帕卡 (PCAR) 2008 Q2 法說會逐字稿

Good morning and welcome to PACCAR's second quarter 2008 earnings conference call. All lines will be in a listen-only mode until the question-and-answer session. Today's call is being recorded and if anyone has an objection, they should disconnect at this time.

I would now like to introduce Mr. Robin Easton, PACCAR's Treasurer. Mr. Easton, please go ahead.

Good morning. We would like to welcome those listening by phone and those on the webcast.

My name is Robin Easton, Treasurer of Paccar and joining me this morning are Mark Pigott, Chairman and Chief Executive Officer, Ron Armstrong, Senior Vice President, 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 effect expected results.

I would now like to introduce Mark Pigott.

Good morning.

PACCAR today announced very good earnings for the second quarter of 2008. In fact, it was the sixth best income quarter in the Company's 103-year history and the fourth best revenue quarter in our history. Excellent results.

PACCAR's performance reflects the Company's global diversification, world-class technology, and a growing aftermarket and financial services business. PACCAR's strong balance sheet and outstanding cash flow have allowed the Company to increase its capital investments in new products, enhance facility efficiency, and increase aftermarket capacity.

We invested over $205 million in capital projects and research and development during the quarter. PACCAR's net sales and financial services revenues were $4.1 billion for the quarter. Net income was $313.5 million compared to $298.3 million last year.

On a per-share basis earnings were $0.86, up 9% compared to the second quarter of 2007. PACCAR's after-tax return on revenue during the quarter was 7.6%.

PACCAR has certainly benefited from having over 65% of its business outside the U.S. We delivered increased revenues and profits from commercial vehicle sales in Europe and Australia. Europe truck sales are robust due to the growth in Central Europe as countries invest in their infrastructure.

The financial services business is expanding as total assets reached $11.1 billion. The healthy performance of our finance and aftermarket segments has complimented the manufacturing business.

Taking a little longer-term perspective, over the past 10 years, PACCAR has invested over $3 billion in products, infrastructure, and technology to develop and produce the industry's highest qualities vehicles and services. As part of this ongoing investment program, PACCAR's $400 million world-class engine facility is progressing on schedule and due to be complete in late 2009.

This investment compliments the Company's state of the art engine factory in The Netherlands and will enable the Company to manufacture 12.9-liter and 9.2-liter engines for use in Kenworth, Peterbilt and DAF vehicles worldwide.

Taking a look at other programs, DAF will begin construction of a new 135,000 square-foot cab paint facility in Westerlo, Belgium. This project will utilize leading-edge technology and will ensure that the Westerlo paint facility is a leader in being environmentally friendly. The new cab paint facility will increase DAF's manufacturing capacity by 20% and is expected to commence operations in 2010.

As you saw in the press release, PACCAR parts continues to expand capacity to serve the worldwide commercial vehicle markets. We opened a new 260,000 square-foot distribution center in Budapest, Hungary, last month and that will serve DAF's dealers and customers in Central Europe.

Business continues to be good, but PACCAR's also very proud to be an environmental leader and to deliver the highest fuel economy in the industry to its customers. Kenworth, Peterbilt, and DAF are at the forefront of hybrid technology development. Kenworth and Peterbilt medium duty trucks utilizing an advanced diesel electric drive system that targets 30% fuel efficiency improvement, are scheduled for production in September, just a little over a month from now.

Kenworth will expand its presence in the environmentally friendly liquefied natural gas market by beginning production of Class 8 vehicles next year under an agreement with Westport Innovations. In all of our manufacturing facilities worldwide have earned ISO 14001 environmental certification. A terrific achievement.

Asia continues to be an area of focus for PACCAR. Our new office in Shanghai is increasing the sourcing of parts and the sale of PACCAR powertrain components to Chinese customers. PACCAR plans to further expand its presence internationally with the opening of an engineering, purchasing, information technology and sales office in Pune, India, later this year.

PACCAR's conservative credit practices have benefited the Company and its customers. PACCAR financial services continues its global expansion as the European financial portfolio now exceeds $3.1 billion, or approximately 30% of the worldwide business.

Portfolio quality is good with past due accounts of 2.7% at the end of June. The resale value of PACCAR products continues to generate a premium versus the competition in every market we serve.

Looking at the global truck markets for 2008, there continues to be positive economic growth in Europe, though it is slowing in Western Europe. We expect the European over 15-ton market to range between 350 to 360,000 units, which would be a record. DAF is planning to increase production in September by 5%.

We have lowered our 2008 retail truck sales forecast for the U.S. and Canada to be in the range of $1.50 to $1.65 to reflect ongoing challenging markets due to a slower economy.

And finally, during the second quarter PACCAR repurchased approximately 1.89 million of its common shares for an investment of $89.8 million. And over the last six months PACCAR has bought 4.3 million shares for a total investment of slightly over $200 million. PACCAR has achieved an average annual total shareholder return for the last 10 years of 19.6% compared to 2.9% for the S&P 500 index.

Thank you, and we look forward to your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from J.B. Groh with D.A. Davidson.

Morning, Mark. How are you doing?

I thought that the gross margin on the truck sales was pretty decent considering what we've seen going on with steel prices and anything related to oil. Could you maybe outline some of the initiatives that you're working on now, or may work on in the future to sort of defend that margin in the face of these raw material price increases?

Well, that's a great question and we addressed part of that in the press release in terms of the ongoing efficiency improvements and, of course, the investments in our factories and our products and our services to get that 5 to 7% efficiency improvement every year, which is a pretty relentless goal, but we got a great team and they're achieving it every year. But certainly, PACCAR, like almost every other company in the world has been impacted by the increase in commodity prices and it's difficult to pass those along, but of course we're continuing to increase our investments in our factories.

We talked about in the press release about Chillicothe, but every single facility we have worldwide is getting investment to make us more efficient, higher quality, and of course a big part of our investment in R&D and capital is developing new products that are not only higher quality, more fuel efficient, but less costly to manufacture. So it's across the board, broad spectrum of activities.

And then on the global sourcing front, I imagine that there's opportunities there still?

Yes, we touched on it in the press release and in my comments that we're going to be opening an office later this year in Pune and, of course, we've been in China, as we say, for over a hundred years, but in a relatively small fashion and we're starting to get some good traction there, not only on the sourcing side, but also on the sales side as people enjoy the benefits of the PACCAR engine. In fact, very pleased to see that the PACCAR engine was voted the best bus engine in China two years in a row. So that's going in the right direction.

And if you had to ballpark sort of where you are versus what the potential is on the global sourcing, I mean would you say you're halfway where you think you could be or just give us some perspective there.

I'd say we're early days.

Early days. Okay. Thanks for your time. Congratulations on the numbers in a tough environment.

Thank you. Thanks for your questions.

Your next question comes from Joel Tiss with Buckingham.

Good morning, Joel, and welcome back.

How are you doing?

Pretty good.

I wasn't gone long. I just wondered if you could talk a little bit about receivables and inventories that both jumped more than 40% in the quarter and can you just give us a little bit of an idea what's behind that?

Sure. Of course, as you know, PACCAR prides itself on being a logistics leader and inventory turns leader. What you're really seeing there is the very gradual, methodical buildup of some engines inventory to make a very smooth transition as we go into 2010. This is working with our current engine suppliers to have a moderate and regularly scheduled program of buying engines to make that transition very smooth for our customers and our suppliers and our factories.

So are we at kind of an all-time high there and you think we'll start to dribble that down, or are we still a little bit in the building phase on that?

Well, there might be some additions, but, and you've been, you've been around the industry for quite a while, as we do move into 2010, obviously, that will come down quite rapidly.

Right, right.

So it's part of a very measured plan to make the transition smooth and seamless for everybody involved.

Okay. And when are we going to be able to get any hints from the customers about their preference for FDR versus EGR? Can you give us any hints on what to look for there?

Well, you know, the SCR infrastructure rollout is really sort of beginning now. It's early days, but, you know, we and others in the industry are working not only with the ATA, but more importantly, probably with customers, but truck stop and fuel providers to put that infrastructure in.

And, you know, there might be some choice in 2010, but by the time you get to 2013, '14, '15, it's all going to coalesce into a pretty similar system. So I think right now there's some discussion about it, but you look five years down the road, it's going to be pretty similar, you know, emission program going on.

And that sort of level of confidence that I'm hearing from you, is that from performance or is that from what you're hearing from customers, or--

Well of course, you know, for us, our engines in Europe have been running with SCR for quite a while and performing very well, seemed to, DAF seems to get lots of awards from engine performance and fuel economy and, so, and we've got, you know, lots of engines out running now and I think it seems to be going pretty well.

Okay. And last question.

Are you going to be able to help your customers transition into price increases in 2010 with, you know, a little bit, like put a little bit in '09 and then a little more in '10, just to sort of help them to transition into where we're going to be eventually?

Well, there certainly will be a price increase. These emission systems are quite costly and, of course, the, let's call it rare materials that are going into them have seen some dramatic spikes. So I think as we've seen over the last 20 years, you know, you put out what will be accepted by the market and you've got to figure out the rest by continuing to be more efficient and absorb it in our own facilities.

Okay.

It's a balance.

Okay. Thank you.

Good. Thank you.

Your next question comes from Jamie Cook with Credit Suisse.

Good morning, Jamie.

Hi. Good morning.

Just a follow-up question on the sort of material cost issue. As I look out sort of over the next six 12 months, from your comments, it sounded like the ability to maintain your margins is more a function of PACCAR, you know, PACCAR doing a better job on the operations front in terms of global sourcing, you know, global sourcing or increasing efficiencies versus your ability to get price in the market.

Yes, it's a good question. Certainly, you know, we're working hard, as we have for 103 years to get more efficient so that'll have a positive impact. And -- but we're seeing, as is everybody who makes about anything, it's not just automotive.

It's - go to the mall, go to anything that's made in this world is being impacted by all commodities and when that will be tempered is certainly the source of much discussion and debate around the world. So we hope that the escalating prices will moderate and actually come down. Can't say when that's going to happen.

So what we can do is work on what we can control and that is be more efficient, have great designs, and we've got great relations with our 800 or so suppliers, long-term contracts for the vast majority of them, which has some, you know, protection, but we recognize that those suppliers are in business, too, and their costs are getting impacted. So I think everybody is working very well together and it's just going to be an ongoing way of doing business.

And then can you just, you know, sort of talk about your thoughts longer-term, you know, on this prebuy that we're supposed to have ahead of the 2010 emissions standard. I mean the North American economy's clearly worse and while Western Europe has been an area of strength for you guys, that economy is deteriorating as well.

So I mean how do you think about that when we think about our forecast for sort of 2009? And I guess just as a percentage, how big is sort of Western Europe relative to everything else so we can get just a feel for how much that will impact you?

Just as an aside, I think the financial analysts spend more time trying to get a number in the prebuy than I find in our industry so maybe we should be coming to you for that number.

You know, I think we all, I mean we've been through various prebuys over the last 20 years and, you know, PACCAR's done well in all of them. I think, well, I'm not sure a prebuy is definitely a benefit for the industry at any level, whether it's the manufacturers, the suppliers, the customers and the ultimate end user, consumers.

So as we look over a 10 to 20-year range, you've got a replacement cycle and size about 250,000 units. Obviously we've had years higher than that and current year is lower than that.

So our estimates is that even though the economy is, you know, challenging now in North America, that the, just the mathematical formula of vehicles running and needing to be replaced will generate more of a norm towards that replacement figure of 250,000. And if we're looking at a 150 to 165, that's a great increase for next year. That's a tremendous increase.

Now, I don't know where that fits in terms of what number have you for a prebuy, but, you know, over time the truck market is growing about 1% faster than GDP around the world. We expect that to continue and next year in North America, even with a tough economy, I think it's just a law of averages that we will tend towards that replacement cycle level.

But what about your thoughts specifically on Western Europe?

Western Europe, you know, you've got a couple different chapters in that book. One, you've got Western Europe and then you've got Central Europe and then you've got Eastern Europe and each of those is unfolding at slightly different rates, whether it's expanding or contracting.

Central and Eastern Europe are booming. 20% of our business now is in Central/Eastern Europe so that's good and that's why we just opened up a new facility, as I mentioned, in Hungary, and expanding our capacity.

So PACCAR, through its DAF group, it's market share leaders and many of the Central European countries, whether it's Poland or the Czech Republic so those countries will continue to grow. And as we look out to 2015, there's some estimates that that market size in Central and Eastern Europe will be equivalent to Western Europe.

So it's a little bit complicated in terms of what the total, let's call it EU 27 plus 2 market is, which is the way most of us look at that right now. There, yes, there are slowdowns in Ireland, Spain, but that could be compensated by growth in Central and Eastern Europe.

All right. Thanks. I'll get back in queue.

Thank you.

Your next question comes from Andy Casey with Wachovia Securities.

Good morning, Andy.

Hey, good morning, Mark. Good morning, everybody.

Just a follow-up on Jamie's last question on that Western versus Central/Eastern trends over in Europe. You're increasing DAF production kind of into a slowing Western European market that we've heard about from several non-truck companies so far. Can you ballpark how much of that 5% incremental production increase would be market share in Western Europe versus the continued growth in the non-developed regions?

Well, I think realistically, it's a portion will be for Central Europe, but we're also looking to grow our share, which you know we have about 14% share, as you know, in Western Europe. So we see great growth opportunities in Germany, which is the largest Western European market.

We're also, well, we're growing in Italy. We're growing in Spain, even though it's a tough market. The U.K., we're the leader. We're the leader in Belgium, the leader in Holland. So we're looking to grow in those markets and that's complimented by the growth of Central Europe.

So I'd say it's, you know, it's a mix. I don't think I can say it's this percent versus that percent, but it's a mix. Plus export business, whether it's the Middle East, a little bit into Africa.

Okay.

Yes.

Then second half of last year versus this year, is there any difference in production seasonality? Or should the number of days be about the same?

You're talking about for the first half or the second half?

Second half. Second half '08 versus second half '07.

Yes, I think it's going to be pretty comparable. The second half of last year for us in North America we had some shutdown days to balance production versus market requirements. We still have six more months to go this year, but I think it's pretty comparable.

Okay.

I guess I wasn't -- the spirit of the question wasn't really focused on North America. In Europe, you had some production downtime in the fourth quarter to kind of effect a capacity expansion.

Yes. Well, we, you know, we have a Christmas shutdown some years, but the build rate this year is, you know, is higher than it was last year in Europe. And that's good. We got a lot more demand and, you know, still have a backlog close to a year in Europe and customers are really enjoying the benefits of the DAF product.

Okay.

And then if I could turn to U.S. and Canada for a minute. Your industry forecast is basically on the industry level for sales to continue to decline in the second half. If you look at everything that's going on, the economy, some of your suppliers kind of exiting in 2010 from the industry, do you think the supply chain could support a significant rebound in '09 if the demand was actually there, not only the replacement demand, but some sort of, you know, purchase distortion against the 2010 standard?

Yes, I do. You know, I think, as I mentioned earlier, we've got about 800 major suppliers around the world and, of course, we spend a lot of time with a lot of them and as I think I've mentioned on earlier calls, we're one of the few OEMs that actually invest in strengthening their capacity and quality in terms of buying equipment for a lot of our suppliers, so we know the suppliers very well. Long-term agreements, and I think that would be great news for the market to increase. I think suppliers would certainly welcome it.

They get more volume going through their facilities, which would help with some of their costs. I think that would be benefit to PACCAR. So I think, I think the market -- there really hasn't been that much change in supplier capacity affecting us.

Okay.

And then on the very near-term in the quarter, you had a sequential increase in the provision for losses on receivables in the finance sub and you described that as mainly related to U.S. and Canada, which is pretty consistent with what we've seen in defaults and all that stuff. On used truck pricing, can you comment on directionally where that's going?

It seems like from channel checks, it's still kind of going down and I'm wondering what effect that may have on not PACCAR specifically, but industry pricing for new equipment. Have you seen any discounting going on?

You know, on the used truck side, there has been some modest decline we've seen in the first half of the year, but the PACCAR products continue to demand a 15 to 25% premium relative to the competition, which is, while our credit losses are up, it has helped cushion the effect of those credit losses. The portfolio continues to perform well, reflecting our solid earnings for the quarter and we have a lot of confidence in the long-term outlook for the financial services segment.

That was Ron Armstrong.

Oh, thanks, Ron.

And was there -- would you offer any comment on any trend you're seeing in new truck prices? It seems like certainly with the input cost increases, the industry in general seems to be trying to recover those and yet we're seeing some market share shifts. I'm just wondering if there have been any aggressive type deals that would explain some of the market share shifts.

You know, our pricing is pretty stable and we expect it to remain relatively stable for the short-term. But obviously, you know, that's what we're seeing.

Okay. Thank you very much.

Thank you.

Your next question comes from Andrew Obin with Merrill Lynch.

Good morning, Andrew.

Good morning. Just a question for you just to follow-up on the question on the credit losses. What's the run rate for credit losses in 2Q '08 on the U.S. portfolio, if you could share that?

Well, our credit losses are roughly, you know, not in the U.S. and Canada, running about 80, 90% of our total losses that we're experiencing, so that's where we're at.

Well, you guys are going to disclose it once you file the Q, do I have to wait until the Q?

Yes, I don't have that specific number in front of me.

Got you. Another question. Are you seeing a pickup in credit losses in your European book?

No, the European portfolios continued to perform very well with continuing historically [low] loss levels.

And just finally, could you remind us, as we think about the European market, because as you pointed out, it's tough to think about EU 13 [to] EU 27 (inaudible) in Russia, I mean could you just give us a sense how the markets break down now? Western Europe versus Eastern or Central Europe versus Russia, just the market and where you are in Eastern Europe and Russia in terms of market share and relative basis. Is that something you care to discuss?

Yes, Mark here. We can discuss that a little bit.

Say for Western Europe, well, I'd say we're typically looking at numbers probably 250 to 275 and I'd say to get up to the 350 to 360 that would be, well, that would be Central Europe. Russia might be, well, it's a little bit confusing because you got a lot of used product going in there also, but might be 20 to 40,000.

Okay. And so 20 to 40 in Russia would be on top of this 350 to 360?

Typically that's not being included in anybody's reports because it's, let's say those numbers are fluid.

Yes. I appreciate it. Thank you very much. Great quarter.

Yes, thank you. Appreciate your comments.

Your next question comes from Henry Kirn with UBS.

Good morning, Henry.

Good morning. How are you doing today?

Good. How are you doing?

Good.

Excellent.

Quick question about hybrid and LNG trucks.

You bet.

How long would it take for them to become a significant contributor? What are you thinking of those over the next couple years?

I think that they'll have great success. Here's obviously a wonderful ROI of someone purchasing these, let's say, a year and a half to two years, you get a benefit from the government, a tax credit. There's an increased cost to purchase the vehicle obviously.

Right now, they're focused on the urban applications, the stop and go, because that's the technology that essentially is recharging the lithium ion battery pack. So if you're driving around a city or urban application, even utilities, you know, people running vehicles, putting up stop lights or whatever, there's a tremendous payback.

But looking at that market, it's a small portion of the total industry and we're working with Eaton and others on a Class 8 application, but that's still a year or more away and because some of the technology is still being evaluated and developed and that's vehicles running for days at a time with very little stop and go. So some of the new technology is still under development.

Of course PACCAR's also developed a number of other items to improve fuel economy and that is the no idle and that's starting to have some positive impact for many of our customers because as you may know, the majority of vehicles that are running around the roads, and there's about 5 million of them in North America and about that same number or so in Europe, they idle at night to keep the engine going so they got heating, cooling, power for their operations, and PACCAR, through the Kenworth and Peterbilt group have developed some innovative technology that you can turn off your engine, if you can turn off your engine for eight hours, there's a real fuel economy improvement.

So it's a lot of work being done and it will certainly have a benefit for a certain group, but for the total market, new technologies still need to be developed.

That's helpful. I guess for my follow-up, as you look at the global landscape, are there any geographies where it might be attractive to add to your presence through M&A the way you did with DAF in Europe?

Always looking for opportunities and I think we know all the players in the world but, as you know, as you've studied the Company, I know you've studied PACCAR a lot, the Company continues to evolve over the last hundred years into complimentary-type of businesses also, so I think we can certainly grow our core business but there are plenty of opportunities out there.

Okay. Thanks a lot.

Thank you. Appreciate it.

Your next question comes from Christine [Kubacke] with Avondale Partners.

Good morning, Christine.

Good morning, guys. I just had a few questions here.

One, to follow-up on what you were just mentioning about APUs, we've been hearing from a lot of truckers about the progress that anything that will save them fuel, like aerodynamics. I was wondering, on the penetration of APUs, are you seeing an acceleration in interest or is it real, you were taking real orders at this point?

First of all, we don't call them APUs because that's not what we are selling. We certainly have an APU if you want that but this is a patented design that we have that is not technically APU.

But that aside, no, we're, we're getting orders. I mean we're building these and they're in production. They're running around the roads.

And in terms of kind of thinking ahead of 2010 in SCR, what kind of, I mean one of the things that touts the benefit is the fuel efficiency gain. Can you remind us, or have you said openly about what you expect an engine to achieve in terms of fuel efficiency versus, say, the 2007 engine?

No, we haven't. We haven't commented on that.

Okay. But do you think there will be a fuel efficiency gain in terms of the SCR versus enhanced EGR?

Well, we certainly are always working on improving the fuel economy of our vehicles every year and that's a combination of engine, after-treatment, aerodynamics, you know, redesign. That's an ongoing goal of ours and we've been able to deliver that for many, many years, but, you know, we're working on that one.

Okay. And then just one final question.

On the construction, you say it completed next year and late next year on the engine plant. I was wondering what kind of expectations you have in terms for start-up in terms of 2010?

Well, it will be early 2010 for start-up and it'll be a gradual build up as the way we do it. We want to make sure that it's absolutely running very, very well to our quality standards and so far, it's on track. You drive by on the freeway you can see a very good-looking building sitting there right now.

Do you have any expectations that you're willing to share in terms of market size?

Meaning in terms of how many engines we're going to build?

Right.

Well, you know, we're going to build as many as out customers want. That's typically the way we approach it.

Do you think you're going to have a hard time converting, or how do you go about the value proposition with some of the Class 8 being dominated by the 15-liter, how do you come down and sell the smaller, the 12.9-liter engine?

Yes. Well, as you're aware, the 15-liter in commercial vehicles is really only in North America. Everybody that is, every OEM in the market is global and certainly we're one of the leaders on that.

So it's kind of hard to say that there's so many unique aspects of the North American market versus the world market because there are plenty of places in the world you can drive thousands of miles. There's plenty of places that have large mountains and have deserts, and so I think we've been sheltered in North America by having very low fuel prices for a number of reasons.

Certainly it's benefited our economy, but as you travel the world and you talk with customers who are used to paying 8, 9 and $10 per gallon, they look at $4.50 wistfully and say, boy, those were the days. I think you'll see some structural changes that people say, hey, I can go 60 miles an hour, I can go over high mountain passes and I can get great fuel economy, but it's going to be with what the world drives and that's a 13-liter engine.

So have you heard from customers a greater acceptance of that than at this point or is this kind of your evolution (inaudible)?

I think it's, the market is having a wonderful soul-searching time evaluating what happens in the next five to ten years and fuel efficiency is one of the key criteria.

Okay. Very good. Thank you for your time.

Appreciate it. Good questions.

Your next question comes from Ben Faulk with [Marble Barr].

Good morning, Ben.

Good morning. Hello.

Just question just relating to (inaudible) I've heard from Volvo, from [Manns], [Skanyard], Daimler, they're talking about orders down 30 to 40%. Obviously this is more forward-looking. I guess two questions, please.

Firstly, just really want to get a sense of order of direction. I mean all your peers are talking about weakening not just in Western Europe but in areas like the Baltics and Poland as well. Russia's obviously quite strong, but net-net 30 to 40% down year-to-date. So I just wondered to what extent are you able to offset that in terms of market share gains? I just want to get a sense of order direction.

And then the second question is out of the 31% revenue growth in Europe, how much of that was attributable to FX in the underlying volumes? I appreciate those two questions. Thanks.

Okay. Good. Good questions.

Well, I'm not sure what the competitors are doing. I know we're increasing our build rates, I'm not sure what they're going, they may be decreasing, but, you know, we're the quality leader. We're the efficiency leader. We're the fuel economy leader so we may be seeing the benefits of customers saying, hey, business is still there a lot of it's growing, let's get the best products we can and that's the DAF product.

So far, it looks good. Yes, the economies are slowing in Western Europe. We recognize that, we see that but at this time, steady as she goes.

Turning it over to the exchange, let me put Michael Barkley on.

With respect to the quarter, the impact of currencies is about $270 million positive and with respect to the first half it's about $520 million, so the growth in Europe ex currency is in the 15 to 20% range.

Okay. Great. And just one follow-up question, if I may.

I think the, one of the reasons for the weakening in the 30 to 40% falloff in orders in the last three to four months, well, all of your European competitors, has been largely to do with lead times going from three to four months stretching out to 12 months. And so if you were a customer, why buy a truck now, especially given the kind of uncertain outlook of Western Europe?

So I just really wanted to see, I mean how are you avoiding it? Are your lead times (inaudible) much shorter, like three to four months, is that why you're avoiding what all of your peers are seeing? I'm just trying to understand why.

I think for the last year the entire industry's had lead times of about one year and that continues. And certainly we continue to review the backlog in terms of order solidity, but they look good.

We're increasing the build rate, but, you know, there's certainly a lot of benefits to having a backlog of one year, but in terms of satisfying immediate customer demand, that sometimes is a bit of a challenge. So, you know, but right now it looks pretty good.

In unit terms, orders are still up?

Orders are, you know, orders are good and our backlog, as I say, is out almost one year.

So orders are still up, you're saying in the quarter?

No, I mean we've seen some decline in orders over the last year, but they're certainly enough for us to increase our build rate.

Okay. Great. Thanks very much.

Thank you.

There are no other questions in the queue at this time. Are there any additional remarks from the Company?

No additional remarks other than to thank everyone for their excellent questions. Thank you. Thank you, operator.

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