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Heavy Duty Truck & Trailer Executive Summary


The Economy showed significant strength in August with a return to positive GNP in the first two months of the third quarter. GNP annualized at 6% run rate for the month. Several factors drove this improvement lead by the improvement in the ISM Purchasing Manager’s Index for Manufacturing. The index improved to 52.9 from 48.9 indicating a rapidly strengthening GNP
and an expanding manufacturing sector, the first expansion in this area in 18 months. The Conference Board’s composite of economic indicators rose for the third month lead by consumer confidence, new factory orders, and a growth in manufacturer’s inventories. Consumer confidence rose to 54.1 from 47.1 in July. Although a significant improvement, it is far from a normal index. An index of 90 is needed to reflect a healthy economy. Both leading indicators (LEI) and Coincident indicators (CEI) showed real strength. Lagging indicators continued to show decline, indicating the climb out will be long and difficult. A real recovery will not occur until the economy quits shedding jobs. Unemployment climbed to 9.7% and weekly unemployment claims continued to average in the 540,000 range. Normal turnover in a healthy economy is an average of 275,000.

The North American trucking environment remains unchanged. Year to date freight remains off over 14% from the prior year. Although there was a slight pick up in July it did not offset the freight decline in June. OEM’s continue to forecast class 8 builds in the range of 93,000-95,000 units with only Navistar forecasting any build improvement and all others forecasting a build decline. New truck sales are projected in the range of 102,000-105,000 units showing dealers continue to reduce inventory with no plans for rebuilding with new truck orders. Overall new orders exceeded 10,000 units but were offset with existing order board cancellations.

Fleets continue to report excess capacity with trucks parked. They also report that with extremely low prices there is no market for their used trucks. Even though OEM’s introduced the new models with their lower emission engines and an $8,000-$12,000 price increase fleets state that they will not buy ahead to beat the price increase. They state that lack of freight demand, low used truck values and difficult financing are affecting their interest in new units.

The outlook for the truck aftermarket also remains unusually soft. Business in this sector is off 10% year over year. This is partially driven by fleet financial condition, lack of operating miles, excess units that can be cannibalized and overall reduced maintenance cycles. The aftermarket along with new and used trucks will not pick up until freight demand improves.

Our outlook for the next several months through mid year 2010 remains a slow but steady recovery. We expect improved freight to drive class 8 production and sales into the 125,000 to 140,000 range with much of this improvement in the second half of 2010. Our beliefs are driven by several factors.


Spreads remain in the .23 to .27 range showing credit availability but the actual lending environment for trucking is difficult. Used trucks require as much as 50% down payment and banks and others are not willing to finance new trucks leaving this financing to OEM captive finance.

2. New and existing home sales.

Although there has been much optimism about improvements with a 7% improvement in July much of this is suspect. When sales of Northeast condo’s are backed out of the numbers, there was no improvement nationally. Existing home sales annualized at 5.24 million, up 7% from June and above the 4.5 million of a healthy market. Average home sales prices remained near $200,000 indicating most sales were in the lower home price range. Average home prices in a healthy market would exceed $250,000. Months supply remains at nearly 9 months. New home completions, including condo’s, annualized at 918,000 against annualized demand for 550,000 new homes. Permits and starts remain in balance at approximately 580,000. These would be at 1,000,000 units in a healthy market. Finally, significant demand has been driven at the low price end by the Federal program of an $8,000 tax credit for first time buyers. This program ends in October as all sales must be closed by the end of November.

3. Automobiles.

Sales annualized at a rate of 14.2 million units in August. This would indicate a healthy market. Annualized sales improved from 9.6 to 11.2 to 14.2 million over the last three months. Almost all of this improvement is credited to the Federal “cash for clunkers” program. Early September numbers indicate that sales have dropped off significantly.

4. Non-manufacturing economy.

Although the manufacturing sector has shown to be expanding the non-manufacturing sector continues to contract. New orders and employment continue to decline all be it at a slower pace. Over 80% of all jobs are in this sector and it will take a large improvement in consumer confidence and continued growth in the manufacturing sector to turn this economy around. Over 70% of all tuck volume is driven by housing, autos and the non-manufacturing economy.

Overall it is our estimate that the recession is ending. It is too early to declare victory as many things remain fragile. Stimulus’s have helped but may be temporary. We continue believe that the recovery will be long and slow.

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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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