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Heavy Duty Truck & Trailer Executive Summary

The U.S. and Canadian economies continued to show improvement in May. Though both economies continued to contract, the rate of decline has greatly slowed. New unemployment claims which had been in the 550,000 to 650,000 monthly range fell to 350,000. Consumer confidence reached the highest level since July 2008. The Institute of Supply Management’s key Purchasing Managers Index for both the Manufacturing and Non-manufacturing sectors both showed growth. The manufacturer’s index reached

42.8. Any number above 42 indicates a generally expanding GNP. It will require an index above 50 to indicate a growing manufacturing economy. The most positive contributors were new factory orders and the continued rapidly declining manufacturer’s inventory. The non-manufacturing sector also showed growth. The index increased from 43.7 to 44. Improvement here is key since nearly 85% of all employment is in this sector. It is believed that many companies have excessively reduced employment and may soon begin to add new employees. The Conference Board’s index of leading indicators increased for the first time in seven months. Both the leading and coincident indicators showed strong growth. 

Even with all of the positive news, the economy is still contracting. Many leading economists believe that the U.S. and Canadian economies will show positive growth by the fourth quarter 2009. Reviewing factors that need strong improvement to drive growth, housing and automobile production continue to remain a depressing factor on the economy. New and used home annualized sales remain in the 575,000 to 600,000 range. A normal market is 1,000,000 units. The estimate of new home unsold inventory  is approximately 10.5 months. The average selling price remains approximately $209,000. Prices need to average $250,000 to indicate a healthy market. New auto sales remain annualized at 9.5 million units. LIBOR remained in the .3 to .35 range indicating a healthy interbank and corporate lending environment. Although many factors are becoming positive the climb out is going to be long and steep. Housing permits and starts remain at approximately 60 percent of a year ago and auto production is the U.S. in the first half is only 60% to 65% of the volumes of a year ago. Current outlook for the summer is greatly reduced auto production. 

The current economic outlook for all sectors of trucking remains depressed. Carriers report that total freight tonnage continues to decline. Freight volumes fell 4.5% in March and declined another 2+ percent in April. Diesel fuel has also begun to climb, increasing $.19 in May. This will put greater pressure on fleet profitability. The outlook for truck OEM”s remains bleak. Fleets report that they have mothballed or are underutilizing nearly 250,000 units. Most fleets report they have little or no plans to buy new trucks. This year’s class 8 build now appears to be in the range of 100,000 units and class 6-7 in the range of 80,000 vehicles. Navistar has announced the temporary closure of its Chatham, Ontario class 8 plant and PACCAR has mothballed their Nashville Peterbilt plant. Volvo reports that their U.S. production is off 67% from 2007. It is our belief that there will be little short term improvement for trucking. With housing, automobile and the general economic conditions we see no pick up in freight before early 2010. In addition with the excess vehicle inventory, no market for used trucks, and tight credit we see no volume increases for OEM production until 2010. Other than cost, fleets seem unconcerned about the 2010 engine changes and will not buy ahead. The only bright spot for truck OEM’s is the increased need for repair parts for the older trucks potentially driving an improvement in parts and labor sales. We believe that class 8 production in 2010 will be in the range of 140,000 to 150,000 units.


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