OVERVIEW

The Company was organized as a Michigan corporation on September 18, 1975, and is headquartered in Charlotte, Michigan. The Company began development of its first product that same year and shipped its first fire truck chassis in October 1975.

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 ("Spartan Chassis"); Crimson Fire, Inc., headquartered 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").

Spartan 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. Spartan 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 Spartan Chassis or outside sources. Crimson Aerials engineers and manufactures aerial ladder and waterway components for fire trucks.

The Company's business strategy is to further diversify product lines and develop innovative design, engineering and manufacturing expertise in order to be the best value producer of custom vehicle products. Spartan Chassis sells its custom chassis to three principal markets: fire truck,

motorhome and specialty vehicles. Spartan Chassis focuses on certain custom niches within its three principal markets and believes that opportunities for growth remains for custom-built chassis and vehicles in each market.

The Company is an innovative team focused on building lasting relationships with its customers. This is accomplished by striving to deliver premium custom vehicles and services. 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 recognizes that motorhome chassis sales are more sensitive to economic swings than that of the Company's other two principal chassis markets. Thus, in the past few years, management has placed special emphasis on further market penetration in the fire truck market and continued diversification into the specialty chassis market.

The Company expects future growth and earnings to come from:

	•	Potential for increased sales from our EVTeam due to the introduction of new technology such as the "Boomer", an innovative, low cost product that will provide an aerial waterway for fire departments looking for a cost effective solution.
	•	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 market.

The following is a discussion of the major elements impacting the Company's financial and operating results for the three- and six-month periods ended June 30, 2008 compared to the three- and six-month periods ended June 30, 2007. The comments that follow should be read in conjunction with the Company's condensed consolidated financial statements and related notes contained in 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 14, 2008.

Six months ended:

Quarter Ended June 30, 2008, Compared to the Quarter Ended June 30, 2007

For the three months ended June 30, 2008, consolidated sales increased $43.9 million (28.8%) to $196.5 million, from $152.6 million in the second quarter of 2007. The increase was primarily due to the $43.4 million (31.6%) increase in Spartan Chassis sales. Other sales at Spartan Chassis drove the majority of this increase, with a $76.8 million (159.5%) increase over the prior year's quarter. The increase in other sales was partially offset by the decline in motorhome chassis sales of $30.2 million (50.0%) and the decline in fire truck chassis sales of $3.2 million (11.2%).

The increase in other sales at Spartan Chassis was primarily due to an increase of military chassis of $59.3 million (146.1%) coupled with an increase in service parts sales of $17.6 million (250.2%). The increase in military chassis sales was due to an increase in volume, mainly as a result of orders received under the Mine Resistant Ambush Protected (MRAP) program. See Item 1A "Risk Factors" relating to governmental contracts and the information regarding the MRAP program below for more details. The increase in service parts sales was due to an increase in volume of sales and corresponds to increased military vehicles in the field, principally as a result of the MRAP program mentioned above. The decrease in motorhome chassis sales was due to lower order volume, as a result of weakened economic conditions impacting the motorhome market as a whole.

The EVTeam also contributed to the overall sales increase. Compared to the same period in 2007, sales increased $1.2 million (6.0%). This increase was primarily due to an increase in sales of ambulances of $2.3 million (59.2%) offset by lower fire truck sales of $1.5 million (-9.9%). These fluctuations were due to changes in sales volumes due to timing of deliveries.

Gross margin as a percent of sales increased to 17.2% from 15.7% for June 30, 2008 and 2007, respectively. The increase is due primarily to a change in the product sales mix, higher absorption of overhead and more favorable warranty and rework costs. The product mix shifted toward higher margin fire truck chassis and other product sales which include specialty chassis and service parts.

Operating expenses as a percentage of sales increased slightly from 8.7% in the second quarter of 2007 to 9.0% in the second quarter of 2008. This increase was driven primarily by higher bonus compensation accruals due to higher profitability.

Interest expense remained flat at $0.4 million for the three-months ended June 30, 2008 and 2007.

The effective income tax rate was 34.4% in the second quarter of 2008 and 37.4% for the same quarter of 2007. The Company's effective tax rate fluctuates based upon the states where sales occur and with the level of export sales. In addition, the Company experienced lower state taxes during the second quarter of 2008 as a result of tax credits received in connection with plant expansion and job creation in the state of Michigan. The effective tax rates for 2008 and 2007 are consistent with the applicable federal and state statutory tax rates.

Net earnings increased $3.9 million ($0.12 per diluted share) from $6.5 million ($0.20 per diluted share) in 2007 to $10.4 million ($0.32 per diluted share) in 2008 as a result of the factors discussed above.

Total chassis unit orders received during the second quarter of 2008 decreased slightly by 2.4% compared to the same period in 2007. This is the net result of increases from fire truck and military chassis offset by a decrease in motorhome chassis for reasons noted above.

The U.S. Department of Defense launched the MRAP program in response to the need to protect U.S. troops in Iraq from roadside bombs and other improvised explosive devices. By mid-2007, the Department of Defense considered the MRAP program its highest priority, and the program received significant appropriations. As the Department of Defense completes its planned purchases, MRAP purchases will decline significantly, and the Company expects that chassis sales attributable to the MRAP program will experience a corresponding decline. The Company's largest customer during 2007, a producer of blast-protected vehicles, has publicly disclosed that it has no MRAP orders currently in place for 2009, and the Company's third largest customer of 2007 has publicly stated that it expects its MRAP sales to end by 2009.

While the expected ramping down of the MRAP program will likely affect our revenue and earnings, the Company believes that revenue opportunities exist in parts, refurbishment and replacement of MRAP vehicle chassis, and in the sale of specialty chassis for military use in non-U.S. military forces and chassis for future armored vehicle programs.

At June 30, 2008, the Company had $320.2 million in backlog, compared with a backlog of $290.4 million at June 30, 2007. This reflects an increase in Spartan Chassis backlog of $49.4 million, partially offset by a decrease in EVTeam backlog of $19.6 million. The Company anticipates filling its current backlog orders by May 2009.

While orders in the backlog are subject to modification, cancellation or rescheduling by customers, this has not been a major factor in the past. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period to period is not necessarily indicative of eventual actual shipments.

Six Months Ended June 30, 2008, Compared to the Six Months Ended June 30, 2007

For the six months ended June 30, 2008, consolidated sales increased $165.1 million (55.9%) to $460.6 million, from $295.5 million in the first six months of 2007. This increase in sales is mainly due to an increase in sales of $160.7 million (60.5%) at Spartan Chassis. A large decline in motorhome chassis sales of $48.2 million (-41.4%) and a slight decrease in fire truck chassis sales of $4.1 million (-6.9%) were more than offset by higher sales of other product of $213.0 million (238.3%).

The increase in other sales at Spartan Chassis was primarily due to an increase of military chassis of $183.0 million (239.5%) paired with an increase in service parts sales of $31.2 million (279.8%). The increase in military chassis sales was due to an increase in volume, mainly as a result of orders received under the MRAP program. See Item 1A "Risk Factors" relating to governmental contracts for more details. The increase in service parts sales was due to an

increase in volume of sales and corresponds to increased military vehicles in the field, principally as a result of the MRAP program mentioned above. The decrease in motorhome chassis sales was due to lower order volume, as a result of weakened economic conditions impacting the motorhome market as a whole.

EVTeam contributed to the sales increase by $4.1 million (9.7%) to $46.3 million during the first six months of 2008 compared with the prior year's first six months. The majority of this increase is due to higher ambulance sales, which were up $3.8 million (41.5%) over the prior year, due to higher sales order levels.

Gross margin as a percent of sales decreased from 16.5% to 16.1% for these same time periods, due primarily to a change in the product sales mix. The decline was expected due to a shift in product mix and margin pressures on military chassis due to increased competition. In the first half of 2007, the military chassis in production at Spartan Chassis were a part of lower volume military programs with higher margins versus the military chassis produced to date in 2008 under the higher volume MRAP program.

Operating expenses decreased as a percentage of sales to 7.5% for the six month period ended June 30, 2008 compared to 9.0% for the same period of 2007. This is a result of increased efficiencies gained from higher sales volumes. Operating expense dollars increased $8.2 million primarily due to higher compensation accruals for incentive plans reflecting the improved results year to date combined with greater wages and benefits related to higher staffing levels to support the sales increases.

The effective income tax rate was 34.8% in the first six months of 2008 and 36.8% in the same period of 2007. The Company's effective tax rate fluctuates based upon the states where sales occur and with the level of export sales. In addition, the Company experienced lower state taxes during 2008 as a result of tax credits received in connection with plant expansion and job creation in the state of Michigan. The effective tax rates for 2008 and 2007 are consistent with the applicable federal and state statutory tax rates.

Net earnings increased by $11.5 million ($0.35 per diluted share) to $25.2 million ($0.77 per diluted share) in the first six months of 2008 from $13.7 million ($0.42 per diluted share) in the same period of 2007 as a result of the factors discussed above.

Total chassis orders received during the first six months of 2008 increased 16.9% compared to the same period in 2007. This reflects increases in specialty chassis orders (78.1%), due to the MRAP program, and fire truck orders (49.1%), due to an increase in market share by fire truck customers. These were partially offset by a decrease in motorhome chassis orders (-51.7%) which were down due to poor economic conditions.

FINANCIAL CONDITION

Balance Sheet at June 30, 2008 compared to December 31, 2007

Accounts receivable decreased approximately $30.3 million, or 22.8%, at June 30, 2008 when compared to the balance at December 31, 2007. This decrease is primarily a result of a decrease in sales in the second quarter of 2008 when compared to the fourth quarter of 2007. Sales in the second quarter of 2008 were $196.5 million versus sales of $237.6 million in the fourth quarter of 2007.

Accounts payable at June 30, 2008 was $50.8 million compared to $90.8 million at December 31, 2007. The decrease of approximately $40.0 million is a result of a payment timing difference coupled with a shift in the production schedule of a significant customer order under the MRAP program from the second quarter to the third quarter of 2008, due to customer requested engineering changes. The payment timing difference is due to the fact that the Company's offices are closed during the holiday period between Christmas Eve and New Years day. Consequently, there were no check runs during the period and this drove a higher balance at December 31, 2007. The shift in MRAP production schedule moved production out from the second quarter and into the third quarter. The inventory related to these units was on hand in time for the original schedule, resulting in payments being made prior to the inventory being able to be used. As a result, inventory deliveries were slowed in the last month of the quarter ended June 30, 2008, also contributing to the decrease in accounts payable at the end of that period.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated an estimated annualized return on invested capital (ROIC) of 27.7% in the second quarter of 2008, a 23.1% increase compared to the ROIC of 22.5% for the same period in 2007. The Company defines ROIC as operating income, less taxes, on an annualized basis, divided by total shareholders' equity.

For the six months ended June 30, 2008, cash provided by operating activities was $8.7 million, which was a $10.1 million increase from the $1.4 million of cash used in operating activities for the six months ended June 30, 2007.  The $10.1 million of additional cash generated was primarily due to an increase in net earnings between the two periods of $11.5 million. This was partially offset by a net increase in use of cash by the largest drivers of working capital changes, accounts receivable, inventory and accounts payable. The net of these drivers was $19.7 million of cash use in the first half of 2008 versus $19.1 million of cash use during the first half of 2007, resulting in $0.6 million more cash used in the current period. See the "Financial Condition" section in Item 2 of this Form 10-Q for further discussion regarding the accounts receivable and accounts payable balances at June 30, 2008. 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 from operations of $0.8 million between the periods.

The cash provided from operating activities of $8.7 million in 2008, combined with the cash on hand of $13.5 million at December 31, 2007, allowed the Company to have a net pay off of $9.2 million in long-term debt, pay dividends of $1.6 million and fund purchases of property, plant of equipment of $8.2 million.

Shareholders' equity increased $24.6 million, from $129.2 million as of December 31, 2007 to $153.8 million as of June 30, 2008. The increase was driven by $25.2 million in net income of the Company and $1.0 million from compensation related to restricted stock. These were partially offset by $1.6 million paid out in dividends.

On July 24, 2007, the Board of Directors authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 1,000,000 shares of its common stock in open market transactions. That authorization expired on July 24, 2008 with 300,000 shares being repurchased with an average price of $9.23 per share. On July 22, 2008, the Board of Directors

authorized management to repurchase, over the course of the subsequent 12-month period, up to a total of 1,000,000 shares of its common stock in open market transactions. That authorization will expire on July 22, 2009.

During its April 22, 2008 meeting, the Board of Directors approved an additional $10.0 million revolving note payable with JP Morgan Chase Bank, increasing the total unsecured borrowings available to $75.0 million. The Company had borrowings of $26.5 million under this debt agreement in the form of a line of credit as of June 30, 2008. The Company also had a $10.0 million term note, which carried an interest rate of 4.70%, as of June 30, 2008 under the same debt agreement. The line of credit includes three one-year automatic extensions unless the bank provides notice of non-renewal 14 months in advance of the expiration date. Working capital and capital expenditures created the need for the additional borrowings. Under the terms of the line of credit and term note agreement, the Company is required to maintain certain financial ratios and other financial conditions. The agreement also prohibits the Company from incurring additional indebtedness, limits certain acquisitions, investments, advances or loans and restricts substantial asset sales. At June 30, 2008, the Company was in compliance with all debt covenants.

The Company has a private shelf agreement with Prudential Investment Management, Inc. This agreement allows the Company to borrow up to an additional $40 million to be issued in $5 million minimum increments. The interest rate is determined based on applicable rates at time of issuance. The Company had a $10.0 million term note issued under this shelf agreement as of June 30, 2008, which carried an interest rate of 4.93%.

The Company has an unsecured fixed rate long term note which bears interest at 4.99%. The loan is repayable in equal monthly installments and matures in October 2011. At June 30, 2008, the total outstanding amount on this note was $6.2 million of which $466,667 is payable in 2008.

The Company has a secured line of credit for $0.2 million, which had an expiration date of July 5, 2008.   The Company is in the process of renewing this secured line of credit in the same amount of $0.2 million. This line of credit was, and may continue to be, secured by accounts receivable, inventory and equipment.  There were no borrowings under this line at June 30, 2008.

The Company has secured mortgage notes of which $1.1 million and $0.1 million were outstanding as of June 30, 2008. The mortgage notes carry an interest rate of 3.00% payable in monthly installments (for principal and interest) of $6,933 and $834, respectively, with balances due July 1, 2010 and March 1, 2009, respectively. These mortgage notes are secured by real estate and buildings.

The Company had construction in process as of June 30, 2008 for the site development and building construction for a new office building and renovations to manufacturing facilities. Total estimated construction costs for these projects are $13.9 million of which $7.9 million has been spent as of June 30, 2008. The related construction projects are expected to be completed by September 2008.

On April 22, 2008, the Board of Directors approved regular dividends of $0.10 per share payable in the amount of $0.05 per share on June 16, 2008 and $0.05 per share on December 17, 2008 to shareholders of record on May 16, 2008 and November 17, 2008, respectively. The amount paid out on June 16, 2008 was $1.6 million.

The Company believes it has sufficient resources from cash flows from operating activities and, if necessary, from additional borrowings under its lines of credit and anticipated renewals to satisfy ongoing cash requirements for the next 12 months.

CRITICAL ACCOUNTING POLICIES

The following discussion of accounting policies is intended to supplement Note 1, General and Summary of Accounting Policies , of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008. These policies were selected because they are broadly applicable within the Company's operating units, and they involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts.

Revenue Recognition - The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition". Accordingly, revenue is recognized when title to the product and risk of ownership passes to the buyer. In certain instances, risk of ownership and title passes when the unit has been completed in accordance with purchase order specifications and has been tendered for delivery to the customer. Sales are shown net of returns, discounts and sales incentives, which historically have not been significant. The collectability of any related receivable is reasonably assured before revenue is recognized.

Accounts Receivable - The Company maintains an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances.

Inventory - Estimated inventory allowances for slow-moving and obsolete inventory are based upon current assessments about future demands, market conditions and related management initiatives. If market conditions are less favorable than those projected by management, additional inventory allowances may be required.

Impairment of Goodwill - Goodwill represents the difference between the purchase price and the related underlying tangible and identifiable intangible net asset values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, the carrying value of the reporting unit is compared to an estimate of its fair value. If the estimated fair value is less than the carrying value, goodwill is impaired and will be written down to its estimated fair value. Goodwill is allocated to the reporting unit from which it was created.

Based upon the estimated fair value of the Company's reporting unit using a discounted cash flow valuation, the goodwill at its Crimson Fire subsidiary which is included in the Company's EVTeam reportable segment was not impaired as of October 1, 2007, the most recent annual impairment test date.

Warranties - The Company's policy is to record a provision for the estimated cost of warranty-related claims at the time of the sale, and periodically adjust the provision to reflect actual

experience. The amount of warranty liability accrued reflects management's best estimate of the expected future cost of honoring the Company's obligations under the warranty agreements. The Company's estimates are based on historical experience, the number of units involved and the extent of features and components included in product models. For military vehicles with limited historical data, estimates were based upon historical experience of commercial vehicles. See also Note 3 to the condensed consolidated financial statements included in Item 1 of this Form 10-Q.

Equity Compensation - SFAS 123(R), "Share-Based Payment", addresses the accounting for share-based employee compensation and was adopted by the Company on January 1, 2006 utilizing the modified prospective approach. SFAS 123(R) requires that share options and stock appreciation rights (SARs) awarded to employees are recognized as compensation expense based on their fair value at grant date. The fair market value of options and SARs granted under the Company's stock compensation plans was estimated on the date of grant using the Black-Scholes option-pricing model using assumptions for inputs such as interest rates, expected dividends, volatility measures and specific employee exercise behavior patterns based on historical statistical data. Some of the inputs we use are not market-observable and have to be estimated or derived from available data. Use of different estimates would produce different values, which in turn would result in higher or lower compensation expense recognized. We have not run the model with alternative inputs to quantify their effects on the fair value of the options or SARs.

To value options and SARs, several recognized valuation models exist. None of these models can be singled out as being the best or most correct one. The model we apply is able to handle some of the specific features included in the awards we grant, which is the reason for its use. If we were to use a different model, the values would differ despite using the same inputs. Accordingly, using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options and SARs. Fair value could be either higher or lower than the ones produced by the model we apply and the inputs we used.

NEW AND PENDING ACCOUNTING POLICIES

See note 6 to the condensed consolidated financial statements included in Item 1 of this Form 10-Q.

EFFECT OF INFLATION

Inflation affects the Company in two principal ways. First, the Company's revolving notes payable are generally tied to the prime and LIBOR interest rates so that increases in those interest rates would result in additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, the Company attempts to cover increased costs of production and capital by adjusting the prices of its products. However, the Company generally does not attempt to negotiate inflation-based price adjustment provisions into its contracts. Since order lead times can be as much as six months, the Company has limited ability to pass on cost increases to its customers on a short-term basis. In addition, the markets served by the Company are competitive in nature, and competition limits the Company's ability to pass through cost increases in many cases. The Company strives to minimize the effect of inflation through cost reductions and improved productivity.