Industrial Markets Outlook:

There’s 2010 and There Is The Recovery

1

AMT GLOBAL FORECASTING & MARKETING CONFERENCE:HEAVY EQUIPMENT FORECAST :2010 AND BEYOND

Eli S. LustgartenSenior Vice-President, Longbow Securities

October 22, 2009

SLOW INDUSTRIAL RECOVERY IN 2010

We have dug a deep hole to climb out of in 2H09 and 2010

Manufacturing Capacity Utilization is now in the Mid-60’s compared to more normal 78% to 80%

Virtually Every Industrial Sector is Currently Over-Capacitized Globally

2010 WILL FAVOR SHORT-CYCLE, PRODUCTIVITY & EFFICIENCY

LITTLE NEED FOR CAPITAL EQUIPMENT FOR EXPANSION IN 2010

Need to absorb excess capacity

Only exception may be for new products

Production increases mostly related to end of inventory liquidation; production level will more closely match end market sales

Smaller, lighter equipment likely to outperform heavy equipment which could decline through 2010

2010 WILL FAVOR ENERGY EFFICIENCY, AND PRODUCTIIVTY ENHANCING

FASTER RECOVERY FOR TECHNOLOGY, COMPONENTS (MRO AND INVENTORY RESTOCKING) AND CONSUMMABLES AS INDUSTRIAL PRODUCTION RISES

INVENTORY RESTOCKING IS THE KEY

2011-2012: SLOW CLIMB BACK TOWARDS MORE NORMAL DEMAND

Real growth of demand for equipment likely to return in 2011 unless policy mistakes are made

U.S. government stimulus programs will likely play a greater role in 2011-2012 and beyond than in 2009-2010.

2011-2012: The NEW Normal Level of Demand

New more NORMAL level of demand perceived to be lower than end market demand realized in 2006-2008

Auto unlikely to return quickly to 16 to 17 million car sales that prevailed from 1999-2005;perhaps 12 million to 13.5 million is the new norm;

Housing unlikely to return quickly to 2 million starts; New norm may be 1.3 to 1.6 million over the next few years with cautious funding keeping starts below 1 million at least into 2011.

Truck market likely to return to more normal levels of demand as early as 2011 e.g. class 8 trucks in the 175,000 to 225,000 range. Prior level peaks of over 300,000 unlikely until at least the next emission cycle;

Construction and mining, engines and turbines, railcars and other heavy equipment face a slow recovery through 2012 to levels likely below 2006 to 2008.

Farm equipment end market demand growth dependent on global economic growth, global demand and weather. Growth could resume as early as 2011.

Electrical markets/alternative energy growth probably resumes post 2010.

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Farm Equipment

CREDIT TURMOIL HAS TAKEN ITS TOLL

FARM EQUIPMENT: FROM CROP SURPLUS TO TIGHT SUPPLIES

U.S. grain supplies were well above normal as recently as 2005/06.

Rising ethanol demand, lower plantings and global weather problems have reduced global carryovers to very low levels for wheat and corn.

Farm income was relatively flat through 2006 buoyed by government payments. Farmers rebuilt their balance sheets and cash flow during this period was strong.

2004 was the last recent strong year for farm equipment demand driven by big Federal depreciation and tax incentives. Demand has been relatively flat in 2005 and 2006

Farm income grew in 2007 and into 2008 driven by surging commodity prices

The second half 2007 upturn in farm equipment demand gathered momentum in 2008 with 19% to 25% plus gains in large equipment in NA and very strong sales in Brazil.

U.S. FARM EQUIPMENT SALES 2008

TRACTORS UNITS %CHANGE

LESS THAN 40 HP 98,976 -14.6%

40-100 HP 67,885 -13.1%

100 HP PLUS 26,291 25.9%

TOTAL 2 WHEEL 193,152 -10.1%

4 WHEEL 4,431 21.2%

TOTAL TRACTORS 197,583 -9.6%

COMBINES 8,460 19.1%

Source: AEM

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GLOBAL GRAIN STOCKS-TO-USE RATIOS HAVE IMPROVED MODESTLY

10

Planted Acres/Ending stocks in millions 2006/2007 2007/2008 Est. 2008/09

Projected 2009/10

Planted Acres 78.3 93.5 86 86.4Yield‐Bu/Acre 149.1 150.7 153.9 164.2Ending Stocks 1,304 1,624 1,674 1,672Planted Acres 57.3 60.5 63.1 59.8Yield‐Bu/Acre 38.6 40.2 44.9 43.3Ending Stocks 415 306 657 864Planted Acres 75.5 64.7 75.7 77.7Yield‐Bu/Acre 42.9 41.7 39.6 42.4Ending Stocks 574 205 110 230Planted Acres 15.3 10.83 9.47 9.14Yield‐Bu/Acre 814 879 813 835Ending Stocks (per 480lb bale) 9.5 10.04 6.2 5.6

Corn

Soybeans

Cotton

Wheat

2008 CROPS OK; BIG CROPS COMING IN 2009

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US FARM PRICES FALL FROM HISTORIC HIGHS…

12

…AS HAVE AG COMMODITY PRICES

 

Crop 2007/2008DE 2008/2009

Forecast (May 2009)DE 2008/2009

Forecast (August)DE 2009/2010

Forecast (May 2009)DE 2009/2010

Forecast (August)USDA September

Mid-PointCorn 4.20$ 4.00$ 4.10$ 3.80$ 3.40$ 3.35$ Wheat 7.35$ 6.80$ 6.80$ 5.25$ 5.25$ 5.10$ Soybeans 10.10$ 10.00$ 10.00$ 9.60$ 9.70$ 9.10$

DE's Most Recent Price Forecast

Deere Projections as of August 19, 2009

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US FARM CASH RECIEPTS ARE DRIFTING LOWER

14

… ALTHOUGH THEY WILL LIKELY PICKUP IN 2010

U.S. FARM PRODUCTION COST/PROFITABILITY

2009 FARM EQUIPMENT OUTLOOK AFFECTED BY ECONOMIC DOWNTURN AND CREDIT CRISIS

The farm equipment sector is NOT immune to the weakening economic outlook and financial crisis that has occurred both domestically and abroad.

The farmer is facing lower profitability in the upcoming crop year given the 50% decline in commodity prices; Farmer has shied away from hedging.

While falling prices certainly will hurt, farmers have not forgotten that many of the current prices are still above 2006 prices and well above prices realized earlier in the decade.

The credit crises is making both farmers and lenders nervous. Plantings is capital intensive and farmers frequently rely on financing to obtain needed inputs such as fertilizer and seed and to finance any equipment purchases.

The credit crisis has affected farming in the southern hemisphere. Both Brazil and Argentina, report lenders restricting the agricultural sector. Funding shortfalls have led to reduced purchases of fertilizer and equipment.

While demand for LARGE farm equipment in NA is holding up for now, history suggests that farmers cut back equipment purchases, fertilizer and seeds in that order if their confidence and profitability is pressured.

In 2009, farmers cut back fertilizers rather than farm equipment purchases

Is this an OMEN for 2010?

WEAK OUTLOOK FOR 2009 FARM EQUIPMENT SALES

U.S. AND CANADA OUTLOOK NOW DOWN 20% TO 30%

Possible modest increase in large tractors and combines for 2009; 2010 outlook uncertain and likely down

Cotton equipment, small tractors and equipment used by livestock producers will decline

South America demand will likely decline 25% to 45%

Credit access in Brazil

Drought conditions in Argentina, Brazil, and Uruguay

Western Europe Down 10% to 15% in 2009 Central Europe and CIS (including Russia) outlook

depends on credit markets; now down significantly

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UNCERTAIN FARM INCOME FOR BRAZIL AND ARGENTINA

BRAZILIAN SOYBEAN FUNDING UNDER PRESSURE

Source: Agroconsult October 2008

GOVERNMENT SUPPORT FOR AGRICULTURE: BRAZIL

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FARM EQUIPMENT DEMAND UNCERTAIN

Planted Acres/Ending stocks in millions 2004 2005 2006 2007 2008E 2009ENORTH AMERICATractors 12% 0% ‐3% 1% ‐7%  ‐20% to ‐25%  Under 40 HP 7% ‐4% ‐3% ‐4% ‐11% ‐25%  Over 40 HP 19% 5% ‐3% 7% ‐1%  ‐20% to ‐25%  Over 100 HP 22% 24%  0% to 5%Combines 40% 0% ‐13% 13% 21%  ‐5% to 0%

WORLDWIDETractors 18% 5% 9% 2% 1%  ‐10% to ‐15%  Western Europe 4% ‐6% 3% 3% 2%  ‐10% to ‐15%  Latin America 11% ‐10% 1% 39% 29% ‐25%  Rest of World 12% 26% 25% ‐3% FLAT  0% to 5%

Combines 40% 16% ‐7% 21% 35%  ‐25% to ‐30%  Western Europe ‐10% 6% ‐6% 4% 28%  ‐10% to ‐15%  Latin America 17% ‐58% ‐36% 85% 56%  ‐45% to ‐50%  Rest of World 15% 12% 10% 21% 41%  ‐45% to ‐50%

Sources: CNH; Deere & Co; AEM

ETHANOL MANDATE MAY BE HIGHER THAN MARKET CONDITIONS CAN SUPPORT

• Renewable fuels mandates per EISA 2007

Year Renewable Biofuel

Advanced Biofuel

Cellulosic Biofuel

Biomass-based Diesel

Undiff-erentiated Advanced

Biofuel

Total RFS

2008 9 92009 10.5 0.6 0.5 0.1 11.12010 12 0.95 0.1 0.65 0.2 12.952011 12.6 1.35 0.25 0.8 0.3 13.952012 13.2 2 0.5 1 0.5 15.22013 13.8 2.75 1 1.75 16.552014 14.4 3.75 1.75 2 18.152015 15 5.5 3 2.5 20.52016 15 7.25 4.25 3 22.252017 15 9 5.5 3.5 242018 15 11 7 4 262019 15 13 8.5 4.5 282020 15 15 10.5 4.5 302021 15 18 13.5 4.5 332022 15 21 16 5 36

Source: EISA 2007

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ETHANOL MARGINS STILL HOVER UNDER $1

UNCERTAIN OUTLOOK FOR ETHANOL

2008 U.S. ethanol production of 9 billion gallons called for in the RFS mandate; 2009 11.1 Billion gallons is within the capability of capacity

Volatility of corn and energy prices are hampering the industry.

The U.S. Energy Information Administration recently projected that the industry may fall short of the targets set in the 2007 act.

VeraSun has suspended production at 12 of its 16 plants and is planning to sell production facilities; Renew Energy, Cascade Grain Products and Northeast Biofuels has all recently filed for bankruptcy protection;

RFA estimated that of the 150 companies and 180 plants, 10 or more companies have shut down 24 plants idling 2 billion gallons out of 12.5 billion capacity.

Corn usage for ethanol for 2009/10 now 4.2 billion bushels due to lower corn prices; original forecast was 4.1 billion bushels compared to 3.65 billion used in 2008/09. Will market take the output?

“Even with government intervention, the market is working to ration the available supply of corn as feed grains are being bid away from ethanol production in favor of other uses.” CattleNetwork

NEAR-TERM OUTLOOK FOR FARM SECTOR MAY BE STABLE

Weather plays an inordinately important role in the future of commodity prices and farm equipment demand.

Current crop outlook is favorable both in North America and Globally

The forecast is for flat to lower commodity prices compared to the average for 2008/09 assuming normal weather and trends.

Crop prices and the resulting farm income are key indicators of farm equipment sales.

Combined with recent data of a decline in farm land prices for the first time in decades, the outlook for farm equipment demand for the remainder of F2009 and F2010 fiscal year has become more clouded and may be moderately lower than 1HF2009.

Our projection is for NA farm equipment sales to be weaken, down 10% to 20% reflecting falling large equipment shipments; ROW recovers somewhat (up 5% to 10%) from 2009 weakness led by double –digit gains in Brazil.

ON HIGH-WAY VEHICLES:

A SLOW PAINFUL RECOVERY

1997-1999 Truck Market Positives Were CLEARLY Not Sustainable

• Strong domestic economic and industrial production/capacity utilization growth was not sustainable

– 1% change is 14,000 trucks• Union Pacific/UPS strike followed by Conrail/CSX integration

problems– 1% change in freight from rail to truck represents about 15,000 trucks

• NAFTA benefits of increased Mexico and Canadian trade have waned– Asian crisis and rising imports are near term offset

• Fleet replacement cycle shortened from 4-5 years to 3-4 years due to:– Increased utilization– Increased cash flow– Driver enticements– Prices were flat to down– Guaranteed residual prices

• Guaranteed residual prices ballooned USED truck inventories and extended fleet replacement cycle

Heavy-Truck Market In 2002 Had Negative Bias, But Pre-buy Saved The Year

Positives

Relatively stable energy prices

Relatively stable fuel prices

Low interest rates

Pre-buy of class 8 trucks to beat emissions penalty

Negatives

Lower freight tonnage

Higher insurance costs

Credit crunch!

Declining used truck values are now stabilizing

Record 4,200 truck company bankruptcies in 2001

October emissions requirements raise truck prices

Driver crunch

U.S. Truck Freight Tonmiles Remain Weak

What Happened to the Cyclical Truck Boom Of 2006-2010?

Driven by normal cyclical economic recovery, assuming sustained 3% domestic GDP growth; Oops, Economic growth erratic

Exacerbated by fear of 2007 emissions, causing rational truck owners to dramatically reduce fleet age as much as possible by 1/1/07.

Freight decline in 2006 of 2.8% and near 2% in 2007 suggests that the trucking industry overbought by as much as 85,000 trucks in 2006.

Heavy truck demand fell about 44% in 2007 to about 212,000 units; medium truck demand fell about 22.3% to 206,213 units

Domestic market was weaker than expected as overall activity was masked by shipments to Mexico and Export.

Environment is characterized by weak freight and weak pricing

Timing uncertain for recovery of truck demand

The engines that fleets hate in 2007 were supposed to be loved in 2008 and 2009; 2007 engines are 2002 engines with added filtration. 2010 emissions standards are very stringent and difficult, causing material engine and truck re-designs.

2008-2009: TOO MANY TRUCKS CHASING TOO LITTLE FREIGHT

High diesel fuel costs and a weak domestic economy continue to be a major problem for the truck sector

Profits are getting squeezed to the point that businesses are going under and fleets are being downsized.

Any increase in demand or base pricing follows markets where competition is shrinking due to existing from business;

Buying used trucking fleets as firms exit the market is a viable alternative to new purchases near-term

Our Truck Surveys suggest

Smaller trucking confirms could care less about pre-buy and emissions and are trying to survive 2008 and 2009;

Larger fleets are definitely paying attention to the 2010 mandate but continue to postpone definitive decisions with respect to pre-buy or the use of Urea; initial testing of Urea trucks very positive but the concern of availability of Urea still paramount.

2008 NAFTA class 8 build of 205,000, was down modestly from the 212,000 built in 2007.

Freight movement has continued to fall as the recession took its toll.

PRE-AUGUST 15, 2008—NEW 2010 TECHNOLOGY FOLLOWING SEVERAL PATHS

CLEAN CLASS 8 ENGINES HAVE TWO DIFFERENT TECHNOLOGICAL PATHS

CUMMINS (CMI)—ISX Engines won’t need SCR (UREA) to meet standards

2010 engines look like 2007 engines with two additional larger displacements

Retiring ISM On-Highway engines

CMI will use credits to meet emission standards

CMI Tier 4 INTERIM for Off-Road also won’t use SCR

High pressure common rail fuel system, cooled EGR, CMI VG turbochargers, and advanced electronic controls.

CMI particulate filters, newly designed air intake system and crank case filter;

Removes 90% of PM; 45% of NOx with up to 5% better fuel economy;

Did not rule out SCR use in Tier 4 FINAL

CAT out of truck market in 2010; Volvo, Detroit Diesel (Freightliner/Mercedes) will use SCR

All using SCR for Medium trucks (class 5-7) as SCR technology is a better match for the medium truck duty cycles.

2010 TECHNOLOGY: LOOKS LIKE UREA IS THE WINNER

SCR-Selective Catalytic Reduction (Urea) Better MPG

Volvo, including Mack

Detroit Diesel/Mercedes Benz, PACCAR

Now Cummins-cited rising fuel prices for change as well as same technology for both midrange and heavy duty ; We believe lack of Dodge Ram credits because of a dramatic fall-off of sales is also a factor

Trade talk-Urea SCR getting as much as 5% better fuel economy

2010 SCR estimated engine costs around $5000; EGR about $1500

Estimated increased cost for SCR truck is 1.6 cents per mile compared to 1.7 cents per mile for EGR. Assumes 400,000 miles based on $2.50 diesel, SCR plus 4% fuel economy Vs. -2% for EGR; includes urea costs and maintenance

EGR-Exhaust Gas Recirculation only (2007 Technology)

Only Navistar (International) is left; using credits

Key Question: CAN Navistar ever meet 2010 standards without Urea and without sacrificing fuel economy?

Exiting 2010 truck---Caterpillar

2010-PRE-BUY IS UNLIKELY

Companies BUY TRUCKS TO MOVE FREIGHT

Pre-buy of trucks unnecessary – You don’t move freight in a recession!

Weak economy will keep freight demand soft for most of the year;

Current equipment in good condition though average fleet age is creeping up at 6.2 years. Age doesn’t matter if you are not moving freight!

Plenty of capacity available; USED TRUCK PRICES VERY WEAK

Used capacity coming to market as companies fail; current failure rate is 1,000 companies per quarter freeing 40,000 trucks

Potentially more favorable economics for 2010 engines compared to 2007 if increase in fuel economy is correct

2010 Truck Prices are going up

Volvo $9,600

Daimler-Benz w/ Cummins Engines up $6,700 to $7,300; with Detroit Diesel Big Bore $9,000

Navistar $6000 (MaxxForce 7,DT, 9 10) to $8,000 (MaxxForce 11,13)

TRUCK DEMAND: OTHER FACTORS AFFECTING 2009-2010

Strong Mexico and export sales in 2008 will wane

Mexico—New emissions in mid-2008

Exports—Affected by strengthening dollar and global economic slowing

Stimulus Bill has minor effect on sector; bonus depreciation may help if potential $8,000 to $10,000 increase in 2010 truck prices is real and holds

Credit availability could limit ability to pre-buy trucks

Drop in freight movement causes truck capacity utilization to drop below 75% compared to a longer-term average of about 88%; Implies 200,000 TO 250,000excess truck (underutilized); slow economic recovery could even hurt 2010 truck demand

BOTTOM LINE-THERE IS NO CASE FOR NO PREBUY!

Heavy Trucks Survey: Bouncing Along the Bottom

SLOWER RECOVERY INTO 2011

FREIGHT DEMAND REMAINS WEAK….

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…AS DO PLANS TO PURCHASE IN 2009

FIELD REPORTS INDICATE INVENTORY BUILD-UP PLANNED FOR 2H09

We are hearing reports in the field that OEM engine suppliers and Truck manufacturers are planning to build some inventory in the second half of F2009 despite ongoing weak industry conditions and an uncertain outlook.

The potential higher production reflects several factors including pushing the envelope on carryover of 2009 product into 2010 because of the higher prices for 2010 compliant product:

1H09 class 8 NAFTA truck production is estimated at 53,000 units—28,500 in 1Q09 and 24,800 in 2Q09;

2H09 production may be as high as 60,000 unit –around 29,000 in 3Q09 and perhaps 31,000 in 4Q09.

2H09 PRODUCTION WILL MOVE HIGHER

2H09 production volumes for the sector may be up by as much 10% to 13% for component suppliers as well as truck producers and even more for engine producers.

The downside is that the increased 2H09 volume may be borrowing from 1H10 production.

More importantly, the data reinforces our position that class 8 truck volumes will not return toward more normal levels until 2011 at the earliest.

Class 8 Heavy-Duty Diesel Truck Demand: A Return To Normal Levels?

Source: ACT/FTR

2007 212,0002008 205,000

2009E 100,000-115,0002010E 120,000-150,0002011E 175,000-225,000

ECONOMY, CREDIT MARKETS TAKING ITS TOLL ON OTHER TRUCK CLASSES

NAFTA PRODUCTION

YEAR CLASS 8 CLASS 5-7 TRAILERS

2006A 376,448 274,707 303,016

2007A 212,391 206,213 229,624

2008A 205,000 157,000 155,360

2009E 105,000-115,000 85,000-90,000 77,000-82,000

2010E 120,000-150,000 100,000-125,000 100,000-125,000

2011E 175,00-225,000 140,000-170,000 135,000-165,000SOURCE: ACT; LBR PROJECTIONS

CONSTRUCTION EQUIPMENT:

STILL SEARCHING FOR A BOTTOM

NA CONSTRUCTION ACTIVITY FACES UNCERTAIN OUTLOOK

2002: A good year for all except non-residential

Housing was very strong at 1.71 million starts up from 1.6 million benefiting from higher incomes, lower mortgage rates and household asset diversification.

Non-residential activity remained very weak reflecting high office vacancies, consolidating retail sector, and weak industrial plant construction exacerbated by 09/11.

2003: Total construction remained strong

Both residential (1.85 million starts) and public construction were healthy

Non-residential continued to decline2004: Modest growth as non-residential spending finally turns up 3%-4% (mostly price).

Residential stays surprisingly strong at 1.95 million starts, as expected H2 fade never materializes.

2005: Residential was expected to decline, but sector remained resilient as housing starts actually rose to 2.07 million. Nonresidential continued to recover rising 6.4%.

2006/07: Housing starts declined 12% to 1.82 million in 2006 and fell another 26% in 2007 to 1.34 million. Non-Residential construction grew about 16% in 2007, up from 12.3% in 2006, nearly offsetting the housing decline.

2008/09: Housing, which fell 33% to about 900,000 starts in 2008, will likely decline to about 40% in 2009 to about 550,000 though the sector is now finally stabilizing; Non- residential construction spending which rose 12% in 2008 (15% private, 7% public) is expected to fall 5% to 15% in 2009 and a similar amount in 2010.

NON-RESIDENTIAL CONSTRUCTION ISN’T DEAD YET

(PERCENT CHANGE) 2007A 2008ATOTAL CONSTRUCTION (-2.6%) (-5.1%)RESIDENTIAL (-19.4%) (-26.8%)NON-RESIDENTIAL +16.4% +15.3%PUBLIC +12.4% + 7.4%

YTD 2009-Private Non-Residential spending up 0.6% through June 2009

Strong: manufacturing (up 48%-refinery upgrades and steel mill), Power (up 12%), Education (up 4%), and Health Care (up 3%).

Weak: Commercial (-26%), Office (-13%), lodging (-17%), Highways and Streets (0%).

Virtually all sectors will be negative by the end of the year except perhaps power, educational and health care.

MOST NON-RESIDENTIAL MARKETS WILL SOFTEN IN 2009

CATEGORY

%NON‐RES   2007A

2008A

2009E

2 010E

EDUCATIONAL

15%

13%

8%

3%to 7%COMMERCIAL

13

16

‐4

‐15 to ‐25HIGHWAY/STREET

11

6

6

0 to‐10OFFICE

11

19

12

‐15to‐25POWER

10

34

33

5 to 15HEALTHCARE

6

11

8

5 to 10MANUFACTURING

8

20

51

‐10 to ‐20LODGING

5

58

29

‐15 to ‐30TRANSPORTATION

5

16

9

‐5 to ‐10COMMUNICATION

4

22

‐8

‐5 to ‐10SEWAGE/WASTE

4

6

5

‐5 to +5AMUSEMENT/REC

3       

14

6

‐5 to +5WATER SUPPLY

2

4

9

0 to 10

TOTAL

+16%

+12%     ‐5% to ‐15%    ‐5% TO‐15%Private

15Public

7

NA CONSTRUCTION MACHINERY SALES COULD BE NEGATIVE INTO 2010

For 2008, NA sales of machines were off about 22% to 24% with light equipment down 24% and heavy equipment down 22%. Our forecast is for a further 45%to 50% or more decline in 2009 for small, medium and large equipment.

Most sectors of Non-residential construction will be lower with spending falling in 2009 and 2010.

Mining trucks and shovels were higher in 2008 (low double-digits) but likely to decline 35% to 50% in 2009 and at least another 15% to 20% in 2010.

Inventories, both new and used, built up rapidly at dealers at year end 2008. F2009 has seen MAJOR inventory reduction programs by both OEM’s and dealers; Used equipment prices has fallen at least 20% or more as financing has been difficult.

2009 CONSTRUCTION DEMAND IS VERY WEAK GLOBALLY

CONSTRUCTION EQUIPMENT %CHANGE 2009/08E

LIGHT EQUIPMENT WORLDWIDE ‐50%

o North America ‐50% to ‐55%

o Western Europe ‐50% to ‐55%

o Latin America ‐50% to ‐55%

o Rest of World ‐60% to‐65%

HEAVY EQUIPMENT WORLDWIDE ‐45%

o North America ‐50%

o Western America ‐60% to‐65%

o Latin America ‐65% to ‐70%

o Rest of World ‐35%Source: CNH; Caterpillar, Deere, Terex, LBR Forecasts

GLOBAL CONSTRUCTION END MARKET UNIT VOLUME PLUMMETS IN 2009; SLOW RECOVERY TO 2012

EQUIPMENT 2008 2009E 2012EMINING 6200 4030 5037‐5440

%CH ‐35% 25% TO 35%

QUARRY 9500 6650 8313 TO 9643

%CH ‐30% 25% TO 45%

EARTHMOVING 197,000 157,600 189,120‐212,760

%CH ‐20% 20% TO 35%

EXCAVATORS 197,000 137,900 165,480‐186,165

%CH ‐30% 20% TO 35%

BUILDING/FORESTRY 495,000 272,250 462,825‐490,050

%CH ‐45% 70% TO 80%

TOTAL 904,700 578,430 830,775‐904,058

%CH ‐36% 44% TO 56%

2010-11 CONSTRUCTION ENVIRONMENT LESS THAN ROBUST

The environment for construction activity in 2010 and 2011 will improve over 2009, but be less than robust

Key is financing availability; institutions will likely to be reluctant to rapidly expand availability

Defining government rules for stimulus programs will determine the success of getting stimulus dollars into this sector

Housing will likely show improvement over the next two years rising from about 550,00 starts in 2009 to perhaps 650,000 to 700,000 in 2010 and perhaps 800,000 or more in 2011.

Non residential construction is expected to fall 5 % to 15% in both 2009 and 2010 and perhaps stabilize in 2011 before resuming growth sometime that year.

Infrastructure spending will likely be relatively flat into 2011 or at least until a new Highway Bill is passed. History suggests that growth will resume about a year after the new Highway Bill has been funded.

Only about 35% of the stimulus funding for the construction sector is expected to be available through 2010 which will limit its impact on activity in this sector.

SLOW RECOVERY OF CONSTRUCTION EQUIPMENT DEMAND AND PRODUCTION

Construction equipment end market demand in F2010 looks relatively flat to up modestly in F2010. Productionwill increase 15% to 20% or more due to the end of inventory liquidation which will allow OEM’s to produce at or near retail demand.

The upturn will favor smaller to medium equipment (more units, less dollars) which has been declining for the past three to four years.

Equipment for rental companies will likely see an upturn in demand as contractors may favor rental rather than outright purchases

Heavy equipment demand will likely be soft declining 10% or more in F2010

F2011 will likely be a better year for all classes of machines with sales and production rising at least double-digits assuming sustained growth in the economy.

CHINESE MANUFACTURERS BEGIN TO MAKE INROADS OUTSIDE THE U.S.

The bright spot for 2008 for construction was Brazil, Eastern Europe and Russia, Mid-East, India and China.

2009: All global markets are now in steep decline

Chinese manufacturers have begun to make inroads in Latin America—Brazil, Argentina and Chile. Discounting is the strategy, certainly not parts support. Other targeted areas are Mid-East, Africa and perhaps Russia.

Not a big threat to NA due to EPA regulations; they have little or no distribution to move product. Getting distribution and warehousing for parts in NA are two goals. Sany has set up manufacturing in Georgia.

MATERIAL HANDLING SALES WILL CONTINUE TO SOFTEN

Material handling equipment were down at least 20% in 2008 after an 8% decline in 2007

Crane sales remained strong for large cranes with sales up 15% plus in 2008.

AWP sales held up to 1Q08 but have plummeted since. Boom and scissor lift sales fell 15% to 20% in 2008 reflecting uncertain credit availability and weak capital spending by rental companies. Tele-handlers have been down 20% to 25% since 2007.

Most material handling segments will be down sharply in 2009 into 2010

Cranes will decline about 30% to 40% in 2009 and a further 35% to 40% in 2010

AWP demand will drop about 60% to 70% in 2009; 2010 looks about flat with probably 10% to15% growth or more possible in2011.

Global Mining Cap-ex Contracting in Near Term

MINING OUTLOOK IS WEAKENING

Latest capital expenditure data from the major mining companies suggest that capital spending in mining sector

Rose over 7% in 2008 to a near-term peak of $116 billion from $108 Billion in 2007 and about twice the $59 billion spent in 2004.

However, recent cutbacks by major mining producers suggest 2009 mining capital spending will fall nearly 47% to about $62 billion and a further 16% in 2010 to about $52 billion.

This translates into a 20% to 25% drop in domestic underground mining equipment sales in 2009 and about a 15% to 20% decline in Rest of World sales. 2010 outlook is for a further decline of 15% to 25% or more.

Surface Mining equipment sales look down 15% to 20% in 2009 falling at least another 20% plus in 2010. Mining shovel sales will possibly total 50 units in 2009 (about 2008 production) but fall to about 45 units in 2010.

Latest data suggest some modest improvement in 2011

OEM MINING DEMAND IMPROVING MARGINALLY…

56

…WITH MODEST IMPROVEMENT SEEN IN NORTH AMERICA AS WELL

57

INCREASED COAL AND STEEL DEMAND IN CHINA AND INDIA HAS INCREASED EQUIPMENT DEMAND BY

AUSTRALIA MINE OPERATORS

58

SLIGHT IMPROVEMENT IN SOUTH AFRICAN DEMAND

59

OPTIMISM CONTINUES TO IMPROVE FOR EQUIPMENT MANUFACTURERS…

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…AS WELL AS MINE OPERATORS

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OBAMA INFRASTRUCTURE STIMULUS PROGRAM LIKELY TO BENEFIT CONSUMABLES MORE THAN EQUIPMENT NEAR-TERM

Highway and Street spending likely to decline in 2009 without a stimulus bill as the Federal government, and states and local governments are cash and credit constrained.

Stimulus Bill cites $64 billion of projects that could be started within 180 days.

Latest Stimulus Bill only allocates $27.5 billion to highway spending; $29.5 billion to modernize Federal and other public infrastructure; $21 billion for water and $10 billion for transit and rail. $30 billion is allocated for the smart grid and other renewable technologies.

Plenty of slack in system today suggesting less need for equipment (normally about 4% of expenditures); beneficiaries likely to be aggregates, steel etc more than equipment near-term.

AMERICAN RECOVERY AND INVESTMENT ACT

TOTAL INFRASTRUCTURE $134.9 BILLIONTransportation Infrastructure $49.3 billionHighway and bridge construction $27.5 billionTransit support $8.4 billionAmtrak $1.3 billionHi speed rail $8 billionCompetitive surface $1.5 billionWater and Environment $21.4 billion

Clean Water $7.4 billionWater resources $6.2 billionNuclear Clean-up $6.0 billionEnviornmental Clean-up $1.0 billion

Building Infrastructure $29.5 billionGSA $5.6 billionMilitary $7.1 billionHousing $8 billionWorkforce Development $4.7 billionEnergy and Technology $29.8 billionWireless $7.2 billionElectric Grid $11 billionWeatherization $5 billionState/Local grants $6.3 billionSource: AGCA

CONSTRUCTION RELATED STIMULUS FUNDING

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Total $135 Billion (Segments)

Transportation $49 Billion Buildings $35 BillionEnergy/Technology $30 Billion

Water/Environment

$21 

Billion

Airports $ 2 Billion Discretionary $0‐$9 Billion Weatherization $5 Billion Corps$5 

Billion

Transit/Rail $18 Billion Housing $8 Billion Energy Grants $6 Billion Water/Waste$7 

Billion

Highway $28 Billion Other Federal $6 Billion Wireless/Broadband $7 Billion Nuclear Waste$6 

Billion

GSA $6 Billion Electric Grid $11 Billion

Department of 

Defense $7 Billion

FEDERAL GOVERNMENT SUPPORT FOR INFRASTRUCTURE CONSTRUCTION IS LAGGING

President Obama FY2010 Budget requested $118.7 billion for construction or 0.6% less than the $119.4 billion that Congress passed for FY2009;

The budget included an estimate of the Highway Account of the Highway Trust Fund will only be able to support spending of $32 billion in FY10, down from $40 billion in FY2009, without a major transfer from the general fund or other revenue source.

The Highway Trust Fund had a shortfall of about $5 to $7 B for the FY09 ending September 30th; Congress passed a supplemental funding resolution to keep funds flowing.

The Highway Trust fund has an estimated $8 to $10 B shortfall for FY10 ending Sept 30 2010; Congress is expected to again pass emergency funding to preserve spending.

The current 6 year $286B Highway Bill expires Sept 30, 2009. The Obama administration has supported a continuing resolution until MARCH 2011.– New bill is expected to be 6 years and at least $410 to $450 billion.– New funding mechanisms are needed to provide the money—– TRANSLATION—NEW TAXES

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CHINA CONSTRUCTION EQUIPMENT DEMAND IMPROVING

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Year-over-Year Change in Demand (China) Month-over-Month Change in Demand (China)

0%

10%

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Down Flat  Up

June Sept

0%5%

10%15%20%25%30%35%40%45%50%

Down Flat  Up

June Sept

EUROPE STILL SLOW, BUT UP SEQUENTIALLY

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Year-over-Year Change in Demand (Europe) Month-over-Month Change in Demand (Europe)

0%

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Down Flat  Up

June‐July Sept

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June‐July Sept

CHINA STILL DESTOCKING WHILE EUROPE INVENTORIES MOVE UP MEASUREDLY

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Inventory Level (China) Inventory Level (Europe)

0%

10%

20%

30%

40%

50%

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80%

Down Flat  Up

June Sept

0%

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80%

Down Flat  Up

June‐July Sept

DEMAND OUTLOOK MORE OPTIMISTIC FOR CHINA AND IMPROVING IN EUROPE

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Construction Equipment Demand Outlook (China) Construction Equipment Demand Outlook (Europe)

0%

10%

20%

30%

40%

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60%

70%

Down Flat  Up

June Sept

0%

10%

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Down Flat  Up

June‐July Sept

Industrial Markets Outlook:

There’s 2010 and There Is The Recovery

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AMT GLOBAL FORECASTING & MARKETING CONFERENCE:HEAVY EQUIPMENT FORECAST 2010 AND BEYOND

Eli S. LustgartenSenior Vice-President, Longbow Securities

October 22, 2009