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Heavy Duty Truck & Trailer Executive Summary

The economy in the U.S. and Canada continued its growth in August for the sixteenth
consecutive month. Both the manufacturing and non-manufacturing economies showed
growth according to the Institute of Supply Management’s Purchasing Managers Indexes.
The manufacturing sector grew for the thirteenth straight month ending with an index of 56.3.
This is .8 higher than July. Any index number above 50 indicates continued expansion.
Major factors driving sector improvement were employment and production, both up over
20% over the prior month. After a temporary decline, new non-military durable goods orders
also increased. The non-manufacturing indexes also showed expansion for the eigth
consecutive month but at a slower rate than July. The index declined from 54.3 to 51.5.
Business activity, new orders and employment also declined. Employment in this sector had
been growing for the last several months.

The Conference Board’s leading economic indicators continued to grow in July but at a
slower annualized rate. The projected growth of the economy by this indicator dropped from
10% annualized in the last quarter to approximately 4% annualized in July. Major factors
impacting these indicators negatively are consumer confidence, employment and stock
prices. Major positive components include the average work week, lower unemployment
claims and new manufacturing orders. The coincident indicators also continued their positive
direction with major contributions from industrial production and manufacturing trade sales.
The largest negative continues to be unemployment. The lagging indicators remained
relatively unchanged in July. Taking all these sets of indicators into account there is steady
economic growth but at a slower rate without enough growth to sustain job creation. Lack of
consumer confidence measured by the Conference Board Index is at 53.5% and is definitely
affecting business and consumer spending. In a normal economy this index would approach
100. Unemployment continues to be the largest consumer fear. The manufacturing sector
added 71,000 jobs in August. However, with job losses in the governmental and nonmanufacturing
sector, August had a slight job loss of 43,000 and a 9.6% unemployment rate.

Factors which are needed to turn the county around to prosperity, the lending environment,
new car sales, construction and the building and sales of homes, all remain in decline. New
and existing home sales annualized at 4.1 million units. In a normal market home sales
would exceed 5 million units. The major impact was the loss of the new home buyer’s
incentive at the end of May. The July numbers represent the lowest sales level since 1995.
New home sales were 275,000 annualized at a median price of $204,000. In a normal
market new home sales would exceed 1,000,000 units at a median price of $250,000. Sales
are off 32.4% from July 2009. The inventory at current sales rates represents a 9.1 month
supply. Existing home sales annualized at 3.83 million units with a median selling price of
$185,000. This is off 25.5% from July 2009. In a normal market existing home sales would
annualized at 4 million homes at a median price of $200,000. This represents a 14 month
supply at current sales rate. The future outlook for home sales is not good. Building permits
in July annualize at 565,000. This is down 3.7% from 2009 and well below the 1,000,000
level in a normal market. New housing starts were annualizing at 537,000 off 7% from 2009.
This too would be in the 1,000,000 range in a normal market. Completions of 587,000
brought new homes competed in line with permits and starts relieving the glut of added
inventory. All other construction remained soft. July 2010 was estimated at $805 billion.
This is off nearly 12% form the $901 billion annualized in 2009. The major drop from 2009 is
in commercial and public construction. Lack of commercial and residential construction has
decimated the sales of construction and vocational trucks.

New car sales also retreated in August from the prior months. Sales annualized at 10.8
million units. This is down from 11.6 million units in prior months. A normal economy would
expect sales of over 14 million units.

Credit and the availability of business loans remains difficult. Current LIBOR of 29 basis
points indicates that money continues to flow readily between banks and business loan rates
remain low. A combination of business fear of borrowing and continuing tough lending
standards keeps businesses from borrowing for growth.

As difficult as conditions are in the economy, trucking continues to improve and outperform.
This improvement is driven by several factors. First, freight carriers depend on imports,
exports and manufacturing. These areas of the economy are showing growth and strength.
There has been nearly 8% growth in freight versus 2009. Additionally the Cass Index, which
is based on freight shipments and billings, is up nearly 11% over prior year. Secondly,
during the downturn the number of trucks to haul freight was reduced by nearly 250,000
vehicles. This has allowed fleets to operate their remaining fleet at nearly full load and
increase rates. The tight availability of trucks for hire is indicated by the spot market for
freight. The Transcore North American Freight Index measuring spot freight is up 122% year
to date. Finally, fleet earnings reports continue to show improved profitability. In general, for
hire trucking is in the best financial condition since 2007,

Fleets need new trucks as the fleet has aged since 2007 from approximately 4 average
years per truck to nearly 5.6 years. Buying used trucks to delay new truck purchases has
come to an end. Good used 2006 and 2007 models are rare and used truck values are up
nearly 25% from the low last year. New truck need has been exemplified by the new truck
order rates. Although net orders according to FTR were only 12,300 units in August the new
truck order board is still annualizing over 160,000 units. This has allowed truck OEM’s to
begin hiring and has resulted in increased build rates and much stronger OEM profitability.

Although the outlook for strong economic growth remains concerning it is our opinion that
trucking will continue to outperform the economy. Build rates of new Class 8 units should
exceed 160,000 annualized units before December. Order rates should continue to
strengthen through the autumn and the 2011 build should exceed 200,000 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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