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Heavy Duty Truck & Trailer Executive Summary

March economic data continues to impact trucking as it does the broader U.S. and Canadian economies. The impact of $100 plus oil, a continued housing downturn, severe drop in domestic auto sales and flagging consumer confidence will make the balance of 2008 a difficult year for all segments of trucking. The Purchasing Managers Index’s (PMI) for both the manufacturing and non-manufacturing economic segments’ showed continued contraction that began in February this year. Latest data out of both the Federal Reserve and the Conference Board show that most of the key economic indicators remain negative. Actions by several Federal agencies to forestall the economy from falling into recession appear to have failed. Even the head of the Federal Reserve (Bernanke) feels that the U.S. may now have reached recession.
After a pick up in freight during the November through January timeframe truck ton miles turned negative in February and March. The only good news in this area is that NAFTA freight continues to grow and exports continue to increase. Early financial results from public carriers show that a steep rise in fuel costs have negatively impacted their earnings. Many are reporting or forecasting losses for the first calendar quarter. Most are also reporting that they are unable to pass on all their increased costs to their shippers.
Recently most OEM’s have increased or are planning to significantly increase build rates. The impact of this has been seen in the rapid reduction in the industry backlog. February backlog showed a 4400 unit reduction as new truck orders declined from the 20,000 plus range of October through January to 13,600 net orders in February and approximately 16,000 in March. Carrier earnings predict a continued downturn in new truck orders. New truck sales directly correlate with carrier earnings which are severly down. We believed new truck orders will continue their downward trend.
At the recent Mid America Truck Show most OEM executives were predicting a truck build this year similar to 2007. They felt that the outlook for any significant pick up in demand for the rest of the year was questionable. We remain concerned about recent OEM build rate direction. If orders do not pickup we forecast that OEM’s will implement severe production cutbacks in the summer and fall.
The outlook for the rest of 2008 appears concerning. With the economy continuing to lag, the outlook for a long-term downturn in housing, depressed auto sales, and a difficult credit environment it is hard to predict the length on severity of a recession. Many economists see the U.S. struggling into 2009. It is our belief that continued caution is a good approach to managing in this environment. The ability to react quickly and take effective action will remain paramount in the next 6-9 months.

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