帕卡 (PCAR) 2009 Q2 法說會逐字稿

Welcome to Paccar's second quarter 2009 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 Barclay, 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. I'm pleased to report Paccar's results for the second quarter 2009. Revenues of $1.85 billion and net income of $26 million reflect the very challenging recession affecting all industries worldwide. As we examine the economic landscape for the third and fourth quarters, it appears to be equally as challenging as the first half of the year. Paccar's third quarter truck build and financial results are expected to be comparable to the second quarter, excluding the one-time pretax gain of $47.7 million from our healthcare plan revision.

Looking ahead to 2010, our preliminary estimates for class eight truck retail sales for the US and Canadian market is 110,000 to 140,000 units, which would be a slight improvement to this year, primarily driven by the requirement to replace the aging vehicle fleet. In Europe, our initial estimate for 2010 truck registrations above 15 tons is 150,000 to 180,000 units, comparable to 1992. The European market is projected to be lower next year due to the continued economic uncertainty and the relatively young, average vehicle fleet age in Europe. The good news is that Paccar continues to be one of the leaders in the industrial and automotive business segment. Obviously profits are not where we would like them to be. But net income is positive and we achieved excellent operating cash flow supported by the strength of our balance sheet.

Our liquidity continues to be in excellent shape with a healthy cash position and $3 billion of syndicated bank lines. The commercial vehicle markets around the world in terms of industry orders are low. Paccar has proactively addressed the cyclical nature of the business by continuing to reduce spending including trimming combined spending on R&D and capital by 60% year-to-date compared to last year, as well as lowering our dividend. In the US and Canada, used truck pricing for Kenworth and Peterbilt trucks is stabilizing. Paccar Financial pretax income was $15.6 million compared to $58.7 million a year ago. A smaller portfolio, higher borrowing cost and credit losses impacted the profit results. In Europe, which is about a year behind the US and Canada in terms of the economic cycle, Paccar Financial is experiencing increased credit losses, particularly in the southern European countries, due to the dramatic slowdown in their housing markets. As a result, the global provision for credit losses increased from $25 million in the first quarter to $29.1 million in the second quarter.

On a positive note, 30-day past due figures improved from 4.9% at the end of the first quarter to 4.7% at the end of quarter two. As we all know, new products are the lifeblood of all companies. And Paccar continues to invest in our vehicles and services. We're updating our product ranges in different markets, including the medium duty markets in the US and Canada. The decision by General Motors and Sterling to exit the medium duty market has provided some opportunities, the result being Kenworth and Peterbilt have increased retail sales market share to 14% in the medium duty market. More good news, our Kenworth, Peterbilt and DAF dealers are achieving good absorption for their parts and service business and many are in excellent shape in terms of low, new vehicle inventory and increased used truck sales.

In fact, as I shared with you after the first quarter, the DAF dealer new truck inventory continues to improve, declining another 15% in the last three months. By September, just a short two months from now, the US and Canadian transport market will be in its third year of recession. It is a challenging time for the industry. Paccar is in excellent shape due to its dedicated 16,000 employees and a very experienced management team. We have an excellent balance sheet, market leading products and services, and quality leadership throughout our operations. Our balanced approach in all phases of the business cycle position us to generate great results when the economy improves.

I'm very proud of our employees' exceptional performance and thank them for their support as we continue to work through this difficult recession. We are making positive progress on our industry-leading productivity, efficiency and quality, which are the defining characteristics of Paccar and the products and services that we deliver to our customers. Thank you and I look forward to your questions.

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Joel Tiss of Buckingham Research.

I haven't been first since I left Lehman. How's it going, guys?

Good morning, Joel.

Just some quick ones. It sounds like you're underproducing the retail demand near term to clean out the inventories. So, is it fair for us to think that in 2010, your profitability could snap back a little further than what you're expecting the industry unit volume to improve?

Great question. Joel, you've been covering us for a long time and we produce to what our customers demand and we've indicated we're thinking there might be a slight improvement in the North American market just because we're three years into this recession now and certainly the age of the fleet is getting older. So we're looking to have some improvement in North America. Europe, on the other hand, continues to lag North America just because they went into the recession later. And as you picked up quite pointedly, the dealers are in good shape. So they need to start ordering stock units at the appropriate times. So, that could be a benefit. So that's how it all will play out.

Your next question comes from the line of J.B. Groh of D.A. Davidson.

Good morning, guys.

Good morning, J.B.

You've been pretty proactive in terms of cutting costs and that sort of thing. If this continues like it looks like it will, what do you see in terms of other things that you can do and how would you characterize sort of in a baseball analogy where you are in terms of the ability to cut costs?

Are you talking about the home run derby or all-star game?

I'm talking about which inning do you think you're in terms of the menu of things that you could do, how much more do you think there is out there that you could do?

I think, Paccar, as you rightfully said, is always proactive on reducing costs. We continue to review and have reviewed, ongoing. We do it every day, every year. I think if you're alluding to the healthcare plan revision, there is only -- that doesn't happen very often. So, I think it is just day to day. We've got great employees. We're always looking to be more efficient, and -- but I don't think there's any big home run cost reductions if that's what you're driving at. I think it is just steady day to day review of all of our operations on how we can continue to do it a little bit better.

Your next question comes from the line of Henry Kirn of UBS.

Good morning, Henry.

Good morning, guys. Wondering if you could chat a little bit about pricing in the market from a competitive standpoint, and how much used pricing is impacting your ability to get pricing in both North America and Europe.

Okay. That's sort of four different segments. We have got North America, Europe, new pricing and used pricing. In North America, as I've indicated, we're coming into the third year of this recession. I think pricing for new vehicles is stabilizing, obviously at much lower levels than it was a few years ago. Used truck pricing is stabilizing also in North America, and for several of our models, might actually increase a little bit. Of course, the good news for us is that we continue to deliver premium quality and get a premium price on new and used around the world. So, that's certainly a benefit to us. In Europe, used pricing is probably continuing to slightly trend down. And new truck pricing is -- I would say probably sort of flattish right now.

Your next question comes from the line of Steve Volkmann of Jefferies.

Good morning, Steve.

Hi, good morning. I just wanted to sort of go a little further with Joel's question. Some of your competitors, I guess, in Europe, have talked about inventory reduction kind of nearing the end and potentially being able to increase production a little bit in the third quarter over the second. Is that something that you guys could be doing as well either in North America or in Europe? Thanks.

Yes, good question. We respond to what our customers and our dealers order. We're build to order, always have been. And a number of our competitors own most of their dealer networks, so there's -- not sure how they manage their inventory. It is a little longer pipeline but they own the whole pipeline. So, not sure how that actually works for them. If we're getting more orders in, we'll be building more. But I think to project that the third quarter will be better than the second quarter, I certainly haven't seen any of our competitors talk about that. In fact, I've seen the reverse. As far as the European market, DAF Paccar is in the best shape in terms of profitability and going forward quality products.

Your next question comes from the line of Jamie Cook of Credit Suisse.

Good morning, Jamie.

Hi, good morning. I guess my first question, one, obviously it is doom and gloom right now. But when things sort of turn --

We're upbeat.

Well, you are, but we're not. We tend to underestimate the earnings leverage of a company. So can you help me think about how we think about especially given a lot of the cost reductions that you guys have, you're a much leaner organization, you tend to improve peak to peak margins each cycle. Talk about that and how you sort of think about incremental margins coming out of this. And then, Mark, just my last question about the dividend cut that you announced this quarter. Can you talk, with $2 billion or so in cash, can you talk to me about your rationale behind that, and was this something that we did -- does this speak to the length of the recession, or is it more of a function of you wanted to maintain your credit rating? Just how you thought about that.

Let's address the dividend. Obviously we're very proud of the strong dividend growth that Paccar's had over the decades. And even with the reduction in dividend, we've had a 200% increase over the last 10 years, which I think the shareholders appreciate and we're very proud of. Reducing the dividend for any company is a difficult decision. But I think we made a very prudent business decision, obviously reflecting our profits which you have in front of you, and we know what the dividend costs. So, I think it is just a prudent business decision as markets improve, as our profitability improves. We certainly will be talking with the board about increasing the dividend as it makes business sense. So, I think your analysis that it reflects a longer recession is very accurate. I think that's really the main --

On margins, margins for the second half of the year will be comparable to what we're seeing in the first half. And the recession is still ongoing. I mean obviously newspaper pundits and economists and politicians have an agenda. But those of us in the business world have been around a long time, you can't find very many industries that are saying, geez, this recession is ending. It is still ongoing. There are some bright spots, but it is going to be challenging certainly through the end of this year.

Your next question comes from the line of Adam Uhlman of Cleveland Research.

Good morning, Adam.

Good morning. Just a clarification on the new truck pricing trends in North America and Europe. What would be the percent change from last year that you're experiencing right now? And then secondly, could you talk about inventories picked up a bit since the first quarter although sales are down a bit, and what is unfolding there?

Well, let's talk about the inventory first.

Yes. The inventories that picked up a bit primarily due to translation effects as the US dollar weakened a fair amount during the quarter.

And on the margin, it is probably a couple percent down across all of the industry versus all of our competitors, but once again, we generally realize a premium in all market cycles and we're continuing to recognize a premium in this market cycle.

Your next question comes from the line of Meredith Taylor of Barclays Capital.

Good morning, Meredith.

Hi, good morning. I'm hoping you can give us a little more color on the delinquency rate in the quarter. I know you said it went from 4.9% to 4.7%. Can we get a little color on geography by geography basis? I'm particularly interested in Europe. And then could you talk about the experience of these delinquencies seasoning to losses, how the loss rates may be trending on a quarter over quarter basis? And then any color you have as well on repossession rates.

First on the past dues. As we look at it on the geography, it is really comparable in all the geographies if you look at Europe, North America and our other markets, the past due rates at the end of the first quarter were comparable across the board in all of the markets. From a credit loss standpoint the trend has been relatively stable at unfortunately a higher rate than we would like. But we see that that pace of credit loss as being comparable in the third quarter as we progress. And then on repossessions, repossessions obviously drive our level of credit losses. So, again, we expect the repossessions to be at a level of comparable to where we've seen the last couple of quarters.

Your next question comes from the line of Kristine Kubacki of Avondale Partners.

Good morning, Kristine.

Morning. I was just wondering -- I'm trying to reconcile comments that you made mid-June that you highlighted some of the larger fleets buying some trucks later this year. Given your outlook that things are flat through the second half of this year, I was wondering has anything changed with those orders? Are we seeing cancellations pick up or are those orders being pushed off into 2010? I was also wondering if you could talk about the trends in parts and services in North America. Thank you.

You bet. In terms of the comments we made in June, I think what we actually said as we kind of look at that press release is that many -- actually everybody in the industry who's been in the recession for three plus years has essentially worked through any excess vehicles they had, and then -- hello. Are you still there? Hello?

Your line is open.

Okay, yes. That the national fleets are recognizing that their maintenance costs are going up. But they have to reconcile that with the amount of freight they're getting and so it comes to an inflection point at some time, I don't think we're there yet, that these companies will say, geez, I need to replace these vehicles. But I need to have a little firmer line of sight in terms of the amount of freight that I'm going to be able to carry, so I said, that's the encouraging news. I don't think major fleets are actually placing a lot of orders. In terms of parts and service, I think we're seeing that probably slightly dampened in line with the recession. But our dealers are doing a very good job, out there working with our customers, trying to maintain the vehicles and we have a lot of exciting programs underway. But it is probably slightly dampened, reflective of the recession.

Your next question comes from the line of Jerry Revich from Goldman Sachs.

Good morning. Do you expect pricing discipline to improve in Europe as your competitors get closer to cleaning out their inventories? And Mark, I'm wondering if you could give us an update on how you're thinking about potential acquisition opportunities. Obviously you want to be defensive with your cash, but presumably there's some opportunities out there that are probably worth looking at.

Yes. Two great questions. Pricing discipline. We could take several days to talk about that. Paccar is probably the pricing discipline leader and has been for decades. I think in our industry, as I'm sure many other industries, there's always a number of competitors who are looking to sell at any price because that's maybe what their vehicles are worth. So I don't really see that changing. I think companies have a pricing approach that they think works for them. Our pricing approach is that we deliver the best and we charge for it accordingly. So, I don't see any change in that. Good times, not so good times.

In terms of M&A opportunities, absolutely. Paccar is in a strong position. We continue to review what's out there, but as I've indicated for a long time, it doesn't have to be just confined to the commercial vehicle space. We're leaders in logistics. We've got great engineering. We understand retailing, obviously manufacturing, we're in 100 countries. So, that opens up many other sectors that might make some sense, but nothing on the horizon at this time.

Your next question comes from the line of Ann Duignan of JPMorgan.

Good morning, Ann.

Hi, good afternoon, guys. Two quick questions. One clarification. I just want to make sure that I'm interpreting what you said in your opening comments, Mark, and that is that you expect to generate an operating loss in each of the two quarters in the back half of the year, point of clarification, what tax rate should we apply? I know you don't give us earnings guidance but given the volatility, what tax rate should we apply? And then since we're going to get cut off if I don't ask my second question --

I hope you don't get cut off.

Completely different. Could you give us an update on your 2010 9.2 liters and 12.9 liters engines, and how those programs are evolving, and where are you with the shipping those engines over from DAF? Just a little bit more color on what we should anticipate going into 2010. Thanks.

We would never cut you off. We welcome your questions.

Thank you.

Operating loss. I didn't say that. I didn't say we would have an operating loss. I said things will continue to be challenging. So, that's -- we get up every day here, and say, hey, how can we do the best for our shareholders. And that's what we're working on. So, I don't want you to jump to any conclusions. We'll see what happens in the third and fourth quarter. Tax rate.

Yes. The tax rate in the second quarter was obviously at lower pretax earnings levels, the impacts of permanent items such as R&D credits become more significant, and so the tax rate like many other industrial companies is at a pretty low level. Going forward, we expect a more normalized rate of around 25%. But that will be volatile depending on results.

And then finally, on the engine, we're having good success. We continue to test and evaluate the Paccar engine throughout US and Canada, and many of our good customers are finding that the engines are performing very, very well. And so I think we're right on target, right on line to having those being introduced next year. And we will also be offering the Cummins product line and we're proud to be Cummins' largest customer in the world. And it is a great partnership and has been since I think the early 1930s. That's 70 plus years. So, I think everything is in line.

Will you be offering Cummins engines other than the 15 liter next year?

Absolutely. Absolutely. You bet. We pretty much offer the full Cummins product line around the world. And it works very well. Good questions.

Your next question comes from the line of Andrew Obin of Banc of America.

Good morning, Andrew.

Hi. How are you? Just a question on cost structure. I mean, the balance sheet gives you the ability to invest when almost nobody else can in the industry. But at the same time, the ability to invest in the downturn sort of brings the choice not to cut the cost to sort of preserve the company for the next upturn. So, in that respect, as I think about margins, and this environment, can I assume that your ability to cut costs from now on is somewhat limited by your desire to sort of get ready for the next upturn?

I think it is a great question. I think obviously it is a balance as anybody running a company looks at it every day. We do have a very strong balance sheet as you pointed out. And our cost structure is in excellent position. We want to continue to enhance our margins and develop new products because that's the lifeblood of any company. And we continue to invest.

We're investing in many new products, in many new services, which I think are going to be very exciting as they get launched. I think coming back to the earlier question, can we continue to reduce costs, that's what we do every day. We try to figure out creative ways to do it that will allow us to invest, become more efficient, have new products but lower our total cost base. So, it is a balance.

Your next question comes from the line of Andy Casey of Wells Fargo Securities.

Good morning, Andy.

Good morning, Mark. Good morning, everybody. First, on the NAFTA market, with volume induced new truck price compression per your statements, kind of stabilizing at low levels, how should we think about the future price increases related to the emissions changes coming next year? Is it incremental from current levels, or would it be incremental from levels two years ago?

Well, right now, it is going to be additional or incremental from current levels, because whatever the prices were two years ago that's not what the market is working with currently. And I think as most competitors have said, and we certainly have been one of the leaders on it, it will be an $8,000 to $10,000 upcharge, a very expensive emissions change. It's technically, I would say not as technical in complexity as some of the other ones, but there is just a lot of equipment, particularly on the exhaust side, that have to be put onto the engine and put on the chassis. And so, that's $8,000 to $10,000. And that will be something that every customer in the market place is aware of and just has to incorporate into their business planning as to how they want to best move forward.

Thanks.

You bet.

Your next question comes from the line of David Leiker of Robert W. Baird.

Good morning.

Good morning, David.

Two questions here. Just first, here in the US, if you look regionally, are there any differences in end market demand, some areas doing better than the other? And then secondly, if we look at margins and you made a comment that you expect second half profitability to be comparable to the first half. I'm guessing -- I don't know if you're doing that at operating margin or gross margin, but there's obviously a very different margin performance in Q2 versus Q1. I was wondering if you could give us some insight into whether you're closer for the Q2 performance or the Q1 performance.

You bet. Good questions. Regional, really don't see much difference. Of course, two big drivers for freight are housing, construction, I would also put in as an adjunct commercial vehicle, commercial building construction, and both of those are still down even with a little bit of the good news about some regions starting to increase, some home building. But that's from a pretty low level. So, regionally, it is all about the same. Margins, probably closer to the second quarter than the first quarter.

Your next question comes from the line of Patrick Nolan of Deutsche Bank.

Good morning, Patrick.

Good morning. Just one follow-up question. I apologize.

That's okay .

It looks like you took out 1,000 people in the second quarter versus the first quarter, if I'm looking at your release. Can you just talk about when we eventually do see a recovery in demand, what's the tipping point that you have to really start adding people back into the production level, to the production side?

I would love to get all of our great employees back. That's what makes this company so incredible. But we have to see a pretty good increase in our daily and weekly and monthly order input to start increasing a build rate. Of course, we continue to improve efficiency as we've talked about, 5% to 7% every year. We're doing that again this year, which is a wonderful testament to a very creative group of employees.

So, I don't have an exact number that this is the build rate that we'll start adding people. But our intention is we would love to get our great employees back and we want to increase our build rate. So, I would say right now it is probably unlikely that will happen in the second half of this year.

Your next question comes from the line of Basili Alukos of Morningstar.

Hi, good morning. Thank you for taking my call. A two-part question. One deals with more the cash flows as I look in the cash flow statement. There was -- trying to figure out the increase in operating cash flow as it appears your wholesale receivables was kind of added to cash. And I'm wondering if there's something other than just the decline in revenues that's affecting that. So, since revenues are down, obviously then you won't have as much receivables, at the same time you had mentioned in your prepared remarks that capital expenditures were down 60%. Does that decline include kind of the tailing off of the Mississippi plant, or how should we look at the Mississippi plant and the increase in capital spending in that decline?

Okay. Good. Let's talk about cash flow first in terms of receivables and things like that.

Sure. The improvement in cash flows from the wholesale receivables dropped primarily from Europe as the DAF is coming down at a fairly rapid rate.

DAF, new truck inventory. Yes. In Mississippi, really not too much of an impact. The plant looks fantastic. It is complete. We still need to add some machining and assembly lines. But that's really not a major contributor. I think the primary one is the reduction in DAF new truck inventory at the dealerships. Good questions.

Your next question comes from the line of David Raso of ISI Group.

Hi, how are you? Two quick questions. The plant in Mississippi, which industry volumes would you expect to be starting that up? I assume it is a combination of your thoughts on Europe, North America, industry volumes and your share within that. And then second, do you expect to have all of your Caterpillar engines trucks or loose engines out of inventory by the end of this year? And are you increasingly helping your dealers move some of the CAT powered trucks out of their own inventory?

Well, on the Mississippi plant, as I indicated earlier, the plant building itself and the office building is complete. We have got employees working there every day. Love to get you down there some time in the future. That plant is ready in terms of doing some assembly of engines and whether it is in semi knock down or complete knockdown format as we ship engines from Europe to North America, I think that will be the logical first step in terms of activating the plant.

And then as volumes do build up and as the markets recover, we'll be able to increase the amount of machining and assembling that goes on in that plant. So, it is a step process. In terms of Caterpillar inventory, we continue to work through that. We still have a lot of great customers who like Caterpillar. And so, that's an ongoing process right now.

Your next question is a follow-up from the line of Joel Tiss of Buckingham Research.

Joel, good to have you back.

All right. I just wondered, everything has been answered except just wondered if you could share with us your sense of how many overall trucks are parked or idled in North America.

That's a good question. Something that obviously we look at 50 daily basis. I would say -- well, easy answer is a lot less than a year ago. But I would say it is a very small number now. As a company goes out of business, that will be a momentary surge that they'll have 50 or 100. The operators that are running obviously they like more freight. But they're actually reporting some good results. You've seen many of them, the publicly traded transport companies. They're making good money in a tough time. So, there are some, but it is not a factor that weighs into whether I should buy a new truck now. It is something they're not aware of, but it is not the factor it was a year ago.

Your next question is a follow-up from the line of Steve Volkmann of Jefferies.

Steve, good to you have back.

Yes, I'm back. Just a couple other ones. I'm curious about your forecast for 2010 and how you arrived at that. Do you have some data that might be interesting to share with us that would give you a sense of where you think 2010, and I'm talking about your US and Canada forecast, sort of how you put that together? And secondarily, I wonder if you can comment as to whether you're seeing orders starting to build in the fourth quarter potentially for a few customers who want to get ahead of the price increase that you mentioned. Thanks.

Yes, you bet. In terms of the fourth quarter with probably an overused term in this industry, a prebuy, I don't think anybody's really seeing that at this time. And certainly everybody in the industry continues to work through shutdown days or shutdown weeks, and in Europe, you've got the summer vacation schedules which are pretty normal. So, if I'm a customer, I may be thinking about doing something in the fourth quarter. i don't think it is going to be a significant push toward a prebuy, but even if I'm thinking about it, here we are, the end of July, we still have time, nobody's order boards are too long. So, you can easily come in probably September, October time and still get a vehicle delivered in the fourth quarter. So, I don't think we've really seen much of a ripple in terms of prebuy at this time. I think three months from now, we'll be that much smarter.

In terms of the US and Canadian forecast, I think we're probably at very close to the bottom in terms of US and Canada, they were in the third year, will be in the third year of recession. It has been a long, tough one. But in many ways, it has been also very exciting. Everybody continues to get more creative on managing the business. And the average age of the vehicles in some reports is now bumping eight years. And that's getting to be old for a vehicle. Not for our vehicles, of course but for many of our competitors. So, people are postponing or reducing or limiting the amount of maintenance they do on vehicles. And these vehicles average 150,000 miles a year. Recognize that anybody driving a car averages 12,000. So, that's 10 years worth of driving if you're driving a truck.

And things do wear out. Things need to get replaced. And after a while, to replace an axle, a transmission and, an engine, work on the cab, it is probably better to get a new vehicle and you can take advantage of the warranty. So, many, many of our great customers are beyond their normal trade cycle and they have a very good business model. And so they're thinking, I think next year, a 10%, 15%, 20% increase is coming off a very low number. It would make some sense. But if the recession worsens, then we'll have to deal with that. Good question.

Your next question comes from the line of Mike Roarke of McAdams Wright Reagan.

Good morning, Mike.

Hi, good morning. I just have a quick question on the financing portfolio. In terms of assets split, what percentage of the assets are European-related and what are North America and rest of the world?

That split has typically been about 30% Europe, 40%, 45% US and Canada, and then the rest of the world, the rest.

Great. Okay. Thank you very much.

Thank you. Good question.

Your next question is a follow-up from the line of Andy Casey of Wells Fargo Securities.

Good morning again, Andy.

Good to talk to you, Mark.

You're an engineer, aren't you?

I am, yes.

Good. Good questions.

Thanks. The SG&A, I'm looking back at history, if I look at 2006 versus 2000, SG&A increased by less than $65 million on a doubling of sales. Is that without saying $65 million, but is that a rough order of magnitude performance that you could replicate whenever we see a potential upturn?

You're saying that's good?

That's good. Yes.

I'm an engineer. I just want to make sure we're talking on the same page here. I thought it was good. I think our team thinks it is good. So, when things improve, you're asking can we keep our costs down? Is that sort of the thrust here?

Exactly. Yes.

Okay. That's engineer talk. I just wanted -- yes. I think Paccar has got a great history of doing that and our meetings and our discussions and as they say with 16,000 wonderful employees, that is certainly a topic that things will improve. We've been through cycles before. Yes, this is a tough recession. We recognize that. But things will improve and when they do, let's keep getting more efficient, and let's remember these challenging times and see how much of that we can maintain as we get into a really strong market. So, I think the answer is, I can't say it is going to be that percent or this percent, but we'll certainly remember these years for quite a while.

Us too.

Maybe you guys more. I'm not sure. It has been a real lesson. This is my fourth recession. But as any industry CEO will tell you, this has been the most challenging.

Thank you very much.

Thank you.

Your next question is a follow-up from the line of J.B. Groh of D.A. Davidson.

Good morning, J.B.

How you doing? Can you guys give the currency impacts for the quarter?

You bet.

The currency impact for all currency on pretax income was a reduction compared against last year's quarter of about $8 million pretax.

Okay. All right. Thank you.

You bet.

Your final question is a follow-up from the line of Ann Duignan of JPMorgan.

Good morning again, Ann.

Hi, guys. I'm cracking up here, Mark. I have a masters degree in engineering, does that mean my questions are super duper?

Well, they're certainly at a masters level.

I have to say these calls are at least entertaining. I just wanted to follow up on, we don't touch base very often on the outlet for [urea] and the infrastructure for [urea]. Can you just give us some updates and how that is developing, have there been any slowdowns because of the general economy or are you hearing any kind of challenges in terms of getting [urea] into the market place?

Excellent question. I think the [urea] SCR rollout is right on schedule. All of the major truck stops and third party suppliers are installing capacity, whether it is in bulk format or in truck size level format. There can be anywhere from five gallons to 50 gallons. Simply, the vast majority of the industry has designed their vehicles for SCR.

In fact, I think for the whole world has adopted SCR. There might be one company, I'm not sure. But everybody in the world has adopted SCR. It is the standard worldwide. In fact, we would love to have more global harmonization of engine standards and SCR is probably the first step that way. So, I think the customers are aware of it. They're used to it. The dealerships are ready for it. The third party and truck stops are ready for it. So, it should be a pretty normal transition, pretty seamless, I would think.

We've reached the allotted time for questions. Are there any additional remarks from the company?

I would just like to thank everyone for their excellent questions, and thank you, operator.

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