arvinmeritor 2007_Q2_Earnings_Slides_Final

FY 2007 Second Quarter Earnings and Performance Plus Update
May 1, 2007

FY 2007 Second Quarter
Earnings Presentation and
Performance Plus Update
Chip McClure, Chairman, CEO & President
Jim Donlon, Senior Vice President & CFO
Jay Craig, Vice President and Controller
Carsten Reinhardt, President, CVS
Phil Martens, President, LVS

May 1, 2007

1

May 1, 2007

Forward-Looking Statements
This presentation contains statements relating to future results of the company (including certain projections and
business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of
1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,”
“anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. Actual results may differ
materially from those projected as a result of certain risks and uncertainties, including but not limited to global
economic and market cycles and conditions; the demand for commercial, specialty and light vehicles for which the
company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and
potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and cost of
raw materials, including steel; OEM program delays; demand for and market acceptance of new and existing
products; successful development of new products; reliance on major OEM customers; labor relations of the
company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand
for our products due to work stoppages; the financial condition of the company’s suppliers and customers,
including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by
our suppliers; potential difficulties competing with companies that have avoided their existing contracts in
bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability
to achieve the expected annual savings and synergies from past and future business combinations and the ability
to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential
impairment of long-lived assets, including goodwill; competitive product and pricing pressures; the amount of the
company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the
ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and
any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters;
rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting
rules; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to
time in other filings of the company with the SEC. These forward-looking statements are made only as of the
date hereof, and the company undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise, except as otherwise required by law.

2

May 1, 2007

Chip McClure
Chairman and CEO

Overview

3

May 1, 2007

Highlights
• Earned $0.17 per share from continuing operations
before special items
• Emissions Technologies business now reported in
discontinued operations; Aftermarket Ride Control in
continuing operations
• FY 2007 EPS guidance before special items reduced to
a range of $0.70 to $0.80
• Performance Plus will achieve $150 million with
restructuring and cost reductions alone by 2009

4

May 1, 2007

Second Quarter 2007 Summary
CVS BUSINESS GROUP
• Lighter than expected trailer builds and softer demand for
Aftermarket products
• Freight and tonnage lower
• Housing down
• Economy soft
• Higher truck volume issues in Europe
• Stretched supply chain
• Quality actions

LVS BUSINESS GROUP
• Higher margins
• Improvements in operating performance paying off
• Stronger mix of European/Asia Pacific sales
• Chassis Systems reinforced with the addition of Gabriel Ride Control
• Electronic ride control development well underway positioning Chassis Systems
for future growth

5

May 1, 2007

Status of Emissions Technologies Sale
• Transaction is on track to close this quarter
• Received anti-trust approvals from all jurisdictions
• All major elements of the deal are as reported on
February 2
• Proceeds to be used to improve balance sheet and
fund restructuring and growth initiatives

6

May 1, 2007

Profitable Growth Strategy
Sharpen focus on core areas for sustainable, profitable growth
Increase Globalization
• Triple sales in Asia with Asian OEMs within
five years
• $1B+ added sales in Asia Pacific
• $1B in sourcing
• Establish healthy mix of local OEMs and global
OEMs in region
• Grow technical and product development
within China and India
• Build new technical center in Shanghai, China
• Double size of technical center in Bangalore, India
• Appointed dedicated full-time leader
• President of Asia Pacific – Rakesh Sachdev
• Opened a wholly-owned facility in Wuxi

Positioned for Growth
7

May 1, 2007

Profitable Growth Strategy
Sharpen focus on core areas for sustainable, profitable growth
Deliver Value to Customers
• Increase systems, controls and electronics capabilities
Introduce New and Enhanced Technologies
• Generate compelling new “gotta have” products that create
exceptional value for customers
Triple Aftermarket Sales
• Organic growth
• Bolt-on acquisitions
• Global expansion
• Remanufactured products
Positioned for Growth
8

May 1, 2007

2008-2009 Opportunities
Success factors…
Market Addressing Pension and
Healthcare Issues
• Rebounding truck volumes
ahead of 2010 emissions • Changed U.S. retirement plan
change effective Jan. 1, 2008
• Implemented consumer-driven
Launched Performance
healthcare initiatives in Jan.
Plus Initiatives 2007
• Significant cost savings
Solid Balance Sheet
• Improve operating efficiency
• Develop products and • Reduced debt
technologies • Increased liquidity
Restructuring
Diversified
• Enhanced global footprint
• Customer base
• Consolidate LVS/CVS
• Global presence
engineering facilities
• Product portfolio
• Overhead

Sound Investment
9

May 1, 2007

Jim Donlon
Chief Financial Officer

Q2 Results & 2007 Outlook

10

May 1, 2007

Second Quarter Income Statement from
Continuing Operations – Before Special Items (1)
(in millions, except per share amounts) Three Months Ended March 31,
Better/(Worse)
2007 2006
$ %
Sales $ 1,627) $ 1,629) $ (2) 0%
Cost of Sales (1,490) (1,477) (13) -1%
GROSS MARGIN 137) 152) (15) -10%
SG&A (99) (89) (10) -11%
OPERATING INCOME 38) 63) (25) -40%
Equity in Earnings of Affiliates 7) 7) -) 0%
Interest Expense, Net and Other (28) (35) 7) 20%
INCOME BEFORE INCOME TAXES 17) 35) (18) -51%
Provision for Income Taxes (2) (7) 5) 71%
Minority Interests (3) (4) 1) 25%
INCOME FROM CONTINUING OPERATIONS $ 12) $ 24) $ (12) -50%
DILUTED EARNINGS PER SHARE
Continuing Operations $ 0.17) $ 0.34) $ (0.17) -50%

11
(1) See Appendix – “Non-GAAP Financial Information”

May 1, 2007

Segment EBITDA Before Special Items (1)
Quarter Ended March 31,
(in millions)
Better/(Worse)
2007 2006 $ %
EBITDA
Light Vehicle Systems $ 30) $ 16) $ 14) 88%
Commercial Vehicle System 59) 88) (29) -33%
Segment EBITDA 89) 104) (15) -14%
Unallocated Corporate Costs (1) -) (1) -100%
ET Corporate Allocations (11) (6) (5) -83%
Total EBITDA $ 77) $ 98) $ (21) -21%

EBITDA Margins
Light Vehicle Systems (2) 5.2% 2.8% 2.4 pts
Commercial Vehicle System 5.5% 8.3% -2.8 pts
Segment EBITDA Margins 5.4% 6.4% -1.0 pts
Total EBITDA Margins 4.7% 6.0% -1.3 pts
(1) See Appendix – “Non-GAAP Financial Information” 12
(2) Adjusted to reflect the impact of reduced volumes in our Brussels operation

May 1, 2007

Income Statement Special Items Walk
Ride Control Before
Fair Value Production Debt Tax
GAAP Special Items
Restructuring Adjustment Disruptions Extinguishment Impact
Q2 2007 Q2 2007

Sales $ 1,627 $ - $ - $ - $ - $ - $ 1,627

Gross Margin 143 - - (6) - - 137

Operating Income 17 37 (10) (6) - - 38

Income (Loss) Before Income Taxes (10) 37 (10) (6) 6 - 17

Income (Loss) From Continuing Operations (13) 23 (6) (4) 4 8 12

DILUTED EARNINGS (LOSS) PER SHARE
Continuing Operations $ (0.19) $ 0.32 $ (0.08) $ (0.05) $ 0.06 $ 0.11 $ 0.17

Diluted Shares Outstanding 70.2 71.2 71.2 71.2 71.2 71.2 71.2

EBITDA
Light Vehicle Systems $ 8 $ 29 $ (10) $ 3$ - $ - $ 30
Commercial Vehicle Systems 60 8 - (9) - - 59
Segment EBITDA 68 37 (10) (6) - - 89
Unallocated Corporate Costs (1) - - - - - (1)
(11) - - - - - (11)
ET Corporate Allocations
$ 56 $ 37 $ (10) $ (6) $ - $ - $ 77
Total EBITDA

13

May 1, 2007

Discontinuation of Emissions Technologies
In millions; excludes asset impairment
1H After Divestiture
1H Before Divestiture
Revenue
COGS 38
Continuing
ET Specific SG&A
Operations
Corporate Costs (18)
Corporate Costs (18)

x
EBITDA 20 EBITDA (18)

Revenue
Discontinued
COGS 38
Operations
ET Specific SG&A

EBITDA 0 EBITDA 38
14

May 1, 2007

Discontinued and Held-for-Sale Operations

Emissions
In millions LVA Europe
Technologies

Assets $ 1,103 $ 139

Liabilities 740 65

Net Assets $ 363 $ 74

Memo: 2006 Sales $ 2,942 $ 171

15

May 1, 2007

Free Cash Flow (1)
Quarter Ended
In millions
March 31,
2007 2006

Income (Loss) from Continuing Operations $ (13) $ 32

Net Spending (D&A less Capital Expenditures) 6 9
Pension and Retiree Medical Net of Contributions (63) 12
Performance Working Capital (2) 11 (56)
Off Balance Sheet Securitization and Factoring 17 5
Restructuring, Disc. Ops. and Other (29) (67)
Free Cash Flow $ (71) $ (65)

(1) See Appendix – “Non-GAAP Financial Information”
(2) Change in payables less changes in receivables, inventory and customer tooling 16

May 1, 2007

Global Pension Plan Funded Status
In millions

2006 Year-End Underfunded Status $ (409)

Discount Rate (-50 bps in U.S and Canada) (85)
UK Elective Contribution (1) 40
Other Plan Year Activity (2) 124
Plan Freeze 30
ET Divestiture 35

Estimated 2007 Underfunded Status $ (265)
(1) $10 million pull-ahead and $30 million incremental 2007 contributions applied to
significantly reduce underfunding levy over next six years
(2) Includes other plan contributions and asset returns net of interest and service cost 17

May 1, 2007

Fiscal Year 2007 Outlook
Continuing Operations Before Special Items

FY 2007
Full Year Outlook (1)
(in millions except tax rate and EPS)
̶
Sales $ 6,000 $ 6,200
̶
EBITDA 275 295
̶
Interest Expense (95) (105)
̶
Effective Tax Rate 8% 12%
Income from Continuing ̶
$ 50 $ 57
Operations
̶
Diluted Earnings Per Share 0.70 0.80
̶
Free Cash Flow 50 100
(1) Excluding gains or losses on divestitures, restructuring costs, and other special items
18

May 1, 2007

FY 2007 Outlook vs. Prior
Continuing Operations Before Special Items

Sales Estimated
(millions) EPS (1)

Previous Guidance $5,900 – $6,100 $1.00 – $1.10

Weaker North America Truck Market (50) – (75) (0.10) – (0.15)
Lower Achievement of NA Offsets (25) – (50) (0.05) – (0.10)
Stronger European Truck Volumes 125 – 175 0.10 – 0.15
Lower EU Productivity & Volume Penalties (0.15) – (0.20)
Unrecovered Commodity Cost Increases (0.05)

Updated FY 2007 Guidance Range $6,000 – $6,200 $0.70 – $0.80

19

May 1, 2007

Jay Craig
Controller
• Performance Plus Overview
• Overhead

20

May 1, 2007

How is the Program Structured?
Goal

Top Quartile Financial Performance Among Peer Companies
Steering Committee
Corporate Officers

Operational Excellence Commercial Excellence
Approach

Cost Improvements Revenue Enhancement

Product
Strategy & Aftermarket
Materials Mfg. Overhead ER&D
Growth

C. P. Martens &
Sponsors C. Reinhardt J. Craig P. Martens J. Craig
Reinhardt M. Lehmann

Talent Excellence
Foundation

Sponsor: R. Ostrov

Program Office
Sponsors: J. Craig and J. Donlon

21

May 1, 2007

Project Approach and Timing

Design
Set Targets
Implement
Improvement
Initiatives Initiatives
Time
Span Nov. – Dec. 2006 Jan. – Dec. 2007 Jan. 2007 – Dec. 2009
• Implement initiatives
• Generate/identify
• Set overall work
improvement
module targets
Main • Track realization of
measures potential
• Plan work modules in
Tasks
• Assign responsibility
detail • Institutionalize tools and
and timeline methods
• Create baseline and
• Implement quick
tracking approach
wins

22

May 1, 2007

Performance Plus Profit Improvements
Run rate by 2009 in millions

Base Risk Net

COST
Reduce 8%-10%
$200-300 $150
Elements ~$350-$450
$5 Billion Base
(Addressable Costs)

REVENUE Grow $1.2 Billion
~$50-$150 TBD TBD
7-13% Margins
Elements

Improvement ~$400-$600

23

May 1, 2007

Performance Plus High-Confidence Improvement –
Adjusted for Emissions Technology
EBITDA Before Special Items

2006 2007 2008 2009

Updated $365 $275-$295 $335-$380 $385-$445
Baseline

High-Confidence
75 150
Cost Savings

Growth Actions TBD
TBD

Total $365 $275-$295 $410-$455 $535-$595

24

May 1, 2007

Performance Plus Restructuring
North
(millions except plants) Europe Total
America

Restructuring Expense $170 $155 $325

Restructuring Cash $155 $125 $280

Number of Plants Affected 9 4 13

Cumulative Annual Run-
$80 - 85 $50 - 55 $130 - $140
Rate Benefits by 2012

25

May 1, 2007

Calendarization of Expenses and Benefits

(millions) 2007 2008 2009 Total

Restructuring Expense $65 $115 $100 $325

Restructuring Cash $50 $100 $80 $280

Cumulative Annual Run-
$5 $25-$30 $75-$80 $130-$140
Rate Benefits by 2011

26

May 1, 2007

Detailed Cost Reduction Targets
Cost Reductions (millions) 2008 2009

Overhead $ 65 $ 100

Materials 100 200

Manufacturing (20) 65

Risk (70) (215)

High Confidence Net of Risk $ 75 $ 150

27

May 1, 2007

Progress to Revenue Improvement Target
Revenue growth in millions by 2010
Target

Identified
$1,000
Initiatives

Being
$400
Implemented

$0 $200 $400 $600 $800 $1,000 $1,200

28

May 1, 2007

Operational Excellence

Overhead Material Manufacturing
Optimization

29

May 1, 2007

• Shared Services
• Integration of staffs and
consolidation of
corresponding facilities
• Purchased services
• Utilities
• Legal services
• Consulting, auditing and
transaction fees
• Waste disposal

Overhead
30

May 1, 2007

Overhead
In millions

2009 EBITDA
Lever / Sub-Team Opportunities
Target
- Travel and Entertainment
Non-Manufacturing $35 – $40
- Reduction in Energy Consumption
- Temp Labor
- Supplier Consolidation
- Re-bid Contracts
Indirect Materials 10 – 20
- Demand Management
- Commonization (SKU Reduction)
- Outsourcing

Activity / Process - Outsourcing
45 – 50
Labor - Foot Print Rationalization

Total $90 - $110
31

May 1, 2007

Temp Labor Benchmarking Data Indicates a
9-19% Savings Opportunity
• Supplier Consolidation Total run-rate savings of $4M - 10M
• Reduce light industrial labor $US Millions
suppliers from over 38 to 2-3
preferred suppliers
4 - 10
• Reduce non industrial labor
suppliers from over 47 to 2-3
preferred suppliers 2-5
• Implement immediate transition
to new suppliers to maximize 2-5
savings
• Demand Management
• Standardize job titles to ensure
“not to exceed” rates
• Ensure correct jobs are chosen
for each request Total Supplier Demand
Savings Consolidation Management
• Reduce overtime through better
capacity planning
32

May 1, 2007

Non-Production Materials
Loctite part with annual
1 Eliminate pricing variation spend of $570 K

• Identical part numbers
-20%
4,980
• Utilize lowest cost supplier 4,462
3,971
• Incremental opportunity for volume discount

2 Standardize or substitute parts Supplier 1 Supplier 2 Manufacturer

Part substitution: clear safety glasses
• Different items with similar function 5.65
• Examples include cutting tools, abrasives,
hand tools, fasteners
69%
3.60

3 Manage demand
1.76
• Inventory tracking techniques
• Vendor management
Part 1 Part 2 Part 3
33

May 1, 2007

Carsten Reinhardt
President, CVS
• Material Optimization
• Manufacturing

34

May 1, 2007

• Consolidate purchasing
activities to increase scale
• Renegotiate rigorously for
cost reductions
• Fully utilize value analysis/
value engineering tools
• Identify, qualify and source
leading cost competitive
suppliers
• Concentrate business with
Material key supplier partners
Optimization
35

May 1, 2007

Material Optimization
In millions
Lever / Sub- 2009 EBITDA
Opportunities
Team Target
- Material / process standardization
- Design improvements for lower cost
Design
$70 – $75
- Key tools: competitive teardowns and
Optimization
supplier conferences
- Leverage spend across regions and product
lines to gain scale
55 – 60
LCCC Sourcing
- Invest time and resources to develop world-
class suppliers
- Understand detailed supplier cost structure
and “should-be” costs
Clean-Sheet
40 – 45
- Take a total cost approach
Negotiations
- Transparent and stable relationships with
suppliers to jointly eliminate waste
- Reduce freight rates across all modes
25 – 30
Freight
- Reduce frequency, costly modes, expedites

Total $190 – $210
36

May 1, 2007

Completing Wave 1 of 3 (2/3 of Opportunities)
Today

Wave 1
Axles Wave 2
Apertures
Brakes Wave 3
Freight
Wheels
Trailers
Suspension
Aftermarket
Other CVS
Ongoing implementation

Axles 33% Brakes 9% Trailers 7%
Percent of
Apertures 25% Wheels 1% Aftermarket 7%
opportunity
Freight 8% Suspension 3% Other CVS 7%
66%
Planned
Early January Mid May End July
start date

37

May 1, 2007

Progress on Opportunity Levers
Opportunity Progress to date Potential
35 %
• 12 ‘Teardowns’ focused on different axle models
1 Design 30+ Idea Generation Sessions (IGS) with current
Optimization suppliers and Internal Resources
• 200+ ideas generated
• More than 150 ideas finalized to be pursued
• RFQs to ‘short-listed’ suppliers for 25+ components 30 %
2
LCCC
• 200 ‘new’ suppliers being assessed
Sourcing
• Supplier workshops in India, China and Mexico in
Addition to NA and Europe
• Clean-sheet assessments completed for 20+ 20 %
3
Clean-Sheet components to understand ‘should be’ cost
Negotiations • Information requested from all key suppliers
• Discussions on-going to close gaps
• Analyzed rates for all shipments for harmonization
15 %
4
• Kicked off repackaging efforts to maximize shipping
Freight
density on selected components

Total 100 % 38

May 1, 2007

Competitive Teardowns
1

39

May 1, 2007

Thrust Bearing and Composite Bushing
1

Current Part (Europe) Proposed Part

• 6 different parts • 2 parts (add bushings)
• Total cost $75 • Total estimated cost $25
• Approx. volume – 100,000

Potential Annual Savings: $5 Million
40

May 1, 2007

1 North America Shift Forks

• 1.63 lbs
• 1.39 lbs • 1.26 lbs
• 3.75 $/lbs
• 2.79 $/lbs • 4.84 $/lbs
• Material: D25-1
• Material: D25-2 • Material: D25-2
• Nitro carburized
• Induction hardened • Nitro carburized

Potential Annual Savings: $650 K
41

May 1, 2007

LCCC Opportunity by Commodity
2 HCC
LCCC
Axles Brakes
100% 100%

Casting 87% 69%
13% 31%

Forging 66% 73%
34% 27%

Steel 87% 100%
13% 0%

Bearings 75% 100%
25% 0%

Stampings 58% 100%
42% 0%

Other 57% 85%
43% 15%

42

May 1, 2007

Clean-Sheet Negotiations for Example Part
3

Ring Gear
USD per unit
Key Insights

Detailed understanding of $76.77
the cost components that
-15%
make up the total ‘price’ $64.99
Key assumptions
Profit
Internal process expertise
• Blank weight
being sought to understand
• Blank Material
the ‘ideal’ processes and Overhead
and rate
‘should be’ cost
• Profit as % ROIC
Labor • Annual volume
‘Cost transparency’ being
• Region of
sought from all current Material
production for
suppliers to understand and
labor rate
eliminate ‘waste’ from the
• Labor OEE
value chain
• Equip OEE
Current Clean
Price Sheet

Potential Annual Savings: $700 K
43

May 1, 2007

Three Key Levers for Freight Cost
4

Price Management for Full Truck Loads

Eliminate outliers
• Reduce freight
Price rates across all
modes of
Management
transportation 2. Reduce
average rates
(selectively re-
1. Harmonize rates
bid routes)
(lane by lane, carrier
• Ship less frequently by carrier)
• Select optimal
Demand
mode
Management • Maximize freight
density

• Redesign logistics
Performance organization
• Track compliance
Management
and key metrics

44

May 1, 2007

Wave 1 Ideas Alone Exceed Target
Risk-adjusted Values for Initiatives Identified through April 26

Target

Freight

Apertures

Axles

Key Highlights
• Dedicated sub-teams focused on all three areas
• Weekly tracking of performance for each team
• Teams generating more ideas than the target to account for risk
45

May 1, 2007

• Optimize footprint
• Improve equipment utilization
• Fully institutionalize Six
Sigma and lean principles
• Leverage new technologies
for world-class efficiency
• Improve supply logistics and
flow

Manufacturing

46

May 1, 2007

Manufacturing Optimization
In millions

2009 EBITDA
Lever / Sub-Team Opportunities
Target

Restructuring $35 – $40
- Optimize manufacturing footprint

- Improve productivity through consistent
Lean 25 – 30
implementation of lean manufacturing
principles

Total $60 - $70

47

May 1, 2007

Footprint Restructuring Highlights
(Excludes ER&D and Overhead Actions)

• Affects 13 plants in North America and Europe
• Expected to affect 2,400 employees in high-cost sites (of
the 2,800 for all restructuring activities), while creating
800 positions in low-cost sites
• Restructuring costs of $250 million
• Annual run-rate savings of $45-55 million by 2009
(excludes one-time transition costs not in restructuring)
and $85-90 million by 2011
• Payback of 2.8 years is longer than 2005 program
because the easiest actions were done first
48

May 1, 2007

Standardized Lean Transformation Is
Underway
• Developed production system
using following guiding
principles

• Single production system
Management
across CVS and LVS systems

• Standard processes and Operating
systems
performance metrics
Mindsets,
• Capture in a “playbook” Behaviors &
Capabilities
• Build organization
capability

49

May 1, 2007

Lean Transformation at Fletcher, NC Plant
• Early productivity
5% productivity gain
Fletcher Total Plant Productivity
Percent Start of lean program
improvements evident
45
across Fletcher facility
43
in week 11 of 23 of
lean transformation
41

• Capacity improvements
39

will position plant to
37
capitalize on future
35
market upswing
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11
Weeks
• Example improvement
6% productivity gain
levers include
Assembly Line Productivity
Percent
65
• Strong performance
management
system
60

• Bottleneck breaking
55
• Standard work
• Line balancing
50
-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11
Actual
Weeks
Annual Operating Plan
50

May 1, 2007

Investing in Future Production Technology
• Exiting several non-core manufacturing processes
• Investing in leading technology for core processes
• Example: Gear production process will be the global benchmark

Traditional Near Net
forging forging

Investing in
CNC process
to enable Near
Net forging

51

May 1, 2007

North America Class 8 Volumes
(Thousands of vehicles)

FY2007 = 224K vehicles FY2008 = 250K vehicles 310
89

70 70
71
220
60
50

36
28

FY2009 FY2010
Q2 Q3 Q4 Q1
Q1 Q2 Q3 Q4
CY2007 = 185K Vehicles

52

May 1, 2007

ATA Truck Tonnage Index
Monthly Index Seasonally Adjusted; 2000 = 100.0
3 MMA Monthly Linear (3 MMA)

130

120

110

100

90

80
97

99

01

03

05

07
n-

n-

n-

n-

n-

n-
Ja

Ja

Ja
Ja

Ja

Ja

Ton-Miles Have Softened Recently, but Trend Remains Positive
53

May 1, 2007

Factors Affecting 2008-2009 Upturn
Tonnage Trends Improving
3.3 3.3
4.9 3.2
Industrial Real
3.4 2.6
2.3
3.7

Production(1) GDP
2.6
2.1

Growth(1)
'05 '06 '07 '08 '09 '05 '06 '07 '08 '09

8.0
7.9
1.9 8.0
1.6
2.1
Housing Fleet 7.9
1.5
1.5

Starts(1) Age(2) 7.7

'05 '06 '07 '08 '09 '05 '06 '07 '08 '09

Operating
Light 16.8
17.3
Cost of
Vehicle 16.4 16.4
16.5
2005 Truck
Sales(1)
'05 '06 '07 '08 '09 '05 '06 '07 '08 '09

54
(1) (2)
Global Insight April 2007 MacKay & Co.

May 1, 2007

North America Class 8 Truck Market Outlook

CY in thousands 2006 2007 2008 2009

Industry Analysts (3) 359 222 278 351

Industry Participants (23) 359 209 262 332

ArvinMeritor 359 185 272 326

55

May 1, 2007

Global Medium and Heavy Truck Demand
Europe Asia/Pacific
• Truck demand very strong in • World’s largest market for
2007 medium and heavy trucks
• Economic growth continues • Market volumes continue at
robust pace
• EU expansion includes 9 new
countries with aggressive fleet • Regional economic growth very
modernization robust even if it slows somewhat
• Market continues to be insulated • Economic growth in China
from significant technology continues to lead the world at
introductions, i.e. Euro 4 (’06) 10%+ rate
and Euro 5 (’09) • Industrial production remains
• Major customers bullish on strong despite slight expected
volume projections reductions in growth rate in India
and China for 2008 and 2009
56

May 1, 2007

Phil Martens
President, LVS
• Product Strategy & Growth
• Engineering, Research &
Development

57

May 1, 2007

Commercial Excellence

Aftermarket
Engineering
Product Strategy
Research and
&
Development
Growth

58

May 1, 2007

• Grow profitability by
increasing revenues and
margins
• Right products
• Right technologies
• Right global markets
• Grow systems capabilities
globally

Product
Strategy &
Growth 59

May 1, 2007

Strategic Imperatives of Growth

Pre-Requisite: Clear Focus on

1. Increase value added through greater
systems capability
2. Expand through new product introductions
3. Balance business exposure to deep cycles
in OE truck markets

60

May 1, 2007

LVS EBITDA Margin Improvement Showcases
Improving Operational Excellence
Fiscal Q2 2007 Compared to Fiscal Q2 2006

EBITDA Margin (1)

Fiscal Q2 2006 2.8 %

1.6
Cost Reductions Net of Pricing
North America Volume (1.1)
Other Volume 1.5
Other Improvements 0.4
Net Improvement 2.4%

Fiscal Q2 2007 5.2%

61

May 1, 2007

Focus on Value-Added Products
Functionality/
Features
Black Box/
Proprietary
Knowledge
Potential Cross-System
Cross-System
Integration
Integration
Electronic
Electronic
Customer Value

Full System Control/
Full System Control/
Integration Feature
Integration Feature
Enhancement
Enhancement
Modules/
Modules/
Sub-
Sub-
Assemblies
Assemblies

Mechanical
Mechanical
Goal: Transition from
Components/
Components/
Commodity to Integration
Commodities
Commodities
Strategies to Maximize
Returns Projected Movement
Over Time

Supplier Value
62

May 1, 2007

Business Units Now Organized by Systems to
Drive Synergies and New Product Development
Doors
Electronic
Motion

Aperture
Roofs
Systems
Electronics Adjacencies

and
Suspension
controls
Stability
Vehicle

Chassis Wheels
that Systems
enhance Braking

system
Axles
Propulsion

performance
Drivetrain Drivelines

Hybrid Drives
63

May 1, 2007

Organizational Synergies Accelerating New
Product Introductions
2008 2009 2010

HIP NAL LER
EDCM HGL PSD
PTS
Apertures

NAM
NEM
ROL
LFI
15 new
15 new CG
programs in
programs in AST
2008
2008 10 additional
10 additional
Chassis

LVCP programs in
AA
programs in
ARC
2009-2010
ELvl AS
2009-2010
30% of Apertures
AD LVMD 30% of Apertures
sales from new
sales from new
products by 2010
products by 2010
Wheels

780
HVA HVA
CLAD
CC
EUF
64

May 1, 2007

Chassis Systems Functional Integration– Clear
Focus on Vehicle Stability
1 Front and Rear Cross-Car Modules - Complete system
2 integration and assembly for JIT delivery to OEM’s
3 Air Suspension Systems - System integration and
foundation for innovations such as active and package
constrained air suspension systems
3
4 Active Roll Control Systems -
1
• Hydraulically controlled stabilizer bar
systems provide increased safety and
improved ride and handling
• Self contained system reduces complexity
and allows for easier packaging
5 4
5 Adaptive Damping Systems -
Modular to a standard damper, the
in-piston, continuously variable
2
shock or strut improves ride and
handling
65

May 1, 2007

Active Roll Control
• Actively adjusts stabilizer bar rate using
hydraulics
• Benefits
• Improves ride and handling capability
• Increases safety Single Wheel Bump
• Induce negative roll torque Active Roll
Standard
• Provides roll damping Control
• Integrates into stability control
systems
• Lower system complexity
• Easier to package
Cornering
• System is scalable; adjustable,
adaptive or active Active Roll
Standard
Control
• Development contract with a major OEM
• Concept ready: 3Q/2008
66

May 1, 2007

Balance Exposure to Deep Cycles in OE
Truck Markets
• Aggressively expand in Asia
• Capitalize on strong aftermarket distribution capability and
specialty vehicle opportunities
• Grow LVS globally with selected OEMs
• LVS 2010 backlog of $550 million (26%)
• Additional high-confidence opportunities

67

May 1, 2007

$1 Billion Identified Growth Initiatives
• LVS New Products 30%
• Chassis systems: wheels, electronic ride control
• Apertures: joint product development (roofs/doors)
• Asia/Pacific 20%
• Increased China LVS OEM growth
• Global program awards manufactured in Asia
• Specialty and Trailer 20 %
• Strong organic growth
• Aftermarket/Other 30 %
• Global expansion underway
• Strong remanufacturing operations
• 100%

Clear Focus on Higher Margin Products and Growth in Asia
68

May 1, 2007

Delivering New Products: Independent Axle
Suspension System
• Mine Resistant Ambush Protected
(MRAP) Vehicle
• Accelerated program to add 4,100
(initial contract) armoured 4x4s and
6x6s into theatre
• Opportunity for up to $16 million
incremental sales in 2008 and 2009
• Of the 9 OEMs bidding on the
business, ArvinMeritor is the potential
axle supplier on 4 of the long-term
proposals

69

May 1, 2007

• Achieve and sustain a
competitive cost and
technology position
• Deliver “gotta have”
products with increased
focus on value add
• Consolidate and leverage
corporate technical
capabilities to increase
speed to market
Engineering
Research and
Development 70

May 1, 2007

Systems Integration Strategy
• What it is not...
• Full-service supplier initiative
• Outsourcing of engineering by OEMs
• What it is…
• For mature markets:
• High-tech cross-systems capability to develop new product
solutions that customer will value
• Greater controls and electronics capability
• For developing markets:
• Helping local OEMs gain the full cost benefits of modularization
and mechanical integration

71

May 1, 2007

What Does Controls and
Electronics Capability Mean?

60% 30% 10%
Effort:
Describe HOW to
UNDERSTAND the Dynamic System
Control the System
(models, requirements)
(algorithms)

Module
w/ Part
Number

72

May 1, 2007

One Product Development System
LVS Product CVS Product
Development
• Accelerated development of Development

new technologies Program Management Office

LVS Program CVS Program
• Focus on Electronics/ Management Management

Controls Engineering
Office of Engineering Technology

• Shared governance Exp. Mech. &
Test Labs
Technical
• Global engineering Planning
Anal. Mech. &

expansion CAE
Engineering
Process

• Common product Materials
Engineering
Electronics/

development/technology Controls
Engineering
Engineering

process Services
China
Technical Center
India
Technical Center

Government
Programs 73

May 1, 2007

Delivering New Products: Common Apertures
Motor
• Program Need: Single apertures
motor in time for ‘09 customer
programs
• Compact design
• Integral electronics for Asian
customers
• ARM One PD approach: Shared test
labs, application groups, advanced
engineering, engineering process
• Consolidation of roof/door
engineering into one Apertures
Engineering activity leveraging the
new ARM One PD System
• Annual savings: $5 million target
74

May 1, 2007

Delivering New Products: Wal-Mart Hybrid
Development

• ArvinMeritor Provides • Wal-Mart Provides
• Systems Integration • Overall Sponsorship
• Engineering, Design, and • Funding for Prototype
Installation Components
• Specification & Sourcing of • Selection of Additional
Alternative Power System & Partners
Suppliers • Engine
• Vehicle Retrofit (6x4 Base) • Vehicle Manufacturer

Pilot Vehicle Available January 2009
75

May 1, 2007

Global Engineering – Maximizing Synergies &
Development Effectiveness
• Growth in Asia will be supported with comprehensive
engineering and test capabilities
• By 2012 over 50% of Engineering to be located in Asia –
a 150% increase
• China to be focused on Chassis/Apertures; India to be
more Axle/Brake focused and to include electronic
controls development
• LVS/CVS Product Development VP’s leading Global
Engineering integration process

76

May 1, 2007

China Engineering Center
• Site of Regional Headquarters,
Engineering and Testing Center
• Shanghai Xinzhuang Industry
Park (SHXIP)
• 5.9 acres approximately 10
miles from downtown
• Capacity is up to 150 engineers
and 200 business personnel
• 178,000 square feet including
testing facilities and equipment
• Will support all ARM businesses
maximizing synergies

77

May 1, 2007

Product Development – Moving Forward
• “One ArvinMeritor” Product Development system focused on
Global synergies
• Electronic Motors/Electronic Control systems common focus
• Technical Acquisitions aimed at accelerating
controls/software development under study
• Global capability being expanded real time to support new
product introductions and growth initiatives
• Underlying competencies in engineering delivery being
strengthened to support cost reduction efforts.
• Focus on quality paramount in all technical areas.

78

May 1, 2007

Jay Craig
Controller
• Aftermarket

79

May 1, 2007

• ArvinMeritor has strong
position in North America
commercial vehicle
aftermarket and
remanufacturing segment
• High margin products that
we can expand rapidly
• Rest of world promises
significant growth
opportunities
Aftermarket

80

May 1, 2007

Global Aftermarket Growth Strategy
Europe Asia
North America
• Market size: $3.4 billion • Market size: $3.3 billion • Market size: $2.8 billion
• Growth strategy: Sustain rapid growth • Growth strategy: Accelerate growth • Growth strategy:
by intensifying sales and marketing by gaining share and addressing • Build foundation for growth in
efforts in product segments that are new markets, enabled by both 3-5 years through both organic
organic and inorganic investments
• Financially attractive: Profitable and inorganic investments
and large headroom for growth • Example initiatives • Expand sourcing presence in
• Fit with ARM’s “right to play”: • Products: Expand all-makes and Asia to supply cost-competitive
Strong reputation and product remanufacturing programs to products to N. America and
expertise, large installed base increase product coverage Europe
• Key segments for growth include: • Geography: Increase presence
in Eastern Europe
• Customers: Target new
Remanufacturing customer segments beyond
traditional truck/trailer fleets (e.g.,
Gearing
bus/coach, etc.)
Driveline
Shocks

Hydraulic Brake
l

ARM sales
81
Remaining market

arvinmeritor 2007_Q2_Earnings_Slides_Final

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