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Heavy Duty Truck & Trailer Executive Summary

Economic results from February 2008 continue to indicate we have either moved into recession or are on the verge of one. Key indicators including the Purchasing Manager Index (PMI) declined. Indication of contraction was seen in several areas but most significantly in the manufacturing sector. This drop was driven by continuing softness in housing, domestic automotive production and ongoing credit market concerns. The PMI drop to 48.3 from 50.7 is the most significant in nearly three years. On the positive side the PMI non manufacturing index showed a 4.7 point rise, indicating that any recession may be shallow and short in duration. Overall leading economic indicators, tracked by the Federal Reserve and the Conference Board, remain mixed. It is believed that economic stimuli enacted by the Federal Reserve and Congress should begin to impact the economy in the second half of the year.

The news for trucking continues to remain mixed and whether the news is good or bad depends where you are at in the industry. Outlook for truck and trailer manufacturers continues to improve as orders for class 8 trucks and trailers continued to rise. Orders for new class 8 vehicles exceeded 20,000 for the fourth month in a row. Annualizing orders since October 2007 would project class 8 orders to range between 230,000 to 240,000 for 2008. Trailer orders, still at a low level, continue to trend up over mid year 2007. There are early indications that several class 8 manufacturers are considering build rate increases.

On the carrier side of the industry, freight volumes have grown for the third straight month but still remain below 2006 levels. Many carriers have increased freight rates in the 5% range. Some of this may be due to capacity but most is due to significantly increased costs. The outlook for continuing freight improvement is not clear, as the decline in consumer confidence has impacted spending and should begin to affect freight volumes. Carriers in general do not expect to see any real business improvement until late 2008 or early 2009 and many are not expecting to add new equipment in 2008.

Overall our guidance is for caution. The overall economy is stronger than is being represented by the media, but waning consumer confidence will impact overall economic growth and strength. OEM truck production could increase in the second and third quarter but then fall off if the economy does not strengthen in the second half of 2008.

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