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Heavy Duty Truck & Trailer Executive Summary

The U.S. and Canadian economies remained an enigma through July. The Federal Reserve by region reported that the economy continues to soften. The Conference Board index of economic indicators saw a decline in the leading and lagging indicators with a slight increase in coincident indicators. All changes were very slight ranging from .1% to .3%. The Purchasing Managers Index (PMI) ranged at 50 or above for the second month indicating a growing manufacturing economy. Most manufacturing indicators showed slight growth in new orders and backlogs but also inventories. The inventory growth is believed to be a build up to protect against supply shortages from China’s shut down for the Olympics. The PMI for the non-manufacturing economy also improved to 49.5 indicating that this sector also may be returning to expansion. This sector has been strongly impacted by the issues in real estate and the problems of the financial industry. The GDP increased 1.9% unadjusted in the second quarter. This is up from .60% in the first quarter. It has been a surprise because most economists had believed there would be no growth. The economy grew again in June for the 81st straight month. Most of the strength has been attributed to continuing strong exports and strength in non-automotive sectors.
The trucking industry has remained mixed in the downturn. There are early signs that the industry may be moving up from the bottom of the downturn cycle. Ton miles of truck freight have been up for two straight months although intermodal remains down over 2%. Stocks for publicly traded carriers have approached 95% of their 52 week high for profitable carriers. These stocks have remained strong for the last quarter. Navistar continues to increase build rates at Chatham, Ontario and Escobedo, Mexico with full year production up 20% over the prior year. Freightliner has added 600 workers to their North Carolina truck assembly operations due to orders for their new Cascadia model. Through May new truck net orders have averaged 18,000-19,000 units indicating a possible 2009 build of 225,000 class 8 units.
For the next year, 2009 remains unclear as the credit crisis, used truck values and the overall economy are continued drags on the industry. Recent declines in oil barrel prices below $120 USD should help carrier profitability. Most major fleets would like to replace their 2005 and 2006 model year trucks. How many they will buy will be based on credit availability, used truck prices, and the economy continuing to drive freight volume.
Overall we are cautiously optimistic that the outlook for the end of 2008 and into 2009 should show an improving trucking industry. We believe the upturn will be gradual and that the 2010 engine change will not promote pre-buy of additional units.

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