Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Company's behalf from time to time in other reports, filings with the Securities and Exchange Commission, news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended(the "Exchange Act"), notwithstanding that such statements are not specifically identified. Forward-looking statements include statements about the Company's financial position, business strategy and plans and objectives of management of the Company for future operations. These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. Use of the words "may," "should," "continue," "plan," "potential," "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements reflect the current view of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those set forth under Item 1A-Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 as well as future growth rates and margins for certain of our products and services, future demand for our products and services, risks associated with the current recession and its impact on capital markets and liquidity, competitive factors, general economic conditions, cyclicality, market conditions in the new and used truck and equipment markets, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, one-time events and other factors described herein and in the Company's quarterly and other reports filed with the Securities and Exchange Commission (collectively, "Cautionary Statements"). Although the Company believes that its expectations are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable Cautionary Statements. All forward-looking statements speak only as the date on which they are made and the Company undertakes no duty to update or revise any forward-looking statements.

The following comments should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

Note Regarding Trademarks Used in This Form 10-Q

Peterbilt® is a registered trademark of Peterbilt Motors Company. PACCAR® is a registered trademark of PACCAR, Inc. GMC® is a registered trademark of General Motors Corporation. Hino® is a registered trademark of Hino Motors, Ltd. UD® is a registered trademark of Nissan Diesel Motor Co., Ltd. Isuzu® is a registered trademark of Isuzu Motors Limited. John Deere® is a registered trademark of Deere & Company. Kenworth® is a registered trademark of PACCAR, Inc. doing business as Kenworth Truck Company. Volvo® is a registered trademark of Volvo Trademark Holding AB. Freightliner® is a registered trademark of Freightliner Corporation. Mack® is a registered trademark of Mack Trucks, Inc. Navistar® is a registered trademark of Navistar International Corporation. Caterpillar® is a registered trademark of Caterpillar, Inc. Cummins® is a registered trademark of Cummins Engine Company, Inc. PacLease® is a registered trademark of PACCAR Leasing Corporation. CitiCapital® is a registered trademark of Citicorp. Ford® is a registered trademark of Ford Motor Company. Cummins® is a registered trademark of Cummins Intellectual Property, Inc. Eaton is a registered trademark of Eaton Corporation. Arvin Meritor® is a registered trademark of Meritor Technology, Inc.® Case is a registered trademark of Case Corporation. Komatsu® is a registered trademark of Kabushiki Kaisha Komatsu Seisakusho Corporation Japan. The CIT Group® is a registered trademark of CIT Group Holdings, Inc. JPMorgan Chase® is a registered trademark of JP Morgan Chase & Co. SAP® is a registered trademark of SAP Aktiengesellschaft. International® is a registered trademark of Navistar International Transportation Corp. Blue Bird® is a registered trademark of Blue Bird Investment Corporation.

General

Rush Enterprises, Inc. was incorporated in Texas in 1965 and currently consists of two reportable segments: the Truck Segment and the Construction Equipment Segment. The Company conducts business through numerous subsidiaries, all of which it wholly owns, directly or indirectly. Its principal offices are located at 555 IH 35 South, New Braunfels, Texas 78130.

The Company is a full-service, integrated retailer of premium transportation and construction equipment and related services. The Company's Rush Truck Centers sell vehicles manufactured by Peterbilt Motors Company (a division of PACCAR, Inc.), International, Volvo, GMC, Hino, UD, Ford, Isuzu and Blue Bird. The Company also operates two John Deere construction equipment dealerships at its Rush Equipment Centers in Southeast Texas. The newest construction equipment dealership opened in Rose City, Texas in July 2008. Through its strategically located network of Rush Truck Centers and its Rush Equipment Centers, the Company provides one-stop service for the needs of its customers, including retail sales of new and used trucks and construction equipment, aftermarket parts sales, service and repair facilities, and financing, leasing and rental, and insurance products.

The Company's Rush Truck Centers are principally located in high traffic areas throughout the southern United States. Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, the Company has grown to operate more than 50 Rush Truck Centers in Alabama, Arizona, California, Colorado, Florida, Georgia, New Mexico, North Carolina, Oklahoma, Tennessee and Texas.

Our business strategy consists of providing our customers with competitively priced products supported with timely and reliable service through our integrated dealer network. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers and Rush Equipment Centers as we extend our geographic focus through strategic acquisitions of new locations and expansions of our existing facilities and product lines.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The Company believes the following accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined by specific identification of new and used truck and construction equipment inventory and by the first-in, first-out method for tires, parts and accessories. An allowance is provided when it is anticipated that cost will exceed net realizable value.

Goodwill

The Company applies the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), in accounting for goodwill. SFAS 142 requires that goodwill and other intangible assets that have indefinite useful lives may not be amortized, but instead must be tested at least annually for impairment, and intangible assets that have finite useful lives should continue to be amortized over their useful lives. SFAS 142 also provides specific guidance for testing goodwill and other non-amortized intangible assets for impairment. SFAS 142 requires management to make certain estimates and assumptions in order to allocate goodwill to reporting units and to determine the fair value of a reporting unit's net assets and liabilities, including, among other things, an assessment of market condition, projected cash flows, interest rates and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. SFAS 142 requires, in lieu of amortization, an annual impairment review of goodwill. The Company performs its annual review during the fourth quarter of each year and, therefore, did not record an impairment charge related to goodwill during the first quarter of 2009. Management is not aware of any impairment charge that may be required; however, a change in economic conditions, if one occurs, could result in an impairment charge in the future.

Revenue Recognition Policies

Income on the sale of a truck or a unit of construction equipment is recognized when the customer executes a purchase contract with us, the unit has been delivered to the customer and there are no significant uncertainties related to financing or collectibility. Lease and rental income is recognized over the period of the related lease or rental agreement. Parts and service revenue is recognized at the time the Company sells the parts to its customers or at the time the Company completes the service work order related to service provided to the customer's unit. Payments received on prepaid maintenance plans are deferred as a component of accrued expenses and recognized as income when the maintenance is performed.

Finance and Insurance Revenue Recognition

Finance income related to the sale of a unit is recognized when the finance contract is sold to a finance company. The Company arranges financing for customers through various retail funding sources and receives a commission from the lender equal to either the difference between the interest rates charged to customers over the predetermined interest rates set by the financing institution or a commission for the placement of contracts. The Company also receives commissions from the sale of various insurance products to customers. Revenue is recognized by the Company upon the sale of such finance and insurance contracts to the finance and insurance companies net of a provision for estimated repossession losses and interest charge-backs on finance contracts. The Company is not the obligor under any of these underlying contracts. In the case of finance contracts, a customer may prepay, or fail to pay, thereby terminating the underlying contract. If the customer terminates a retail finance contract or other insurance product prior to scheduled maturity, a portion of the commissions previously paid to the Company may be charged back to the Company depending on the terms of the relevant contracts. The estimate of ultimate charge-back exposure is based on the Company's historical charge-back expense arising from similar contracts, including the impact of refinance and default rates on retail finance contracts and cancellation rates on other insurance products. The actual amount of historical charge-backs has not been significantly different than the Company's estimates.

Insurance Accruals

The Company is partially self-insured for medical, workers compensation, and property and casualty insurance and calculates a reserve for those claims that have been incurred but not reported and for the remaining portion of those claims that have been reported. The Company uses information provided by third-party administrators to determine the reasonableness of the calculations it performs.

Accounting for Income Taxes

Significant management judgment is required to determine the provisions for income taxes and to determine whether deferred tax assets will be realized in full or in part. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely than not that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. The Company has a valuation allowance related to deferred tax assets in certain states. Accordingly, the facts and financial circumstances impacting state deferred income tax assets are reviewed quarterly and management's judgment is applied to determine the amount of valuation allowance required in any given period.

Additionally, despite the Company's belief that its tax return positions are consistent with applicable tax law, management believes that certain positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations.

The Company follows FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," which requires that only income tax benefits that meet the "more likely than not" recognition threshold be recognized or continue to be recognized on its effective date. The Company's income tax expense includes the impact of reserve provisions and changes to reserves that it considers appropriate, as well as related interest. Unfavorable settlement of any particular issue would require use of the Company's cash and a charge to income tax expense. Favorable resolution would be recognized as a reduction to income tax expense at the time of resolution.

Stock-Based Compensation Expense

The Company applies the provisions of SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options and employee stock purchases under the Employee Stock Purchase Plan based on estimated fair values.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's Consolidated Statement of Income.

Results of Operations

The following discussion and analysis includes the Company's historical results of operations for the three months ended March 31, 2009 and 2008.

The following table sets forth certain financial data as a percentage of total revenues:

                                        Three Months Ended
                                            March 31,
                                        2009         2008

New and used truck sales                   59.6 %       62.3 %
Parts and service                          33.2         29.1
Construction equipment sales                2.1          4.2
Lease and rental                            4.1          3.2
Finance and insurance                       0.5          0.9
Other                                       0.5          0.3
Total revenues                            100.0        100.0
Cost of products sold                      81.3         80.6
Gross profit                               18.7         19.4
Selling, general and administrative        15.8         14.1
Depreciation and amortization               1.2          1.0
Operating income                            1.7          4.3
Interest expense, net                       0.5          0.5
Gain on sale of assets                      0.0          0.0
Income before income taxes                  1.2          3.8
Provision for income taxes                  0.4          1.4
Net income                                  0.8 %        2.4 %

The following table sets forth the unit sales and revenue for new heavy-duty, new medium-duty and used trucks and the absorption rate (revenue in millions):

                               Three Months Ended
                                   March 31,          % Change
                                                        2009
                                                         vs
                                2009         2008       2008
Truck unit sales:
New heavy-duty trucks             1,032       1,266      (18.5 )%
New medium-duty trucks              754         972      (22.4 )%
Total new truck unit sales        1,786       2,238      (20.2 )%

Used truck unit sales               577         900      (35.9 )%

Truck revenue:
New heavy-duty trucks        $    124.0    $  152.3      (18.6 )%
New medium-duty trucks             48.8        55.2      (11.6 )%
Total new truck revenue      $    172.8    $  207.5      (16.7 )%

Used truck revenue           $     22.7    $   42.6      (46.7 )%

Other revenue:(1)            $      0.5    $    1.3      (61.5 )%

Absorption rate:                   97.2 %     104.9 %     (7.3 )%

Key Performance Indicator

Absorption Rate

Management uses many performance metrics to evaluate the performance of its dealerships, but considers its "absorption rate" to be of critical importance. Absorption rate is calculated by dividing the gross profit from the parts, service and body shop departments by the overhead expenses of all of a dealership's departments, except for the selling expenses of the new and used truck departments and carrying costs of new and used truck inventory. When 100% absorption is achieved, then gross profit from the sale of a truck, after sales commissions and inventory carrying costs, directly impacts operating profit. In 1999, the Company's truck dealerships' absorption rate was approximately 80%. The Company has made a concerted effort to increase its absorption rate since then. The Company's truck dealerships achieved a 104.9% absorption rate for the first quarter of 2008 and 97.2% absorption rate for the first quarter in 2009.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Rush Enterprises remained profitable in the first quarter of 2009 despite very difficult market conditions. The ongoing recession had a severe impact on the Company's aftermarket operations in the first quarter of 2009. Rush Truck Centers' aftermarket parts, service and body shop revenues decreased 6.4% and gross profit decreased 12.8%. This sharp decline in aftermarket gross profit caused our absorption rate to decrease to 97.2% from 104.9% in the first quarter of last year.

Depressed consumer spending has reduced over-the-road freight tonnage, the freight-intensive automotive and construction industries remain depressed, and most recently the oil and gas industry has dramatically reduced expenditures due to the decrease in oil and gas prices. While our network of dealerships has been built to provide geographic and customer diversity, it appears that all areas of the country and almost every industry are being affected by the recession. Decreased freight tonnage and overall weakness in almost every vocational market we serve creates excess capacity for our customers, which is allowing them to delay maintenance on the trucks they already own and purchases of new trucks. The Company expects the second quarter of 2009 to be the weakest quarter since the truck market downturn began in 2007 because of weak truck and aftermarket sales.

We believe demand for new Class 8 trucks will begin to increase during the second half of the year because of the current average age of vehicles in operation, which is at a level last seen in the early 1990's, and the impending 2010 diesel emissions regulations, which may add as much as $10,000 to the cost of Class 8 trucks with engines manufactured after January 1, 2010. While depressed used truck values and tight credit continue to impede truck sales efforts, we are seeing increasing interest and requests for quotes from some of our customers. Unfortunately, economic uncertainty remains high and we are not in a position to predict when the economy will improve and lenders will begin to ease credit requirements. We are hopeful that the recent increase in customer interest and inquiries will translate into improved truck sales in the second half of 2009.

A.C.T. Research Co., LLC ("A.C.T. Research"), a truck industry data and forecasting service provider, currently predicts U.S. retail sales of Class 8 trucks of approximately 114,600 units in 2009, an 18.1% decline from the number of deliveries in 2008. However, the Company expects that 2009 sales of Class 8 units to be in the range of 100,000 to 110,000 units.

A.C.T. Research currently predicts U.S. retail sales of Class 4, 5, 6, and 7 medium-duty trucks of approximately 153,500 units in 2009, an 11.5% decline from the number of deliveries in 2008. The Company believes U.S. retail sales of medium-duty trucks in 2009 could decrease as much as 20% compared to 2008.

The Company's parts, service and body shop sales decreased 7.1% in the first quarter of 2009 compared to the first quarter of 2008. We anticipate parts, service and body shop sales to remain weak until general economic conditions improve.

In the first quarter of 2009, the Company's construction equipment segment revenue decreased by 48.3% compared to the first quarter of 2008. This decrease was largely attributable to the weakening construction market in the Houston area. Current industry forecasts suggest that construction equipment sales will decline approximately 30% in the Company's area of responsibility during 2009.

The ongoing weakness in the economy and tight credit markets continue to impact consumer confidence and spending, which have a direct impact on freight and our financial performance. Overall economic uncertainty continues to make it difficult for the Company to forecast future results of operations.

Revenues

Revenues decreased $74.8 million, or 18.5%, in the first quarter of 2009 compared to the first quarter of 2008. Sales of new and used trucks decreased $55.4 million, or 22.0%, in the first quarter of 2009 compared to the first quarter of 2008. Uncertain economic conditions, the weak freight environment, slowing construction markets and tight credit markets contributed to decreased demand trucks and aftermarket service in the first quarter of 2009. The Company does not believe that demand for trucks will increase until general economic conditions begin to improve and credit is made available to a wider range of buyers on reasonable terms.

The Company sold 1,032 heavy-duty units in the first quarter of 2009, a 18.5% decrease compared to 1,266 heavy-duty trucks in the first quarter of 2008. According to A.C.T. Research, the U.S. Class 8 truck market decreased 28.0% in the first quarter of 2009 compared to the first quarter of 2008. The Company's share of the U.S. Class 8 truck sales market was approximately 3.9% in 2008. The Company expects its share to range between 3.9% and 4.1% of the U.S. Class 8 truck market in 2009, which would result in the sale of approximately 3,900 to 4,500 Class 8 trucks based on our current U.S. retail sales estimates of 100,000 to 110,000 units.

The Company sold 754 medium-duty trucks, including 128 buses, in the first quarter of 2009, a 22.4% decrease compared to 972 medium-duty trucks in the first quarter of 2008. In June 2008, the Company acquired certain assets of Capital Bus Sales and Service of Texas, Inc., which included a Blue Bird bus franchise for the majority of Texas. A.C.T. Research estimates that unit sales of Class 4 through 7 trucks in the U.S. decreased approximately 33% in the first quarter of 2009 compared to the first quarter of 2008. In 2008, the Company achieved a 2.1% share of the Class 4 through 7 truck sales market in the U.S. The Company expects its share to range between 2.1% and 2.3% of the U.S. Class 4 through 7 truck sales market in 2009. This market share percentage would result in the sale of approximately 3,000 to 3,500 of Class 4 through 7 trucks in 2009 based on our current U.S. retail sales estimates of approximately 140,000 to 153,500 units.

The Company sold 577 used trucks in the first quarter of 2009, a 35.9% decrease compared to 900 used trucks in the first quarter of 2008. For 2009, used truck sales volumes and prices will be primarily driven by general economic conditions and the availability of credit, which collectively have had a severe impact on this market since 2008. The Company expects to sell approximately 2,300 to 2,500 used trucks in 2009.

Parts and service sales decreased $8.4 million, or 7.1%, in the first quarter of 2009 compared to the first quarter of 2008. Same store parts and service sales decreased $13.3 million, or 11.3%, in the first quarter of 2009 compared to the first quarter of 2008 primarily due to weakening economic conditions. Parts and service sales have continually decreased since the fall of 2008 and the Company expects parts and service sales to remain weak through the second quarter of 2009.

Sales of new and used construction equipment decreased $9.9 million, or 58.7%, in the first quarter of 2009 compared to the first quarter of 2008. This decrease was largely attributable to the weakening construction market in the Houston area. John Deere's rolling twelve month average market share in the Houston area construction equipment market decreased to 16.4% as of March 31, 2009 from a rolling twelve month average of 18.1% as of March 31, 2008. In 2009, the Company expects new construction equipment unit sales in our area of responsibility to decrease approximately 25% to 30%, compared to 2008.

Truck lease and rental revenues increased $0.5 million, or 3.5%, in the first quarter of 2009 compared to the first quarter of 2008. This increase in lease and rental revenue is consistent with management's expectations, considering the increased number of units put into service in the lease and rental fleet during . . .