RESULTS OF OPERATIONS:



                                    Three Months Ended             Nine Months Ended
                                       September 30                  September 30
                                   2009           2008           2009            2008
    Net sales and revenues:
    Truck and Other              $ 1,758.5      $ 3,682.1      $ 5,091.2      $ 11,085.1
    Financial Services               241.7          322.8          740.0           970.7

                                 $ 2,000.2      $ 4,004.9      $ 5,831.2      $ 12,055.8

    Income before taxes:
    Truck and Other              $    (6.2 )    $   360.9      $    14.5      $  1,057.2
    Financial Services                18.1           45.5           49.0           171.5
    Investment Income                  4.9           22.2           17.8            69.5
    Income taxes                      (3.8 )       (129.6 )        (15.5 )        (393.4 )

    Net Income                   $    13.0      $   299.0      $    65.8      $    904.8

    Diluted Earnings Per Share   $     .04      $     .82      $     .18      $     2.47

Overview:

PACCAR recorded lower sales and net income in the third quarter and first nine months of 2009 compared to year-earlier levels. Third quarter 2009 net income was $13.0 million ($.04 per diluted share) compared to $299.0 million ($.82 per diluted share) in the third quarter of 2008. First nine months total net sales and revenues were $5.83 billion, 52% lower compared to the first nine months of 2008. First nine months net income was $65.8 million ($.18 per diluted share) compared to $904.8 million ($2.47 per diluted share) in the year-earlier period.

Third quarter results included a one-time net benefit of $14.1 million ($8.9 million, net of tax) from a $18.3 million curtailment gain related to discontinued postretirement healthcare plans for plant employees and $4.2 million of plant closure costs in connection with the permanent closure of the Peterbilt facility in Madison, Tennessee . Year-to-date 2009 results include $66.0 million of curtailment gains related to postretirement health care plans ($41.5 million, net of tax).

Compared to 2008, third quarter and first nine months 2009 total net sales and revenues and income before income taxes were negatively affected by the translation of weaker foreign currencies, primarily the euro and British pound. The translation effect decreased third quarter 2009 sales and revenues by $64.6 million and income before income taxes by $4.7 million compared to the third quarter of 2008. For the first nine months, the translation effect decreased sales and revenues by $423.3 million and income before income taxes by $30.7 million compared to 2008.

Net sales and revenues in the Truck and Other businesses was $1.76 billion in the third quarter of 2009 compared to $3.68 billion in third quarter of 2008. For the first nine months of 2009, Truck and Other net sales and revenues decreased 54% to $5.09 billion. The decrease in third quarter and year-to-date sales and revenues for 2009 primarily reflects decreased truck unit and part sales in all markets resulting from lower demand for the Company's products due to the global recession.

Truck and Other Cost of sales and revenues were $1.65 billion in the third quarter of 2009 compared to $3.11 billion in the third quarter of 2008. Cost of sales and revenues were $4.70 billion in the first nine months of 2009, down 50% compared to $9.40 billion in the first nine months of 2008. Cost of sales and revenues declined in both periods primarily due to the decline in world wide truck deliveries. This volume decline was slightly offset by higher costs primarily due to lower fixed cost coverage caused by lower factory production volumes. Also included in cost of sales are severance costs of $7.1 million for the third quarter of 2009 compared to severance costs of $3.2 million in the third quarter of 2008 and $21.6 million in the first nine months of 2009 compared to $4.4 million in the first nine months of 2008.

Research and development (R&D) expenditures decreased to $43.4 million in the third quarter of 2009 from $88.1 million in the third quarter of 2008. R&D was $148.5 million for the first nine months of 2009 compared to $261.7 million in the first nine months of 2008 primarily due to lower spending on engine development programs. R&D spending in the fourth quarter of 2009 is expected to be in the range of $40.0 to $50.0 million.

Selling, general and administrative (SG&A) expense for Truck and Other of $87.4 million in the third quarter and $255.0 year to date declined by $31.9 million and $117.9 million, respectively. The lower spending is a result of focused efforts to reduce costs in response to the global economic recession and consists primarily of lower staffing costs, sales and marketing spending and travel costs. Foreign currency translation effects reduced SG&A by $2.7 million and $15.8 million for the quarter and nine month periods, respectively. Severance costs included in SG&A were $0.4 million in the third quarter of 2009 and $6.0 million in the first nine months of 2009 compared to $0.2 million in the third quarter of 2008 and $0.3 million in the first nine months of 2008. As a percentage of sales, SG&A increased in the third quarter to 5.0% in 2009 from 3.2% in 2008 and increased to 5.0% in the first nine months of 2009 from 3.4% in 2008 due to lower sales volumes.

Financial Services segment revenues for the third quarter of 2009 decreased to $241.7 million from $322.8 million in the third quarter of 2008. Revenues were $740.0 million in the first nine months of 2009, compared to $970.7 million in the first nine months of 2008. The decreased revenues in both the third quarter and the first nine months of 2009 resulted from lower earning asset balances in all markets and lower yields in North America and Europe. Third quarter Financial Services income before income taxes was $18.1 million compared to $45.5 million in 2008. First nine months income before income taxes was $49.0 million compared to $171.5 million. The decrease in both periods was primarily due to less revenues resulting from lower average earning asset balances and yields. In addition there were higher impairments and losses on sales of operating lease vehicles. These were partially offset by lower interest expense on smaller average debt balances, as well as lower operating expenses and provision for losses. The third quarter 2009 provision for losses on receivables declined $7.6 million to $26.6 million from $34.2 million in the prior year reflecting lower charge-offs and a decrease in the allowance for losses due to a decrease in past due accounts and a lower asset base. Year-to-date, the 2009 provision for losses on receivables was $80.7 million compared to the $76.0 million in 2008.

Investment income declined to $4.9 million and $17.8 million for the third quarter and first nine months of 2009 compared to $22.2 million and $69.5 million for the third quarter and first nine months of 2008 due to lower invested balances and lower market interest rates.

The effective tax rate was 22.6% and 19.1% for the third quarter and first nine months of 2009 compared to 30.2% and 30.3% for the third quarter and first nine months of 2008. The lower effective tax rate in 2009 reflects a larger percentage benefit from permanent differences such as the R&D tax credit and favorable provision to return adjustments.

The Company's return on revenues was 0.7% and 7.5% for the third quarter of 2009 and 2008, respectively, and was 1.1% and 7.5% for the first nine months of 2009 and 2008, respectively.

Truck

PACCAR's truck segment, which includes the manufacture and distribution of trucks and related aftermarket parts, accounted for 87% of revenues in the third quarter and 86% in the first nine months of 2009 compared to 91% in the third quarter and the first nine months of 2008. In North America, trucks are sold under the Kenworth and Peterbilt nameplates and, in Europe, under the DAF nameplate.

                                              Three Months Ended                        Nine Months Ended
                                                 September 30                              September 30
                                        2009           2008      % change        2009            2008      % change
Truck net sales and revenues:
U.S. and Canada                       $   903.6      $ 1,167.0        (23 )    $ 2,542.4      $  3,794.2        (33 )
Europe                                    572.4        1,898.7        (70 )      1,848.9         5,464.3        (66 )
Mexico, Australia and Other               265.9          576.0        (54 )        637.3         1,709.1        (63 )

                                      $ 1,741.9      $ 3,641.7        (52 )    $ 5,028.6      $ 10,967.6        (54 )

Truck (loss) income before taxes      $   (21.1 )    $   362.5       (106 )    $   (32.2 )    $  1,063.6       (103 )


The Company's new truck deliveries
are summarized below:
                                              Three Months Ended                        Nine Months Ended
                                                 September 30                              September 30
                                        2009           2008      % change        2009            2008      % change
United States                             7,217          9,335        (23 )       20,010          29,579        (32 )
Canada                                    1,342          1,603        (16 )        2,842           5,830        (51 )

U.S. and Canada                           8,559         10,938        (22 )       22,852          35,409        (35 )
Europe                                    4,751         18,139        (74 )       16,445          50,808        (68 )
Mexico, Australia and Other               1,991          4,678        (57 )        4,402          14,357        (69 )

Total Units                              15,301         33,755        (55 )       43,699         100,574        (57 )

2009 Compared to 2008:

PACCAR's worldwide truck sales and revenues of $1.74 billion in the third quarter of 2009 decreased compared to the third quarter of 2008 due to lower demand for the Company's trucks and parts reflecting worldwide recessionary economic conditions. In the first nine months of 2009, PACCAR's worldwide truck sales and revenues of $5.03 billion compared to $10.97 billion in the first nine months of 2008.

Sales and revenues in the U.S. and Canada during the three- and nine-month periods ended September 30, 2009 declined compared to the prior periods in 2008 due to lower new truck deliveries which reflected a lower market size. Industry retail sales in the heavy duty market in U.S. and Canada were 32% lower in the first nine months of 2009 compared to the first nine months of 2008.

In the third quarter and first nine months of 2009 European net sales and revenues decreased to $572.4 million and $1,848.9 million, respectively, from 2008. The lower net sales and revenues resulted from the decline in DAF truck deliveries during the third quarter and first nine months of 2009 due to lower truck market demand, truck selling prices and parts sales. DAF's 2009 market share of the 15 tonne and above market for the first nine months of 2009 was 14.9% compared to 14.1% in 2008.

Sales and revenues in Mexico, Australia and other countries outside the Company's primary markets declined 54% to $265.9 million in the third quarter of 2009 and 63% to $637.3 million for the first nine months of 2009 due to lower new truck deliveries. Truck unit deliveries in these markets decreased in the third quarter of 2009 and for the first nine months of 2009 compared to 2008, reflecting lower overall market demand.

Truck segment income before income taxes decreased to a loss of $21.1 million in the third quarter of 2009 from $362.5 million of income in the third quarter of 2008. During the first nine months of 2009 the Truck segment recorded a pretax loss of $32.2 million compared to income of $1,063.6 million in 2008. The loss in both periods was due to lower truck sales and margins in all markets somewhat offset by lower research and development spending as well as lower SG&A spending.

Net sales and revenues and gross margins for truck units and aftermarket parts are provided below. The aftermarket parts gross margin includes direct revenues and costs, but excludes certain truck segment costs.

                                              Three Months Ended                            Nine Months Ended
                                                 September 30                                  September 30
                                      2009            2008         % change        2009             2008         % change
Net sales and revenues:
Trucks                              $ 1,264.3       $ 3,060.7           (59 )    $ 3,635.6       $  9,210.7           (61 )
Aftermarket parts                       477.6           581.0           (18 )      1,393.0          1,756.9           (21 )

                                    $ 1,741.9       $ 3,641.7           (52 )    $ 5,028.6       $ 10,967.6           (54 )

Gross Margin:
Trucks                              $   (43.2 )     $   357.9          (112 )    $   (82.3 )     $  1,043.3          (108 )
Aftermarket parts                       153.4           203.4           (25 )        462.9            622.4           (26 )

                                    $   110.2       $   561.3           (80 )    $   380.6       $  1,665.7           (77 )

Gross Margin %:
Trucks                                   (3.4 )%         11.7 %                       (2.3 )%          11.3 %
Aftermarket parts                        32.1 %          35.0 %                       33.2 %           35.4 %
Truck segment                             6.3 %          15.4 %                        7.6 %           15.2 %

Total truck segment gross margins for the third quarter of 2009 decreased to 6.3% from 15.4% in the third quarter of 2008. Gross margins for the first nine months of 2009 were 7.6% compared to 15.2% in the same period of 2008. Gross margins were negatively impacted primarily by lower truck gross margins. Gross margins on trucks declined to negative 3.4% and 2.3% for the three and nine month periods ended September 30, 2009 primarily due to lower industry demand and lower absorption of fixed costs resulting from lower truck production. 2009 parts gross margins declined from the prior year due to a sales mix shift to lower margin replacement parts and the impact of the recession.

Truck Outlook

Worldwide recessionary economic conditions are expected to continue to dampen demand for heavy-duty trucks for the fourth quarter of 2009 and result in lower truck segment revenues and income for the Company compared to 2008. The Company's research and development spending in the fourth quarter of 2009 will focus on engine development and new product programs and are expected to remain below spending in the prior year. For the year, research and development spending in 2009 is expected to be between $190-$200 million, down from the $341.8 million in 2008. The Company also expects fourth quarter 2009 SG&A expenses to be lower than 2008 as it remains focused on aligning the Company expenses to the market conditions. In North America, the Company expects 2009 industry Class 8 retail sales to be in the range of 100,000 -110,000 trucks. Industry retail sales in 2010 are expected to improve somewhat and be in the range of 110,000 -140,000 units, reflecting recent improvements in freight tonnage and manufacturing activity. In Western and Central Europe, the low level of heavy-duty registrations through the third quarter of 2009 is expected to continue and result in full year 2009 heavy-duty registrations in the range of 170,000-180,000 units, a 50% decline from 2008. With economic recovery in Europe expected to lag North America, 2010 heavy-duty registrations in these European markets are estimated to be in the range of 150,000 - 180,000. International markets are expected to remain weak in the fourth quarter of 2009 and into 2010. See the Forward Looking Statement section of Management's Discussion and Analysis for factors that may affect this outlook.

                                   FORM 10-Q

                          PACCAR Inc AND SUBSIDIARIES



Financial Services

The PACCAR Financial Services (PFS) segment, which includes wholly owned
subsidiaries in the U.S., Canada, Mexico, Europe and Australia, derives its
earnings primarily from financing and leasing PACCAR products.



                                            Three Months Ended                      Nine Months Ended
                                               September 30                           September 30
                                       2009         2008      % Change        2009         2008      % Change
New loan and lease volume:
U.S. and Canada                      $   347.8   $    421.9        (18 )    $   684.7   $  1,311.4        (48 )
Europe                                   118.5        215.1        (45 )        316.1        747.4        (58 )
Mexico and Australia                      81.2        219.6        (63 )        218.4        620.2        (65 )

                                     $   547.5   $    856.6        (36 )    $ 1,219.2   $  2,679.0        (54 )

Average earning assets:
U.S. and Canada                      $ 4,613.7   $  5,770.5        (20 )    $ 4,847.8   $  5,917.3        (18 )
Europe                                 2,488.0      3,250.9        (23 )      2,579.6      3,066.6        (16 )
Mexico and Australia                   1,319.5      1,729.4        (24 )      1,324.5      1,668.6        (21 )

                                     $ 8,421.2   $ 10,750.8        (22 )    $ 8,751.9   $ 10,652.5        (18 )

Average earning assets by product:
Loans and finance leases             $ 5,024.5   $  6,388.5        (21 )    $ 5,209.5   $  6,501.1        (20 )
Dealer wholesale financing             1,141.9      1,854.9        (38 )      1,266.2      1,697.3        (25 )
Equipment on lease and other           2,254.8      2,507.4        (10 )      2,276.2      2,454.1         (7 )

                                     $ 8,421.2   $ 10,750.8        (22 )    $ 8,751.9   $ 10,652.5        (18 )

Revenue:
U.S. and Canada                      $   117.7   $    149.7        (21 )    $   361.0   $    461.5        (22 )
Europe                                    76.5        111.8        (32 )        236.8        332.4        (29 )
Mexico and Australia                      47.5         61.3        (23 )        142.2        176.8        (20 )

                                     $   241.7   $    322.8        (25 )    $   740.0   $    970.7        (24 )

Revenue by product:
Loans and finance leases             $   109.8   $    142.9        (23 )    $   337.0   $    438.7        (23 )
Dealer wholesale financing                11.9         31.3        (62 )         41.5         86.3        (52 )
Equipment on lease and other             120.0        148.6        (19 )        361.5        445.7        (19 )

                                     $   241.7   $    322.8        (25 )    $   740.0   $    970.7        (24 )

Income before taxes                  $    18.1   $     45.5        (60 )    $    49.0   $    171.5        (71 )

2009 Compared to 2008:

Revenues:

Revenues declined in both the third quarter and first nine months of 2009 from lower earning asset balances and lower yields primarily in the U.S., Canada and Europe. Average earning assets declined in the three and nine months ended September 30, 2009 due to the effects of lower new loan and lease volume in all markets and a reduction in dealer wholesale financing of new trucks. New loan and lease volume declined primarily due to lower new PACCAR truck production. In the third quarter of 2009, PFS market share on new PACCAR trucks delivered increased to 30.2% from 28.8% in the third quarter of 2008, reflecting increased financing to high quality fleet customers in North America. Year-to-date, PFS market share was 23.4%, down from 28.2% in the comparable period in 2008 due to an emphasis on improved credit quality and higher margins in the U.S., Canada and Europe.

 At September 30,                                                  2009      2008
 Percentage of retail loan and lease accounts 30+ days past-due:
 U.S. and Canada                                                    2.4 %     2.5 %
 Europe                                                             4.8 %     1.6 %
 Mexico and Australia                                              10.2 %     4.9 %
 Total                                                              4.4 %     2.7 %

Worldwide PFS accounts 30+ days past-due at September 30, 2009 were 4.4% of portfolio balances compared to 2.7% at September 30, 2008 due to a decline in freight tonnage, freight rates and customer cash flows most significantly in Europe and Mexico. The 4.4% worldwide PFS accounts 30+ days past-due at September 30, 2009 decreased from 4.7% at June 30, 2009 primarily from improvements in the U.S., Canada and Europe.

Interest income and other revenue in the third quarter and nine months of 2009 declined from the corresponding periods in the prior year due to lower average earning assets and lower asset yields summarized as follows:

                                    Three Months Ended        Nine Months Ended
                                       September 30             September 30
     Interest and fees - 2008       $             174.2      $             525.0
     Lower average asset balances                 (41.7 )                 (103.5 )
     Decrease in yield                            (10.8 )                  (43.0 )

     Interest and fees - 2009       $             121.7      $             378.5

The decline in average earning assets was due to lower retail loan and lease new business volume as well as lower dealer wholesale financing due to a decline in dealer inventory levels in all markets. Yield declined primarily due to lower market interest rates.

Operating lease, rental and other income in the third quarter and nine months of 2009 declined from the corresponding periods in the prior year from lower average assets, lower rental utilization, and a decrease in yields. The decline in average operating lease and other assets was due to lower new business volume. The lower rental utilization reflects the weaker economic environment and the decline in yields was due to lower market rates.

Expenses

Interest and other borrowing expenses decreased in the third quarter and
year-to-date from the comparable periods in the prior year due to lower average
debt balances and lower borrowing rates as summarized below:



                                                    Three Months Ended             Nine Months Ended
                                                       September 30                  September 30
Interest and other borrowing expenses - 2008        $             102.1           $             302.7
Lower average debt balances                                       (22.6 )                       (52.4 )
Lower borrowing rates                                             (13.0 )                       (19.5 )

Interest and other borrowing expenses - 2009        $              66.5           $             230.8

Average debt balances decreased due to the lower level of funding needed to fund the smaller financial services portfolio. Lower borrowing rates were primarily related to lower commercial paper rates.

Third quarter and year-to-date 2009, depreciation and other expenses reflected a lower asset base partially offset by higher depreciation. Third quarter 2009 depreciation was $86.4 million in 2009 compared to $79.8 million in 2008 and year-to-date 2009 depreciation increased to $246.6 million compared to $224.7 million in the prior year. The higher quarterly and year-to-date depreciation results from both higher impairments on existing operating lease assets as well as higher losses on the sale of returned operating lease assets reflecting the impact of lower used truck prices.

Selling, general and administrative (SG&A) expense of $21.1 million in the third quarter declined by $6.8 million and SG&A expense of $63.7 million year-to-date declined by $23.3 million. Lower spending is a result of focused efforts to reduce costs in response to the continued decline in global economic conditions and consists primarily of lower staffing levels and travel costs.

                                   FORM 10-Q

                          PACCAR Inc AND SUBSIDIARIES



The provision for losses on receivables for the third quarter and year-to-date
is summarized as follows:



                                                      Three Months Ended                                           Nine Months Ended
                                                      September 30, 2009                                           September 30, 2009
                                                        Increase             Provision for                           Increase             Provision for
                                        Net           (decrease) in            losses on             Net           (decrease) in            losses on
. . .