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Heavy Duty Truck & Trailer Executive Summary


The U.S. and Canadian economies continued to show growth while shedding jobs. Both the
manufacturing and non-manufacturing sectors showed improvement. The Purchasing Manager’s index
(PMI) for manufacturing increased to 55.7 from 52.6. This is the strongest index since early 2006. The non
manufacturing index was 50.6 down .3 from September but still above the index of 50 showing sector
growth. The largest drop on both indexes was employment. Production and new orders were consistently
strong in both. The Conference Board’s leading economic indicators improved for the six month in a row.
Coincident indicators also strengthened and lagging indicators declined. The sixth month rate is the
highest rate of increase. Most of this improvement has been driven by improving interest rates, new
orders, production and the stock market. With unemployment at 10.2% it remains the greatest drag on
economic improvement. Weekly jobless claim rates still exceed 500,000. A rate of 275,000 is considered

Major factors in the economy such as housing, auto sales and interest rates continue to have a positive
impact. All home sales reached an annualized six million units in September. This is the highest rate
since 2006. Existing home sales annualized at 5.57 million units and new homes at 404,000. A normal
market is for annualized sales of 5 million homes. Average home selling price was approximated at
$190,000 well below the $250,000 in a normal market, showing the continued loss of equity by
homeowners. New home permits and starts improved to an annualized rate of 590,000 each up from
510,000 earlier in the year. New home completion was 693,000 down from an annualized 900,000 earlier
in the year. Average months supply dropped to 7.8 months for existing homes and 7.5 months for new
homes down from 11 months early in the year. Most of the home sales improvement is driven by the first
time buyer’s credit which expires this month.

Auto sales in October rebounded from the severe drop in September when the “cash for clunkers” program
ended. Sales annualized at a rate of nearly 10.5 million. This is up from an annual rate of 9.2 million
earlier in 2009. A normal market would expect annual sales of 14 million units.
LIBOR remains at .24 continuing to show a positive spread in interbank lending rates. Anything below a
.75 spread indicates a healthy interbank lending environment. Credit for small and medium businesses
remains difficult and expensive. Banks report that the major issues remain weak credit ratings of

Trucking continues to lag other industries economic improvement. Freight (down 12%) year over year, low
used truck prices, freight rates, and a difficult lending environment continue to impact new purchases.
Recent improved orders annualizing at 175,000 new class 8 units has been driven by leasing company
purchases (to obtain the full year tax credit) and a small amount of orders to avoid the 2010 engine
change. This pick up is temporary as fleets generally are not predicting significant purchases in 2010 vs.
2009. Early positive signs are that fleets are purchasing relatively new used trucks to add capacity and
OEM parts sales have picked up as fleets are putting more idle trucks back in service. As these changes
play out fleets will begin to purchase new units.

We still do not see a real improvement in freight ton miles or new truck sales until the second half of 2010.
The major drag will remain unemployment and weak consumer sentiment. Consumer confidence indexes
have risen over 60 but would need to be over 90 to indicate a return to normalcy.

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