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Heavy Duty Truck & Trailer Executive Summary

The strong economic tailwind driving the economy in the fourth quarter of 2009 and the first
quarter 2010 turned into headwinds in the second quarter and the first half of the third
quarter. GDP of 5.6% in the fourth quarter and over 3% in the first has dropped to 2.4% in
the second and early third quarter. The impact of this change has been felt across the North
American economy. Unemployment and consumer confidence remains in turmoil in all
regions. A GDP of 2.4% is not adequate to create jobs to lower unemployment which
remains at 9.5% in the U.S. Unemployment remains the major factor driving declining
consumer confidence. The Conference Board’s index of consumer confidence dropped to
50.4 in July from 54.3 in June. In a growing economy this index would be at 90+%.

Does this presuppose that the U.S. and Canada will see a double dip recession? The
general consensus is no. The Purchasing Managers Index for manufacturing remained
strong at 55.5 in July down slightly.7% from June. This is the 12th month of expansion in this
sector and the 15th month of growth in the economy. The PMI non manufacturing index in
July also showed signs of expansion with an index of 54.3 up .5% from June. This is the 7th
month of consecutive growth. Of note is that employment in this sector showed growth for
the second month since mid 2008. Both the manufacturing and non-manufacturing sectors
added jobs in July with a combined total of 71,000 new jobs. Overall employment was down
because of job losses at the Federal, State and local government levels equaling nearly
200,000 jobs.

The Conference Boards Leading Economic indicators declined for the second time in three
months. Although still positive they are indicating that growth is slowing. The growth rate at
the end of the 1st quarter indicated a strong 11.3% annual rate. Since that time the
annualized rate has declined to 5.3%. The Coincident and Lagging indicators have
remained stable or continue to decline. The major impacts remain unemployment,
government policies, and a tight credit market.

Trends in the major economic sectors that drove the economy remain mixed. LIBOR
decreased 5 basis points to .30 indicating a strong lending environment between
governments and inter bank lending. Auto sales remain robust especially for domestic
vehicles with July seasonally adjusted selling rate ending at 11.55 million the 3rd highest of
the year. This still remains well below the 14,000,000 units sold in a healthy economy.

Existing home sales though down over previous months is still above 2009 by nearly 10%.
Existing home sales annualized at 5.37 million well above the 4,000,000 of a normal market.
Median prices remained depressed at $179,000 well below the $200,000 of a normal market.
Pricing continues to be driven by oversupply and 1/3 of the sales continue to be distressed
properties. New home sales have not recovered and are down nearly 40% from the second
half of 2009 at an annualized rate of 330,000 units. The number would approach 1,000,000
units in a normal economy. Median sales prices were $213,000 well below the $250,000 in a
normal market. Slow sales have impacted new starts, permits and completions. Permits
were 586,000 annualized, new starts were 549,000 annualized, both well below the
1,000,000 level of a normal market. Completions annualized at 869,000 adding to the
continued glut of new homes. There is currently an 8 month supply of new homes.

Non residential construction continued to decline in both the commercial and governmental
sectors. The current level of $836 billion is well below the $1.2 trillion level of a normal
economy. Commercial construction has been heavily impacted by a commercial real estate
glut as well as a very difficult lending environment. Infrastructure development has been
declining due to heavy cuts in state and local government budgets and lack of funds to
obtain Federal matching grants for highway and bridge construction.

Overall the economy seems to be continuing to expand. The fear of a double dip recession
seems to be dissipating but we appear to be settling into an extended period of slow growth.
With GDP growth expected in the 2.4% range for the next several months there is little sign
of employment improvement which is the major driver of consumer confidence. There
appears to be no firm policy or leadership which will cause the economy to improve. North
American companies are sitting on the sideline with $2 trillion dollars to invest waiting for
changes that will reduce the uncertainty. Government budgets at the state and provincial
levels have been reduced and are consuming the benefits of Federal incentives. Banks are
using low interest rates from Central banks to strengthen their balance sheets and continue
to make credit tight for mid sized and small businesses. Overall it is our opinion that
monetary policy and low interest rates will keep non governmental business moving at the
current level. It will also delay a turnaround into 2012 and 2013.

Trucking appears to be running countercyclical to the economic malaise. Actions taken by
fleets cross North America to reduce size and improve efficiency have resulted in strong
financial performance at all levels from OEM’s to for-hire fleets. Even though freight has
softened mildly in May and June, the impact of a reduced fleet to handle freight has kept
trucking very busy and increasingly profitable. This is reflected in new truck orders at
OEM’s. July orders of 16,500 units are the highest since 2007 and annualized at a rate of
190,000 units up from 160,000 in June. OEM’s continue for project increased build rates
moving from 560/day in June to 700/day in the fourth calendar quarter. The outlook for
continuing higher order rates remains strong. Fleets need capacity and current order levels
do not meet even a normal replacement rate for the parc. Secondly many fleets are facing a
loss of depreciation as many trucks they own are rapidly approaching full depreciation.
Banks are showing increasing interest in financing new and used trucks. Finally used truck
values remain high and good low mileage trucks are in short supply. The major impact of
slowing freight remains a slight impact on freight pricing. Shippers should see smaller
increases than previously expected when demand was rapidly growing. Finally OEM’s and
dealers continue to report strong aftermarket sales in the 20% growth range indicating higher
fleet activity.

Overall we expect trucking to continue to improve and build rates increase. The continued
slow economic growth may significantly reduce 2011 build from the 250,000 range to a more
realistic 200,000 to 220,000 units.

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This summary is offered for information only. It is compiled from several governmental and industry resources. The origin of the information is given where possible. Any actions taken as a result of this summary is the sole responsibility of the readers. Business Perspectives takes no liability for the use of the information above its informational use. The opinions expressed are the sole property of Business Perspectives LLC and should not be redistributed or duplicated.

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