matters affecting DutchCo as set forth in the board regulations.

In addition to his/her powers set out in the DutchCo Articles of Association and board regulations, the CEO will be responsible for the management of DutchCo in accordance with the Dutch Civil Code and will be vested with full authority to represent DutchCo individually.

The Senior Independent Director (acting as the voorzitter under Dutch Law) shall preside over the meetings of the DutchCo Board and shall be vested with the powers to convene the board and the general meetings of shareholders of DutchCo.

Voting Limitations

The combination agreement provides that under the DutchCo articles of association no shareholder, acting alone or in concert, together with votes exercised by affiliates of such shareholder or pursuant to proxies or other arrangements conferring the right to vote, may cast 30% (the “Voting Threshold”) or more of the votes cast at any general meeting of shareholders of DutchCo, including after giving effect to any voting rights exercisable through DutchCo special voting shares. Any voting right in excess of the Voting Threshold will be suspended. Furthermore, the DutchCo articles of association will provide that, before each shareholders’ meeting, any shareholder holding voting rights in excess of the Voting Threshold shall notify DutchCo of its shareholding and total voting rights in DutchCo and provide, upon request by DutchCo, any information necessary to ascertain the composition, nature and size of the equity interest of that person and any other person acting in concert with it. This restriction (i) may be removed by the affirmative vote of the holders of two-thirds of the issued and outstanding DutchCo common shares (for the avoidance of doubt, without giving effect to any voting rights exercisable through DutchCo special voting shares, and subject to the aforementioned 30% voting cap) and (ii) shall lapse upon any person holding more than 50% of the issued and outstanding DutchCo common shares (other than DutchCo special voting shares) as a result of a tender offer for DutchCo common shares.

Shareholders Matters

Each of Exor, Bpifrance, EPF/FFP and Dongfeng (the “Reference Shareholders”), in its capacity as shareholder of PSA or FCA, as applicable, has entered into a letter agreement (a “Letter Agreement”) with PSA or FCA, as applicable, setting forth, among other things, the following undertakings relating to the merger and the future governance of DutchCo:

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• Support of the merger - Each Reference Shareholder has undertaken to vote or cause to be voted all shares owned or controlled by it or as to which it has the power to vote in favor of any decision in furtherance of the approval of the transactions contemplated by the combination agreement that is submitted to the shareholders;

• Standstill - Each Reference Shareholder shall be restricted from buying shares to increase its interest in PSA, FCA (before the merger) or DutchCo for a period ending seven years following the Effective Time, except that EPF/FFP may increase its shareholding by up to a maximum of 2.5% in DutchCo (or 5% in PSA) by acquiring shares from Bpifrance and/or Dongfeng and/or on the market, provided that market acquisitions may not represent more than 1% of the DutchCo common shares or 2% of the PSA ordinary shares plus, if applicable, the percentage of DutchCo common shares (or PSA ordinary shares) sold by Bpifrance to buyers other than EPF/FFP or any of its affiliates;

• Lock-up - From the date of the combination agreement until 3 years after closing of the merger Exor, Bpifrance and EPF/FFP will be subject to a lock-up in respect of their shareholdings in the relevant company before closing of the merger and in DutchCo thereafter, except that Bpifrance will be permitted to reduce its shareholdings by 5% in PSA or 2.5% in DutchCo; and

• Dongfeng Buy-back - Dongfeng has agreed to sell, and PSA has agreed to buy, 30.7 million PSA ordinary shares prior to closing of the merger (the ordinary shares repurchased by PSA will be cancelled). Notwithstanding the above, Dongfeng may sell all or or part of such shares to third parties prior to the closing of the merger, in which case the purchase by PSA described in the prior sentence will apply to the balance of such 30.7 million PSA ordinary shares not otherwise sold by Dongfeng. Dongfeng is subject to a lock up until the Effective Time for the balance of its participation in PSA, resulting in an ownership of 4.5% in DutchCo immediately after the Effective Time.

Certain Covenants

In addition to making reciprocal customary representation and warranties and agreeing to customary restrictions on their respective operations as from the time of the combination agreement until the Effective Time, FCA and PSA each have agreed to take certain actions between the date of the combination agreement and the Effective Time, such as the seeking of competition law and other regulatory approvals, the making of stock exchange and securities filings, and the application for listing of the DutchCo common shares issued in connection with the merger on the NYSE, Euronext Paris and the MTA prior to the closing date of the merger.

Pre-merger Distributions

Prior to the Effective Time (i) an extraordinary cash distribution of €5.5 billion may be paid by FCA to its shareholders, (ii) an ordinary dividend for an amount of €1.1 billion in respect of the fiscal year ending December 31, 2019 may be paid by each of FCA and PSA and (iii) if the closing of the merger has not occurred before the 2021 annual general meetings of PSA and FCA, an ordinary dividend in respect of the fiscal year ending December 31, 2020 for an amount to be agreed by FCA and PSA on the basis of their respective distributable amounts shall be paid by each of PSA and FCA, in the case of (ii) and (iii) subject to the availability of sufficient distributable amounts.

Faurecia Distribution

PSA is permitted to distribute to its shareholders by special or interim dividend all of the shares held by PSA in Faurecia prior to the Effective Time with no material changes in any currently existing commercial arrangements between PSA and Faurecia, other than amendments in the ordinary course.

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Comau Separation

Promptly following the Effective Time, DutchCo is permitted to allocate to its shareholders through a demerger or similar transaction all the shares held by DutchCo in Comau or implement other value-creating alternative structures, including the sale of all the shares held by DutchCo in Comau (each of such transactions, the “Comau Separation”). FCA shall, prior to the closing of the merger, work diligently to prepare for the Comau Separation to enable the Comau Separation to be completed promptly following the closing of the merger, including by establishing the perimeter, capital structure and governance of Comau in consultation with PSA and, if applicable, preparing all necessary documentation for the listing of Comau shares on the appropriate securities exchange.

Other Provisions

The combination agreement contains customary exclusivity provisions requiring the parties to refrain from soliciting any acquisition proposal from third-parties as well as covenants requiring the board of directors of each of FCA and PSA to recommend that their respective shareholders approve the transaction, subject to limited exceptions to ensure compliance with the directors’ fiduciary duties in connection with a superior proposal.

The obligation of each party to effect the merger is subject to customary closing conditions, including the absence of a material adverse effect with respect to the other party, regulatory clearances and approval by the shareholders of PSA and FCA.

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Major Shareholders

Exor N.V. is the largest shareholder of FCA through its 28.66 percent shareholding interest in our issued common shares (as of February 25, 2020). As a result of the loyalty voting mechanism, Exor N.V.’s voting power is 41.74 percent.

Consequently, Exor N.V. could strongly influence all matters submitted to a vote of our shareholders, including approval of annual dividends, election and removal of directors and approval of extraordinary business combinations.

Exor N.V. is controlled by Giovanni Agnelli B.V. (“GA”), which holds 52.99 percent of its share capital. GA is a private limited liability company under Dutch law with its capital divided in shares and currently held by members of the Agnelli and Nasi families, descendants of Giovanni Agnelli, the founder of Fiat S.p.A. Its present principal business activity is to purchase, administer and dispose of equity interests in public and private entities and, in particular, to ensure the cohesion and continuity of the administration of its controlling equity interests. The directors of GA are John Elkann, Tiberto Brandolini d’Adda, Alessandro Nasi, Andrea Agnelli, Eduardo Teodorani-Fabbri, Luca Ferrero de’ Gubernatis Ventimiglia, Jeroen Preller and Florence Hinnen.

Based on the information in FCA’s shareholder register, regulatory filings with the AFM and the SEC and other sources available to FCA, the following persons owned, directly or indirectly, in excess of three percent of FCA's capital and/or voting interest as of February 25, 2020:

FCA Shareholders	Number of Issued Common Shares	Percentage Owned
Exor N.V.(1)	449,410,092	28.66
BlackRock, Inc.(2)	62,912,116	4.01

________________________________________________________________________________________________________________________________________________

(1) In addition, Exor N.V. holds 375,803,870 special voting shares; Exor N.V.'s beneficial ownership in FCA is 41.74 percent, calculated as the ratio of (i) the aggregate number of common and special voting shares owned by Exor N.V. and (ii) the aggregate number of outstanding common shares and issued special voting shares.

(2) BlackRock, Inc. beneficially owns 62,912,116 common shares (3.18 percent of total issued shares, which is the aggregate number of outstanding common shares and issued special voting shares) and 77,228,433 voting rights (4.92 percent of outstanding common shares and 3.91 percent of total issued shares).

Based on the information in FCA’s shareholder register and other sources available to us, as of January 31, 2020, approximately 450 million FCA common shares, or approximately 29 percent of the FCA common shares, were held in the United States. As of the same date, approximately 840 record holders had registered addresses in the United States.

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Our Business Plan

On June 1, 2018, our former Chief Executive Officer (“CEO”) Sergio Marchionne, together with members of the Group's executive management, presented the Group’s 2018-2022 business plan. During 2019, current CEO Mike Manley highlighted additional measures to improve operating results: in APAC with specific focus on China; Maserati; and in EMEA, including the rationalization of product portfolio plans, primarily for the A-segment and Alfa Romeo, while capitalizing on the market shift from A- to B-segments.

The business plan and the additional measures mentioned above build upon the strategic actions taken in the prior plan to generate volume growth and margin expansion through the following:

• Continued emphasis on building strong brands by leveraging renewals of key products and portfolio expansion;

• New white-space products with particular focus on the Jeep, Maserati and Alfa Romeo brands;

• Improve positioning of Maserati as a luxury brand, bridging product gap with specialty models, improving cadence of new model introduction, including a fully-electrified line-up, with new leadership team in place, new COO and other key appointments;

• Refocus marketing in China to recently launched products, offer more efficient powertrain combinations along with continued product quality improvements, as well as changes in the leadership team;

• Continue to focus on industrial rationalization to deliver cost savings through manufacturing and purchasing efficiencies and implement actions to increase capacity utilization, including local production of certain Jeep products, in EMEA;

• Implementation of various electrified powertrain applications throughout the portfolio, supplemented with third-party agreements for the purchase of regulatory credits, as part of our regulatory compliance strategy;

• Continue to explore opportunities to develop partnerships to share technologies and platforms, enhance skill set related to autonomous driving technologies, preserve full optionality and ensure speed to market; and

• Maintain a disciplined approach to the deployment of capital and re-establish consistent shareholder remuneration actions.

We continue to assess the potential impacts of operationalizing and implementing the strategic targets set out in the business plan, including re-allocation of our resources. The recoverability of certain of our assets or cash-generating units may be impacted in future periods. For example, our product development strategies may be affected by regulatory changes as well as changes in the expected costs of implementing electrification, including the cost of batteries, or in relation to any future business plans or strategies developed as part of partnerships and collaborations. As relevant circumstances change, we expect to adjust our product plans which may result in changes to the expected use of certain of the Group's vehicle platforms. These uncertainties could result in either impairments of, or reductions to the expected useful lives of, these platforms, or both.

Refer to Note 26, Equity within the Consolidated Financial Statements included elsewhere in this report for additional detail on the proposed annual ordinary dividend distribution to holders of FCA common shares.

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Overview of Our Business

Our activities are carried out through the following five reportable segments:

(i) North America: our operations to support distribution and sale of mass-market vehicles in the United States, Canada, Mexico and Caribbean islands, primarily under the Jeep, Ram, Dodge, Chrysler, Fiat, Alfa Romeo and Abarth brands.

(ii) LATAM: our operations to support the distribution and sale of mass-market vehicles in South and Central America, primarily under the Fiat, Jeep, Dodge and Ram brands, with the largest focus of our business in Brazil and Argentina.

(iii) APAC: our operations to support the distribution and sale of mass-market vehicles in the Asia Pacific region (mostly in China, Japan, India, Australia and South Korea) carried out in the region through both subsidiaries and joint ventures, primarily under the Jeep, Fiat, Alfa Romeo, Abarth, Fiat Professional, Ram and Chrysler brands.

(iv) EMEA: our operations to support the distribution and sale of mass-market vehicles in Europe (which includes the 27 members of the European Union, the UK and the members of the European Free Trade Association), the Middle East and Africa, primarily under the Fiat, Fiat Professional, Jeep, Alfa Romeo, Lancia, Abarth, Ram and Dodge brands.

(v) Maserati: the design, engineering, development, manufacturing, worldwide distribution and sale of luxury vehicles under the Maserati brand.

During 2019, our previously reported “NAFTA” segment was renamed “North America” in response to the expected ratification of the United States-Mexico-Canada Agreement (“USMCA”). Other than the change of name, no other changes were made to the segment.

We also own or hold interests in companies operating in other activities and businesses. These activities are grouped under “Other Activities”, which primarily consists of our industrial automation systems design and production business, under the Comau brand name, and our cast iron and aluminum business, which produces cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads and engine blocks, under the Teksid brand name, as well as companies that provide services, including accounting, payroll, tax, insurance, purchasing, information technology, facility management and security for the Group, and manage central treasury activities. Refer to Note 3, Scope of consolidation in the Consolidated Financial Statements included elsewhere in this report for detail on the announced sale of Teksid's cast iron automotive components business.

Definitions and abbreviations    

Passenger cars include sedans, station wagons and three- and five-door hatchbacks, that may range in size from “micro” or “A-segment” vehicles of less than 3.7 meters in length to “large” or “F-segment” cars that are greater than 5.1 meters in length.

Utility vehicles (“UVs”) include sport utility vehicles (“SUVs”), which are available with four-wheel drive systems that provide true off-road capabilities, and crossover utility vehicles, (“CUVs”), which are not designed for heavy off-road use. UVs can be divided among six main groups, ranging from “micro” or “A-segment”, defined as UVs that are less than 3.9 meters in length, to “large” or “F-segment”, defined as UVs that are greater than 5.2 meters in length.

Light trucks may be divided between vans (also known as light commercial vehicles, or “LCVs”), which typically are used for the transportation of goods or groups of people, and pickup trucks, which are light motor vehicles with an open-top rear cargo area. Minivans, also known as multi-purpose vehicles (“MPVs”) typically have seating for up to eight passengers.

A vehicle is characterized as “all-new” if its vehicle platform is significantly different from the platform used in the prior model year and/or it has had a full exterior renewal.

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A vehicle is characterized as “significantly refreshed” if it continues its previous vehicle platform but has extensive changes or upgrades from the prior model year.

Design and Manufacturing

We sell mass-market vehicles in the SUV, passenger car, truck and LCV markets. Our SUV and CUV portfolio includes the all-new Jeep Gladiator, all-new Jeep Commander PHEV, Jeep Grand Cherokee, Jeep Cherokee, Jeep Wrangler, Jeep Renegade, Jeep Compass, Maserati Levante, Dodge Durango, Dodge Journey and Alfa Romeo Stelvio. Our passenger car product portfolio includes vehicles such as the Fiat 500, Alfa Romeo Giulia, Maserati Quattroporte, Dodge Challenger and Charger, Chrysler 300 and Lancia Ypsilon and minivans such as the Chrysler Pacifica. We sell light duty and heavy duty pickup trucks such as the Ram 1500, all-new Ram 2500/3500, the Fiat Toro and Fiat Fullback, and chassis cabs such as the all-new Ram 3500/4500/5500. Our LCVs include vans such as the Fiat Professional Doblò, Fiat Professional Ducato and Ram ProMaster.

We have deployed World Class Manufacturing (“WCM”) principles throughout our manufacturing operations. WCM principles were developed by the WCM Association, a non-profit organization dedicated to developing superior manufacturing standards. We are the only Original Equipment Manufacturer (“OEM”) that is a member of the WCM Association. WCM fosters a manufacturing culture that targets improved safety, quality and efficiency, as well as the elimination of all types of waste. Unlike some other advanced manufacturing programs, WCM is designed to prioritize issues, focus on those initiatives believed likely to yield the most significant savings and improvements, and direct resources to those initiatives. We also offer several types of WCM programs to our suppliers whereby they can learn and incorporate WCM principles into their own operations.

Research and Development

We engage in research and development activities aimed at improving the design, performance, safety, fuel efficiency, reliability, consumer perception and sustainability of our products and services. As of December 31, 2019, we operated 46 research and development centers worldwide with a combined headcount of approximately 18 thousand employees supporting our research and development efforts.

We concentrate the majority of our efficiency research efforts in two areas: reducing vehicle energy demand and reducing fuel consumption and emissions. Fuel consumption and emissions reduction activities have been primarily focused on powertrain technologies including: engines, transmissions and drivelines, hybrid and electric propulsion and alternative fuels. In recent years, we have increased our research and development efforts on automated driving and connectivity technologies.

Vehicle Energy Demand

Our research and development focuses on reducing weight, aerodynamic drag, tire rolling resistance, brake drag torque, driveline parasitic losses, heating and air conditioning, and electrical loads. We also continue to develop both conventional and hybrid vehicle technologies aimed at improving kinetic energy recovery and re-use of thermal energy to reduce total energy consumption and CO₂ emissions.

We have introduced active aerodynamic devices, which activate automatically under certain operating conditions. These active aerodynamic devices include active grille shutters, active front air dams and adjustable height suspension. Further, we have introduced smart actuators, such as variable speed fuel pumps, variable displacement air conditioning compressors and high efficiency brushless electric motors for cooling fans, to reduce fuel consumption. Such smart actuators only require the energy needed for each specific working condition, avoiding electric energy waste. In 2019, high strength steel was put to extensive use in the frame of the all-new Ram Heavy Duty pickup truck and the all-new Jeep Gladiator to reduce weight. The all-new Ram Heavy Duty pickup truck also utilizes active grille shutters and a highly tuned air dam to reduce drag.

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Powertrain Technologies

Engines

We have developed global small and global medium displacement gasoline engine families to improve fuel economy and emissions. These engine families include three and four cylinder turbocharged versions (the global small engine family also has three and four cylinder naturally aspirated variants). Each engine family features a modular approach using a shared cylinder design (allowing for different engine configuration, displacements, efficiency and power outputs). Each is based on a specific cylinder configuration which provides important synergies for the engine development (common combustion development and common design layout) and for manufacturing (common machining, assembly features and components and subsystems). These engine families are fully deployed and cover a large range of vehicle applications and include features and technologies such as direct fuel injection, downsizing, integrated exhaust manifold, MultiAir variable valve lift, turbocharging, and cooled exhaust gas recirculation. All of these features enable the engine families to be competitive among small and medium displacement engines with respect to fuel consumption, performance, weight and noise, vibration and harshness behavior.

In 2019, a locally-produced plug-in hybrid version of the global medium displacement turbocharged engine with dual overhead camshaft was launched in the all-new Jeep Commander in China. Additionally, in 2019, a 1.3L direct-injection turbocharged engine with engine stop/start technology was newly paired with a nine-speed automatic transmission in the Jeep Renegade to increase fuel efficiency and reduce emissions. Future evolution of the two engine families is expected to include advanced technologies and electrification to further reduce CO₂ emissions.

Transmissions and Driveline

Our automatic transmission portfolio includes 8- and 9-speed units developed in an effort to provide our customers with improved efficiency, performance and drive comfort. Long travel damper and pendulum damper technologies are used to allow the engine to operate at a lower speed and higher torque - where the engine is more efficient at converting the fuel energy to mechanical energy.

Other improvements are used to reduce the power consumption of the transmission. The second generation TorqueFlite 8-speed improves transmission efficiency via improved line pressure control and reduced clutch drag. The addition of transmission oil heaters allows the transmission to quickly warm up to operating temperatures and improve transmission efficiency. We are investigating many other technologies to increase transmission system efficiency such as selectable one-way clutches and reduced oil viscosity.

In support of global fuel consumption and CO₂ requirements, we have developed our first dedicated hybrid transmission (the eFlite), used in the Chrysler Pacifica plug-in hybrid and in the Jeep Commander plug-in hybrid produced by GAC Fiat Chrysler Automobiles Co., our joint venture with Guangzhou Automobiles Group Co., Ltd. in China. The new eFlite hybrid transmission architecture is an electrically variable front wheel drive transaxle with a split input configuration and incorporates two electric motors, both capable of driving in full electric mode. The lubrication and cooling system makes use of two pumps, one electrically operated and one mechanically driven.

The 6-speed manual transmission for rear-wheel drive applications, introduced on the Jeep Wrangler and all-new Jeep Gladiator, offers optimized ratio spread to allow the engine to operate more efficiently. Industrialization began in 2019 for enhanced and updated variants of our small and midsize front-wheel drive manual transmissions and high efficiency bearings have been incorporated in updates to our midsize front-wheel drive manual transmissions.

Our axle and driveline portfolio updates increase capability and reduce power consumption on the Ram 1500, Jeep Wrangler and all-new Jeep Gladiator. The Ram 1500 also offers an axle heating system and lubrication optimization for improved efficiency.

Electric and Hybrid Technologies

We have confirmed plans to make significant investments in vehicle electrification development, and manufacturing facilities in North America and Italy, to support the growing demand for electrified vehicles. By 2022, we expect to offer more than 30 nameplates with electrified powertrains.

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We have developed a suite of electrification technologies, including: 12 volt engine stop/start, 48 volt mild hybrid, high voltage plug-in hybrid, and full battery electric vehicles. These developments have occurred at our technical centers primarily in Auburn Hills (Michigan, USA), Modena and Turin (Italy). However, substantial work has also been performed with suppliers and universities located around the globe.

The 12 volt stop/start system turns off the engine and fuel flow automatically when the vehicle comes to a halt and re-starts the engine upon the driver disengaging the brake. Phase-in of this technology began in 2013 model year and in 2019 was used in approximately 49 percent of our global production volume.

In 2018, we launched three applications of mild hybrids using belt starter generator (“BSG”) technology. BSG technology offers improvements in fuel economy and a reduction in CO₂ emissions. This new 48 volt mild hybrid technology is marketed as “eTorque” in the 2020 Jeep Wrangler equipped with the 2.0L turbo engine or 3.6L engine, and the 2019 Ram 1500 5.7L and 3.6L applications. The system offers faster and smoother stop/start functionality, a real-time powertrain efficiency optimization manager which balances motor and engine torque, enhanced and extended fuel shut-off during certain maneuvers, and regenerative braking to recharge the 48 volt battery. The system also delivers significant gains in fuel economy. In 2020, a new BSG 12V 1.0L naturally-aspirated engine is expected to be launched in the Fiat Panda, Fiat 500 and Lancia Ypsilon for Europe.

The Chrysler Pacifica plug-in hybrid achieves an efficiency rating of 82 miles per gallon equivalent (“MPGe”), based on U.S. Environmental Protection Agency testing standards and has an approximately 72 percent reduction in CO₂ compared to the non-hybrid Chrysler Pacifica. Power to the wheels is supplied via a 16 kWh battery through the hybrid electric drive system which is comprised of a specially adapted new version of the award winning Pentastar 3.6L engine and the new eFlite hybrid transmission.

At the 2019 Geneva International Motor Show, we presented plug-in hybrid variants of Jeep Renegade and Jeep Compass. The electric units are integrated into the new 1.3L turbo gasoline engine to increase efficiency and overall power. For the Jeep Renegade and Jeep Compass, the simultaneous action of the internal combustion engine and the electric motor delivers up to 240 hp. The fully-electric Fiat Centoventi, a concept conceived for sustainable and affordable urban mobility, was also displayed at the 2019 Geneva International Motor Show.

In addition, a fully electric variant of the Fiat 500 was announced in 2019, which will be manufactured for the European market at the Mirafiori plant in Turin, Italy beginning in 2020. The Ducato Electric was also unveiled in 2019 and is expected to be launched in 2020 in Europe.

In 2019, we also announced the development of a Battery Hub in Turin, Italy at the Mirafiori plant beginning in 2020. The Battery Hub is expected to be dedicated to battery assembly and also host prototyping and experimentation activities, as well as training courses.

Our internal research and development activities are also supplemented via collaboration with academic partners. One such example is a project in partnership with McMaster University (Canada), which focuses on developing next-generation, energy efficient, high performance, cost effective electrified powertrain components and control systems suitable for a range of vehicle applications.

Compressed Natural Gas

We are among the EU-market leaders in compressed natural gas (“CNG”) propulsion. From 1997 to 2019, the Company’s output of CNG-powered vehicles in Europe exceeded 770,000 vehicles.

Automated Driving Technology

We are collaborating with Waymo (formerly the Google self-driving car project) to integrate its self-driving technology into the Chrysler Pacifica Hybrid, including the production of Chrysler Pacifica Hybrid minivans built specifically to enable fully self-driving operations.    

In 2019, we announced a memorandum of understanding with Aurora, laying the groundwork for a partnership to develop and deploy self-driving commercial vehicles.

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We have launched Highway Assist “partial automation” vehicle technology on several Maserati models. This system includes Mobileye vision technology to enable SAE Level 2 automated driving on designated highways.

In 2018, we began working with Aptiv to develop an SAE Level 2+ (hands-off the wheel) automated driving system for our next generation vehicles planned to launch in 2021.

We are also continuing the development of an SAE Level 3 capable automated driving platform. To that end, a team of FCA engineers is integrated in an autonomous vehicle development team with BMW in Munich, Germany.

Connectivity

We continue to work with our suppliers to develop our cloud-based global connectivity solution that connects vehicles to the Internet and allows the driver and passengers to interact with the car and the outside world. The solution is scalable, increases safety and security and provides real time availability of services and information. A first release of this connectivity system has been launched in EMEA and China and we intend to extend the roll-out to all regions by the end of 2020, while also adding new user features.

Compliance-focused Initiatives by Region

The regulatory environment outlook across our four major regions shows continued CO₂ reductions, ranging from 25-30 percent between 2019 and 2024. This anticipated regulatory stringency balanced with customer preferences guides research and development for future products and is highlighted below by region and key product segment.

North America

The U.S. policy is complex with three separate CO₂ regulations, but it also contains a flexible array of new technology incentives to encourage industry movement toward an electrified future. For instance, U.S. regulation includes a tax credit to purchasers of up to U.S.$7,500 to incentivize demand and help to offset relatively low fuel prices and increasing consumer preference for SUVs and pickup trucks. This incentive is available on the first 200,000 qualifying electrified vehicles sold by each OEM and then begins to phase-out.

U.S. consumers tend to have long commutes and ready access to charging capability at home. We plan, by 2022, for 5 percent of our overall fleet (including commercial vehicles) to be high voltage electrified powertrain versions, with a focus on plug-in systems, 17 percent of the fleet to be equipped with mild hybrid systems and the remaining 78 percent to retain conventional internal combustion engines.

Canadian CO₂ policy largely mirrors U.S. requirements without the separate Corporate Average Fuel Economy (“CAFE”) rules. Our technology plan and mix rates in Canada are consistent with our U.S. plans. Within Canada, the Quebec province has a separate zero emission vehicle (“ZEV”) mandate which we expect to meet with a combination of ZEV vehicle sales and purchased credits.

LATAM

With its ability to grow sugar cane in high volume, Brazil is able to address CO₂ reduction with a different approach. Today about 30 percent of vehicle fuel usage in Brazil consists of sugar cane produced ethanol. Sugar cane ethanol is 80 percent renewable from “well” (or field) to wheels and provides approximately 12.5 percent CO₂ reduction on an equivalent 30/70 fuel mix E100/E22 basis. The Brazilian government recently launched a plan (RenovaBio) to improve quality and productiveness of ethanol, targeting an increase of share on Ethanol E100 in the fuel matrix from the current 30 percent to 40 percent in 2022 and to 55 percent in 2030. In addition, the Brazilian government and we are working very closely on research and development opportunities to further reduce CO₂ emissions through improvements to ethanol-fueled engines.

Brazilian consumers already widely use ethanol fuel, readily available in the current retail fuel market. We believe that Brazilian CO₂ fleet reduction targets will be met through 2025 with increased usage and efficiency of our ethanol based engines and without any high voltage electrification.

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APAC

China is leading the rapid change in this region. The Chinese government has stated intentions to become the global leader in electrification, connectivity and autonomous driving in the next decade. The regulatory policies include requirements on corporate fuel economy and new energy vehicle credit and incentives for new energy vehicles which are defined as battery electric, plug-in hybrid, or fuel cell vehicles.

Some large cities provide consumers with license plate incentives for new energy vehicles. Given these incentives can be as high as €11,000 per vehicle, we believe they will be successful in driving the market toward electrification.

From a consumer perspective, China has the highest number of first time car buyers in the world. Since much of the vehicle consumer demographic resides in urban areas, access to public charging is expected to be a critical element to achieving China’s electrified objectives.

Our plan is, by 2022, for 18 percent of the overall fleet (including commercial vehicles) to use high voltage electrification, with the highest penetration of full battery electric of any region, 6 percent of the fleet to be equipped with a mild hybrid system and 76 percent of the fleet to retain conventional internal combustion engines.

In contrast to China, India continues to be a cost sensitive market with a developing infrastructure. As a result, increased regulatory requirements are expected to be met through application of shared conventional technologies while the industry continues to investigate electrification options.

EMEA

Europe represents the most challenging combination of regulatory stringency and consumer price sensitivity. The EU is driving a significant reduction in CO₂ in 2020, and metropolitan areas are implementing low emission zones in an attempt to improve air quality in city centers. Conventional internal combustion engine applications will likely be restricted, especially with aging vehicles. The CO₂ financial penalty structure is very significant.

Many consumers in Europe need reduced cost of vehicle ownership given high fuel prices and pressure on disposable income. As the demand for diesels continues to decrease, we intend to use mild hybrids as a replacement. The region will need to address the development of charging infrastructure so that zero emission vehicles are more convenient for consumers.

Our plan is, by 2022, for 16 percent of the overall fleet (including commercial vehicles) to use high voltage electrification, 37 percent of the fleet to be equipped with a mild hybrid system and 47 percent to retain conventional internal combustion engines. As previously announced, we expect to introduce electrification technology on several models in 2020 including plug-in hybrid versions of the Jeep Renegade, Jeep Compass and Jeep Wrangler, an all-new full battery electric Fiat 500, as well as the inclusion of mild hybrid technology on a range of other models. Leasys, a rental services subsidiary of our joint venture with Crédit Agricole Consumer Finance S.A., is expected to play a meaningful role in delivering these technologies to the market by leveraging its suite of mobility services.

Intellectual Property

We own a significant number of patents, trade secrets, licenses, trademarks and service marks, including, in particular, the marks of our vehicle and component and production systems brands, which relate to our products and services. We expect the number to grow as we continue to pursue technological innovations. We file patent applications in Europe, the U.S. and around the world to protect technology and improvements considered important to our business. No single patent is material to our business as a whole.

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Property, Plant and Equipment

As of December 31, 2019, we operated 111 manufacturing facilities (including vehicle and light commercial vehicle assembly, powertrain and components plants, and excluding joint ventures), of which 28 were located in Italy, 13 in the rest of Europe, 28 in the U.S., 11 in Mexico, 9 in Canada, 13 in Brazil, 2 in Argentina, 3 in China and the remaining plants in various other countries. We also own other significant properties including parts distribution centers, research laboratories, test tracks, warehouses and office buildings. The total carrying value of our property, plant and equipment as of December 31, 2019 was €28.6 billion.

A number of our manufacturing facilities and equipment, including land and industrial buildings, plant and machinery and other assets, are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions. As of December 31, 2019, our property, plant and equipment reported as pledged as collateral for loans amounted to approximately €1.6 billion, excluding Right-of-use assets (refer to Note 11, Property, plant and equipment).

We believe that planned production capacity is adequate to satisfy anticipated retail demand and our operations are designed to be flexible enough to accommodate the planned product design changes required to meet global market conditions and new product programs (such as through leveraging existing production capacity in each region for export needs).

We are not aware of any environmental issues that would materially affect the utilization of our fixed assets. See Industrial Environmental Control.

Supply of Raw Materials, Parts and Components

We purchase a variety of components (including mechanical, steel, electrical and electronic, plastic components as well as castings and tires), raw materials, supplies, utilities, logistics and other services from numerous suppliers. Historically the purchase of raw materials, parts and components have accounted for 70-80 percent of total Cost of revenues. Of these purchases, 10-15 percent relate to the cost of raw materials, including steel, rubber, aluminum, resin, copper, lead, and precious metals (including platinum, palladium and rhodium).

Our focus on quality improvement, cost reduction, product innovation and production flexibility requires us to rely upon suppliers with a focus on quality and the ability to provide cost reductions. We value our relationships with suppliers, and in recent years, we have worked to establish closer ties with a significantly reduced number of suppliers by selecting those that enjoy a leading position in the relevant markets. In addition, we source some of the parts and components for our vehicles internally from Teksid. Subsequent to the announced sale of Teksid's cast iron business, we expect to enter into a long-term supply agreement with the acquirer, Tupy S.A. We also agreed to a multi-year supply agreement with Magneti Marelli in connection with our sale of that business. Although we have not experienced any major loss of production as a result of material or parts shortages in recent years, because we, like most of our competitors, regularly source some of our systems, components, parts, equipment and tooling from a single provider or limited number of providers, we are at risk of production delays and lost production should any supplier fail to deliver goods and services on time.

Supply of raw materials, parts and components may also be disrupted or interrupted by natural disasters. In such circumstances, we work proactively with our suppliers to identify material and part shortages and take steps to mitigate their impact by deploying additional personnel, accessing alternative sources of supply and managing our production schedules. We also continue to refine our processes to identify emerging capacity constraints in the supplier tiers given the ramp up in manufacturing volumes to meet our volume targets. Furthermore, we continuously monitor supplier performance according to key metrics such as part quality, delivery, performance, financial solvency and sustainability.

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Employees

At December 31, 2019, we had a total of 191,752 employees (excluding employees of joint arrangements, associates and unconsolidated subsidiaries), a 3.4 percentdecrease from December 31, 2018 and a 2.4 percentdecrease over December 31, 2017. The following table provides a breakdown of these employees as of December 31, 2019, 2018 and 2017, indicated by type of contract and region.

	Hourly			Salaried			Total
	2019	2018	2017	2019	2018	2017	2019	2018	2017
Europe	37,609	40,446	40,910	23,027	24,170	24,920	60,636	64,616	65,830
North America(1)	72,667	74,703	71,414	22,954	22,326	22,778	95,621	97,029	94,192
Latin America	24,525	26,004	25,634	7,088	7,062	6,917	31,613	33,066	32,551
Asia	230	253	271	3,413	3,313	3,486	3,643	3,566	3,757
Rest of the world	46	46	4	193	222	177	239	268	181
Total	135,077	141,452	138,233	56,675	57,093	58,278	191,752	198,545	196,511

______________________________________________________________________________________________________________________________

(1) Refers to the geographical area and not our North America reporting segment.

We maintain dialogue with trade unions and employee representatives to achieve consensus-based solutions for responding to different market conditions in each geographic area. We have had no significant instances of labor unrest overall, and no significant local labor actions in the past three years.

In Europe, we established a European Works Council (the “EWC”) in 1997 to ensure workers the right to information and consultation as required by European Union regulations applicable to community-scale undertakings. The EWC was established on the basis of an agreement initially signed in 1996 and subsequently revised and amended with a further amendment executed in July 2016. The amendment increased the number of total seats from 20 to 24 so that additional employees from new countries within the scope of the EWC are represented.

Trade Unions and Collective Bargaining

Our employees are free to join any trade union provided they do so in accordance with local law and the rules of the related trade union. The Group recognizes and respects the right of its employees to be represented by trade unions or other representatives in accordance with local applicable legislation and practice.

A large portion of our workers in Italy, the U.S., Canada and Mexico are represented by trade unions. In addition to the rights granted to all Italian trade unions and workers concerning freedom of association, in the Italian collective labor agreement FCA has agreed an additional service by paying the trade union dues on behalf of the employees.

Collective bargaining at various levels resulted in major agreements being reached with trade unions on both wage and employment conditions in several countries. Based on an average figure that includes the Sevel plant (Italy), 87.3 percent of our employees worldwide are covered by collective bargaining agreements.

In Italy, substantially all of our employees are covered by collective bargaining agreements. On March 11, 2019, the company-specific collective labor agreement (CCSL), which covers about 53,000 employees, was renewed with the Trade Unions FIM-CISL, UILM-UIL, FISMIC, UGLM and AQCFR. The agreement was effective retrospectively from January 1, 2019, through December 31, 2022, and includes:

• the increase in the basic contractual salary of 2 percent per year;

• the strengthening (+1.5 percent) of the annual bonus calculated on the basis of production efficiencies achieved and the plant’s WCM audit status;

• the increase (+ 0.5 percent) of the contribution paid by the company to supplementary pension fund;

• several further initiatives aimed at increasing the flexibility of working time and new ways of working linked to the technological and organizational evolution of work;

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• a new classification of workers, capable of interpreting the continuous evolution of professional skills.

In December 2019, the UAW-represented workforce ratified a new four-year collective bargaining agreement that builds on the company’s commitment to grow its U.S. manufacturing operations by providing for total investments of U.S.$9 billion and the creation of 7,900 new or secured jobs. The provisions of the agreement continued certain opportunities for success-based compensation upon meeting certain quality and financial performance metrics. The agreement, which covers about 49,200 employees, included a ratification bonus of U.S.$9,000 for “Traditional” and “In-progression” employees and U.S.$3,500 for temporary employees, as well as lump-sum payments, both of which are in lieu of further wage increases, totaling U.S.$499 million (€446 million) that were paid to UAW members on December 27, 2019. Lump sum payments made in lieu of future wage increases will be amortized over the contract period.

In September 2016, the four-year collective bargaining agreement that was entered into in September 2012 with Unifor in Canada expired. FCA entered into a four year labor agreement with Unifor in Canada that was ratified on October 16, 2016. The terms of this agreement provide a two percent wage increase in the first and fourth years of the agreement for employees hired prior to September 24, 2012 and will continue to close the pay gap for employees hired on or after September 24, 2012 by revising a ten-year progressive pay scale plan. The agreement includes a lump sum payment in lieu of further wage increases of $6,000 Canadian dollars (“CAD$”) per employee totaling approximately CAD$55 million (approximately €38 million) that was paid to Unifor members on November 4, 2016. The agreement covers approximately 10,000 employees and expires September 2020. The Unifor lump-sum payment is being amortized ratably over the four-year labor agreement period.

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Sales Overview

New vehicle sales represent sales of FCA vehicles primarily by dealers and distributors, or, directly by us in some cases, to retail customers and fleet customers. Sales include mass-market and luxury vehicles manufactured at our plants, as well as vehicles manufactured by our joint ventures and third party contract manufacturers and distributed under our brands. Sales figures exclude sales of vehicles that we contract manufacture for other OEMs. While vehicle sales are illustrative of our competitive position and the demand for our vehicles, sales are not directly correlated to our Net revenues, Cost of revenues or other measures of financial performance in any given period, as such results are primarily driven by our vehicle shipments to dealers and distributors. For a discussion of our shipments, seeFINANCIAL OVERVIEW—Shipment Information. The following table shows new vehicle sales by geographic market for the periods presented.

	Years ended December 31,
	2019	2018	2017
	(millions of units)
North America	2.5	2.5	2.4
LATAM	0.6	0.6	0.5
APAC	0.2	0.2	0.3
EMEA	1.3	1.4	1.5
Total Mass-Market Vehicle Brands	4.6	4.7	4.7
Maserati	0.03	0.04	0.05
Total Worldwide	4.6	4.8	4.8

North America

North America Sales and Competition

The following table presents mass-market vehicle sales and estimated market share in the North America segment for the periods presented:

	Years ended December 31,
	2019(1),(2)			2018(1),(2)			2017(1),(2)
North America	Sales	Market Share		Sales	Market Share		Sales	Market Share
	Thousands of units (except percentages)
U.S.	2,204	12.6	%	2,235	12.6	%	2,059	11.7	%
Canada	223	11.6	%	225	11.3	%	267	13.0	%
Mexico and Other	63	4.7	%	74	5.1	%	86	5.5	%
Total	2,490	12.0	%	2,534	12.0	%	2,412	11.4	%

________________________________________________________________________________________________________________________________________________

(1) Certain fleet sales that are accounted for as operating leases are included in vehicle sales.

(2) Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit and Ward’s Automotive.

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The following table presents estimated new vehicle market share information for FCA and our principal competitors in the U.S., our largest market in the North America segment:

	Years ended December 31,
U.S.	2019		2018		2017
Automaker	Percentage of industry
GM	16.5	%	16.7	%	17.1	%
Ford	13.8	%	14.1	%	14.7	%
Toyota	13.6	%	13.7	%	13.9	%
FCA	12.6	%	12.6	%	11.7	%
Honda	9.2	%	9.1	%	9.3	%
Nissan	7.7	%	8.4	%	9.1	%
Hyundai/Kia	7.6	%	7.2	%	7.3	%
Other	19.0	%	18.2	%	16.9	%
Total	100.0	%	100.0	%	100.0	%

U.S. industry sales, including medium and heavy-duty vehicles, increased from 10.6 million units in 2009 to 17.5 million units in 2019. The strong recovery in the automotive sector, from 2009 through 2019, was supported by robust macroeconomic and automotive specific factors, such as growth in per capita disposable income, improved consumer confidence, the increasing age of vehicles in operation, improved consumer access to affordably priced financing and higher prices of used vehicles.

Our vehicle line-up in the North America segment primarily leverages the brand recognition of the Jeep, Ram, Dodge and Chrysler brands to offer utility vehicles, pickup trucks, cars and minivans under those brands. Our vehicle sales and profitability in the North America segment are generally weighted towards larger vehicles such as utility vehicles, trucks and vans, consistent with overall industry sales trends in the North America segment, which have become increasingly weighted towards utility vehicles and trucks in recent years.

Our 2019 sales were at a comparable level to 2018, primarily from the strong performance of the Ram brand, for which growth was underpinned by the launch of Ram Heavy Duty and supported by higher sales of Ram Light Duty, as well as the launch of the all-new Jeep Gladiator, despite lower overall shipments.

North America Distribution

In the North America segment, our vehicles are sold primarily to dealers in our dealer network for sale to retail consumers and to fleet customers. Fleet sales in the commercial channel are typically more profitable than sales in the government and daily rental channels since they more often involve customized vehicles with more optional features and accessories; however, vehicle orders in the commercial channel are usually smaller in size than the orders made in the daily rental channel. Fleet sales in the government channel are generally more profitable than fleet sales in the daily rental channel primarily due to the mix of products included in each respective channel.

North America Dealer and Customer Financing

In the North America segment, we do not have a captive finance company or joint venture and instead rely upon independent financial service providers, including Santander Consumer USA Inc. (“SCUSA”) to provide financing for dealers and retail customers in the U.S. In February 2013, we entered into a private label financing agreement with SCUSA (the “SCUSA Agreement”), under which SCUSA provides a wide range of wholesale and retail financial services to our dealers and retail customers in the U.S., under the Chrysler Capital brand name and covering the Chrysler, Jeep, Dodge, Ram, Fiat and Alfa Romeo brands.

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The SCUSA Agreement has a ten year term from February 2013, subject to early termination in certain circumstances, including the failure by a party to comply with certain of its ongoing obligations under the agreement. Under the SCUSA Agreement, SCUSA has certain rights, including limited exclusivity to participate in specified minimum percentages of certain retail financing rate subvention programs. SCUSA’s exclusivity rights are subject to SCUSA maintaining certain performance standards and price competitiveness based on minimum approval rates and market benchmark rates to be determined through a steering committee process as set out in the SCUSA Agreement. SCUSA and FCA US have been in continual discussion regarding performance under the SCUSA Agreement. The parties entered into a Tolling Agreement in July 2018 with respect to the SCUSA Agreement, pursuant to which, among other things, the parties agreed each party shall fully preserve and retain its respective rights, claims and defenses as they existed on April 30, 2018.

On June 28, 2019, FCA US entered into an amendment (the “Amendment”) to the SCUSA Agreement. The Amendment modified certain terms of the agreement, with the remaining term unchanged through to February 2023, and in connection with its execution, SCUSA made a one-time, nonrefundable, non-contingent, cash payment of U.S.$60 million (€53 million) to FCA US as part of a negotiated resolution of open matters. Refer to Note 25, Guarantees granted, commitments and contingent liabilities, within our Consolidated Financial Statements included elsewhere in this report.

As of December 31, 2019, SCUSA was providing wholesale lines of credit to approximately 10 percent of our dealers in the U.S., while Ally Financial Inc. (“Ally”) was at 33 percent. For the year ended December 31, 2019, we estimate that approximately 87 percent of the vehicles purchased by our U.S. retail customers were financed or leased of which approximately 55 percent financed or leased through SCUSA (40 percent) and Ally (15 percent). Alfa Romeo brand development within the U.S. is also supported by dealer and retail customer financing with primary financial institutions. Additionally, we have arrangements with a number of financial institutions to provide a variety of dealer and retail customer financing programs in Canada and a private label agreement with Inbursa Group in Mexico.

LATAM

LATAM Sales and Competition

The following table presents mass-market vehicle sales and market share in the LATAM segment for the periods presented:

	Years ended December 31,
	2019(1)			2018(1)			2017(1)
LATAM	Sales	Market Share		Sales	Market Share		Sales	Market Share
	Thousands of units (except percentages)
Brazil	497	18.7	%	434	17.5	%	380	17.5	%
Argentina	54	12.4	%	99	12.8	%	105	12.2	%
Other LATAM	29	2.7	%	33	2.9	%	28	2.5	%
Total	580	13.9	%	566	12.8	%	513	12.4	%

 _______________________________________________________________________________________________________________________________________________

(1) Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.

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The following table presents our mass-market vehicle market share information and our principal competitors in Brazil, our largest market in the LATAM segment:

Brazil	Years ended December 31,
	2019(1)		2018(1)		2017(1)
Automaker	Percentage of industry
FCA	18.7	%	17.5	%	17.5	%
GM	17.9	%	17.6	%	18.1	%
Volkswagen	15.6	%	14.8	%	12.5	%
Ford	8.2	%	9.2	%	9.5	%
Other	39.6	%	40.9	%	42.4	%
Total	100.0	%	100.0	%	100.0	%

________________________________________________________________________________________________________________________________________________

(1) Our estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.

Automotive industry volumes within the countries in which the LATAM segment operates decreased 5 percent from 2018 to 4.2 million vehicles (cars and light commercial vehicles) in 2019, which was primarily driven by a 43 percent decline in vehicle sales in Argentina, reflecting the impact of the Argentina economic downturn, partially offset by a 7.6 percent increase in vehicle sales in Brazil, reflecting continued improvement in market conditions.

The Group's market share in LATAM increased 110 basis points from 12.8 percent to 13.9 percent, primarily reflecting market share growth in Brazil. In Brazil, overall market share increased 120 basis points to 18.7 percent from 17.5 percent while, in Argentina, overall market share decreased 40 basis points to 12.4 percent from 12.8 percent in 2018.

Our vehicle line-up in LATAM leverages the brand recognition of Fiat, as well as the relatively urban population of countries like Brazil, to offer vehicles in smaller segments, such as the Fiat Mobi, Argo and Cronos. Fiat also leads the pickup truck market in Brazil, with the Fiat Strada (22.3 percent market share) and the Fiat Toro (19.1 percent market share). Jeep leads the small and medium SUV segments in Brazil with the Jeep Renegade (11.5 percent market share) and the Jeep Compass (10.1 percent market share).

LATAM Distribution

In the LATAM segment, we generally enter into multiple dealer agreements with individual dealerships. Outside our major markets of Brazil and Argentina, we mainly distribute our vehicles through general distributors.

LATAM Dealer and Customer Financing

In the LATAM segment, we provide access to dealer and retail customer financing both through 100 percent owned captive finance companies and also through strategic relationships with financial institutions.

We have two 100 percent owned captive finance companies in the LATAM segment that offer dealer and retail customer financing: Banco Fidis S.A. (“Banco Fidis”) in Brazil and FCA Compañia Financiera S.A. in Argentina. In addition, in Brazil we have two significant commercial partnerships with Banco Itaù and Bradesco to provide financing to retail customers purchasing FCA branded vehicles. Banco Itaù is a leading vehicle retail financing company in Brazil and our partnership was renewed in August 2013 for a ten-year term ending in 2023. Under this agreement, which applies only to our retail customers purchasing Fiat branded vehicles, Banco Itaù has exclusivity on our promotional campaigns and preferential rights on non-promotional financing. We receive commissions in connection with each vehicle financing above a certain threshold. In July 2015, FCA Fiat Chrysler Automoveis Brasil (“FCA Brasil”) and Banco Fidis signed a ten-year partnership contract with Bradesco, one of the leading Brazilian banks, through its affiliate Bradesco Financiamentos, whereby Bradesco Financiamentos finances retail sales of Jeep, Chrysler, Dodge and Ram vehicles in Brazil. Under this agreement, Bradesco has exclusivity on promotional campaigns and FCA Brasil promotes Bradesco as its official financial partner. Banco Fidis is in charge of the commercial management of this partnership and receives commissions for this partnership agreement and for acting as banking agent, based on profitability and penetration.

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APAC

APAC Sales and Competition

The following table presents vehicle sales in the APAC segment:

	Years ended December 31,
	2019(1),(4)			2018(1),(4)			2017(1),(4)
APAC	Sales	Market Share		Sales	Market Share		Sales	Market Share
	Thousands of units (except percentages)
China(2)	92	0.4	%	163	0.8	%	215	0.9	%
Japan	24	0.6	%	22	0.5	%	21	0.5	%
India(3)	12	0.4	%	19	0.6	%	15	0.5	%
Australia	9	0.8	%	11	1.0	%	13	1.1	%
South Korea	10	0.7	%	8	0.5	%	8	0.5	%
APAC 5 major Markets	147	0.5	%	223	0.7	%	272	0.8	%
Other APAC	5	—		5	—		5	—
Total	152	—		228	—		277	—

________________________________________________________________________________________________________________________________________________

(1) Estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Markit and China Association of Automobile Manufacturers. Effective January 2019, industry data sourced from China Passenger Car Association.

(2) Sales data include vehicles shipped by our joint venture in China.

(3) India market share is based on wholesale volumes.

(4) Sales reflect retail deliveries. APAC industry reflects aggregate for major markets where the Group competes (China, Australia, Japan, South Korea, and India). Market share is based on retail registrations except, as noted above, in India where market share is based on wholesale volumes.

The automotive industry in the APAC segment has shown a year-over-year decline, with industry sales in the five key markets (China, India, Japan, Australia and South Korea) decreasing by 6 percent to 31.2 million. Overall for the ten year period in the five key markets in which we compete, industry sales have increased from 16.1 million in 2009 to 31.2 million in 2019, a compound annual growth rate (“CAGR”) of approximately 7 percent. Industry demand decreased from 2018 to 2019 with decreases in China (-7 percent), Australia (-8 percent), India (-12 percent), South Korea (-2 percent) and Japan (-2 percent).

We sell a range of vehicles in the APAC segment, including small and compact cars and utility vehicles. Although our smallest mass-market segment by vehicle sales, we believe the APAC segment represents a significant growth opportunity and have invested in building relationships with key joint venture partners in China and India in order to increase our presence in the region. In 2010, GAC Fiat Chrysler Automobiles Co. (“GAC FCA JV”), our joint venture with Guangzhou Automobiles Group Co., Ltd., was formed. In 2015, we expanded local production through the GAC FCA JV with the production of the Jeep Cherokee and in 2016 the Jeep Renegade and the Jeep Compass. In 2016, the Jeep brand also made its return to India, with the launches of the imported Jeep Wrangler and Jeep Grand Cherokee. In 2017, we launched the imported Alfa Romeo Giulia and Alfa Romeo Stelvio in China and local production of the Jeep Compass was launched in the Ranjangaon, India plant for sale in India and other right-hand drive countries. In 2018, we launched the Grand Commander in China, a premium seven-seater SUV produced at the GAC FCA JV plant in Changsha, China. In 2019, we launched the all-new Jeep Commander PHEV, a 5-passenger plug-in hybrid SUV developed for China. In other parts of the APAC segment, we distribute vehicles that we manufacture in the U.S., Europe and India through our dealers and distributors.

APAC Distribution

In the key markets in the APAC segment (China, Australia, India, Japan and South Korea), we sell our vehicles through 100 percent owned subsidiaries or through our joint venture to local independent dealers. In other markets where we do not have a substantial presence, we have agreements with general distributors.

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APAC Dealer and Customer Financing

In the APAC segment, we operate a 100 percent owned captive finance company, FCA Automotive Finance Co., Ltd, which supports our sales activities in China on a non-exclusive basis through dealer and retail customer financing. Cooperation agreements are also in place with third-party financial institutions to provide dealer network and retail customer financing in India, South Korea, Australia and Japan.

EMEA

EMEA Sales and Competition

The following table presents vehicle sales in the EMEA segment for the periods presented:

	Years ended December 31,
	2019(1),(2),(3)			2018(1),(2),(3)			2017(1),(2),(3)
EMEA	Sales	Market Share		Sales	Market Share		Sales	Market Share
	Thousands of units (except percentages)
Italy	521	24.8	%	571	27.3	%	633	29.4	%
Germany	130	3.3	%	155	4.0	%	151	3.9	%
France	127	4.7	%	139	5.3	%	126	4.9	%
Spain	87	5.9	%	97	6.4	%	84	5.8	%
UK	53	2.0	%	62	2.3	%	73	2.5	%
Other Europe	244	4.7	%	252	4.9	%	228	4.6	%
Europe*	1,162	6.4	%	1,276	7.1	%	1,295	7.2	%
Other EMEA**	165	—		152	—		191	—
Total	1,327	—		1,428	—		1,486	—

________________________________________________________________________________________________________________________________________________

* 28 members of the European Union (including the UK for the periods presented) and members of the European Free Trade Association (other than Italy, Germany, UK, France, and Spain).

** Market share not included in Other EMEA because our presence is less than one percent.

(1) Certain fleet sales accounted for as operating leases are included in vehicle sales.

(2) Estimated market share data is presented based on the European Automobile Manufacturers Association (ACEA) Registration Databases and national Registration Offices databases.

(3) Sale data includes vehicle sales by our joint venture in Turkey.

The following table summarizes new passenger vehicle market share information and our principal competitors in Europe, our largest market in the EMEA segment:

	Years ended December 31,
Europe-Passenger Cars	2019(1)		2018(1)		2017(1)
Automaker	Percentage of industry
Volkswagen	24.5	%	23.9	%	23.8	%
PSA	15.6	%	16.0	%	12.1	%
Renault	10.5	%	10.5	%	10.4	%
Hyundai/Kia	6.7	%	6.7	%	6.3	%
BMW	6.6	%	6.6	%	6.7	%
Daimler	6.4	%	6.2	%	6.3	%
Ford	6.1	%	6.4	%	6.6	%
FCA(2)	6.0	%	6.5	%	6.7	%
Toyota	5.0	%	4.9	%	4.6	%
Other	12.6	%	12.3	%	16.5	%
Total	100.0	%	100.0	%	100.0	%

________________________________________________________________________________________________________________________________________________

(1) Including all 28 European Union (EU) Member States (including the UK for the periods presented) and the 4 European Free Trade Association member states, or EFTA member states.

(2) Market share data is presented based on the European Automobile Manufacturers Association, or ACEA Registration Databases, which also includes Maserati within our Group for all periods presented.

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In 2019, the Fiat brand continued its leadership in the European A minicar segment in EU 28+EFTA (including the UK), with Fiat 500 and Fiat Panda accounting for 29.1 percent of market share in the segment and Fiat 500 remaining segment leader, with sales down 2.2 percent. The Jeep Brand posted sales of more than 167 thousand vehicles. Sales of the Alfa Romeo Brand decreased, primarily from the discontinuance of the Mito and of certain engines of the Giulietta.

In Europe, FCA’s sales are largely weighted to passenger cars, with 37.4 percent of our total vehicle sales in the small car segment for 2019, reflecting demand for smaller vehicles due to driving conditions prevalent in many European cities and stringent environmental regulations.

EMEA Distribution

In Europe, our relationship with individual dealer entities can be represented by a number of contracts (typically, we enter into one agreement per brand of vehicles to be sold), and the dealer can sell those vehicles through one or more points of sale.

In Europe, we sell our vehicles directly to independent and our own dealer entities located in most European markets, as well as to fleet customers (including government and rental). In other markets in the EMEA segment in which we do not have a substantial presence, we have agreements with general distributors.

EMEA Dealer and Customer Financing

In the EMEA segment, dealer and retail customer financing is primarily managed by FCA Bank, our joint venture with Crédit Agricole Consumer Finance S.A. (“CACF”). FCA Bank operates in Europe, including the five major markets of Italy, France, Germany, Spain and the UK, and provides dealer and retail financing and, within selected countries, also rentals to support our mass-market vehicle brands. FCA Bank provides its services to our Maserati luxury brand, as well as certain other OEMs, including Ferrari. We began this joint venture in 2007 and have agreed with Crédit Agricole to extend its term through December 31, 2024, which may be automatically renewed unless notice of non-renewal is provided no later than three years before end of the term.

     We also operate a joint venture, Koç Fiat Kredi, providing financial services mainly to retail customers in Turkey, and operate vendor programs with bank partners in other markets to provide access to dealer and retail customer financing in those markets.

Maserati

Maserati, a luxury vehicle brand founded in 1914, became part of the Group in 1993. In 2013, the Maserati brand was re-launched by the introduction of the next generation Quattroporte and the introduction of the Ghibli (luxury four-door sedans), the first in the flagship large sedan segment and the second in the luxury full-size sedan vehicle segment. Maserati’s current vehicles also include the GranTurismo, the brand’s first modern two-door, four-seat coupe, also available in a convertible version and the Maserati Levante, the first SUV in Maserati's history.

In September 2019, Maserati announced plans for its lineup of new and electrified vehicles to be produced at Modena, Cassino and Turin (Mirafiori and Grugliasco), for the construction of a new production line at Cassino for a new Maserati utility vehicle, scheduled to open at the end of the first quarter of 2020 with the first pre-series cars expected to roll off the production line by 2021, and for the Turin production hub, where the all-new GranTurismo and GranCabrio will be produced.

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The following table shows the distribution of Maserati sales by geographic regions as a percentage of total sales for each year ended December 31, 2019, 2018 and 2017:

	As a percentage of 2019 sales		As a percentage of 2018 sales		As a percentage of 2017 sales
U.S.	31	%	32	%	28	%
China	24	%	24	%	30	%
Europe Top 4 countries(1)	17	%	17	%	16	%
Japan	5	%	4	%	4	%
Other countries	23	%	23	%	22	%
Total	100	%	100	%	100	%

________________________________________________________________________________________________________________________________________________

(1) Europe Top 4 Countries by sales are Italy, UK, Germany and Switzerland.

In 2019, a total of 26 thousand Maserati vehicles were sold to retail consumers, a decrease of 26 percent compared to 2018 as a result of reduced sales in China, the U.S. and other key markets, partially due to lower industry volumes in Maserati relevant segments.

FCA Bank provides access to dealer and retail customer financing for Maserati brand vehicles in Europe and our 100 percent owned captive finance company, FCA Automotive Finance Co. Ltd, provides dealer and retail financing on a non-exclusive basis in China. In other regions, we rely on local agreements with financial services providers for the financing of Maserati brand vehicles to dealers and end customers.

Cyclical Nature of the Business

As is typical in the automotive industry, our vehicle sales are highly sensitive to general economic conditions, availability of low interest rate vehicle financing for dealers and retail customers and other external factors, including fuel prices, and as a result may vary substantially from quarter to quarter and year to year. Retail consumers tend to delay the purchase of a new vehicle when disposable income and consumer confidence are low. In addition, our vehicle production volumes and related revenues may vary from month to month, sometimes due to plant shutdowns, which may occur for several reasons including production changes from one model year to the next and actions to balance vehicle supply and demand fluctuations and also to adjust dealer stock levels appropriately. Plant shutdowns, whether associated with model year changeovers or other factors such as temporary supplier interruptions, can have a negative impact on our revenues and working capital as we continue to pay suppliers under established terms while we do not receive proceeds from vehicle sales. Refer to Liquidity and Capital Resources—Liquidity Overview for additional information.

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Environmental and Other Regulatory Matters

We engineer, manufacture and sell our products and offer our services around the world, subject to requirements applicable to our products that relate to vehicle emissions, fuel economy, emission control software calibration and on-board diagnostics, as well as those applicable to our manufacturing facilities that relate to stack emissions, the treatment of waste, water and hazardous materials, prohibitions on soil contamination, and worker health and safety. Our vehicles and the engines that power them must also comply with extensive regional, national and local laws and regulations and industry self-regulations (including those that regulate end-of-life vehicles and the chemical content of our parts). In addition, vehicle safety regulations are becoming increasingly strict.

We believe we are substantially in compliance with the relevant global regulatory requirements affecting our facilities and products taken as a whole, although we may from time to time fail to meet a particular regulatory requirement. We consistently monitor the relevant global regulatory requirements affecting our facilities and products and adjust our operations and processes as we seek to remain in compliance. Compliance with these requirements involves significant costs and risks. See “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we OperateCurrent and future more stringent or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business and may increase our cost of compliance and negatively affect our operations and results. ” and “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate-We remain subject to diesel emissions investigations by several governmental agencies and to a number of related private lawsuits, as well as other claims and lawsuits which may lead to further enforcement actions, penalties or damage awards and may also adversely affect our reputation with consumers”

Automotive Tailpipe Emissions

Numerous laws and regulations limit automotive emissions, including vehicle exhaust emission standards, vehicle evaporative emission standards and emission control software calibration system requirements. Advanced onboard diagnostic systems are used to identify and diagnose problems with emission control systems. These requirements become more challenging each year, especially in light of increased global scrutiny of diesel emission control software calibration and we expect these emissions and certification requirements will continue to become even more rigorous worldwide.

North America Region

Under the U.S. Clean Air Act and California law, the U.S. Environmental Protection Agency (“EPA”), and the California Air Resource Board (“CARB”) by virtue of an EPA waiver, require emission compliance certification before a vehicle can be sold in the U.S. or in California (and many other states that have adopted the California emissions requirements). Both agencies impose limits on tailpipe and evaporative emissions of certain non-greenhouse gas pollutants from new motor vehicles and engines, and in some cases dictate the pollution control methods our engines must employ.

Our vehicles are subject to EPA's Tier 3 Vehicle Emission and Fuel Standards Program, which regulates vehicle tailpipe and evaporative emission standards and fuels. These Tier 3 standards generally align with California’s Low Emission Vehicle (“LEV”) III tailpipe and evaporative standards, discussed below, and require automakers to conduct pre- and post-production vehicle testing to demonstrate compliance with these emissions limits for the useful life of a vehicle, and require that FCA Italy-produced and Maserati-branded vehicles sold in the U.S. be included in the Group's U.S. fleet as reported to EPA and CARB.

In addition, we have implemented hardware and software systems in all our vehicles in connection with onboard diagnostic monitoring requirements. Conditions identified through these systems could lead to vehicle recalls (or other remedial actions such as extended warranties) with significant costs for related inspections, repairs or per-vehicle penalties.

In addition to its LEV III emissions standards, CARB regulations also require that a specified percentage of cars and certain light-duty trucks sold in California qualify as zero emission vehicles, such as electric vehicles, hybrid electric vehicles or hydrogen fuel cell vehicles. Our strategy for compliance with the zero emission vehicle requirements involves the sale of a variety of vehicles, including battery electric vehicles and hybrid electric vehicles. Our compliance strategy is also supported by the purchase of credits from other OEMs. The Group's compliance with zero emission vehicles regulations includes Maserati vehicles sold in the U.S.

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In addition to California, 12 states currently enforce California’s LEV III standards in lieu of the federal EPA standards, and nine states, as well as Quebec province in Canada, have also adopted California’s zero emission vehicle requirements.

For a discussion of inquiries into our compliance with certain regulations in the U.S., see Note 25, Guarantees granted, commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report. See also “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate-Current and future more stringent or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business and may increase our cost of compliance and negatively affect our operations and results. ”

LATAM Region

Certain countries in South America follow U.S. procedures, standards and onboard diagnostic requirements, while others follow the European procedures, standards and onboard diagnostic requirements described below under —EMEA Region. In Brazil, vehicle emission standards are regulated by the Ministry of the Environment and have been in place since 1988 for passenger cars and light commercial vehicles. The next phase of regulations (PROCONVE L7) are expected to be aligned with fuel efficiency and safety standards in January 2022 and a second step (PROCONVE L8) will be mandatory in January 2025 with fleet target limits (US BIN methodology), Real drive emission limits and onboard refueling vapor recovery. Argentina has implemented regulations that mirror the European Commission Euro 5 standards for all new vehicles. In Chile, implementation of Euro 6 standards is under discussion for 2022.

APAC Region

China 5 standards, which mirror Euro 5 standards, are currently in place in China nationwide. China 6 standards were released in 2016 and will be required nationwide beginning in July 2020 with China 6a thresholds and in July 2023 with China 6b thresholds. China 6a and 6b have more stringent tailpipe emissions thresholds than Euro 6 and also add European Union (“EU”) real driving emissions and U.S. onboard diagnostics, onboard refueling vapor recovery and evaporative emission control system requirements. Some regions within China implemented China 6b in 2019 such as Shanghai, Guangzhou, Shenzhen, Yangtze River Delta, Pearl River Delta, Chengdu, Chongqing and Tianjin. Beijing implemented China 6b at the beginning of 2020. FCA's entire China fleet has been developed with the intent to meet China 6 standards.

South Korea implemented regulations that are similar to California’s LEV III regulations beginning in 2016 and became fully required in 2019 for all gasoline vehicles. Diesel vehicles are required to meet Euro 6 EU emissions requirements. Japan adopted the Worldwide Harmonized Light Vehicle Testing Procedures (“WLTP”) without Extra High phase in 2018 for new models and will be required by September 2020 for all models. WLTP is a global harmonized standard for regulating greenhouse gas (“GHG”) emissions, non-GHG pollutants, and fuel or energy consumption for light-duty vehicles and electric range for battery electric vehicles or hybrids. India currently follows Bharat Stage IV (“BSIV”) emission norms, which are equivalent to Euro 4 standards. BSIV emission norms were enforced nationwide starting in 2017. The government will mandate the new Bharat Stage VI emission norms beginning in April 2020, skipping Euro 5 equivalent norms. In addition, Australia is developing a revised Regulatory Impact Statement to introduce mandatory Euro 6 standards beginning in 2027 and Euro 5 standards are expected to remain in force until that time.

EMEA Region

In Europe, emissions are regulated by the European Commission (“EC”) and the United Nations Economic Commission for Europe (“UNECE”). The EC imposes standardized emission control requirements on vehicles sold in all 28 EU member states, while non-EU countries bound by the “1985 UN Agreement” (an agreement concerning the adoption of uniform technical prescriptions for wheeled vehicles, equipment and parts which can be fitted or used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions) apply regulations under the UNECE framework. EU Member States can provide tax incentives for the purchase of vehicles that meet emission standards earlier than the compliance date. As a result, vehicles must meet emission requirements and receive specific approval from an appropriate Member State authority before they can be sold in any EU Member State. These regulatory requirements include random testing of newly assembled vehicles and a manufacturer in-use surveillance program.

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Euro 6 emission levels are in effect for all passenger cars and light commercial vehicles and require additional technologies and further increase the cost of diesel engines compared to prior Euro 5 standards. These new technologies have put additional cost pressures on the already challenging European market for small and mid-size diesel-powered vehicles. Further requirements of Euro 6 have been developed by the EC and became effective for all new passenger cars registered after September 1, 2018. In addition to WLTP, a new test procedure to directly assess the regulated emissions of light duty vehicles under real driving conditions became effective for all new passenger cars registered after September 1, 2019 and will become effective for new light commercial vehicles registered after September 1, 2020. For a discussion of inquiries from relevant governmental agencies in the European Union, see Note 25, Guarantees granted, commitments and contingent liabilities within the Consolidated Financial Statements included elsewhere in this report. See also “Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate-We remain subject to diesel emissions investigations by several governmental agencies and to a number of related private lawsuits, as well as other claims and lawsuits which may lead to further enforcement actions, penalties or damage awards and may also adversely affect our reputation with consumers”

Automotive Fuel Economy and Greenhouse Gas Emissions

We pursue compliance with fuel economy and greenhouse gas regulations in the markets where we operate through the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy and lower emissions, purchasing compliance credits and paying regulatory penalties. The cost of each of these components of our strategy has increased and is expected to continue to increase in the future. As the costs of each of these components, particularly the relative costs of each component, changes, we intend to adjust our strategies in an effort to maintain the most cost effective means of complying with the regulations.

North America Region

In the U.S., since the enactment of the 1975 Energy Policy and Conservation Act, the National Highway Traffic Safety Administration (“NHTSA”) has enforced minimum CAFE for fleets of new passenger cars and light-duty trucks sold in the U.S. for each model year. These CAFE standards apply to all domestic and imported passenger car and light-duty truck fleets and currently require year-over-year increases in fuel economy through 2025. The requirement is scaled based on vehicle footprint size. The CAFE standards require that passenger cars imported into the U.S. from outside of North America are averaged separately from those manufactured within North America, and domestic cars and light duty trucks are also considered separately. A civil fine can be paid under the CAFE standards which can vary to the extent fuel economy targets are not met, and the policy also allows for the trading of CAFE credits as a means to achieve compliance.

In addition, as part of a Joint Rule with NHTSA's CAFE standards, the EPA and CARB (by virtue of an EPA waiver) enforce a GHG standard that is also footprint based and increasing in stringency year over year through 2025. This requirement corresponds to an equivalent fuel economy target of 54.5 miles per gallon in the 2025 model year. Various flexibilities exist to reach this target, including utilizing advanced technology components and more environmentally friendly refrigerants. A civil fine cannot be paid to achieve compliance with GHG standards.

Pursuant to the Joint Rule, EPA and NHTSA conducted a “mid-term” review to evaluate the appropriateness of model year 2022-2025 CAFE/GHG standards and the original assumptions the agencies made as a basis for those standards. The “mid-term” review concluded that model year 2022-2025 standards were inappropriate. In September 2019, EPA and NHTSA issued a new Joint Rule that prohibits California from having a GHG program. California and other stakeholders challenged the new Joint Rule in federal court. FCA and other OEMs have intervened in this litigation to ensure the ability to participate in the case and any outcome.

For light duty vehicles, California and nine other states enforce a ZEV mandate requiring a certain percentage of each OEM’s fleet in each state to be zero emission - either battery electric vehicles or fuel cell vehicles. This standard also increases in stringency through model year 2025. The policy does allow for a limited number of sales of partial zero emission vehicles and plug-in electric hybrids as a flexibility for manufacturers. The Joint Rule also prohibits California from having its own ZEV program and is subject to challenge by California in federal court.

For heavy duty vehicles (>8,500 pound gross vehicle weight rating), the GHG standard is utility based (payload and towing) and is increasing in stringency through 2027. Similar to passenger cars, flexibilities exist to meet GHG regulation. A civil fine cannot be paid to achieve compliance with heavy duty vehicle GHG standards.

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The approach and technologies being developed to meet U.S. requirements are intended to also enable compliance in the Canadian and Mexican markets.

LATAM Region

In 2012, the Brazilian government issued a CO₂ reduction decree which provided indirect tax incentives to manufacturers who met certain requirements. Participating companies had to meet vehicle energy efficiency targets on vehicles sold from October 1, 2016 to September 30, 2017 and must maintain the required level until September 30, 2020. The program has additional targets that result in additional tax incentives based on the magnitude and timing of target accomplishment.

In July 2018, the first regulations related to Rota 2030 were enacted. Rota 2030 is a long-term program (three cycles of five years each) which includes key principles related to energy efficiency for all vehicles sold in Brazil. Key Rota 2030 regulations were approved by the Brazilian Congress and sanctioned by the Brazilian President in December 2018 as well as ordinary regulations to address certain minimum requirements and other metrics. The regulation for the next phase of Energy Efficiency (CO₂/fuel efficiency) beginning in 2022 incorporates three fleets split into passenger, large SUV and light commercial vehicle categories. Among other things, the rule rewards the improvement of sugar cane ethanol combustion efficiency and also recognizes and provides credit flexibilities for technologies that provide benefits in conditions that are not seen on the standardized government test cycles.

In Argentina, although there is no current mandatory greenhouse gas requirement, the government is in the process of a CO₂ standard revision which is expected to be finalized by year end 2020.

APAC Region

In China, Phase IV of the Corporate Average Fuel Consumption (or “CAFC”) is currently in place and provides an industry target of 5.0 liters per 100 kilometers by 2020. Each OEM must meet a specific fleet average fuel consumption target related to vehicle weight. The phase-in of this fleet-average requirement began in 2016, with increasing stringency each year through 2020. Additional provisions for Phase IV include meeting a quota for New Energy Vehicles (“NEVs”) credit beginning in 2019. NEVs consist of plug-in electric hybrids, battery electric vehicles, and fuel cell vehicles. No off-cycle credit flexibilities exist in the China regulation, although credit multipliers are granted for NEVs.

In September 2017, China’s Ministry of Industry and Information Technology released administrative rules regarding CAFC and NEV credits that became effective in April 2018. Non-compliance with the CAFC target in these administrative rules can be offset through carry-forward CAFC credits, transfer of CAFC credits within affiliates, the OEMs use of its own NEV credits, or the purchase of NEV credits. Non-compliance with the NEV target can only be offset by the purchase of NEV credits. The homologation of new products that exceed CAFC targets will be suspended for OEMs that are unable to offset CAFC and/or NEV deficits until the deficits are offset.

Beginning in 2021, China will adopt WLTP for conventional and plug-in hybrid electric vehicles and a unique Chinese test cycle is also expected to be applicable to battery electric vehicles in the same year. A draft of Phase V CAFC and NEV credit rules has been released by the Chinese government with increasing stringency reaching a target of 4.6 liters per 100 kilometers by 2025. The final rules are expected to be issued soon.

Additional markets within the APAC region have enacted fuel consumption and GHG targets. India began enforcing a phase I CAFC limit starting in April 2017 with a second, more stringent phase beginning in 2022.

South Korea has implemented a new phase of CAFE/CO₂ standards beginning in 2016 with increased targets for 2021.

In Japan, auto manufacturers are required to achieve the 2015 fuel economy standard for each vehicle weight class, which applies through the 2019 fiscal year. In 2020, a new fuel economy standard will be implemented that switches from vehicle weight class average to corporate average fuel economy. In Australia, although there is no mandatory greenhouse gas requirement, the government is in the midst of a CO₂ standard revision which is expected to result in a voluntary CO₂ target for light vehicles.

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EMEA Region

Each automobile manufacturer must meet a specific sales-weighted fleet average target for CO₂ emissions as related to vehicle weight. This regulation sets an industry fleet average target of 95 grams of CO₂ per kilometer starting in 2020 for passenger cars (130g/km until 2019). In order to promote the sale of ultra-efficient vehicles, automobile manufacturers that sell vehicles emitting less than 50 grams of CO₂ per kilometer earn additional CO₂ credits from 2020 to 2022. Furthermore, automobile manufacturers that make use of innovative technologies, or eco-innovations, which improve real-world fuel economy but may not show in the test cycles, such as solar panels or LED lighting, may gain an average credit for the manufacturer's fleet of up to seven grams of CO₂ per kilometer.

The EU has also adopted standards for regulating CO₂ emissions from light commercial vehicles (“LCVs”). This regulation requires that new light commercial vehicles meet a fleet average CO₂ target of 147 grams of CO₂ per kilometer in 2020 (175g/km until 2019).

In April 2019, the Regulation (EU) 2019/631 which sets new CO₂ emissions targets starting from 2025 and 2030 was adopted and requires a 15 percent reduction from 2021 levels in 2025 (both passenger cars and LCV), a 37.5 percent reduction for passenger cars and a 31 percent reduction for LCV in 2030 from 2021 levels.

A new regulatory test procedure for measuring CO₂ emissions and fuel consumption of light duty vehicles known as the WLTP entered into force in September 2018 for all registered passenger cars and in September 2019 for all registered LCVs. The WLTP is expected to provide CO₂ emissions and fuel consumption values that are more representative of real driving conditions.

The quantity of CO₂ emissions in 2020 will be affected not only by market evolution (such as the expected reduction of diesel market share), but also by the commercialization of low-emission and electrified vehicles. FCA has defined a plan to reach compliance with CO₂ emissions targets, mainly based on technical actions (such as the launch of electrified products and the extension of the new Gasoline Small Engine family across a significant portion of its products) and commercial actions (such as the promotion of low CO₂ emission vehicles). Finally, according to applicable EU regulations, current pooling arrangements for emissions compliance with another OEM are also expected to apply in 2020.

Other countries in the EMEA region outside of the EU perimeter, such as Switzerland and Saudi Arabia, have introduced specific regulations aimed to reduce vehicle CO₂ emissions or fuel consumption. The United Kingdom is expected to continue following the EU GHG policy post-Brexit.

Vehicle Safety

North America Region

Under U.S. federal law, all vehicles sold in the U.S. must comply with Federal Motor Vehicle Safety Standards (“FMVSS”) promulgated by NHTSA, and must be certified by their manufacturer as being in compliance with all such standards at the time of the first purchase of the vehicle. In addition, if a vehicle contains a defect that is related to motor vehicle safety or does not comply with an applicable FMVSS, the manufacturer must notify NHTSA and vehicle owners and provide a remedy at no cost. Moreover, the TREAD Act authorized NHTSA to promulgate regulations requiring Early Warning Reporting (“EWR”). EWR requires manufacturers to provide NHTSA several categories of information, including all claims which involve one or more fatalities or injuries; all incidents of which the manufacturer receives actual notice which involve fatalities or injuries which are alleged or proven to have been caused by a possible defect in such manufacturer’s motor vehicle or motor vehicle equipment in the U.S.; and all claims involving one or more fatalities in a foreign country when the possible defect is in a motor vehicle or motor vehicle equipment that is identical or substantially similar to a motor vehicle or motor vehicle equipment offered for sale in the U.S., as well as aggregate data on property damage claims from alleged defects in a motor vehicle or in motor vehicle equipment; warranty claims; consumer complaints and field reports about alleged or possible defects. The rules also require reporting of customer satisfaction campaigns, consumer advisories, recalls, or other activity involving the repair or replacement of motor vehicles or items of motor vehicle equipment, even if not safety related.

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NHTSA has secured a voluntary commitment from manufacturers, including FCA, to equip future vehicles with automatic electronic braking systems. The commitment will make these braking systems standard on virtually all light-duty cars and trucks with a gross vehicle weight of 8,500 pounds or less beginning no later than September 1, 2022 and on virtually all trucks with a gross vehicle weight between 8,501 pounds and 10,000 pounds beginning no later than September 1, 2025.

In September 2019, the Alliance of Automobile Manufacturers, Inc. and the Association of Global Automakers, Inc. announced a voluntary commitment from auto manufacturers, including FCA, to introduce technology including a combination of auditory and visual alerts to remind parents and caregivers to check the back seat upon leaving a vehicle to help address the risk of pediatric heatstroke in children left in cars. The commitment is to install such technology in essentially all cars and trucks by the 2025 model year or sooner.

At times, organizations like NHTSA or the U.S. Insurance Institute of Highway Safety (“IIHS”) issue or reissue safety ratings applicable to vehicles. In October 2019, NHTSA announced a plan to propose significant updates and upgrades to its New Car Assessment Program, also known as the Five-star Safety Ratings Program, in 2020. The details are not known at this time, but are expected to include new test dummies, changes to the mandatory label, new test procedures and evaluation of new technologies. Depending on the content of the final changes, this set of changes could impact the market competitiveness of the affected vehicles.

In 2016, NHTSA issued a Notice of Proposed Rulemaking (“NPRM”) designed to enable vehicle-to-vehicle communication technology. Rulemaking in this area has been inactive since then, and any additional costs that would have been associated with the NPRM are deferred for the foreseeable future. However, NHTSA has engaged with industry to confirm continued interest in facilitating the growth of this technology.

Furthermore, NHTSA has issued non-binding guidelines for addressing cybersecurity issues in the design and manufacture of new motor vehicles, as well as guidance for the investigation and validation of cybersecurity measures.

In January 2018, Mexico issued an amendment to the Consumers' Protection Law (“CPL”) regarding safety regulations based on U.S. standards. The CPL, among other things, includes a deadline for vehicle manufacturers to provide to the Federal Consumer Protection Agency (i) the launch date and a detailed description of every safety campaign applicable to vehicles sold in Mexico, (ii) mandatory recall campaigns, based on international agencies' investigations and guidelines, (iii) mandatory repurchase, repair or replacement (with a new vehicle model having the same characteristics) of vehicles that risk the consumer's safety, health or life or threatens the consumer's personal financial condition, and (iv) mandatory product withdrawal, when the Federal Consumer Protection Agency determines that the vehicle could risk the consumer's safety, health or life or affect the consumer's personal financial condition.

LATAM Region

Vehicles sold in the LATAM region are subject to different vehicle safety regulations according to each country, generally based on European and United Nations standards. Brazil published a draft of its 10 year safety regulatory roadmap in 2017. This roadmap provides a staged approach to implementation of new testing requirements and active safety technology. The more costly active safety technologies would be scheduled for implementation after 2024. In July 2018, the first regulation related to Rota 2030 was enacted. Rota 2030 is a long-term program (three cycles of five years each) which includes principles related to mandatory safety for all vehicles sold in Brazil. These regulations were approved by the Brazilian Congress and sanctioned by the Brazilian President in December 2018 as well as ordinary regulations to address certain minimum requirements and other metrics.

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APAC Region

Many countries in the Asia Pacific region, including China, South Korea, Japan and India, have adopted or are adopting measures for pedestrian protection and vehicle safety regulations. China published the Regulation for Administration of Recall of Defective Vehicles effective in 2013 and the Implementation Provisions on the Regulation for Administration of Recall of Defective Vehicles effective in 2016. In 2019, State Administration for Market Supervision and Regulation in China issued a notice requiring close supervision of defects reporting and recall of new energy vehicles. In addition, India has implemented vehicle crash regulations effective in 2017 for new models and 2019 for all models, and has introduced for implementation in 2019 new standards relating to pedestrian safety, compulsory installation of airbags, speed limit reminders, anti-lock braking systems and reverse parking sensors. Further, in June 2019 the Indian Government Cabinet approved the “Road Transport and Safety Bill, 2015” which, among other things, covers provisions relating to the recall of vehicles. In South Korea, amendments to major provisions relating to vehicle accidents, fire incidents, defect reporting and recall procedures have been proposed that may considerably increase the liabilities and penalties of vehicle manufacturers.

EMEA Region

Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or, in very limited cases and aspects, by individual Member States. In 2009, the EU established a uniform legal framework for vehicle safety, repealing more than 50 then-existing directives and replacing them with a single regulation known as the “General Safety Regulation” (“GSR”) aimed at incorporating relevant United Nations standards. The incorporation of United Nations standards commenced in 2012. In 2014, discussions began in Europe for a comprehensive upgrade to the GSR, which is expected to lead to the implementation of a variable suite of passive and active safety technologies, depending on vehicle type and classification. The significant items for the most common vehicles include advanced emergency braking, intelligent speed assistance, emergency lane keeping, driver drowsiness and attention warning, advanced driver distraction warning, reversing detection, event data recorder, protection of pedestrians, cyclists and other vulnerable road users, and an expanded scope of front and side crash testing. Also included are the introduction of automated vehicle provisions, such as a driver availability monitoring system or vehicle platooning. The updated GSR was published in 2019 and implementation of this upgraded GSR for new vehicle and vehicle types will begin in 2022.  In addition, in-vehicle emergency call systems became mandatory for new type-approved vehicles in the EU, Israel and Turkey markets in 2018. In Russia, a similar in-vehicle emergency call system became mandatory in 2015 and there are currently draft regulations for these systems in some countries in the Middle East region.

Industrial Environmental Control

Our operations are subject to a wide range of environmental protection laws including those laws regulating air emissions, water discharges, waste management and environmental clean-up. Certain environmental statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal, or ownership of a disposal site. Under certain circumstances, these laws impose liability for related damages to natural resources. Our Environmental Management System (“EMS”) formalizes our commitment to responsible management of methodologies and processes designed to prevent or reduce the environmental impact of our manufacturing activities. ISO 14001 is an internationally agreed standard that sets out the requirements for an EMS. At December 31, 2019, the majority of the Group's manufacturing plants have an ISO 14001 certified EMS in place.

Our commitment to environmental and sustainability issues is also reflected through our internal World Class Manufacturing (“WCM”) system.

Workplace Health and Safety

FCA aims to provide all employees with a safe, healthy and productive work environment at every facility worldwide and in every area of activity. Accordingly, the Group focuses on identifying and evaluating workplace safety risks, implementing internal and governmental safety and ergonomic standards, promoting employee awareness and safe behavior and encouraging a healthy lifestyle.

The goal of achieving zero accidents is formalized in the targets set by FCA, as well as through global adoption of an Occupational Health and Safety Management System (“OHSMS”) certified to the Occupational Health and Safety Assessment Series (“OHSAS”) 18001 standard. At December 31, 2019, the vast majority of our manufacturing plants had an OHSMS in place that was OHSAS 18001 certified.

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Effective safety management is also supported by the application of WCM tools and methodologies, active involvement of employees and targeted investment.

Applicability of Banking Law and Regulation to Financial Services

Several of our captive finance companies, each of which provides financial services to our customers, are regulated as financial institutions in the jurisdictions in which they operate. FCA Bank S.p.A., incorporated in Italy, is subject to European Central Bank and Bank of Italy supervision. Within FCA Bank Group, two subsidiaries (the Austrian FCA Bank G.m.b.H. and the Portuguese FCA Capital Portugal I.F.I.C., S.A.), are subject to the supervision of the European Central Bank and of the local central banks, whereas certain other subsidiaries are subject to the supervision of the local Supervisory Financial or Banking Authority. Banco Fidis S.A., incorporated in Brazil, is subject to Brazilian Central Bank supervision. FCA Compañia Financiera S.A., incorporated in Argentina, is subject to Argentinian Central Bank supervision. FCA Automotive Finance Co., Ltd, incorporated in China, is subject to the supervision of the Chinese Banking Insurance Regulatory Commission and People’s Bank of China. As a result, those companies are subject to regulation in a wide range of areas including solvency, capital requirements, reporting, customer protection and account administration, among other matters.

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FINANCIAL OVERVIEW

Management's Discussion and Analysis of the Financial Condition and Results of Operations of the Group

The following discussion of our financial condition and results of operations should be read together with the information included under “GROUP OVERVIEW”, “SELECTED FINANCIAL DATA” and the Consolidated Financial Statements included elsewhere in this report. This discussion includes forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under “Forward-Looking Statements” and “Risk Factors”. Actual results may differ materially from those contained in any forward looking statements.

Management's Discussion and Analysis of the Financial Condition and Results of Operations of the Group for the year ended December 31, 2017 was previously included in the section “FINANCIAL OVERVIEW” in the 2018 Annual Report and Form 20-F, as filed with the SEC on February 20, 2019, and has not been included in this report. Industrial free cash flows excluding Magneti Marelli and Adjusted diluted EPS for 2017 were not previously disclosed and have been disclosed below.

Trends, Uncertainties and Opportunities

Our results of operations and financial condition are affected by a number of factors, including those that are outside our control.

Shipments. Vehicle shipments are generally driven by expectations of consumer demand for vehicles, which is affected by economic conditions, availability and cost of dealer and customer financing and incentives offered to retail customers, as discussed further below. Transfer of control, and therefore revenue recognition, generally corresponds to vehicle shipment to dealers or distributors. This generally occurs upon the release of the vehicle to the carrier responsible for transporting the vehicle to the dealer or distributor, or when the vehicle is made available to the dealer or distributor. Shipments and revenue recognition are not necessarily directly correlated with retail sales by dealers, which may be affected by other factors including dealer decisions as to appropriate inventory levels.

Product Development and Technology. A key driver of consumer demand and therefore our shipments, has been the continued refresh, renewal and evolution of our vehicle portfolio, and we have committed significant capital and resources toward the introduction of new vehicles on new platforms, with additions of new powertrains and other new technologies. In order to realize a return on the significant investments we have made to sustain market share and to achieve competitive operating margins, we will have to continue significant investment in new vehicle launches. We believe efforts in developing common vehicle platforms and powertrains have accelerated the time-to-market for many of our new vehicle launches and resulted in cost savings.

The costs associated with product development, vehicle improvements and launches can impact our Net profit. In addition, our ability to continue to make the necessary investments in product development, and recover the related costs, depends in large part on the market acceptance and success of the new or significantly refreshed vehicles we introduce. During a new vehicle launch and introduction to the market, we typically incur increased selling, general and advertising expenses associated with the advertising campaigns and related promotional activity.

Costs we incur in the initial research phase for new projects (which may relate to vehicle models, vehicle platforms, powertrains or technology) are expensed as incurred and reported as Research and development costs. Costs we incur for product development are capitalized and recognized as intangible assets if and when the following two conditions are both satisfied: (i) development expenditures can be measured reliably and (ii) the technical feasibility of the project, and the anticipated volumes and pricing indicate it is probable that the development expenditures will generate future economic benefits. Capitalized development expenditures include all costs that may be directly attributed to the development process. Such capitalized development expenditures are amortized on a straight-line basis commencing from start of production over the expected economic useful life of the product developed and based on an end date that we estimate to correspond to the end of the useful life of such product, we recognize and report such amortization as Research and development costs in our Consolidated Income Statement. Any changes in the expected end date of vehicle production (extensions, accelerations or terminations) result in a prospective change in the period over which the asset is amortized.

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Future developments in our product portfolio to support our growth strategies and their related development expenditures could lead to significant capitalization of development assets. Our time to market is at least 24 months, but varies depending on our product, from the date the design is signed-off for tooling and production, after which the project goes into production, resulting in an increase in amortization. Therefore, our operating results are impacted by the cyclicality of our research and development expenditures based on our product portfolio strategies and our product plans.

In order to meet expected changes in consumer demand and regulatory requirements, we intend to invest significant resources in product development and research and development. New markets for alternative fuel source vehicles and autonomous vehicles are also continuing to emerge and we expect to invest resources in these areas in order to meet future demand and to support compliance with emissions and fuel efficiency requirements. In addition, global demand continues to shift from passenger cars to utility vehicles and away from diesel-powered vehicles.

Cost of revenues. Cost of revenues includes purchases (including costs related to the purchase of components and raw materials), labor costs, depreciation, amortization, logistic and product warranty and recall campaign costs. We purchase a variety of components, raw materials, supplies, utilities, logistics and other services from numerous suppliers. These purchases have historically accounted for 70-80 percent of total Cost of revenues. Fluctuations in Cost of revenues are primarily related to the number of vehicles we produce and sell along with shifts in vehicle mix, as newer models of vehicles generally have more technologically advanced components and enhancements and therefore higher costs per unit. Cost of revenues may also be affected by fluctuations in raw material prices. The cost of raw materials has historically comprised 10-15 percent of the total purchases described above, while the remaining portion of purchases is made of components, conversion of raw materials and overhead costs. We typically seek to manage these costs and minimize their volatility by using fixed price purchase contracts, commercial negotiations and technical efficiencies. Nevertheless, our Cost of revenues related to materials and components has increased as a result of recent tariff activity, and uncertainty related to tariffs and trade policy in our larger markets including the U.S. and China have made managing our raw material costs difficult to predict. Our Cost of revenues has also increased as we have significantly enhanced the content of our vehicles as we renew and refresh our product offerings. Over time, technological advancements and improved material sourcing may reduce the cost to us of the additional enhancements. In addition, we seek to recover higher costs through pricing actions, but even when market conditions permit this, there may be a time lag between the increase in our costs and our ability to realize improved pricing. Accordingly, our results are typically adversely affected, at least in the short term, until price increases are accepted in the market.

Further, in many markets where our vehicles are sold, we are required to pay import duties on those vehicles, which are included in Cost of revenues. We reflect these costs in the price charged to our customers to the extent market conditions permit. However, for many of our vehicles, particularly in the mass-market vehicle segments, we cannot always pass along increases in those duties to our dealers and distributors and remain competitive. Our ability to price our vehicles to recover those increased costs has affected, and will continue to affect, our profitability.

Pricing. Our profitability depends in part on our ability to maintain or improve pricing on the sale of our vehicles to dealers and fleet customers and will also be significantly impacted by our ability to pass along the increased costs of the technology needed to meet increased regulatory compliance requirements. However, as described above, import duties and tariffs affecting raw materials or component pricing may in some instances increase the price charged to our customers, where the market can accept such price increases in that particular market or otherwise impact our profitability if we are unable to increase prices to our customers.

In addition, the automotive industry continues to experience intense price competition resulting from the variety of available competitive vehicles and excess global manufacturing capacity. Historically, manufacturers have promoted products by offering dealer, retail and fleet incentives, including cash rebates, option package discounts, and subsidized financing or leasing programs. The amount and types of incentives are dependent on numerous factors, including market competition level, vehicle demand, economic conditions, model age and time of year, due to industry seasonality. We plan to continue to use such incentives to price vehicles competitively and to manage demand and support inventory management profitability.

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Vehicle Profitability. Our results of operations reflect the profitability of the vehicles we sell, which tends to vary based upon a number of factors, including vehicle size, content of those vehicles and brand positioning. Vehicle profitability also depends on sales prices to dealers and fleet customers, net of sales incentives, costs of materials and components, as well as transportation and warranty costs. In the North America segment, our larger vehicles such as our larger SUVs and pickup trucks have historically been more profitable on a per vehicle basis than other vehicles and accounted for approximately 71 percent of our total U.S. retail vehicle shipments in 2019. In recent years, consumer preferences for certain larger vehicles, such as SUVs, have increased; however, there is no guarantee this will continue.

In all mass-market vehicle segments throughout the world, vehicles equipped with additional options selected by the dealer are generally more profitable for us. As a result, our ability to offer attractive vehicle options and upgrades is critical to our ability to increase our profitability on these vehicles. In addition, in the U.S. and Europe, our vehicle sales to dealers for sale to their retail consumers are normally more profitable than our fleet sales, in part because the retail consumers are more likely to prefer additional optional features while fleet customers increasingly tend to concentrate purchases on smaller, more fuel-efficient vehicles with fewer optional features, which have historically had a lower profitability per unit.

Vehicles sold under certain brand and model names are generally more profitable when there is strong brand recognition of those vehicles. In some cases this is tied to a long history for those brands and models, and in other cases to customers identifying these vehicles as being more modern and responsive to customer needs.

Economic Conditions. Demand for new vehicles tends to reflect economic conditions in the various markets in which we operate because retail sales depend on individual purchasing decisions, which in turn are affected by many factors including levels of disposable income. Fleet sales and sales of light commercial vehicles are also influenced by economic conditions, which drive vehicle utilization and investment activity. Further, demand for light commercial vehicles and pickup trucks is driven, in part, by construction and infrastructure projects. Therefore, our performance is affected by the macroeconomic trends in the markets in which we operate.

Regulation. We are subject to a complex set of regulatory regimes throughout the world in which vehicle safety, emissions and fuel economy regulations have become increasingly stringent and the related enforcement regimes increasingly active. These developments may affect our vehicle sales as well as our profitability and reputation. We are subject to applicable national and local regulations and must achieve an appropriate level of compliance in order to continue operations in every market, including a number of markets in which we derive substantial revenue. Developing, engineering and manufacturing vehicles that meet these requirements and therefore may be sold in those markets requires a significant expenditure of management time and financial resources.

We pursue compliance with fuel economy and greenhouse gas regulations in the markets where we operate through the most cost effective combination of developing, manufacturing and selling vehicles with better fuel economy and lower emissions, purchasing regulatory emissions credits and paying regulatory expenses. The cost of each of these components of our strategy has increased and is expected to continue to increase in the future. As the costs of each of these components, particularly the relative costs of each component, changes, we intend to adjust our strategies to the extent feasible in an effort to pursue the most cost effective means of meeting our regulatory compliance obligations. In addition, these costs and the costs incurred to meet other regulatory requirements may be difficult to pass through to customers, so the increased costs may affect our results of operations and profitability.

Further, developments in regulatory requirements in China, the largest single market in the world in 2019, limit in some respects, the product offerings we can pursue as we expand the scope of our operations in that country. Refer to Risk Factors-Risks Related to the Legal and Regulatory Environment in which we Operate- Current and future more stringent or incremental laws, regulations and governmental policies, including those regarding increased fuel efficiency requirements and reduced greenhouse gas and tailpipe emissions, have a significant effect on how we do business and may increase our cost of compliance and negatively affect our operations and results. for more information. In addition, recent legal proceedings instituted by the U.S. federal government have challenged the jurisdiction of U.S. states, such as California, to impose their own regulations on the vehicles that we sell, resulting in uncertainty regarding the applicability of these regulations.

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Tariffs and Trade Policy. There has been a recent and significant increase in activity and speculation regarding tariffs and duties between the U.S. and its trading partners, including China and the EU. Tariffs or duties implemented between the U.S. and its trading partners, and the implementation of the USMCA, may reduce consumer demand and/or make our products less profitable. In addition, the availability and price at which we are able to source components and raw materials globally may be adversely affected.

Consolidation.The automotive industry is exceptionally capital intensive and capital expenditures and research and development requirements in our industry have continued to grow significantly in recent years as we pursue technological innovations and respond to a number of challenges. Compliance with enhanced emissions and safety regulations continue to impose new and increasing capital requirements as does the development of proprietary components. On December 17, 2019, we signed a binding Combination Agreement with Peugeot S.A. providing for a 50/50 merger (the “FCA-PSA Merger”) to create the 4^th largest global automotive OEM by volume and 3^rd largest by revenue. While we continue to implement our business plan, and we believe that our business will continue to grow and our operating margins will continue to improve, if we are unable to reduce our capital requirements through consummation of the FCA-PSA Merger, or cooperation or consolidation with other manufacturers, we may not be able to reduce component development costs, optimize manufacturing investments or product allocation and improve utilization of tooling, machinery and equipment, as a result of which our product development and manufacturing costs will continue to restrict our profitability and return on capital. Although there can be no assurance that these challenges can be overcome through large scale integration or product development and manufacturing collaboration, if we are unable to pursue such benefits our returns on capital employed may be impaired which could adversely affect our results of operations and financial condition.

FCA-PSA Merger. Completion of the FCA-PSA Merger is subject to several conditions beyond our control that may prevent, delay or otherwise adversely affect its completion. In addition, even if the FCA-PSA Merger is completed, challenges in the integration process may arise and the synergies we expect to realize may not be realized in a timely manner or at all.

Dealer and Customer Financing. Given that a large percentage of the vehicles we sell to dealers and retail customers worldwide are financed, the availability and cost of financing is a significant factor affecting our vehicle shipment volumes and Net revenues. Availability of customer financing could affect the vehicle mix, as customers who have access to greater financing are able to purchase higher priced vehicles, whereas when customer financing is constrained, vehicle mix could shift towards less expensive vehicles. The low interest rate environment in recent years has had the effect of reducing the effective cost of vehicle ownership. While interest rates in the U.S. and Europe have been at historically low levels, the availability and terms of financing will likely continue to change over time, impacting our results. We currently operate in many regions (including the U.S.) without a captive finance company, and we continue to provide access to financing through joint ventures and third party arrangements in several of our key markets (including the U.S.). Therefore, we may be less able to ensure availability of financing for our dealers and retail customers in those markets than our competitors that own and operate affiliated finance companies.

Effects of Foreign Exchange Rates. We are affected by fluctuations in foreign exchange rates (i) through translation of foreign currency financial statements into Euro for consolidation, which we refer to as the translation impact, and (ii) through transactions by entities in the Group in currencies other than their own functional currencies, which we refer to as the transaction impact. Given the size of our U.S. operations, a strengthening of the U.S. Dollar against the Euro generally would have a positive effect on our financial results, which are reported in Euro, and on our operations in relation to sales in the U.S. of vehicles and components produced in Europe. Foreign exchange rates, including the U.S. Dollar/Euro exchange rate, have fluctuated significantly in 2019, and may continue to do so in the future. We are primarily financed by a mix of Euro, U.S. dollar and Brazilian Real denominated debt. Given the mix of our debt and liquidity, strengthening of the U.S. dollar against the Euro generally would have a positive impact on our net cash position.

In order to reduce the impacts of foreign exchange rates, we hedge a percentage of certain exposures. Refer to Note 30, Qualitative and quantitative information on financial riskswithin our Consolidated Financial Statements included elsewhere in this report for additional information.    

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Shipment Information

As discussed in GROUP OVERVIEW—Overview of Our Business, our activities are carried out through five reportable segments: four regional mass-market vehicle segments (North America, LATAM, APAC and EMEA) and the Maserati global luxury brand segment. The following table sets forth our vehicle shipment information by segment. Vehicle shipments are generally aligned with current period production which is driven by our plans to meet consumer demand. Revenue is recognized when control of our vehicles, services or parts has been transferred and the Group’s performance obligations to our customers have been satisfied. The Group has determined that our customers from the sale of vehicles and service parts are generally dealers, distributors or fleet customers. Transfer of control, and therefore revenue recognition, generally corresponds to the date when the vehicles or service parts are made available to the customer, or when the vehicles or service parts are released to the carrier responsible for transporting them to the customer. New vehicle sales through the Guaranteed Depreciation Program (“GDP”) are recognized as revenue when control of the vehicle transfers to the fleet customer, except in situations where the Group issues a put for which there is a significant economic incentive to exercise. Refer to Note 2, Basis of preparation, within our Consolidated Financial Statements included elsewhere in this report for further details on our revenue recognition policy.

For a description of our dealers and distributors see GROUP OVERVIEW—Sales Overview. Accordingly, the number of vehicles sold does not necessarily correspond to the number of vehicles shipped for which revenues are recorded in any given period.

	Years ended December 31,
(thousands of units)	2019	2018
North America	2,401	2,633
LATAM	577	585
APAC	76	84
EMEA	1,199	1,318
Maserati	19	35
Total Consolidated shipments	4,272	4,655
Joint venture shipments	146	187
Total Combined shipments	4,418	4,842

For discussion of shipments for North America, LATAM, APAC, EMEA and Maserati for 2019 as compared to 2018, refer to —Results by Segment below.

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Non-GAAP Financial Measures

We monitor our operations through the use of several non-generally accepted accounting principles (“non-GAAP”) financial measures: Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”), Adjusted net profit, Adjusted diluted earnings per share (“Adjusted diluted EPS”), Industrial free cash flows and certain information provided on a constant exchange rate (“CER”) basis. We believe that these non-GAAP financial measures provide useful and relevant information regarding our operating results and enhance the overall ability to assess our financial performance. They provide us with comparable measures which facilitate management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. These and similar measures are widely used in the industry in which we operate, however, these financial measures may not be comparable to other similarly titled measures of other companies and are not intended to be substitutes for measures of financial performance as prepared in accordance with IFRS as issued by the IASB as well as IFRS adopted by the European Union.

Adjusted EBIT: excludes certain adjustments from Net profit from continuing operations including gains/(losses) on the disposal of investments, restructuring, impairments, asset write-offs and unusual income/(expenses) that are considered rare or discrete events that are infrequent in nature, and also excludes Net financial expenses and Tax expense/(benefit).

Adjusted EBIT is used for internal reporting to assess performance and as part of the Group's forecasting, budgeting and decision making processes as it provides additional transparency to the Group's core operations. We believe this non-GAAP measure is useful because it excludes items that we do not believe are indicative of the Group’s ongoing operating performance and allows management to view operating trends, perform analytical comparisons and benchmark performance between periods and among our segments. We also believe that Adjusted EBIT is useful for analysts and investors to understand how management assesses the Group’s ongoing operating performance on a consistent basis. In addition, Adjusted EBIT is one of the metrics used in the determination of the annual performance bonus and the achievement of certain performance objectives established under the terms of the 2019-2021 equity incentive plan for the Chief Executive Officer of the Group and other eligible employees, including members of the Group Executive Council (“GEC”).

Refer to the sections Group Results and Results by Segment below for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the most directly comparable measure included in our Consolidated Income Statement. Adjusted EBIT should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing our results as reported under IFRS.

Adjusted net profit: is calculated as Net profit from continuing operations excluding post-tax impacts of the same items excluded from Adjusted EBIT, as well as financial income/(expenses) and tax income/(expenses) considered rare or discrete events that are infrequent in nature.

We believe this non-GAAP measure is useful because it also excludes items that we do not believe are indicative of the Group’s ongoing operating performance and provides investors with a more meaningful comparison of the Group's ongoing operating performance. In addition, Adjusted net profit is one of the metrics used in the determination of the annual performance bonus and the achievement of certain performance objectives established under the terms of the 2014-2018 equity incentive plan for the Chief Executive Officer of the Group and other eligible employees, including members of the Group Executive Council.

Refer to the section Group Resultsbelow for further discussion and for a reconciliation of this non-GAAP measure to Net profit from continuing operations, which is the most directly comparable measure included in our Consolidated Income Statement. Adjusted net profit should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing our results as reported under IFRS.

Adjusted diluted EPS: is calculated by adjusting Diluted earnings per share from continuing operations for the impact per share of the same items excluded from Adjusted net profit.

We believe this non-GAAP measure is useful because it also excludes items that we do not believe are indicative of the Group’s ongoing operating performance and provides investors with a more meaningful comparison of the Group's ongoing quality of earnings.

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Refer to the section Group Results below for a reconciliation of this non-GAAP measure to Diluted earnings per share from continuing operations, which is the most directly comparable measure included in our Consolidated Financial Statements. Adjusted diluted EPS should not be considered as a substitute for Basic earnings per share, Diluted earnings per share from continuing operations or other methods of analyzing our quality of earnings as reported under IFRS.

Industrial free cash flows: is our key cash flow metric, and is calculated as Cash flows from operating activities less: cash flows from operating activities from discontinued operations; cash flows from operating activities related to financial services, net of eliminations; investments in property, plant and equipment and intangible assets for industrial activities; adjusted for net intercompany payments between continuing operations and discontinued operations; and adjusted for discretionary pension contributions in excess of those required by the pension plans, net of tax. The timing of Industrial free cash flows may be affected by the timing of monetization of receivables and the payment of accounts payable, as well as changes in other components of working capital, which can vary from period to period due to, among other things, cash management initiatives and other factors, some of which may be outside of the Group’s control.

Refer to Liquidity and Capital Resources—Industrial free cash flows for further information and the reconciliation of this non-GAAP measure to Cash flows from operating activities, which is the most directly comparable measure included in our Consolidated Statement of Cash Flows. Industrial free cash flows should not be considered as a substitute for Net profit from continuing operations, cash flow or other methods of analyzing our results as reported under IFRS.

Constant Currency Information: the discussion within section Group Results includes information about our results at CER, which is calculated by applying the prior year average exchange rates to translate current financial data expressed in local currency in which the relevant financial statements are denominated (see Note 2, Basis of preparation, within the Consolidated Financial Statements included elsewhere in this report for the exchange rates applied). Although we do not believe that this non-GAAP measure is a substitute for GAAP measures, we believe that results excluding the effect of currency fluctuations provide additional useful information to investors regarding the operating performance and trends in our business on a local currency basis.

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Results of Operations

Group Results – 2019 compared to 2018

The following is a discussion of the Group's results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

	Years ended December 31,
(€ million)	2019		2018
Net revenues	€	108,187	€	110,412
Cost of revenues	93,164		95,011
Selling, general and other costs	6,455		7,318
Research and development costs	3,612		3,051
Result from investments	209		235
Gains on disposal of investments	15		—
Restructuring costs	154		103
Net financial expenses	1,005		1,056
Profit before taxes	4,021		4,108
Tax expense	1,321		778
Net profit from continuing operations	2,700		3,330
Profit from discontinued operations, net of tax	3,930		302
Net profit	€	6,630	€	3,632
Net profit attributable to:
Owners of the parent	€	6,622	€	3,608
Non-controlling interests	€	8	€	24
Net profit from continuing operations attributable to:
Owners of the parent	€	2,694	€	3,323
Non-controlling interests	€	6	€	7
Net profit from discontinued operations attributable to:
Owners of the parent	€	3,928	€	285
Non-controlling interests	€	2	€	17

As of January 1, 2019 the Group adopted IFRS 16 - Leases using the modified retrospective approach and did not restate prior year comparatives. The impact of the adoption of this new standard is not material and the Group does not expect a material impact from the adoption of this new standard on an ongoing basis. Refer to Note 2, Basis of preparation, within our Consolidated Financial Statements included elsewhere in this report, for further information.

Net revenues

					Increase/(Decrease)
	Years ended December 31,				2019 vs. 2018
(€ million)	2019		2018		% Actual		% CER
Net revenues	€	108,187	€	110,412	(2.0	)%	(5.2	)%

For a discussion of Net revenues for each of our five reportable segments (North America, LATAM, APAC, EMEA and Maserati) for 2019 as compared to 2018 see Results by Segment below.

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Cost of revenues

							Increase/(Decrease)
	Years ended December 31,						2019 vs. 2018
(€ million)	2019			2018			% Actual		% CER
Cost of revenues	€	93,164		€	95,011		(1.9	)%	(5.1	)%
Cost of revenues as % of Net revenues	86.1		%	86.1		%

Cost of revenues includes purchases (including commodity costs), labor costs, depreciation, amortization, logistic, product warranty and recall campaign costs.

The decrease in Cost of revenues in 2019 compared to 2018 was primarily related to (i) volume decreases in North America, EMEA and Maserati, which were partially offset by (ii) increases resulting from foreign currency translation effects, (iii) overall mix, product costs and enhancements on recently launched vehicles in North America, and (iv) impairment of assets, as described below.

Included within Cost of revenues for 2019 were amounts of €425 million (€370 million in 2018), which represent primarily the accrual of regulatory expenses and the utilization of regulatory credits, mainly in North America and EMEA.

Cost of revenues also includes significant costs that contribute to regulatory compliance but which are not separately quantifiable as they are elements within broader initiatives, such as technology deployment in terms of powertrain upgrades and alternative powertrains, along with actions to improve vehicle demand energy. For further detail, refer to Environmental and Other Regulatory Matters included elsewhere in this report.

During 2019, rationalization of product portfolio plans, primarily for Europe in the A-segment as well as for Alfa Romeo resulted in the recognition of asset impairment charges for certain platforms. The impairment charges totaled €1,376 million, composed of €563 millionof Property, plant and equipment recognized within Cost of revenues and€813 million of previously capitalized development costs recognized within Research and development costs and excluded from Adjusted EBIT. Of these charges,€435 millionrelates to the EMEA segment,€148 millionrelates to the Maserati segment and the remaining €793 millionis not allocated to a specific region as the platform assets that have been impaired are used to produce Alfa Romeo vehicles sold in several of our regions. Refer to Note 2, Basis of preparation - Use of Estimates in the Consolidated Financial Statements included elsewhere in this Report.

Selling, general and other costs

							Increase/(Decrease)
	Years ended December 31,						2019 vs. 2018
(€ million)	2019			2018			% Actual		% CER
Selling, general and other costs	€	6,455		€	7,318		(11.8	)%	(13.7	)%
Selling, general and other costs as% of Net revenues	6.0		%	6.6		%

The decrease in Selling, general and other costs in 2019 as compared with 2018 was primarily due to the non-repeat of the €748 million charge for estimated costs related to U.S. diesel emissions matters recognized during 2018 and the U.S special bonus payment of €111 million in 2018 as a result of the Tax Cuts and Jobs Act in the U.S., which were excluded from Adjusted EBIT. Net of these charges, Selling, general and other costs decreased primarily due to lower advertising expenses in EMEA and North America and efficiencies resulting from restructuring actions in EMEA.

Selling, general and other costs includes advertising, personnel and administrative costs. Advertising costs amounted to approximately 47 percent and 42 percent of total Selling, general and other costs for the years ended December 31, 2019 and 2018 respectively. Advertising costs were consistent for the years ended December 31, 2019 and 2018, with the increase in advertising costs as a proportion of total Selling, general and other costs primarily due to lower total Selling, general and other costs in 2019 from the non-repeat of the charge recognized in 2018, referred to above.

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Research and development costs

					Increase/(Decrease)
	Years ended December 31,				2019 vs. 2018
(€ million)	2019		2018		% Actual		% CER
Research and development expenditures expensed	€	1,305	€	1,448	(9.9	)%	(13.3	)%
Amortization of capitalized development expenditures	1,358		1,456		(6.7	)%	(8.9	)%
Impairment and write-off of capitalized development expenditures	949		147		n.m.		n.m.
Total Research and development costs	€	3,612	€	3,051	18.4	%	15.6	%

______________________________________________________________________________________________________________________________

n.m. = numbers are not meaningful

	Years ended December 31,
	2019		2018
Research and development expenditures expensed as % of Net revenues	1.2	%	1.3	%
Amortization of capitalized development expenditures as % of Net revenues	1.3	%	1.3	%
Impairment and write-off of capitalized development expenditures as % of Net revenues	0.9	%	0.1	%
Total Research and development costs as % of Net revenues	3.3	%	2.8	%

The following table summarizes our research and development expenditures for the years ended December 31, 2019 and 2018:

	Years ended December 31,						Increase/(Decrease)
(€ million)	2019			2018			2019 vs. 2018
Capitalized development expenditures	€	2,889		€	2,079		39.0	%
Research and development expenditures expensed	1,305			1,448			(9.9	)%
Total Research and development expenditures	€	4,194		€	3,527		18.9	%
Capitalized development expenditures as % of Total Research and development expenditures	68.9		%	58.9		%
Total Research and development expenditures as % of Net revenues	3.9		%	3.2		%

We conduct research and development for new vehicles and technology to improve the performance, safety, fuel efficiency, reliability, consumer perception and environmental impact of our vehicles. Research and development costs consist primarily of material costs, services and personnel related expenses that support the development of new and existing vehicles with powertrain technologies. For further details of research and development costs, see Trends, Uncertainties and Opportunities—Product Development and Technology and Overview of Our Business - Research and Development.

The decrease in the Research and development expenditures expensed in 2019 compared to 2018 was primarily due to the higher capitalization of costs, consistent with the progress in the stage of development of models in North America, primarily the Jeep brand, EMEA and Maserati.

The decrease in the Amortization of capitalized development costs in 2019 compared to 2018 was primarily due to the cycle of the current product range.

The Impairment and write-off of capitalized development expenditures during 2019 was primarily due to the impact of impairment charges of previously capitalized development costs (refer to Cost of Revenues above). The impairment and write-off of capitalized development expenditures during the year ended December 31, 2018, primarily in EMEA, was due to changes in product plans in connection with the 2018-2022 business plan.

The increase in total Research and development expenditures in 2019 compared to 2018 reflects the efforts in the continued renewal and enrichment of our product portfolio.

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The increase in Capitalized development expenditures as a proportion of total Research and development expenditures in 2019 compared to 2018 was due to increased spending for the development of new models to be launched in 2020 and 2021.

Result from investments

	Years ended December 31,				Increase/(Decrease)
(€ million)	2019		2018		2019 vs. 2018
Result from investments	€	209	€	235	(11.1	)%

The decrease in Result from investments in 2019 compared to 2018 was primarily attributable to lower GAC FCA JV results.

Net financial expenses

	Years ended December 31,				Increase/(Decrease)
(€ million)	2019		2018		2019 vs. 2018
Net financial expenses	€	1,005	€	1,056	(4.8	)%

The decrease in Net financial expenses in 2019 compared to 2018 was primarily due to the average reduction in gross debt, partially offset by €88 million of interest on lease liabilities recognized following the adoption of IFRS 16.

Tax expense

	Years ended December 31,						Increase/(Decrease)
(€ million)	2019			2018			2019 vs. 2018
Tax expense	€	1,321		€	778		69.8	%
Effective tax rate	32.7		%	18.5		%	+1420 bps

The increase in Tax expense in 2019 compared to 2018 was primarily attributable to (i) a non-recurring net €334 million tax benefit recognized for U.S. prior years’ tax positions finalized in 2018, including a reduction to the estimated 2017 U.S. one-time deemed repatriation tax expense by €70 million and tax benefit of €94 million from an accelerated discretionary pension contribution (refer to Note 19, Employee benefits liabilities within our Consolidated Financial Statements for additional detail); and (ii) higher operating results in North America. Refer to Note 7, Tax expense in the Consolidated Financial Statements included elsewhere in this report for additional information.

The increase in the effective tax rate to 33 percent in 2019 from 19 percent in 2018 primarily related to the (i) non-recurring benefit recognized for U.S. prior years’ tax positions finalized in 2018; and (ii) no corresponding tax benefit for primarily all of the impairment charges of €1,376 million recognized in relation to the rationalization of product portfolio plans (refer to Cost of Revenues above), due to partial recognition of deferred tax assets in Italy.

Net profit from continuing operations

	Years ended December 31,	Increase/(Decrease)
(€ million)