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Heavy Duty Truck & Trailer Executive Summary


February and March brought the first solid indication that the recession maybe bottoming and that an improving economy may be forthcoming in the late third or early fourth quarter 2009. The Purchasing Manager’s Manufacturing Index (PMI) improved .5%, new orders for durable goods improved 8.1%, new home starts and permits improved nearly 5% and auto sales though severely depressed improved 25% in March over February. Additionally consumer spending was stronger in January and February than expected. The general opinion is that the economy may have truly bottomed.

The climb out from this bottom will be long and difficult. New home starts and permits remain between 500,000 to 600,000. A normal market is 1,000,000 units. New car sales are annualizing at 10,200,000 and a normal market is 14,000,000. A growing economy would show the manufacturing PMI of 42 and it ended February at 36.3. The economic stimulus appears to be taking hold, but 2009 still expects a 2.0% to 2.5% decline. The outlook for 2010 is for modest growth to return in GNP of 1.5% to 2.5%.

A main drag on the economy remains unemployment currently at 8.4% but rising. It is expected to exceed 10% before a full recovery begins to create new jobs. In the deep recession of 1982 unemployment reached 10.4%.

The outlook for the trucking industry is that it has also bottomed. Freight improved in January and February after a dismal December. Overall freight rose 4.7% partially recovering from a 7.8% contraction in December. The outlook for Class 8 builds range from 105,000 to 120,000 units. OEM’s have cut production and closed plants and are now resorting to weeks down to further adjust production. New Class 8 sales are expected to reflect production numbers. An upturn for trucking is tied to the economy and will improve as the economy improves. Improvement in housing and auto sales are required for any real volume improvements.

Currently factors for an economic upturn are trending positive. Housing sales are improving but the average price of a home sold continues to decline closing last month at $175,000. LIBOR spreads remain positive ranging from .25 to .42 for 30 day lending rates. Auto sales improved in March to annualize at 10.2 million. This is up from 9 million in February. New home permits and starts improved to the 575,000 to 600,000 range up from the low 500,000’s in February. Nearly 750,000 homes at an annualized rate were completed, continuing a glut of new homes. There are currently 12.2 months of inventory at current demand rates. On a more positive note the Financial Accounting Board removed the requirement to “mark assets to market” and allowed financial institutions to “mark to book” on previous practice. This should free up significant reserves and improve available capital for lending. Finally credit is becoming more readily available.

It is our opinion that the economy has bottomed but the climb out will be slow and painful. We see no real pick up for trucking until 2010.

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