帕卡 (PCAR) 2007 Q3 法說會逐字稿

Good morning and welcome to PACCAR's third-quarter 2007 earning conference call. All lines will be in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has an objection they should disconnect at this time. I would now like to introduce miss Cathy MacLeod, PACCAR's Treasurer. Miss MacLeod, please go ahead.

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Cathy MacLeod, Treasurer of PACCAR. Joining me this morning are Mark Pigott, Chairman and Chief Executive Officer; Ron Armstrong, Vice President Financial Services; and Michael Barkley, Vice President, Controller. As with prior conference calls, if there are members of the media participating, we request that they participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties including general economic and competitive conditions that may affect expected results. I would now like to introduce Mark Pigott.

Good morning. PACCAR today announced very good revenue and profit for the third quarter and the first nine months of 2007. PACCAR's performance reflects positive contributions from the Company's global diversification, continued double-digit growth of worldwide aftermarket parts and financial services revenues and innovative new products.

For the first nine months of the year, PACCAR earned excellent net profits of $966.2 million on revenues of $11.46 billion. These nine-month earnings are the second best in the Company's 102-year history. Very proud of the team. PACCAR shareholders earned over 32% return during the nine months, first nine months of this year and 56% over the prior 12 months. In comparison, the S&P returned 9 and 16% for their respective periods. PACCAR has increased its regular quarterly dividend by 35% during the year, and averaged a 20% dividend increase every year in the last decade. We are pleased to have earned a compound annual growth rate of 22.2% in the last decade compared to 7.7% for the S&P 500.

Turning to the third quarter, revenues were $3.76 billion and net income was $302.3 million. On a per share basis, adjusted for the recent 50% stock dividend, earnings were $0.81. PACCAR's after-tax return on revenue during the third quarter was an industry-leading 8%. That is after tax. The positive impact of the stronger euro on quarterly revenues was $116 million. Strong GDP growth in Europe, Asia, and North America contributed to our results. PACCAR realized strong earnings from sales of its premium products and services in Europe, Mexico, and Australia in the third quarter, moderated by soft market conditions in the U.S. and Canada. Assets in the financial services business expanded to a record $10.7 billion during the quarter and generated record pretax profits of $73.4 million, a 10% increase over last year. PACCAR's worldwide aftermarket parts revenue continued its double-digit growth rate this quarter and is generating excellent profits as PACCAR's population of our vehicles is now over 1.5 million units worldwide.

Turning to the European Union, which is our largest market, it now encompasses 27 countries and is generating robust demand as infrastructure, investment, and freight traffic at record levels. DAF has established itself as the quality leader and is recognized as delivering the lowest cost of operations for its customers. Responding to strong industry demand in the expanded EU for vehicles above 15 tons, DAF has attained record build levels during the year. With its award winning model XF-105 DAF leads the industry in market share for the tractor segment this year.

The EU economy continues to perform well, and the 27 EU countries should achieve a record year of 320,000 units. In 2008 truck sales are estimated to be a record level of 330,000 to 350,000 units.

Those of you who have been following PACCAR for the last ten years or so certainly realize that the Company has significantly enhanced its product range and global markets. We now sell into over 100 countries. And due to the growth of the world markets and PACCAR's success in those markets, the U.S. and Canadian truck markets are just a lot smaller portion of PACCAR's business. Approximately 30% on a revenue basis. As previously discussed, Class 8 industry sales in the U.S. and Canada will be in the range of 175,000 to 185,000 units this year. The good news is that next year is estimated to be 210,000 to 240,000 units which is approximating a normal annual replacement volume. And even better news, PACCAR continues to increase its market share in the U.S. and Canadian Class 8 retail sales. Our share is now a record 26.5% up from a previous record of 25.3% last year. And for the last four months, it has been over 30%.

There's been some discussion in the industry about freight ton miles. I thought we would address that. Looking at freight ton miles on a normalized basis in the U.S. If last year was 100 and it was a record level, this year it is 95. So 5% down. Still, great freight traffic with many of our customers achieving record profits.

Taking a longer-term view. Over the past ten years PACCAR's investment in technology, facilities, and innovative new products and services have expanded our worldwide capabilities benefiting our customers and providing long-term growth and excellent cash flow. The pace of investment is increasing with many current projects under way. PACCAR's $400 million engine production facility and technology center is under construction in Columbus, Mississippi. This state-of-the-art facility will incorporate leading edge diagnostic and tracking technology to produce, monitor, and service the highest quality 9.2 liter and 12.9 liter PACCAR diesel engines. Kenworth Chillicothe completed its 105,000 square foot facility addition. The new assembly plant is achieving productivity gains of 30% by adding robotics, single touch material handling and the use of RFID tracking.

PACCAR is building its 13th parts distribution center near Budapest Hungary, a country which is rapidly investing in all phases of its economy. Our new 270,000-square-foot center which is scheduled to be opened next year will be equipped with advanced inventory management and logistic tools and is located to serve the fast-growing DAF market in Central and Eastern Europe.

One of the things that I think I am most proud of for the PACCAR team is the Company and its employees being recognized as global environmental leaders. DAF, Peterbilt, Kenworth, parts, IT parts have all showcased outstanding new hybrid vehicles for both the medium and heavy duty markets at recent transportation shows and forums. DAF earned the distinction of being the first manufacturer to deliver 2009 emission-compliant vehicles in the European market. Kenworth and Peterbilt will be delivering medium-duty hybrid vehicles next summer. A year or two after that, PACCAR and Eaton have joined together to develop hybrid vehicles for the heavy-duty market.

In addition to these new products, five of PACCAR's manufacturing and assembly plants have been ISO 14001 certified which is the Internationally recognized standard for environmental management. All PACCAR plants are expected to earn the ISO 14001 certification in the next six months.

Turning to our products and our great customers, as you know, all of PACCAR products have established a reputation for outstanding quality and low cost of Operations for our customers. During the third quarter, I am pleased to note that Kenworth swept the JD Power awards for highest customer satisfaction. PACCAR has earned 23 JD Power awards. The nearest competitor has earned just 9.

In turning to our shareholders, a great group. During the quarter PACCAR completed its $300 million share repurchase program with the repurchase of 4.58 million shares adjusted for the stock dividend for an investment of almost $250 million. And over the past three years, PACCAR has invested $978 million to repurchase 27.4 million shares and paid over $1.7 billion in dividends to our shareholders for a total return of over $2.7 billion.

All in all, a very strong, solid quarter. Plenty of opportunities. PACCAR is pleased to have earned the second-best nine months results in its 102-year history and we are accelerating our investments to build a strong and vibrant future. Thank you. I look forward to your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Peter Nesvold with Bear Stearns.

Good morning, Mark.

Good morning, Peter.

Maybe if we can drill down to a Class 8 in North America for a minute. When I look normally from 2Q to 3Q, PACCAR's production is about flat, maybe up slightly. This quarter, you were down about 14% or so sequentially by our estimates. As you look into fourth quarter, how does the run rate production progress from here? Are you flat again for 3Q to 4Q? That is normally, looks like what you normally -- it may be down like 1% or so. But given the build rates as you exited the quarter, do you see any adjustments to those in the fourth quarter.

Well, we certainly adjust according to customer demand, and as we indicated in the press release, market is what it is, 175, 185, so there might be some adjustment required to lower it slightly. The good news is, we continue to increase production at our plants around the world, and that's having a very positive impact.

Actually that dovetails well into the second question I have.

I was trying to help you out here.

No, I understand. I am just trying to get to the truth.

You got it right there.

When I look at Europe, and you talked in the release and you've mentioned it before you increased your production capacity in Eindhoven for engines effective June. From third-quarter levels in Europe, how quickly and how much can you continue to expand your production capacity over there?

Well, it is an ongoing program. We are also increasing capacity at our Leyland facility in the UK. It is a fantastic facility as well as Westerlo in Belgium. We are continuing to ramp up our production. I don't have a specific figure to give you on that. The Rye show is going on in Amsterdam. Today is press day, and we will be showing some exciting new products. But everybody is doing well in Europe and DAF is certainly pleased to be the quality and resale leader, and we are going to continue to invest in the Company to increase capacity.

When I look at that -- the increase in capacity into capacity I guess it is more on the test cells it looked like in the release.

That is correct.

Effective June. Was there a step change increase in the production capacity in 3Q that went effective as of that time which kind of continues to trend flat -- gradually upward or was there no such kind of step change increase?

No, we have continued to increase capacity really through becoming more efficient, and, of course, many, many investments throughout all of DAF and Leyland. So I think you are correct. We are increasing capacity and production.

But I want -- I want to get to something a little more specific here. When you talk about efficiency I think of that, I think okay, low single digit type percentage increases in production capacity. I just want to understand. Was there anything in 3Q that might have driven something more significant, high single-digit type increasing production capacity from 2Q to 3Q in Europe.

We have been very fortunate to have great teams working and achieving about a 5 to 7% efficiency improvements over the course of year in, year out. And I think that kind of range is what you are probably looking at.

In terms of pricing over there, I have to believe it is pretty strong. We heard from Volvo this morning, European bookings up 90% in 3Q for them. When does -- I assuming you are getting a step increase in pricing. Can you quantify it and when does it start to kind of roll through the production?

Well, I am not sure what any of our competitors are doing but it's nice being with DAF, the quality leader. So, we have seen some improvement in -- in margins and pricing, and when you take a little longer-term view of Europe -- when we say Europe we are really talking about 27 countries now which I think is an important distinction to make. You have got a lot of growth going on particularly in that Central and European van and Western Europe is 2% GDP. It looks like for the next three to five years it should be reasonably good.

Maybe I will revisit that at the end of the call if there is still time.

Thanks a lot.

Your next question comes from J.B. Groh with D.A. Davidson.

Good morning, Mark. Congratulations on the quarter.

Thank you very much, appreciate it.

I have a question on your penetration goals for your new domestically produced engine and where are your thoughts there? There have been some rumors about someone leaving the market and that sort of thing. I just want to get a feel for where you think that could be eventually?

I have been around here so long, I am sort of immune to rumors anymore. The exciting news for us is we have got great engines. We believe they are the best in the world, certainly in the European market they are regarded as the best. Even our competitors grudgingly say that. So that is the engine we are bringing over to put in Kenworth and Peterbilt trucks. Our customers and dealers are very excited about it. In fact many of our suppliers have embraced it as an opportunity to grow their business with DAF which is very positive.

In addition, depending on what the dollar does, it might be a real exciting opportunity to expand DAFs capacity by shipping engines from Mississippi over to Europe. But, of course, that is a little bit dependent on exchange rates at the time. So, our goal is to provide our customers with the best product in the marketplace, and we feel confident with this engine they are going to be getting exactly that.

Is it safe to say you think you could get a third?

We don't go out -- as you know you have been following that, we don't come out with a specific number, but -- well, look at it this way, at DAF we have got 100% share.

Okay. And then you have been pretty active on the share repurchase front. And looking out to the regular special dividend in Q4. How should we think about the payout ratio and return to shareholders? Does the fact that you have been pretty active on the repurchase front lower that traditional payout you get for the full year?

I can't really comment on it. But I will give you a good attaboy because that is the first time I think I have ever heard anybody ever say regular special dividend. I am going to bring that into my lexicon now. But as far as any other items I really can't comment.

Thank you, Mark.

Thank you, appreciate it

Next question from Joel Tiss with Lehman Brothers.

Joel, good morning.

Good morning, how are you.

Good. Thanks. That's good. You got a big game coming up here tonight. I don't know if you are going to switch your allegiance or not.

I don't know. I still like the Mets. Can you give us just a little help on the margins declining the financial services business?

In the financial services business?

The operating margins.

Okay.

Yes, the margins continue to be strong. We are -- we are -- our new business volume is still generating strong margins. We are getting an increasing share of the PACCAR products that are sold, and the portfolio continues to perform well and in line with our expectations.

Is the growth that you are experiencing coming at reduced margins to the existing business?

No, no, the new business volume is being added on and is generally in line with our expectations and historically, recent historical margin percentages.

And Joel, if you look at it, of course, the finance groups achieved record income as you know. And we are seeing very strong growth, particularly in Europe, because we just have been there for five or six years, and then just looking back to the middle of the summer when we acquired the leasing company in Germany. That is starting to gain some traction. That's very positive. So record results and good all the way around. I think -- let me just ask Ron to comment because obviously there is lots of discussion in the financial community about -- let's call it turbulent market. Maybe Ron can give you a little flavor how well-positioned PACCAR is.

In the U.S. as well as the other capital markets, what we have seen recently is a flight to quality by investors wanting to buy PACCAR's commercial paper and medium-term notes, our excellent AA minus credit rating has given us an even greater cost advantage against some of our competitors and our peers, sometimes 100 basis points and more. And as I said our portfolio continues to perform well. Thinking about your question about margins, what you may be seeing is just the fact that interest rates are up on both the revenue and cost side, and that's the effect I think you are seeing.

Does that help you out? Joel?

We may have lost Mr. Tiss.

Okay, Thank you.

Move on to the next question, Mr. Jamie Cook with Credit Suisse.

Good morning. I didn't think I was mister but -- nothing has changed -- nothing has changed over here. But I guess my first question speaks to -- I guess goes to the strength of the European market. Mark, can you just talk about any possible capacity constraints you are seeing -- or supplier constraints you are seeing over there and is that limiting your ability to meet demand?

That is a great question. I think one of the strengths and I think one of the unique strengths of PACCAR is our relationship with our suppliers, where we are investing many millions of dollars. Could be 20 million, 30 million, $40 million per year in our suppliers to help them achieve improved quality, capacity, and profitability. That's a byline you don't see in many industries, particularly in the automotive type industry. I think everybody is working very hard through the entire logistic chain to increase their capacity, and it is never just a linear process. So I think as one of the fellows earlier on said you have different step changes, but I think people are looking out 3 to 5 years saying it should be a pretty good market throughout Europe. And we are certainly working with our suppliers to increase their quality and capacity and profitability. So I think we might be in better shape than many of our competitors.

Okay. And then I appreciate you including Central Europe in your outlook in terms of your retail sales forecast for Europe in 2008.

Thank you.

Can you just comment though, what are you expecting out of the export market to Mexico, Australia, those markets, because they obviously have been very strong, and I think helpful in this sort of North American downturn. What are your thoughts for those markets?

Well, they are -- Mexico is at record levels. Australia is at record levels this year. The other -- the other element I'd just bring up, it doesn't typically get too much discussion during these meetings is our aftermarket customer support and parts program. This team is doing a really excellent job. I just flew back from Budapest where we began the construction of a new distribution center, but the technology that is going into those facilities and the customer services reaching all the way through our dealers out to our customers is probably three to five years ahead of our competitors in terms of providing absolutely world-class service. We benchmarked Wal-Mart. We benchmarked Amazon and other very good logistic companies and PACCAR comes out looking very, very good. So as I indicated and we said in the press release, next year we are looking for a return to more of a normalized U.S. and Canadian market, and couple that with what we estimate to be another very strong market in Europe.

And Australia and Mexico?

Mexico I think will be another strong year. I can't really say whether it is going to be a record or not, but they've got a emissions regulation deadline in the middle of the year which will have some impact, but, as you know, we have 40 to 50% market share down there, and we've continued to invest. We have a brand-new factory and continue to invest in that new factory. So one of the advantages of the Mexican market is ability to export duty-free to a number of markets in, well, South America but even into Europe. So we are taking advantage of that.

All right, I will get back in queue. Thank you.

Thanks a lot.

Your next question comes from Robert Toomey with E.K. Riley Investments.

Good morning, Bob.

Good morning, Mark, how are you.

Fine, thanks.

Congratulations on another great quarter

I appreciate it.

I have a question. You mentioned in your prepared comments that the -- you were seeing 30% productivity gains at the Chillicothe factory and the Kenworth expansion and I just wondered is that outsized improvement. Is that a little bit better than you have seen in some of your other -- plant upgrades and if so, would you -- do you think there is a possibility of seeing even further improved productivity gains over the kind you have been getting for the last few years?

Well, obviously you know our Company very well, and so it's -- it's a part of the DNA of PACCAR's continuous improvement Kaizan and we have been doing that for let's say 102 years. What we are implementing at many of our facilities is along the lines of sort of our leadership in Six Sigma and Lean manufacturing but also increasing the capital investment to make specific capacity and productivity enhancements just as an example.

Our Leyland facility pioneered and was the first in the world to design and implement a robotic chassis paint line. Now robots are not new and chassis lines are not new, but what is new is a robot moving painting a moving line. And that is the first in -- anywhere in the automotive world or commercial vehicle world. We are now -- and we have many patents on that. We are now implementing that in a number of our facilities around the world. It is a major capital investment, but a huge improvement in already great quality and in efficiency. That type of specific investment is being made because of some very innovative thinking by many of our teams.

Okay. Thank you. And the other question I had was, is it possible -- you talked a little bit earlier about strength in Central and Eastern Europe, and you were talking positively about the long-term growth there. Can you give us a little more color on either sizing the potential there or maybe comparing it to Western Europe or North America?

Sure, that's a great question. Just ballpark sort of if you normalize the figures and obviously it is changing, but if five years ago, Central Europe was, let's say, 5,000 to 10,000 new units a year -- we are not talking about used units because that's -- that's also a very strong market for everybody in Europe, but if it was 5,000 to 10,000 units. This year we are sort of saying 40,000 to 50,000 units and three to five years out, it could be 90,000 to 100,000 units. And if you go out five to ten years, there are some people saying it might be a market as big as Western Europe. Now who knows. We will see what happens, but the investment and the path towards a capitalistic system that many of these countries are embarking on and, of course, they now have very low tax rates. Many of the Central European countries are -- let's call it 15% to 20% tax rates are making attractive for companies to come and invest. Road buildings are going on. New businesses are locating there, infrastructure development. And we are really not even mentioning Turkey which is the biggest country that could be in the EU. I am not involved with the politics, but the largest population and the largest land mass outside of Russia. So for PACCAR, we are really looking at the market let's call it from the top of Scotland all the way to the Middle East. It is going to be a very big market. Very exciting.

And any -- any read on what's happening, Mark, in Russia in your opportunities there?

Well, we have sold into Russia for decades. Russia is developing their infrastructure, and there is increased demand for new and used. I would say primarily used, but new is increasing. I don't have a figure for you, but it's a land mass larger than the United States, and a lot of people there. And they are making their investments to grow their country.

Great, thanks very much.

You bet. Thanks a lot, Bob

Your next question comes from Jonathan Steinmetz with Morgan Stanley.

Good morning, Jonathan.

Thanks. Just a few follow-ups here. Are you able to provide a bit of a walk on the European year-over-year revenue? You are up about $500 million. Are you able to talk about how much would have been currency translation versus volume versus maybe some of the price mix that drops off after those two are involved?

Well we can talk a little bit about currency.

The impact on revenues from the currency movement quarter on quarter was $116 million.

Okay. So 3Q '07--?

That's all we could really break out for you. But obviously a lot of growth.

Sure. I mean out of the other 400 or so, was there more of it coming from volume than there was from mix nd pricing.

I would say they are pretty equal.

Okay. Regarding the U.S. forecast and I guess it's more of an industry forecast than a PACCAR specific forecast per se. But when you think about it do you expect the second half to be substantially stronger than the first half or do you feel like that is sort of an equal run rate throughout the year?

Well, I think the second half will probably be a little larger than the first half.

Okay. But it is not some sort of massive hockey stick backup? Well, I can't really comment, but we will just have to see how the general economy does and obviously there is a normalized replacement demand. I mean there is a lot of freight being hauled as I mentioned in my prepared comments. It might be down 5%, but -- so let's call it -- the freight is the second best year in United States history. So vehicles are being used and they have to be replaced. And the good thing is -- and we didn't really mention this was the '07 technology to meet the new emission requirements is very well accepted. It is almost a nonevent now. I think people are saying I need a new vehicle, business is good, got to go buy one.

And lastly, in the finance Company, it looked like the provisions were up a little bit from a pretty low level, but can you talk in terms of realtime trends that you are seeing any upticks in delinquencies and that kind of stuff, any small carriers that are having trouble in this freight environment and in this macro environment from a credit perspective?

The portfolio continues to perform well. And we are -- we are seeing continued strong performance.

Okay. Any numbers or anything that you guys--?

A lot of people making a lot of money.

I am sorry?

I said there's a lot of our customers are making a lot of money.

Yes, they are. I don't know if you guys give out anything in terms of delinquency-type numbers, 30 day or 60-day publicly?

No, we don't. As Ron said it is just an excellent finance company and we have got great dealers and great customers, and a good team.

Thank you very much.

Thanks a lot, appreciate it.

Your next question comes from Andrew Casey with Wachovia Capital Markets.

Hello, Andrew.

Good morning.

Good morning.

I kind of feel like the Stanford band guy after--.

This is me after they beat USC, we hope.

I am going back a few more years.

I know you are. I know you are.

Anyways, if we can go back to kind of the European question. And congratulations on that performance.

Thank you very much.

The sequential -- I realize that you guys have kind of changed through the years and mitigated some of the typical European vacation schedules.

Yes, that's correct.

Back to kind of Peter's questions and then the one that just came from Mr. Steinmetz, the year-over-year comp in Q3 '06, was there anything at all odd about that given the October emission standard over there?

Are you talking about for DAF?

Yes.

Help me out with the question a little bit more.

A lot of us are trying to figure out really how you pulled this off given (inaudible) in North America.

Oh, I see, okay. Well, do you have a minute?

Sure.

Okay. First of all, I think the press release handled it in a very professional manner. What -- what I think many of the U.S. analysts and we welcome you to tour our facilities in Europe and talk with the teams over there. I think you would enjoy it and be very, very impressed, but we have owned DAF now for 11 great years and we have a terrific team there. Very proud of them. What they have been able to do is amazing and I am the first to admit it.

They are the only manufacturer that every model has been Truck of the Year. They have established the best range of product from A to Zed. Nobody else is close. They have increased their quality. They are the quality leader. They are the low-cost operational cost for our customers. They are the highest resale value. They are the innovation and technology leader. They are the first to meet all the new emission requirements either a year or two years ahead. They are the most productive, most efficient manufacturer. They have the best back-up. They have the best finance. Now they have the best leasing. They have the best aftermarket. And it all sounds like -- I am sure you are thinking, okay, fine, but everybody says that, but if you go there and go to Europe, you will find everybody saying that about DAF.

And so with the -- first of all, two things, in Europe, a number of the governments have a more proactive strategy that they encourage customers to purchase new technology by giving them some sort of incentive, maybe a tax break, maybe a mileage benefit, whatever it is. And so that tends to level the demand curve. There is not the -- what we see in the U.S. more of a step function. So that's one thing.

Two, with the new emission requirements from a year ago, which you accurately have indicated, DAF introduced not just an engine that met them. They introduced an entire new range of product. And that new range of product, the XF-105 which won the Truck of the Year. The new powertrain, basically has taken the industry by storm. It is the number one vehicle in Europe hands down.

So sort of long answer to a very good question. What DAF has done is taken advantage of some legislative requirements and said let's come out with a brand-new product and the customers have responded very positively saying not only does it meet the new emission requirement, but it is a brand-new vehicle that is going to make me as a customer a lot of money. How is that?

That works. Thank you very much.

Thank you.

Your next question comes from David Bleustein with UBS.

Good morning, David.

Good morning. Quick question. You mentioned that the 2007 emissions change-over ended up being almost a nonevent in the minds of customers. With that as it is, do you expect that to dampen the prebuy in '09 and the downdraft in 2010 relative to '06 and '07.

That is an excellent question and I think it's a perceptive question that may get factored in. There are still discussions with the EPA on how it is going to be handled, but -- and you have been in the industry for a while. You know every three, four, five years, we have a new legislative requirement of some sort. It just happens to be on emissions in recent 10 or 15 years. I think customers are increasingly very sophisticated. They understand -- and their business is very strong, by the way. They recognize that if that's their business, new technology is going to come along and they work very closely with PACCAR and our dealers, and I think they are understanding that -- let's get on with it, and maybe just have a normal purchasing cycle year in, year out.

Fair enough. What are your thoughts -- preliminary thoughts on the -- the pervasive technology for 2010?

I really can't comment. There's a -- we're ready with a host of technologies to deliver our customers the best products in the world. So that is still an ongoing discussion as you have indicated.

Fair enough. Thanks a bunch.

Thank you.

Next question with Peter Nesvold with Bear Stearns.

A follow-up on that last question. Do you use FCR right now in Europe on DAF engines?

Yes, we do.

So if I were to use as a working assumption. You use FCR in the '09 engines or 2010 engines here that you're building the capacity for '09. Does it make sense to support three different technologies? I mean does it -- at what point does the added complexity of supporting different manufacturers start to erode your ability to maximize fuel economy and other factors?

Well, one of the wonderful strengths of PACCAR, and as you know there are many, is to offer our customers a selection, and that results in a premium product and a very, very happy customer which is really our ultimate goal. So it's an excellent question. And it is one that we've discussed for 102 years. And we are committed to making sure our customers have an option, and that's -- that's kind of the way we are looking at it.

All right. Okay, thanks, Mark.

Thanks.

Your next question comes from Steven Volkmann with JPMorgan.

Good morning, Steve.

Good morning, guys. Just a couple of quick follow-ups. On your market plans for Europe, have those changed or been increased at all given what is going on over there?

No, in fact on the second page of our press release, there is a comment from Aad, our President, that the goal is still to achieve 20% and over for DAF.

Okay. Fair enough. Any comments on the share repurchases going forward?

Nope. Nope, I think we covered the share repurchases in the prepared press release, and we are just -- I would publicly go on record saying we have got the greatest shareholders in the world and they are fantastic.

Okay, great. And then you talked a little bit about the '07 change having been sort of turned into kind of a nonissue and gotten past us here, and yet there have been some pretty significant market share changes amongst your suppliers. Are you seeing availability of the '07 engines in the U.S.? Has that eased up? In other words, people can get whatever they want but they really are voting with their dollars with respect to the different engines out there now. Is that accurate?

I can't really comment. All I know is we build whatever our customers want.

Okay. But you are not having any trouble getting any engines from any of your suppliers?

You know it is an everyday program. And if the customer wants X, Y, and Z, we are going to work hard to get it for them.

Okay. Thanks.

I appreciate it.

Your next question comes from [Donello Santiago] with [Hathaway Capital].

Good morning.

Hi, good morning. The growth rate that you have in Europe, looks like those are peak numbers or maybe above their replacement rate. What is the typical replacement rate for those markets?

You are talking about the truck rate?

Yes. You are saying that this year you are expecting 300 and--?

I see, okay. Well, what -- of course, now what we are including is the Central and Eastern European, so I think if you back that out, and I think as we talked a little bit earlier, we are seeing significant growth in the Central and European market. The Western European markets are also at very strong levels. So I think that may be what is slightly confusing.

Those numbers I can't compare with the numbers that you use to release a few years ago.

That's correct. You are correct, right. We have now expanded it to include the 27 EU countries.

And how much more trucks on average do you think this implies in that number?

Well, I am not sure which ones you are looking at from a few years ago, but--.

'04.

If you look at Central, Eastern, and let's say that's 40,000 to 50,000 units. Then the remainder would be Western Europe.

Okay. And so the question still remains. Do you think those numbers -- when you include overall, they are on the several countries that you sell to, do you think you are above, below, on average of the replacement rate? Where are you?

Oh, I see. Well, I think at this time there is very strong growth and many new economies coming into the equation. So I am not sure what the replacement rate was going to be at this time, because we haven't hit -- let's call it a normalized replacement cycle yet. Everybody in Central and Eastern are building up.

So you think it is hard to know right now?

I think it is going to take a few years for it to really establish itself in terms of what is the replacement rate.

Can you comment a little about on pricing in the U.S. if it is changing for -- if you take one typical unit that you sold a year ago, or two years ago and compare with the pricing that you are getting now, where are you at this point?

We don't really typically comment on that.

Can you just like directionally?

No, we can't do that either.

Okay. Thank you.

Thank you.

Your next question comes from [Garrett Stevens] with [Giovine Capital].

Good morning, Garrett.

Good morning, Mark. Could you give us an update on the clean power technology, your auxiliary power unit, whether that has been worked into the production line yet or is it still on aftermarket option and what the adoption rates are?

Yes. It is still a very exciting project. I appreciate you bringing it up. And it has really met with great industry response, but it is still early days on let's call it preproduction cycle.

So it is not currently in the production line yet?

It is, but on a very limited basis.

Okay. Thank you.

Thank you very much.

Your next question comes from [Jeff Glass] with [Birchway Capital].

Good morning, Jeff.

Good morning. Congratulations on a great quarter.

Thank you very much.

I think you had commented that you were gaining market share in the Class 8 segment in North America.

That's correct.

And I was wondering if you were able to comment on which of your competitors you might be gaining that share from?

You probably have those figures even better than I have them. We just want to make sure that we have got the most satisfied customers in the industry.

Okay. Thanks very much.

Appreciate it. Thank you.

Yes, bye.

There are no further questions at this time.

No, thank you, operator.

Thank you.

Ladies and gentlemen, this concludes PACCAR's earnings conference call. Thank you for participating. You may now disconnect.