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Heavy Duty Truck & Trailer Executive Summary


The economy continued to show signs of a ‘glacially’ paced recovery in November. Weekly unemployment
filings dropped to 190,000 from the mid 500,000 region. National unemployment improved to 10% from
10.2% in October. Unfortunately, most of the improvement was due to seasonal hiring and unemployment is
predicted to push toward 10.4% in January. Home sales reached a level of 6.55 million in October due to
government stimulus. This is highest level since 2006. Most of these homes were at the low end of the
market with average selling prices of $189,000, well below the $250,000 in a normal market. Thirty percent
of these sales were distressed properties as foreclosures reached the highest level since the recession
began. New car sales in November were flat with November 2008. This is the first time since 2007 that
there has not been a year over year monthly decline. The month annualized to 10.93 million units. The full
year sales are expected to be 10.3 million units off 20% from 2008 and well below the 14 million units in a
normal market.

The manufacturing economy as measured by the Purchasing Managers’ Index (PMI) continued to show
expansion with an index of 53.6. (Any number above 50 indicates manufacturing and GNP expansion). The
index did fall 2.1 points from October. Still worrisome is the contraction of the non-manufacturing economy.
November’s index was 48.9 down 1.9 points from October. Eighty percent of all employment is in the non-manufacturing sector. The major decline was in business activity as business slowing increased in all
sectors. The major concern continues to be the decline of manufacturer’s inventory and the lack of growth
in durable and non durable goods orders. Consumer sentiment continues to remain at a low level and many
companies continue to forecast a low to moderate capital spending.

The Conference Board’s Leading Economic Index continued to improve up 5% since May of this year. The
leading indicators were up .3. The coincident indicators were flat and the lagging indicators were down .2.
The major drivers of this improvement continue to be the improved stock market and the increased money
supply. The largest drag is unemployment.

The trucking industry remains in the doldrums. Freight declined again in October down .2% from
September. The overall decline in September and October offsets all the gain in July and August. Freight
remains off nearly 12% from 2008. New Truck sales, after a sharp rise in October due to an effort of
customers to buy up the last of the pre 2010 emission engines, fell precipitously in November. 2009 build
and sales expect to range from 100,000 to 110,000. The outlook for 2010 remains that there will be only a
modest pick up. Build is expected to reach 130,000 to 140,000 class 8 units as freight will continue to be
slow in growing and new truck buyers will be slow to acquire trucks with the new low emission but higher
cost engines. A positive note is that used truck sales remain robust. Because of increased supply from
failing fleets, prices have not improved. The primary driver of this improvement has been larger fleets
buying lower mileage used trucks to avoid new truck purchases. We do not expect to see any real
turnaround in trucking until 2011.

The economy appears to be on a path of slow recovery. LIBOR remains in a range of .23 to .26 which
indicates free movement of money between banks. Credit remains tight but does appear to be becoming
more available. The drivers that are needed to accelerate recovery are still depressed. New housing
permits are around 525,000 well below the 1,000,000 of a normal market. New starts remain in the 550,000
range and should be more in the one million range. New home completions are annualizing at 790,000
adding to an already overstuffed inventory. The good news is that the day’s supply of new and existing
homes is down to seven months from 11 months at the end of 2008. A normal supply would be four months.
New car sales are projected at 11.5 million in 2010 but this is still below the normal market of 14 million unit
sales. Overall we project continued economic improvement but there is nothing to indicate a rapid increase
in economic activity.

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