arvinmeritor 2007_Q2_Earnings_Slides_Final

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FY 2007 Second Quarter Earnings and Performance Plus UpdateMay 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 ControllerCarsten Reinhardt, President, CVS

Phil Martens, President, LVS

May 1, 2007

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Forward-Looking StatementsThis 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.

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Chip McClureChairman and CEO

Overview

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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

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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

Second Quarter 2007 Summary

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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

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Profitable Growth Strategy

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

Sharpen focus on core areas for sustainable, profitable growth

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Profitable Growth Strategy

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

Sharpen focus on core areas for sustainable, profitable growth

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2008-2009 Opportunities

Sound Investment

Success factors…

• Significant cost savings• Improve operating efficiency• Develop products and

technologies

Launched PerformancePlus Initiatives

• Rebounding truck volumes ahead of 2010 emissions change

Market

• Enhanced global footprint• Consolidate LVS/CVS

engineering facilities• Overhead

Restructuring

• Changed U.S. retirement plan effective Jan. 1, 2008

• Implemented consumer-driven healthcare initiatives in Jan. 2007

Addressing Pension and Healthcare Issues

Solid Balance Sheet• Reduced debt• Increased liquidity

• Customer base• Global presence• Product portfolio

Diversified

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Jim DonlonChief Financial Officer

Q2 Results & 2007 Outlook

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Second Quarter Income Statement from Continuing Operations – Before Special Items (1)

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

(in millions, except per share amounts) Three Months Ended March 31,Better/(Worse)

$ %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 SHAREContinuing Operations $ 0.17) $ 0.34) $ (0.17) -50%

2007 2006

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(1) See Appendix – “Non-GAAP Financial Information”(2) Adjusted to reflect the impact of reduced volumes in our Brussels operation

(in millions) Quarter Ended March 31,Better/(Worse)

$ %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 MarginsLight Vehicle Systems (2) 5.2% 2.8% 2.4 ptsCommercial Vehicle System 5.5% 8.3% -2.8 pts

Segment EBITDA Margins 5.4% 6.4% -1.0 ptsTotal EBITDA Margins 4.7% 6.0% -1.3 pts

2007 2006

Segment EBITDA Before Special Items (1)

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Income Statement Special Items WalkRide Control Before

GAAP Fair Value Production Debt Tax Special ItemsQ2 2007 Restructuring Adjustment Disruptions Extinguishment Impact 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 SHAREContinuing 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

EBITDALight 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) ET Corporate Allocations (11) - - - - - (11)

Total EBITDA 56$ 37$ (10)$ (6)$ -$ -$ 77$

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RevenueCOGSET Specific SG&A

38

Corporate Costs (18)

Continuing Operations

Discontinued Operations

EBITDA 20

RevenueCOGSET Specific SG&A

38

Corporate Costs (18)

EBITDA (18)

1H Before Divestiture

EBITDA 38EBITDA 0

Discontinuation of Emissions Technologies

x

1H After DivestitureIn millions; excludes asset impairment

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Discontinued and Held-for-Sale Operations

In millions Emissions Technologies LVA Europe

Assets $ 1,103 $ 139

Liabilities 740 65

Net Assets $ 363 $ 74

Memo: 2006 Sales $ 2,942 $ 171

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Free Cash Flow (1)Quarter Ended

March 31,

2007 2006

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

Net Spending (D&A less Capital Expenditures) 6 9Pension and Retiree Medical Net of Contributions (63) 12Performance Working Capital (2) 11 (56)Off Balance Sheet Securitization and Factoring 17 5Restructuring, 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

In millions

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Global Pension Plan Funded Status

2006 Year-End Underfunded Status $ (409)

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

Estimated 2007 Underfunded Status $ (265)

In millions

(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

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Fiscal Year 2007 Outlook Continuing Operations Before Special Items

FY 2007Full Year Outlook (1)

Sales $ 6,000 $ 6,200

EBITDA 275 295

Interest Expense (95) (105)

Effective Tax Rate 8% 12%Income from Continuing Operations $ 50 $ 57

Diluted Earnings Per Share 0.70 0.80

Free Cash Flow 50 100

(in millions except tax rate and EPS)

(1) Excluding gains or losses on divestitures, restructuring costs, and other special items

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Sales (millions)

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

Unrecovered Commodity Cost Increases (0.05)Lower EU Productivity & Volume Penalties (0.15) – (0.20)

$5,900 – $6,100

$6,000 – $6,200

Estimated EPS (1)

Previous Guidance $1.00 – $1.10

Updated FY 2007 Guidance Range $0.70 – $0.80

FY 2007 Outlook vs. Prior Continuing Operations Before Special Items

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Jay CraigController

• Performance Plus Overview

• Overhead

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How is the Program Structured?

Steering Committee

Operational ExcellenceCost Improvements

Commercial ExcellenceRevenue Enhancement

Materials Mfg. OverheadProduct

Strategy & Growth

Aftermarket

C. Reinhardt C. Reinhardt J. Craig P. Martens P. Martens &

M. Lehmann J. Craig

ER&D

Corporate Officers

Talent ExcellenceSponsor: R. Ostrov

App

roac

hFo

unda

tion

Program OfficeSponsors: J. Craig and J. Donlon

Sponsors

Goa

l

Top Quartile Financial Performance Among Peer Companies

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Project Approach and Timing

TimeSpan

Main Tasks

Nov. – Dec. 2006 Jan. – Dec. 2007 Jan. 2007 – Dec. 2009• Set overall work

module targets• Plan work modules in

detail• Create baseline and

tracking approach

• Generate/identify improvement measures

• Assign responsibility and timeline

• Implement quick wins

• Implement initiatives• Track realization of

potential• Institutionalize tools and

methods

Implement Initiatives

Design Improvement Initiatives

Set Targets

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Performance Plus Profit Improvements

REVENUEElements

COST Elements

~$50-$150

~$350-$450

~$400-$600

Run rate by 2009 in millions

Reduce 8%-10%$5 Billion Base

Grow $1.2 Billion7-13% Margins

(Addressable Costs)

Improvement

Base

$200-300

NetRisk

$150

TBD TBD

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Performance Plus High-Confidence Improvement –Adjusted for Emissions Technology

2006 2007 2008 2009

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

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

Updated Baseline

High-Confidence Cost Savings

Total

Growth Actions TBD TBD

EBITDA Before Special Items

75 150

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Performance Plus Restructuring

(millions except plants) North America Europe

$170 $155

$125

4

$50 - 55

$155

9

$80 - 85

Total

Restructuring Expense $325

Restructuring Cash $280

Number of Plants Affected 13

Cumulative Annual Run-Rate Benefits by 2012 $130 - $140

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Calendarization of Expenses and Benefits

(millions) 2007 2008 2009 Total

$115 $100

$80

$75-$80

$100

$325

$280

$25-$30 $130-$140

$65

$50

$5

Restructuring Expense

Restructuring Cash

Cumulative Annual Run-Rate Benefits by 2011

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Detailed Cost Reduction Targets

Cost Reductions (millions) 2008 2009

Overhead $ 65

100

Manufacturing (20) 65

Risk (70) (215)

$ 100

Materials 200

High Confidence Net of Risk $ 75 $ 150

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Progress to Revenue Improvement Target

$400

$1,000

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

BeingImplemented

IdentifiedInitiatives

TargetRevenue growth in millions by 2010

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Operational Excellence

Overhead ManufacturingMaterialOptimization

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Operational Excellence• Shared Services• Integration of staffs and

consolidation of corresponding facilities

• Purchased services• Utilities• Legal services• Consulting, auditing and

transaction fees• Waste disposal

Overhead

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Overhead

Lever / Sub-Team Opportunities2009 EBITDA

Target

Non-Manufacturing- Travel and Entertainment- Reduction in Energy Consumption- Temp Labor- Supplier Consolidation- Re-bid Contracts- Demand Management- Commonization (SKU Reduction)- Outsourcing

Activity / Process Labor

- Outsourcing- Foot Print Rationalization 45 – 50

Total $90 - $110

$35 – $40

Indirect Materials 10 – 20

In millions

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Temp Labor Benchmarking Data Indicates a9-19% Savings Opportunity

$US Millions

Demand Management

2 - 5

SupplierConsolidation

2 - 5

4 - 10

Total run-rate savings of $4M - 10M• Supplier Consolidation• Reduce light industrial labor

suppliers from over 38 to 2-3 preferred suppliers

• Reduce non industrial labor suppliers from over 47 to 2-3 preferred suppliers

• Implement immediate transition to new suppliers to maximize savings

• Demand Management• Standardize job titles to ensure

“not to exceed” rates• Ensure correct jobs are chosen

for each request• Reduce overtime through better

capacity planning

TotalSavings

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Non-Production MaterialsEliminate pricing variation• Identical part numbers• Utilize lowest cost supplier• Incremental opportunity for volume discount

Standardize or substitute parts• Different items with similar function• Examples include cutting tools, abrasives,

hand tools, fasteners

Manage demand• Inventory tracking techniques• Vendor management

Loctite part with annual spend of $570 K

3,9714,4624,980

Supplier 1 Supplier 2 Manufacturer

-20%

1.76

3.60

5.65

Part 2 Part 3

69%

Part 1

Part substitution: clear safety glasses

2

1

3

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Carsten ReinhardtPresident, CVS

• Material Optimization

• Manufacturing

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Operational Excellence• 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 key supplier partnersMaterial

Optimization

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Material OptimizationIn millions

Lever / Sub-Team Opportunities 2009 EBITDA

Target

Design Optimization

- Material / process standardization- Design improvements for lower cost- Key tools: competitive teardowns and

supplier conferences

LCCC Sourcing

- Leverage spend across regions and product lines to gain scale

- Invest time and resources to develop world-class suppliers

55 – 60

Clean-Sheet Negotiations

- Understand detailed supplier cost structure and “should-be” costs

- Take a total cost approach- Transparent and stable relationships with suppliers to jointly eliminate waste

40 – 45

Freight - Reduce freight rates across all modes- Reduce frequency, costly modes, expedites 25 – 30

Total $190 – $210

$70 – $75

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

Wave 1AxlesAperturesFreight

Wave 2BrakesWheelsSuspension

Wave 3TrailersAftermarketOther CVS Ongoing implementation

Percent of opportunity

Axles 33%Apertures 25% Freight 8%

Brakes 9%Wheels 1%Suspension 3%

Trailers 7%Aftermarket 7%Other CVS 7%

Planned start date Early January Mid May End July

Today

66%

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Progress on Opportunity LeversOpportunity Progress to date Potential

Design Optimization

• 12 ‘Teardowns’ focused on different axle models 30+ Idea Generation Sessions (IGS) with current suppliers and Internal Resources

• 200+ ideas generated• More than 150 ideas finalized to be pursued

35 %

LCCC Sourcing

• RFQs to ‘short-listed’ suppliers for 25+ components• 200 ‘new’ suppliers being assessed• Supplier workshops in India, China and Mexico in

Addition to NA and Europe

30 %

Clean-Sheet Negotiations

• Clean-sheet assessments completed for 20+ components to understand ‘should be’ cost

• Information requested from all key suppliers• Discussions on-going to close gaps

20 %

Total 100 %

11

22

33

Freight44 15 %• Analyzed rates for all shipments for harmonization

• Kicked off repackaging efforts to maximize shipping density on selected components

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11 Competitive Teardowns

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11 Thrust Bearing and Composite BushingCurrent Part (Europe) Proposed Part

• 6 different parts• Total cost $75• Approx. volume – 100,000

• 2 parts (add bushings)• Total estimated cost $25

Potential Annual Savings: $5 Million

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North America Shift Forks

• 1.39 lbs• 2.79 $/lbs• Material: D25-2• Induction hardened

• 1.63 lbs• 3.75 $/lbs• Material: D25-1• Nitro carburized

• 1.26 lbs• 4.84 $/lbs• Material: D25-2• Nitro carburized

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Potential Annual Savings: $650 K

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LCCC Opportunity by Commodity

87%

66%

87%

75%

58%

57%

13%

34%

13%

25%

42%

43%

Casting

Forging

Steel

Bearings

Stampings

Other

100%

Axles

73%

100%

100%

100%

85%

31%

27%

0%

0%

0%

15%

69%

100%

Brakes

HCCLCCC

22

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Clean-Sheet Negotiations for Example Part

Overhead

Labor

Material

-15%

Current Price

Clean Sheet

Profit

Key Insights

Detailed understanding of the cost components that make up the total ‘price’

Internal process expertise being sought to understand the ‘ideal’ processes and ‘should be’ cost

‘Cost transparency’ being sought from all current suppliers to understand and eliminate ‘waste’ from the value chain

Ring GearUSD per unit

Key assumptions

• Blank weight• Blank Material

and rate• Profit as % ROIC• Annual volume• Region of

production for labor rate

• Labor OEE• Equip OEE

33

$76.77

$64.99

Potential Annual Savings: $700 K

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PriceManagement

• Reduce freight rates across all modes of transportation

• Ship less frequently• Select optimal

mode• Maximize freight

density

• Redesign logistics organization

• Track compliance and key metrics

DemandManagement

PerformanceManagement

Price Management for Full Truck Loads

1. Harmonize rates(lane by lane, carrier

by carrier)

2. Reduce average rates (selectively re-

bid routes)

Eliminate outliers

Three Key Levers for Freight Cost44

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

• 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

Key Highlights

Target

Freight

Axles

Apertures

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Operational Excellence

• 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

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Manufacturing Optimization

Lever / Sub-Team Opportunities2009 EBITDA

Target

Restructuring - Optimize manufacturing footprint

- Improve productivity through consistent implementation of lean manufacturing principles

Total $60 - $70

$35 – $40

Lean 25 – 30

In millions

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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

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Operatingsystems

Management systems

Mindsets, Behaviors & Capabilities

• Developed production system using following guiding principles

• Single production system across CVS and LVS

• Standard processes and performance metrics

• Capture in a “playbook”

• Build organization capability

Standardized Lean Transformation Is Underway

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ActualAnnual Operating Plan

50

55

60

65

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

35

37

39

41

43

45

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

6% productivity gain

Fletcher Total Plant ProductivityPercent

5% productivity gainStart of lean program

Weeks

Weeks

Assembly Line ProductivityPercent

• Early productivity improvements evident across Fletcher facility in week 11 of 23 of lean transformation

• Capacity improvements will position plant to capitalize on future market upswing

• Example improvement levers include

• Strong performance management system

• Bottleneck breaking• Standard work• Line balancing

Lean Transformation at Fletcher, NC Plant

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Investing in Future Production Technology

Traditional forging

Near Net forging

Investing in CNC process to enable Near Net forging

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

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(Thousands of vehicles)

FY2007 = 224K vehicles FY2008 = 250K vehicles

Q2 Q3 Q4 Q1CY2007 = 185K Vehicles

89

71

50

6070 70

Q1 Q2 Q3 Q4

28

310

220

FY2009 FY2010

36

North America Class 8 Volumes

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80

90

100

110

120

130

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

3 MMA Monthly Linear (3 MMA)

ATA Truck Tonnage IndexMonthly Index Seasonally Adjusted; 2000 = 100.0

Ton-Miles Have Softened Recently, but Trend Remains Positive

54


Factors Affecting 2008-2009 Upturn

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

Tonnage Trends Improving4.9

3.43.7

2.62.1

'05 '06 '07 '08 '09

Industrial Production(1)

Housing Starts(1)

Light Vehicle Sales(1)

1.9 1.62.1

1.51.5

'05 '06 '07 '08 '09

16.416.5

17.3 16.8

16.4

'05 '06 '07 '08 '09

3.3 3.23.3

2.62.3

'05 '06 '07 '08 '09

Real GDP Growth(1)

FleetAge(2)

Operating Cost of 2005 Truck

7.7

8.07.9 8.0

7.9

'05 '06 '07 '08 '09

'05 '06 '07 '08 '09

55


North America Class 8 Truck Market Outlook

CY in thousands 2006 2007 2008 2009

Industry Analysts (3) 359

359

359

222 278 351

Industry Participants (23) 209 262 332

ArvinMeritor 185 272 326

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Global Medium and Heavy Truck DemandEurope

• Truck demand very strong in 2007

• Economic growth continues• EU expansion includes 9 new

countries with aggressive fleet modernization

• Market continues to be insulated from significant technology introductions, i.e. Euro 4 (’06) and Euro 5 (’09)

• Major customers bullish on volume projections

Asia/Pacific• World’s largest market for

medium and heavy trucks• Market volumes continue at

robust pace• Regional economic growth very

robust even if it slows somewhat• Economic growth in China

continues to lead the world at 10%+ rate

• Industrial production remains strong despite slight expected reductions in growth rate in India and China for 2008 and 2009

57


Phil MartensPresident, LVS

• Product Strategy & Growth

• Engineering, Research & Development

58


Commercial Excellence

AftermarketProduct Strategy &

Growth

Engineering Research and Development

59


Commercial Excellence• Grow profitability by

increasing revenues and margins• Right products• Right technologies• Right global markets

• Grow systems capabilities globally

Product Strategy &

Growth

60


Strategic Imperatives of Growth

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

PrePre--Requisite: Clear Focus on Requisite: Clear Focus on Operational ExcellenceOperational Excellence

61



EBITDA Margin (1)

Other Volume 1.5Other Improvements 0.4

2.8 %

1.6(1.1)

2.4%

5.2%

Fiscal Q2 2006

Cost Reductions Net of PricingNorth America Volume

Net Improvement

Fiscal Q2 2007

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

62


Black Box/ProprietaryKnowledgePotential

MechanicalComponents/Commodities

MechanicalComponents/Commodities

Modules/Sub-

Assemblies

Modules/Sub-

Assemblies

Focus on Value-Added ProductsC

usto

mer

Val

ue

Supplier Value

Functionality/ Features

ElectronicControl/Feature

Enhancement

ElectronicControl/Feature

Enhancement

Cross-SystemIntegration

Cross-SystemIntegration

Projected Movement Over Time

Goal: Transition from Commodity to Integration

Strategies to Maximize Returns

Full SystemIntegration

Full SystemIntegration

63


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

Vehi

cle

Stab

ility

Aperture

Systems

ChassisSystems

Drivetrain

Doors

Roofs

Adjacencies

Suspension

Braking

Hybrid Drives

Wheels

Elec

tron

ic

Mot

ion

Prop

ulsi

on

Electronics

and

controls

that

enhance

system

performanceDrivelines

Axles

64


2008 2009 2010

Ape

rtur

esC

hass

isW

heel

s

HVA780

EUF

HVACC CLAD

NAM

LERNAL

NEM

HIPHGL PTS PSDEDCM

CG

ROL

AST

LFI

ARCAA LVCP

LVMDAD

ASELvl

Organizational Synergies Accelerating New Product Introductions

15 new programs in

2008

15 new programs in

200810 additional programs in 2009-2010

10 additional programs in 2009-2010

30% of Apertures sales from new

products by 2010

30% of Apertures sales from new

products by 2010

65


Chassis Systems Functional Integration– Clear Focus on Vehicle Stability

1

2

3

45

1

2Front and Rear Cross-Car Modules - Complete system integration and assembly for JIT delivery to OEM’s

Air Suspension Systems - System integration and foundation for innovations such as active and package constrained air suspension systems

Active Roll Control Systems -• Hydraulically controlled stabilizer bar

systems provide increased safety and improved ride and handling

• Self contained system reduces complexity and allows for easier packaging

Adaptive Damping Systems -Modular to a standard damper, the in-piston, continuously variable shock or strut improves ride and handling

3

4

5

66


Active Roll Control• Actively adjusts stabilizer bar rate using

hydraulics• Benefits

• Improves ride and handling capability• Increases safety

• Induce negative roll torque• Provides roll damping

• Integrates into stability controlsystems

• Lower system complexity• Easier to package• System is scalable; adjustable,

adaptive or active• Development contract with a major OEM• Concept ready: 3Q/2008

Standard Active Roll Control

Single Wheel Bump

Standard Active Roll Control

Cornering

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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

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$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

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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

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Commercial Excellence• 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 marketEngineering

Research and Development

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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 modularizationand mechanical integration

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What Does Controls and Electronics Capability Mean?

UNDERSTAND the Dynamic System

(models, requirements)

Describe HOW to Control the System

(algorithms)

Modulew/ Part Number

60% 30% 10%Effort:

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Office of Engineering Technology

Exp. Mech. &Test Labs

TechnicalPlanning

Anal. Mech. &CAE

EngineeringProcess

MaterialsEngineering

Electronics/Controls

Engineering EngineeringServices

ChinaTechnical Center

IndiaTechnical Center

GovernmentPrograms

Program Management Office

LVS ProgramManagement

CVS ProgramManagement

CVS ProductDevelopment

LVS Product Development

One Product Development System• Accelerated development of

new technologies• Focus on Electronics/

Controls Engineering• Shared governance• Global engineering

expansion• Common product

development/technology process

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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

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Delivering New Products: Wal-Mart Hybrid Development

• ArvinMeritor Provides• Systems Integration• Engineering, Design, and

Installation• Specification & Sourcing of

Alternative Power System & Suppliers

• Vehicle Retrofit (6x4 Base)

• Wal-Mart Provides• Overall Sponsorship• Funding for Prototype

Components• Selection of Additional

Partners• Engine• Vehicle Manufacturer

Pilot Vehicle Available January 2009

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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

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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

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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.

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Jay CraigController

• Aftermarket

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Commercial Excellence• 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

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l

• Market size: $2.8 billion• Growth strategy:

• Build foundation for growth in 3-5 years through both organic and inorganic investments

• Expand sourcing presence in Asia to supply cost-competitive products to N. America and Europe

• Market size: $3.4 billion• Growth strategy: Sustain rapid growth

by intensifying sales and marketing efforts in product segments that are • Financially attractive: Profitable

and large headroom for growth• Fit with ARM’s “right to play”:

Strong reputation and product expertise, large installed base

• Key segments for growth include:

Remanufacturing

Gearing

Driveline

Shocks

Hydraulic Brake

• Market size: $3.3 billion• Growth strategy: Accelerate growth

by gaining share and addressing new markets, enabled by both organic and inorganic investments

• Example initiatives• Products: Expand all-makes and

remanufacturing programs to increase product coverage

• Geography: Increase presence in Eastern Europe

• Customers: Target new customer segments beyond traditional truck/trailer fleets (e.g., bus/coach, etc.)

ARM salesRemaining market

Global Aftermarket Growth StrategyNorth America Europe Asia

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• Large market: Current size of remanufactured brake shoe market is ~$180M, and ARM will continue to “professionalize” and grow the market

• Fragmented competition: Market is fragmented between small shops and other OE competitors

• ARM is a leading OE brake supplier resulting in strong aftermarket reputation and expertise

• ARM delivers high quality product with low tolerances that meet original engineering-approved specifications

• Remanufacturing facility in Plainfield, IN enables economies of scale in brake shoe remanufacturing

• Expand remanufacturing brake shoe business by over $10 million

• Win new customers by enhancing product features and targeting new customer segments

Idea description

Why is the opportunity attractive?

Why does ARM have a competitive advantage?

Example Initiative: Remanufacturing Brake Shoes

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• Untapped market: NAFTA market for remanufacturing intermodal trailer axles is approximately $33M per year, and ARM does not compete in this market today

• Fragmented competition: Market is fragmented between small shops and trailer OEMs

• ARM is a leading OE supplier of trailer axles resulting in strong aftermarket reputation and expertise

• ARM will “professionalize” and grow the market for remanufactured trailer axles by delivering high quality that meets engineering-approved specifications

Trailer Axle

• Remanufacture trailer axles for intermodal fleets• Potential revenue opportunity of $17M at EBITDA margin of

10% • Achieving targeted revenue would require 50% share of

today’s market, but ARM has ability to grow the market

Idea description

Why is the opportunity attractive?

Why does ARM have a competitive advantage?

Example initiative: Trailer Axle Remanufacturing

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2008-2009 Opportunities

Sound Investment

Success factors…

• Significant cost savings• Improve operating efficiency• Develop products and

technologies

Launched PerformancePlus Initiatives

• Rebounding truck volumes ahead of 2010 emissions change

Market

• Enhanced global footprint• Consolidate LVS/CVS

engineering facilities• Overhead

Restructuring

• Changed U.S. retirement plan effective Jan. 1, 2008

• Implemented consumer-driven healthcare initiatives in Jan. 2007

Addressing Pension and Healthcare Issues

Solid Balance Sheet• Reduced debt• Increased liquidity

• Customer base• Global presence• Product portfolio

Diversified

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Appendix

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Use of Non-GAAP Financial InformationIn addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this presentation, the Company has provided information regarding income from continuing operations and diluted earnings per share before special items, which are non-GAAP financial measures. These non-GAAP measures are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations plus or minus special items. Other non-GAAP financial measures include “EBITDA,” “net debt” and “free cash flow”. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and losses on sales of receivables, plus or minus special items. Net debt is defined as total debt less the fair value adjustment of notes due to interest rate swaps, less cash. Free cash flow represents net cash provided by operating activities less capital expenditures.

Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that net debt is an important indicator of the Company’s overall leverage and free cash flow is useful in analyzing theCompany’s ability to service and repay its debt. EBITDA is a meaningful measure of performance commonly used by management, the investment community and banking institutions to analyze operating performance and entity valuation. Further, management uses these non-GAAP measures for planning and forecasting in future periods.

These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Neither net debt nor free cash flow should be considered substitutes for debt, cash provided by operating activities or other balance sheet or cash flow statement data prepared in accordance with GAAP or as a measure of financial position or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and thus, does not reflectfunds available for investment or other discretionary uses. EBITDA should not be considered an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. These non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.

Set forth on the following slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly comparable financial measures calculated and presented in accordance with GAAP.

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61%59%

56%

63%

55%

51%

57%54%

56%

2003 2004 2005 2006 Dec. 31

$561

$469

$659

$409

2003 2004 2005 2006

$299

$948

$696

$368

$93

2003 2004 2005 2006 Mar. 31

$1,629

$1,338 $1,368

$1,007$872

2003 2004 2005 2006 Mar. 31

Unfunded pension liability(millions)

Term debt due within 5 years(millions)

Net debt(millions)

Balance Sheet Strengthening

Market value

Book value

Debt-to-capitalization ratio

8-3/4% due March 2012

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Non-GAAP Financial Information2nd Qtr FY 2006 Results before Special items

(in millions, except per share amounts)Q2 FY 06 Reported Environmental Restructuring

Debt Extinguishment Income Taxes

Q2 FY 06 BeforeSpecial

Items

Sales 1,629$ -$ -$ -$ -$ 1,629$

Gross Margin 152 - - - - 152

Operating Income 53 3 7 - 63

Income from Continuing Operations 32 2 4 6 (20) 24

Diluted Earnings Per Share - Continuing Operations 0.46$ 0.03$ 0.06$ 0.09$ (0.30)$ 0.34$

Segment EBITDA

Light Vehicle Systems 10$ -$ 6$ -$ -$ 16$

Commercial Vehicle Systems 87 - 1 - -$ 88 Total Segment EBITDA 97$ -$ 7$ -$ -$ 104$

Segment EBITDA Margins

Light Vehicle Systems 1.7% 2.8%

Commercial Vehicle Systems 8.3% 8.3%

Total Segment EBITDA Margins 6.0% 6.4%

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Non-GAAP Financial Information2nd Qtr EBITDA Reconciliation

(in millions)

2007 2006

Total EBITDA - Before Special Items $ 77 $ 98

Restructuring Costs (37) (7)

Fair Value Adjustment 10 -

Impact of Work Stoppages 6 -

Environmental Remediation Costs - (3)

Loss on Sale of Receivables (1) - Depreciation and Amortization (34) (32) Interest Expense, Net and Other (34) (44) Benefit for Income Taxes - 20

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

Quarter Ended March 31,

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Non-GAAP Financial InformationNet Debt

(in millions)

03/31/07 12/31/06 09/30/06 06/30/06 03/31/06

Short-term debt 17$ 137$ 56$ 65$ 217$

Long-term debt 1,220 1,174 1,174 1,275 1,133

Total Debt 1,237 1,311 1,230 1,340 1,350

Less: Cash (222) (369) (350) (365) (236)

Less: Fair value adjustment of notes (8) (8) (8) (3) (7)

Net Debt 1,007$ 934$ 872$ 972$ 1,107$

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Non-GAAP Financial InformationFree Cash Flow

(in millions)

2007 2006

Cash Used For Operating Activities (30)$ (25)$

Less: Capital expenditures (41) (40)

Free Cash Flow (71)$ (65)$

Three Months Ended March 31,

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Non-GAAP Financial InformationOther Balance Sheet Measures

(in millions)3/31/2007 12/31/2007 9/30/2006 6/30/2006 3/31/2006

Total Debt 1,237$ 1,311$ 1,230$ 1,340$ 1,350$

Minority Interests 67 65 64 65 59

Equity 918 999 944 1,132 1,022

Total Debt to Capital 56% 55% 55% 53% 56%

Working Capital (1) 100 95 45 224 269

Working Capital % of Sales (2) 1.5% 1.1% 2.1% 3.5% 3.7%

(1) Excludes net assets of discontinued operations

(2) Calculated using quarterly average working capital and current quarter annualized sales.

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