OVERVIEW

Spartan Motors, Inc. (the "Company") is known as a leading niche market engineer and manufacturer in the heavy-duty, custom vehicles marketplace. The Company has four wholly owned subsidiaries: Spartan Motors Chassis, Inc., located at the corporate headquarters in Charlotte, Michigan ("Chassis"); Crimson Fire, Inc., located in Brandon, South Dakota ("Crimson"); Crimson Fire Aerials, Inc., located in Lancaster, Pennsylvania ("Crimson Aerials"); and Road Rescue, Inc., located in Marion, South Carolina ("Road Rescue"). Crimson, Crimson Aerials and Road Rescue make up the Company's emergency vehicle team (EVTeam). The Company's brand names, Spartan™, Crimson Fire™ and Road Rescue™, are known for quality, value, service and innovation.

Chassis is a leading designer, engineer and manufacturer of custom heavy-duty chassis. The chassis consist of a frame assembly, engine, transmission, electrical system, running gear (wheels, tires, axles, suspension and brakes) and, for fire trucks and some specialty chassis applications, a cab. Chassis customers are original equipment manufacturers ("OEMs") who complete their heavy-duty vehicle product by either mounting the body or apparatus on the Company's chassis or integrating the drive train with the armored body.

Crimson and Road Rescue engineer and manufacture emergency vehicles built on chassis platforms purchased from either Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder components for fire trucks.

The Company believes that it can best carry out its long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under the Company's credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.

The Company remains financially solid with a strong cash balance, little debt and an open line of credit. The current macro economic environment will make the remaining quarter of 2009 challenging, for both sales and net earnings, although the Company is well positioned to create long-term opportunities as a result of:

• The Company's diversified business model. The Company believes the major strength of its business model is market diversity and customization, with a growing foundation in emergency rescue. The emergency rescue market is relatively less affected by geo-political events compared to the recreational vehicle and the military markets. The Company intends to continue to pursue additional areas that build on its core competencies in order to further diversify its business.

• The Company's ability to react swiftly when challenges arise, as demonstrated by its recent aggressive cost realignment. The Company also is able to respond nimbly when opportunities arise, as demonstrated with its ramp up on defense initiatives.

• Continued operational improvements to realign the Company's cost structure to match the current demand environment.

• The addition of a newly created Chief Operating Officer (COO) position and a new Chief Financial Officer (CFO). The new COO is focusing on key strategic initiatives, including lean manufacturing, while the new CFO brings a strong background in economic value add financial management to drive improved fiscal discipline.

• Increased SPA capabilities for all the Company's markets, including the defense industry. The Company continues to receive service part orders for units produced under various programs, including the Mine Resistant Ambush Protected (MRAP) program and the Iraqi Light Armored Vehicle (ILAV) program.

• Continued demand in specialty vehicles and micro-niche markets. The Company continues to produce specialized mine-resistant variants for the U.S. and other nations' military on a smaller scale, such as the ILAV, Italian Cougar Explosive Ordinance Disposal, and Special Operations Command (SOCOM) Independent Suspension vehicles.

• Market potential for increased sales from the EVTeam, and related chassis sales, due to increased demand in response to the engine emissions change in 2010 and the introduction of new products. The expected increase is already being reflected in increased fire truck sales and backlog for the current quarter compared to the same quarter of 2008.

• Introduction of the Legend Series fire truck. In April 2009, the Company unveiled the Legend, which is an entry-level fire truck and the first in this new series in the Crimson Fire product line.

• The growing strength of the Spartan brands.

The following Section provides a narrative discussion about the Company's financial condition and results of operations. The comments that follow should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related Notes thereto included elsewhere within this Form 10-Q and in conjunction with the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2009. The following is a discussion of the major elements impacting the Company's financial and operating results for the three- and nine-month periods ended September 30, 2009 compared to the three- and nine-month periods ended September 30, 2008.

RESULTS OF OPERATIONS

The following tables set forth, for the periods indicated, the components of the
Company's business segment statements of operations, on an actual basis, as a
percentage of sales. The amounts detailed below for 2008 EVTeam results were
adjusted to conform to the current year's presentation.

Three months ended:

                                       September 30, 2009                       September 30, 2008
                               Business Segments                        Business Segments
                              Chassis      EVTeam     Consolidated     Chassis      EVTeam     Consolidated

Sales                            100.0%     100.0%           100.0%       100.0%     100.0%           100.0%
Cost of product sold              80.8%      91.4%            82.2%        81.2%      93.0%            81.9%
Restructuring charges              0.3%       0.1%             0.2%         0.0%       0.0%             0.0%
Gross profit                      18.9%       8.5%            17.6%        18.8%       7.0%            18.1%
Operating expenses:
 Research and
development                        4.6%       2.7%             4.6%         2.1%       2.6%             2.2%
 Selling, general, and
administrative                     7.8%      12.2%            10.9%         4.4%       7.9%             6.6%
 Restructuring charges             0.1%       0.6%             0.8%         0.0%       0.0%             0.0%
Operating income                   6.4%      -7.0%             1.3%        12.3%      -3.5%             9.3%
Other income (expense)             0.1%      -1.5%             0.0%         0.0%      -1.3%            -0.1%
Earnings before taxes on
income                             6.5%      -8.5%             1.3%        12.3%      -4.8%             9.2%
Taxes on income                    2.4%      -3.0%             0.5%         4.4%      -1.7%             3.0%
Net earnings                       4.1%      -5.5%             0.8%         7.9%      -3.1%             6.2%

--------------------------------------------------------------------------------
Nine months ended:

                                       September 30, 2009                       September 30, 2008
                               Business Segments                        Business Segments
                              Chassis      EVTeam     Consolidated     Chassis      EVTeam     Consolidated

Sales                            100.0%     100.0%           100.0%       100.0%     100.0%           100.0%
Cost of product sold              78.6%      88.0%            79.5%        82.6%      92.9%            83.2%
Restructuring charges              0.1%       0.0%             0.1%         0.0%       0.0%             0.0%
Gross profit                      21.3%      12.0%            20.4%        17.4%       7.1%            16.8%
Operating expenses:
 Research and
development                        4.1%       2.3%             4.0%         2.0%       2.4%             2.1%
 Selling, general, and
administrative                     8.0%      10.4%            10.5%         4.2%       7.6%             5.9%
 Restructuring charges             0.0%       0.2%             0.2%         0.0%       0.0%             0.0%
Operating income                   9.2%      -0.9%             5.7%        11.2%      -2.9%             8.8%
Other income (expense)             0.0%      -1.4%            -0.1%         0.0%      -1.4%            -0.2%
Earnings before taxes on
income                             9.2%      -2.3%             5.6%        11.2%      -4.3%             8.6%
Taxes on income                    3.3%      -0.8%             1.9%         4.0%      -1.5%             2.9%
Net earnings                       5.9%      -1.5%             3.7%         7.2%      -2.8%             5.7%

Quarter Ended September 30, 2009, Compared to the Quarter Ended September 30, 2008

For the three months ended September 30, 2009, consolidated sales decreased $147.8 million (62.2%) to $89.7 million, from $237.5 million in the third quarter of 2008. The decrease was primarily due to a $146.3 million (65.3%) decrease in Chassis sales.

Other product sales, which include specialty chassis as well as service, parts and assemblies (SPA) sales, drove the decrease in Chassis sales with a decline of $148.3 million (84.9%) from the same period in 2008. The decrease was driven by lower vehicle sales to the defense industry due to the completion of several large military orders in 2008, particularly under the MRAP program. This reduction was due to the timing and nature of the related military contracts. See Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2008 relating to governmental contracts for more details. The continued weakness in the RV market, given the current economic climate, resulted in a sales decrease of $4.7 million (29.9%) compared to the same quarter last year. The other product and motorhome sales decrease was partially offset by fire truck chassis sales that increased $6.7 million (19.9%) compared to the same quarter last year. Changes to the 2010 engine emission standards resulted in increased demand and thus sales for fire truck chassis.

Increased EVTeam sales helped in offsetting the overall decrease in sales. Compared to the same quarter in 2008, sales increased $1.1 million (5.4%) primarily due to an increase in fire truck shipments which were a result of the 2010 emissions change. In addition, the results were favorably impacted by approximately $0.8 million of price increases implemented to cover increasing costs. Intercompany eliminations account for the remaining consolidated sales change differential quarter over quarter.

Gross profit decreased from $43.0 million for the quarter ended September 30, 2008 to $15.8 million for the quarter September 30, 2009. This was primarily driven by the lower sales volume in the specialty vehicle business in 2009. Gross margin decreased to 17.6% for the quarter ended September 30, 2009 from 18.1% for the same period in 2008. The reduction in gross margin was a result of lower absorption due to the lower sale volumes, along with restructuring charges affecting the current quarter.

The Company has also initiated a restructuring plan which resulted in a charge of $0.7 million in the current quarter which added 0.8%, as a percent of sales, to operating expenses for the quarter. The restructuring plan did produce some cost savings in the current quarter; however, the major impact of these savings will be realized in future periods. While restructuring charges are substantially complete, the Company is continuing efforts to improve cost management through initiatives that have or will be implemented. The Company expects these combined activities could generate between $7 and $8 million of annualized savings. See Note 6 to the Condensed Consolidated Financial Statements for additional information. The majority of these initiatives, all of which are not expected to incur material additional upfront costs, are expected to be completed by the second quarter of 2010.

Interest expense decreased by $0.3 million (48.7%) for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Lower working capital needs contributed to the lower borrowing levels in 2009.

The effective income tax rate was 34.1% in the third quarter of 2009 and 32.6% for the same quarter of 2008. The Company's effective tax rate fluctuates based upon the states where sales occur and with the level of export sales. The tax rate for 2009 was impacted by adjustments to state tax reserves. The effective tax rates for 2009 and 2008 are consistent with the applicable federal and state statutory tax rates.

Net earnings decreased $13.9 million ($0.43 per diluted share) from $14.7 million ($0.45 per diluted share) in 2008 to $0.8 million ($0.02 per diluted share) in 2009 as a result of the factors discussed above. Excluding restructuring charges taken in the quarter, adjusted earnings were $0.04 per diluted share.

Total order intake for the third quarter 2009 was $86.3 million, which was $7.3 million (9.2%) greater than the same period in 2008. Total chassis orders received during the third quarter of 2009 increased by 5.9% (excluding SPA) compared to the same period in 2008. Excluding all specialty products, chassis order intake was up quarter-over-quarter by 25.2% due to both an increase in fire truck and motorhome orders received. Compared to the second quarter of 2009, total orders in the third quarter increased $18.9 million (28.0%).

At September 30, 2009, the Company had $157.5 million in backlog, including SPA backlog, compared with a September 30, 2008 backlog of $183.8 million, which did not include SPA backlog. The decrease in backlog is mainly attributed to Chassis which saw backlog decrease $21.0 million, primarily as a result of the previously described government contracts included in specialty vehicle sales that ended in 2008. Excluding the change in specialty vehicles and SPA, the Chassis backlog increased $13.7 million year-over-year. The EVTeam backlog had a slight decrease of $.4 million. Intercompany eliminations in the backlog increased $4.9 million related to chassis sales to the EVTeam for the same time period. The Company anticipates filling its current backlog orders by May 2010.

Nine Months Ended September 30, 2009, Compared to the Nine Months Ended September 30, 2008

For the nine months ended September 30, 2009, consolidated sales decreased $368.6 million (52.8%) to $329.5 million, from $698.1 million in the first nine months of 2008. This decrease in sales is mainly due to a decrease in sales of $369.9 million (56.9%) at Chassis. The decrease in sales at Chassis was primarily due to the reduction of other product sales of $325.5 million (68.2%), coupled with a decrease in motorhome sales of $67.6 million (80.3%), for the nine months ended September 30, 2009 compared to nine months ended September 30, 2008. The decline in sales was partially offset by an increase in fire truck chassis sales of $23.2 million (26.0%) over the nine months ended September 2008. Changes to the 2010 engine emission standards resulted in increased demand and thus sales for fire truck chassis.

The decrease in other product sales was due to the completion of shipments under the MRAP program. See Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2008 relating to governmental contracts for more details. The decrease in motorhome chassis sales was due to lower order volume over the same period, as a result of weakened economic conditions impacting the motorhome market as a whole. Increased sales in the fire truck sales were a result of increased sales volume for the reason discussed above.

Increased EVTeam sales helped offset the overall decline in sales with an increase of $6.6 million (10.3%) to $70.4 million during the first nine months of 2009 compared with the prior year's first nine months. The majority of this increase is due to higher fire truck sales volumes, which were up $9.4 million (21.2%) over the prior year, in light of the 2010 emissions change and the implemented price increases of $2.4 million. This increase was partially offset by ambulance sales, which decreased $2.8 million (14.5%), from the same period in 2008. Intercompany eliminations account for the remaining sales difference.

Gross margin increased from 16.8% to 20.4% for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase is due primarily to a change in the product sales mix as a result of higher service parts sales and fire truck chassis sales which yield a higher gross margin. In addition, margins increased period-over-period due to a change in warranty estimate for military vehicles, and material cost savings due to improved commodity pricing. See Note 3 to the Condensed Consolidated Financial Statements for more details on warranties. The EVTeam increased its portion of the sales mix by over ten percentage points in 2009 with improved margins by five percentage points. The improved margin results for the EVTeam were driven by an increased focus on lean manufacturing and reduced material costs, of approximately $1.6 million, as a result of improved commodity pricing.

Operating expenses increased as a percentage of sales to 14.7% for the nine-month period ended September 30, 2009 compared to 8.0% for the same period of 2008. This is primarily a result of the large decrease in sales volumes as noted above. Operating expense dollars actually decreased $7.4 million (13.3%) year-over-year due to a reduction in legal fees and compensation accruals for incentive plans.

The effective income tax rate was 34.0% in the first nine months of both years 2009 and 2008. The Company's effective tax rate fluctuates based upon the states where sales occur and with the level of export sales. The effective tax rates for 2009 and 2008 are consistent with the applicable federal and state statutory tax rates.

Net earnings decreased by $27.7 million ($0.84 per diluted share) to $12.2 million ($0.37 per diluted share) in the first nine months of 2009 from $39.9 million ($1.21 per diluted share) for the same period of 2008 as a result of the factors discussed above. Excluding restructuring charges taken in the first nine months of 2009, adjusted earnings were $0.39 per diluted share.

Total orders, excluding service parts, received during the first nine months of 2009 decreased 62.5% compared to the same period in 2008. This reflects a decrease of 62.3% from the chassis segment and 41.1% from the EVTeam segment consistent with prior explanations. Remaining differences are due to intercompany eliminations.

FINANCIAL CONDITION

Balance Sheet at September 30, 2009 compared to December 31, 2008

Accounts receivable at September 30, 2009 compared to December 31, 2008 reflects a reduction of $27.8 million (36.6%). This change was attributed to the reduction in sales volume in the third quarter of 2009 from those experienced in the fourth quarter of 2008, along with a concerted effort to improve collections.

Inventory decreased $2.7 million (-3.2%) from December 31, 2008 to September 30, 2009. This change is primarily due to fewer purchases of purchased components ($7.3 million) primarily as a result of decreased sales volume in service parts and assemblies. This was partially offset by an increase in finished goods ($2.4 million), as there was increased production of stock and demo units within the EVTeam segment. Additionally, work in process increased ($1.9 million) due to increased fire truck order intake and backlog.

Accounts payable, as of September 30, 2009, decreased $4.5 million (20.4%) compared to December 31, 2008. The reduced purchases of inventory to support sales in the third quarter 2009, compared to those in the fourth quarter 2008, have driven the change in accounts payable.

Accrued warranties decreased $3.5 million (41.5%) at September 30, 2009 from December 31, 2008 due to three factors. First, there was a reduction in new policies generated as a result of lower related sales volume. Second, existing warranty policies expired driving down the accrual. Third, there was a reduction in the warranty estimate for military units based on historical experience. See Note 3 of the Condensed Consolidated Financial Statements for further detail.

Accrued compensation and related taxes decreased $7.0 million (57.6%) from $12.1 million at December 31, 2008 to $5.1 million at September 30, 2009, as a result of higher incentive compensation expense for incentive plans in 2008.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated an estimated annualized return on invested capital (ROIC) of 9.1% through the nine months ending September 30, 2009, compared to the estimated annualized ROIC of 32.3% for the same period in 2008. The Company uses ROIC for internal performance benchmarking, and defines ROIC as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.

For the nine months ended September 30, 2009, cash provided by operating activities was $30.7 million, which was a $33.2 million increase from the negative ($2.5) million of cash used in operating activities for the nine months ended September 30, 2008. Despite a $27.7 million decrease in net earnings for the same period, there was less cash needed for working capital for the nine months ended September 30, 2009 to support lower sales volumes.

The net impact of changes in accounts receivable, inventory and accounts payable, which are the largest drivers of working capital changes, represented the largest source of cash at $81.9 million. For the nine-month period ended September 30, 2008, accounts receivable used $19.4 million of cash compared to generation of $27.8 million for the same period in 2009. Record 2008 third quarter sales drove the use of cash in 2008, while a strong collection effort drove the source of cash for the nine months ended in 2009. These total a $47.2 million change in cash generation between the periods for accounts receivable. Inventory balances provided an increased $1.8 million in cash for these same periods.

Accounts payable provided $32.9 million in added cash primarily a result of high accounts payable balances in December of 2007, which drove the $37.4 million use in cash during 2008. The cumulative decrease in accounts payable in 2009 was $4.5 million, consistent with that year's production volumes. These accounts payable changes between 2008 and 2009 drove a change in cash generation of $32.9 million. See the Financial Condition Section in Item 2 of this Form 10-Q for further discussion regarding the accounts receivable, inventory and accounts payable balances at September 30, 2009.

Additionally, accrued compensation and related taxes accounted for $12.4 million use in cash for the nine-month period ended September 30, 2009 over the same period of 2008. This variance is largely a result of greater wage and benefit accruals in 2008, related to higher staffing levels and higher compensation accruals for that period, which were paid in 2009. Also contributing to the use of cash was the reduction of customer deposit liability, which for the current period saw a use of cash of $3.2 million and a use of cash period-over-period of $4.5 million. See the Condensed Consolidated Statements of Cash Flows contained in Item 1 of this Form 10-Q for the other various factors that represented the remaining fluctuation of cash used in operations of $4.1 during the nine-month period ended September 30, 2009.