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CV Link™ Update

Q3 2016 IN REVIEWSeptember 30, 2016

www.powersys.com | +1-651-905-8400 | [email protected]

CV Link™ is a comprehensive market database

containing projected commercial vehicle production

volumes and original equipment manufacturer,

vehicle platform and regional economic analysis.

This document outlines important forecast trends

as well as the additions and enhancements applied

to the database in the third quarter of 2016.

I. Executive Notes .......................................................3

II. Introduction .............................................................4

III. CV Link™ Data Update Notes ..................................5

IV. Forecast Trends .......................................................7

V. Research Methodology .............................................9

VI. Forecast Methodology ............................................10

VII. 40 Years of Growth: PSR Milestones, 1976-2016 .... 11

VIII. Contact Information ...............................................12

Inside

CV Link™ Q3 2016 Update | 2© 2016 Power Systems Research | www.powersys.com | +1-651-905-8400 | [email protected]

September 30, 2016

CV Link,™ EnginLink™ and OE Link™ databases contain tightly

focused production forecast details to help you make more informed

business decisions about the industry around the world.

CV Link™ is the leading source of global commercial vehicle

production and forecast volume data. CV Link™ provides extensive

market analysis, production, forecast and specifi cation details for

on-highway commercial vehicles.

EnginLink™ is the only all-inclusive source of global engine

production, forecast and specifi cation data. It’s used by leading

component manufacturers to identify new marketing opportunities

and to monitor growth trends.

OE Link™ is the leading source of global OEM production and

forecast data for off-road, engine-driven vehicles and equipment.

Details in OE Link™ enable you drill down, from global, to regional,

to engine model detail. PSR

Questions about Truck Industry Production and Forecasts?

We Have the Answers.

We can provide focused data for any region

globally, with the ability to drill down into

specifi c weight classes, power ranges, type of

drivetrain… or the entire industry. You decide.

Custom pricing is based upon the level of

detail you desire.

Don’t wait. Get your answers today.

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St. Paul, USA | Beijing, China | Brussels, Belgium | Detroit, USA | Moscow, Russia | Pune, India | Riyadh, Saudi Arabia | Sao Paulo, Brazil | Tokyo, Japan


September 30, 2016

I. Executive Notes

What a Long, Strange Trip It’s BeenAs summer dissolves into autumn, a quick glance in the rear-view mirror shows how significantly things can change within a few, short months. What might have appeared to be a few soft spots in the market that most of us believed would firm up as 2016 moved into the home stretch, have now turned into serious downturns.

That pesky softness in North American heavy-truck sales earlier in the year has not gone away. It has evolved into a clearly discernable slump, and it is now evident that 2015 will remain standing as the high-water mark for an industry upturn that began back in 2008.

This shouldn’t come as a surprise in a sector that is as highly cyclical as this one has been for decades – it was, more or less, inevitable. But that doesn’t make it any more palatable; it’s always a disappointment when the blooms start to fall from the rose. And it leaves Western Europe standing as the only region globally where 2016 looks like a growth year for that business.

The construction equipment segment was already looking soft at this time last year, particularly with the serious slump in the mining segment already hurting the major equipment producers. Now, we are seeing serious repercussions as demand for nearly every flavor of construction machinery has dried up. The marketplace appears to be flooded with second-hand equipment at cut-rate prices. Who will buy a new machine at top dollar when a used machine in serviceable condition can be had for less than half the price? That wasn’t expected to happen – at least to the current degree – for at least a year or longer.

Ag equipment? We’ve talked about slumping agricultural commodity prices for at least two years. The adverse effect this has had on farm incomes has gotten plenty of publicity. And, no, things have not improved up to this point in 2016. We are still hearing news of additional cutbacks at major equipment OEMs and serious consolidation among the leading agricultural chemical suppliers. Not a fun time for the industry by any stretch of the imagination.

So, as summer turns into autumn, the view behind us is not pretty. These trends will eventually reverse, but exactly when and how is unclear at this point.

Just a reminder that everything is set for the upcoming Global Off-Highway Industry Dialogue conference Oct. 5. Taking place at a suburban Chicago venue, this is one you won’t want to miss – especially during such an uncertain time. PSR

Dennis Huibregtse is Chief Executive Officer of Power Systems Research (PSR), a global leader in the collection, analysis and forecasting for production of engines and engine-driven products.

CEO at Power Systems Research


September 30, 2016

II. Introduction

Yosyf Sheremeta is the Director of Product Management and Customer Experience at Power Systems Research.

CV Link™ Update editor

Power Systems Research (PSR) has developed and maintained comprehensive market data specific to the power products and drivetrain industry for 40 years. Because accurate and reliable market data has always been at the heart of its activities, PSR has developed a unique family of highly specialized databases. These core databases include:

• EnginLink™ – Engine Production and Forecast Database

• OE Link™ – Original Equipment Production and Forecast Database

• CV Link™ – Commercial Vehicle Production and Forecast Database

• PartsLink™– Original Equipment Population Database

The P.O.W.E.R.Link Dashboard™ (Proprietary Organization of Worldwide Engine Research) effectively combines all market databases into one Internet-based tool. Using this system, subscribers can easily access, organize and download the latest engine-powered market data anytime, anywhere in the world.

The P.O.W.E.R.Link Dashboard™ has extensive reporting capabilities and allows for customization and report distribution within your organization. This innovative system sharpens your business and planning strategies by finding hidden opportunities and targeting potential customers. The P.O.W.E.R.Link Dashboard™ is your link to a competitive advantage in the marketplace.

CV Link™ is continuously updated; this Update Letter reflects changes made to CV Link™ during the third quarter of 2016. Included in this Update Letter are CV Link™ database notes listing significant data modifications and an explanation of our research and forecast methodology. Additional Power Systems Research initiatives also are outlined here.

Please feel free to circulate these research notes to your colleagues and internal data users.

If you have any questions regarding this update, please contact us via email at [email protected] or by phone at 651-905-8400. Our support email account is monitored 24 hours a day by associates at our corporate offices and at our data center.

Thank you for your continued support of Power Systems Research.


September 30, 2016

III. CV Link™ Data Update Notes

New Assumptions for Q3 2016 Medium/Heavy Vehicle Forecast

CV Link™ has been updated with Q3 2016 data enhancements. As always, the update incorporates across-the board data refinements in which we add new original equipment manufacturers (OEMs) and OEM models, update model specifications and review historical and projected production volumes.

Throughout the remainder of the year, we will continue to research the production of various commercial vehicles.

New models that are found will be added and adjustments will be made to historical and projected production volumes, if necessary.

At the same time, we also continue to reconcile engine installations with engine production as reported in our EnginLink™ database. As we update CV Link™, we continually enhance our market data to reflect marketplace developments.

Here is a list of significant OEM data additions and modifications for Q3 2016: trucks, bus chassis, motor home chassis and LCVs. All regions are included.

Europe

BYD will open a bus plant in Hungary next year. BYD assembles electric buses.

CF: DAF introduced the PX-7 6.7-liter engine into the CF platform earlier this year.

CNG: GAZ added a natural gas engine to the Vector Next bus platform.

Russia: Isuzu ended production with Sollers but will resume assembly with Uralskiy in 2017. Medium NQR trucks are expected to be produced.

Stralis: Iveco added a Tector natural gas engine to the Stralis truck platform earlier this year.

Urban eTruck: Mercedes plans to introduce a class 8 heavy all electric truck in 2022.

S Series: Scania introduced the new S series truck platform equipped with 13 and 16 liter Scania engines.

Japan/Korea

No significant changes this quarter.

Greater China

Beiqi Foton: C Series: Foton will introduce the C series medium truck platform equipped with the Cummins 3.8-liter engine in 2017.

M4: Foton will introduce the M4 series medium truck platform equipped with the Dongfeng Cummins ISB engine in 2017.

J7P: FAW will introduce the J7P heavy truck platform into production next year. The J7 is

the next generation on the J6.

JP6: FAW added the 500 hp. Aowei engine to the JP6 heavy truck platform earlier this year.

Foton-Daimler EST: The joint venture will introduce the EST tractor equipped with the Daimler OM457 engine. The EST will initially target the export markets of Europe.


September 30, 2016

Qingling Motors: VC61: Isuzu added the VC61 heavy truck into production at Qingling Motors. The truck shares the Giga platform and is equipped with the 6W series engine.

North America

®

X15 Engines: Cummins is in process of upgrading its ISX 15 liter engines to the new X15 series

engines starting in 2017. These are GHG phase 1 compliant.

X12 Engines: Cummins is in process of upgrading their ISX 12 liter engines to the new X12 series engines starting in 2018.

T440 and T470: Kenworth introduced production for the T440 & T470 to the Renton plant this year.

T660: Kenworth will end production of the T660 class 8 truck platform later in 2016.

Navistar: Major Event: Volkswagen AG acquired 16.6% of Navistar in 2016. This will allow both companies economies of scale and Navistar to possibly source engines from Volkswagen.

South Asia

No Significant Changes This Quarter.

South America

No Significant Changes This Quarter.

PSR

Chris Fisher is the Senior Commercial Vehicle Analyst at Power Systems Research.

Commercial Vehicle Analyst


September 30, 2016

North AmericaMedium and Heavy Truck Production To Decline 14.9% This Year

Medium and heavy truck production is expected to decline by 14.9% this year against a very strong 2015. Class 8 truck production is the driver behind this decline with production forecasted to drop by 27% this year, while medium (class 4 – 7) is expected to improve by 1.8%, compared with last year. Higher truck inventories, lower freight demand and lower prices for used class 8 trucks have put significant pressure on new truck demand. PSR expects this downward trend to continue through 2017.

EuropeWestern European Truck Production Expected To Grow 3.7% in 2016

Overall, medium and heavy truck demand remains stable this year. While production in Greater Europe is expected to be flat, production in Western Europe is forecasted to increase by 3.7% over last year. In Russia, it appears demand has bottomed out, and an increase of 5.4% in production is expected this year. However, as a result of a slowing economy and the implementation of Euro VI emission regulations at the start of the year, demand has sharply declined. Truck production in Turkey is expected to decline by 53.3% this year compared with last year.

South AsiaDemand Is Very Strong; India Leads with 20% Growth Forecast

Demand in South Asia has been very strong this year led by India. Production in India is expected to increase by 20% this year driven by stronger domestic and export demand. Production levels are mixed throughout this region with Indonesian production expected to increase by 3%, while Malaysian production is expected to decline by 13.2% compared with last year. Low commodity prices continue to put pressure on medium and heavy truck demand in a number of commodity producing countries. India tends to benefit from lower commodity prices, primarily oil, since it is a net importer.

South AmericaOverall Truck Production in South America Could Drop 19.4%

Demand for medium and heavy trucks continued its sharp decline in 2016, and no truck producing country will assemble more than last year. Overall, South American medium and heavy truck production is expected to finish the year down 19.4% over a very weak 2015. Production in Brazil is expected to decline by 18.2% this year, while Argentinian production is forecasted to decline by 23.3% and Venezuelan production is almost non-existent. Stagnate domestic economies along with low commodity prices--which hurts exports--and implementation of Euro V emission regulations in Argentina has placed significant downward pressure on commercial vehicle demand.

IV. Forecast Trends


September 30, 2016

Japan/KoreaWeak Demand Expected To Drive Down Production by 16%

Medium and heavy truck production is expected to decline by 16% this year, due to continued weakness in both domestic and export demand. While South Korean production is expected to decline by 1%, Japanese production is forecasted to decline by 15% this year. In Japan, the implementation of negative interest rates has done little to spur demand, and the planned 2% consumption tax hike, which was scheduled to be implemented last October, has been moved out to October 2019. Within the region’s traditional export markets, significant pressure from OEM’s in countries such as China is depressing demand.

Greater ChinaDemand Hits Bottom; Increase of 11% Seen for 2016

While China is still struggling with the real estate segment and overcapacity, it appears demand for medium and heavy trucks may have bottomed out and it appears that 2016 production should improve by 11% this year. While there is currently little to no expansion demand, replacement demand has started to improve.

PSR


September 30, 2016

V. Research Methodology

VALIDATEPUBLISH

RESEARCHPERFORM PRIMARY & SECONDARY RESEARCH

• Communicate with Industry Contacts

• Gather and Compile Published Data

QUARTERLY DATA UPDATES

• Update PSR Databases

• Release New Data To PSR Customers

COMPARE INTERVIEW FEEDBACK AGAINST INDUSTRY BENCHMARKS

• Analyze Results

• Crosscheck & Confirm Findings

PSR RESEARCH METHODOLOGY

Power Systems Research (PSR) Research MethodologyResearch begins with the gathering of information from primary and secondary sources. Next, the PSR analyst team reviews and validates all data against industry benchmarks. If our analysts discover anomalies in the data, additional research and validation is performed before publishing.


September 30, 2016

Quantitative A

nalysis

Validation & Q

ualitative Analysis

CompositeEconomic IndicatorsDemand Analysis

Fuel

Aspiration Type

Cyclical Trend

HP Rangeby Segment

MarketSegment

ManufacturerGrowth

Applicationby Drive Type

Forecast

Base Year

Exclusive Market Drivers

PSR Forecast Methodology

VI. Forecast Methodology

Power Systems Research (PSR) Forecast MethodologyThe analysis begins with the Base Year and key historical data then adds current and future economic indicators and market demand. Next, our exclusive market drivers are entered and the Power System Research proprietary algorithm is applied. Extensive analysis and discussion by our PSR Analyst team validates and produces the forecast.


September 30, 2016

VII. 40 Years of Growth: PSR Milestones, 1976-2016

1976 • PSR Founded in Grantsburg, WI USA

• EnginLink™ Launched

• 2 Employees

1980 • 5 Employees

1981 • PSR Opens in Japan

1984 • PSR Opens St. Paul Headquarters

1985 • PartsLink™ Launched

• OE Link™ Launched

• All databases are available on

personal computers via diskettes.

1986 • PSR Opens in Brussels

1992 • Compass Survey Center™ Acquired

• 25 Employees

2000 • PSR Opens in Detroit

2007 • MarineLink™ Launched

2008 • PSR Opens in China

• CVLink™ Launched

2010 • PSR Opens in Saudi Arabia

2011 • PSR Opens in Brazil

• PSR Opens in India

2012 • PSR Opens in Russia

2015 • PSR China – Subsidiary Launched

• PSR India – Subsidiary Launched

2016 • 9 Offices, 200 Countries, 4 Continents

• Billions of Data Points

ST. PAUL DETROIT SÃO PAULO BRUSSELS MOSCOW RIYADH PUNE TOKYOBEIJING

HeadquartersSt. Paul, USA+1 651 905 [email protected]

Beijing, China+86 10 5737 [email protected]

Brussels, Belgium+ 32 2 643 [email protected]

Campinas, Brazil+55 19 3305 [email protected]

Detroit, USA+1 734 761 [email protected]

Moscow, Russia+7 910 423 23 [email protected]

Pune, India+91-20-25671110Mobile: [email protected]

Riyadh, Saudi Arabia+966 11 465 [email protected]

Tokyo, Japan+91 90 9139 [email protected]

Power Systems Research has been tracking the production of engines and their use around the world for 40 years. We’re the leading company in the world doing this research and building these databases.

Our customers include many of the largest companies in the world: Cummins, John Deere and Caterpillar, etc. They subscribe to our unique databases, and their facilities around the world access our data and forecasts through the Internet 24/7.

We’re based in St. Paul, Minnesota, USA, and we have offices and analysts located around the world, from Brussels to Beijing and Tokyo to Brazil, to help us collect and analyze this data.

For information on our products and services, call +1 651 905 8400 or email us at [email protected]. Learn more about Power Systems Research at www.powersys.com.

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