Production and Sales Footprint Efficient Deployment of Capital...•Consumer Confidence/Light Vehicle Sales •% of Disposable Income Spend on Fuel vs. Car/Truck Mix •Housing Starts(Permits)/U.S.

© 2017 Eaton. All Rights Reserved..

Production and Sales FootprintEfficient Deployment of Capital

Eric Fedewa

August 1, 2017

© 2017 Eaton. All Rights Reserved.. 2

Eaton’s Vehicle GroupGlobal reach, local depthKey facts and figures

• 2016 Revenue: $3.2 Billion USD /$20 Billion Overall

• Over 40 facilities on 6 continents

• 4 regional Innovation Centers: USA, Czech Republic,

China and India

© 2017 Eaton. All Rights Reserved.. 3

Bus & Coach Pickup & Delivery Linehaul Vocational/UtilityAutomotive

Solutions…from the engine

through the drivetrain The know-how for every application

4© 2017 Eaton. All Rights Reserved..

Presentation Roadmap

Deployment of Capital

(Footprint)

• Government

• Network Factors

• Demand Conditions

• Human Resource

• Factor Conditions

• Internal Factors

• Company Strategy

Forecast Outlook & Metrics

NAFTA Production and Sales

Forecast

Key Indicators

• Consumer Confidence

• Inventory Analysis

• Incentives/ATP

• Employment

• Disposable income

• Housing

Key Industry Concerns

• Labor

• Affordability

• Autonomous

• Logistics Efficiency

• Car Sharing

• Energy/Materials Price

• Cyber Security

• Hot Spots


New Light Vehicle SalesTrucks continue to gain share on strong fundamentals

4

6

8

10

12

14

16

18

20

22

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7

Total Car Light Truck

Monthly Sales (SAAR, millions)

Source: Automotive News, US Bureau of Economic Analysis,

Wards Auto, Eaton Analysis

Car

Truck

16.4 June

10.7 June

5.7 June


U.S. Consumer Demands% of Disposable Income Spend on Fuel vs. Car/Truck Mix

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

% car % truck % fuel spend

As gasoline becomes higher cost component of consumer budgets (3% to 4% of Disposable Income),

preferences shift away from trucks and SUVs and toward smaller cars and crossover vehicles

Mark

et

Sh

are

% D

isp

osab

le In

co

me

Sp

en

d o

n F

uel

Sources: Bureau of Economic Analysis www.bea.gov;EIA www.eia.doe.gov; www.ethanol.org; epa.gov

http://www.ethanol.org/


2017 OutlookNorth America Light Vehicle Production and U.S. Sales continue “High/Flat”

5.25.7

7.1 7.1 7.1 7.16.9

6.1

6.8

7.4

8.4

9.09.9 10.4 11.0 11.3

0

2

4

6

8

10

12

14

16

18

20

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Car LTR

17.0

17.1

17.2

17.3

17.4

17.5

17.6

NAFTA Production

17.4

Vehicle Production

(Annual, Millions)



-1.8% Y/Y

Vehicle Production (Annual, Millions)


Industry Indicators26 Relative and Predictive health indicators for the U.S. Light Vehicle market

Macro Indicators (Relative Health)

Specific Indicators (Autos)

• Consumer Confidence

• Unemployment/Jobs Creation

• Energy Price (WTI - Oil)

• Fx (Us/Euro)

• Interest Rates

• Housing Inventory

• Consumer Confidence/Light Vehicle Sales

• % of Disposable Income Spend on Fuel vs. Car/Truck Mix

• Housing Starts(Permits)/U.S. Truck Sales

• Inventory and Downtime (By Model & Plant)

• Inventory/Light Vehicle Sales Ratio (Domestic Brand Cars)

• GDP/Light Vehicle Production Growth

• Industrial Production Index to Light Vehicle Sales

• U.S. Light Vehicle (SAAR)

• Average Transaction Price (ATP)

• U.S. Domestic Light Vehicle Inventory (Days on

Hand)

• U.S. Domestic Light Vehicle Inventory (Days on

Hand/Car/Truck)

• North America Light Vehicle Production

• US Full-Size Pickup Sales/Housing Starts

• Real Disposable Income/U.S. Car Sales

• Loan Officer Survey

• GDP/LV Production, By Region

• U.S. Used Vehicle Price Index

• U.S. Used Vehicle Wholesale Price (Monthly)

• U.S. Used Vehicle Franchise Dealer Sales (Monthly)

• Total Motor Vehicle Loans Outstanding and

Securitized (billions $)

Other

Correlated Indicators (Predictive)

26Indicators


Consumer ConfidenceContinues to be a key leading indicator for U.S. Light Vehicle Sales

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Mill

ions

Car Prod US LTR Prod US UMCSENT

Source: US Bureau of Economic Analysis,


Forecast


U.S. Domestic Light Vehicle InventoryPassenger car inventories rising, truck inventory balanced

Passenger Car Light Truck

Da

ys o

n H

an

d

Da

ys o

n H

an

dD

ays A

bo

ve S

easonal (O

ve

rshoot)

Da

ys A

bo

ve S

easonal (O

ve

rshoot)

10

4

9

5

1112

-10

-5

0

5

10

15

20

50

60

70

80

90

100

Seasonal Ave +/-

3

2

7 78

7

-10

-5

0

5

10

15

20

50

60

70

80

90

100

Seasonal Ave +/-

Source: Wards Auto, Eaton Analysis


Average Transaction Price – Light VehicleATP continues to decline as incentives rise to clear passenger car inventory

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

$31,000

$31,500

$32,000

$32,500

$33,000

$33,500

$34,000

$34,500

$35,000

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17

ATP Incentive % ATP

3mos 6mos year 2 Year 3 Year

Incentive % ATP 10.2% 10.6% 10.3% 9.7% 9.5%

Vs- Prior -2.99% 2.65% 5.89% 1.85%




Labor MarketUnemployment in June still low at 4.4%

Source: Department of Labor, Bureau of Labor Statistics, FRED, Eaton Analysis

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

197

0

197

5

198

0

198

5

199

0

199

5

200

0

200

5

201

0

201

5

June 2017: 241,000

Initial Claims (4 week moving average)

0

2

4

6

8

10

12

197

0

197

5

198

0

198

5

199

0

199

5

200

0

200

5

201

0

201

5

June 2017: 4.4%

Unemployment Rate (%)

3.8 years

5.69.8

11.16.5 10.0


U.S. Housing InventoryLow inventory supports long-term outlook for housing starts and light trucks

3

4

5

6

7

8

9

10

11

12

13

196

31

96

51

96

71

96

91

97

11

97

31

97

51

97

71

97

91

98

11

98

31

98

51

98

71

98

91

99

11

99

31

99

51

99

71

99

92

00

12

00

32

00

52

00

72

00

92

01

12

01

32

01

52

01

7

Monthly Supply of Houses in the US

Source: FRED, Eaton Analysis

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

200

250

300

350

400

450

500

550

600

650

700

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

2017Q1

Fu

ll S

ize P

icku

ps -

Th

ou

san

ds

FS Pickup Housing starts

Ho

usin

g S

tart

s -

Mil

lio

ns

Sources: FS Pickup Actuals– IHSMarkit

Housing Starts: FRED

Full-Size Truck Sales (000’s), Housing (Mil)


Considerations for Efficient Deployment of CapitalGlobal and Regional Issues

Sources:

KPMG, Slideshare.net, Michael

Porter National Diamond Model,

Eaton Analysis


Global Vehicle Segment MegatrendsRapid transformation occurring within the global vehicle markets

Clean Intelligent Mobility

• Regulatory

- CO2 and NOx

Reduction

• Fuel economy

• Power density

• Power electrification

• Advanced internal

combustion

• Light weighting

• Fleet management

• Connectivity

• ADAS / Autonomy

• Response time

• Cyber security

• Infotainment

• Embedded

intelligence

• Shared services

• Autonomous

• Logistics

• Urbanization

• Individualism

The market is evolving creating growth opportunities for well positioned companies.


Key Industry ChallengesLong-Term Supply Base Concerns

Connectivity

Car Sharing

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Shift in logistic efficiencies

Affordability of cars/light trucks

Emergence of

autonomous

vehicles

Electrification of powertrains

Emission regulations

Oil Prices

Economic Cycle

Worker

Shortage

Potential Impact on Business

Mit

igati

on

Source:

Eaton analysis

Qualitative Positioning

Non-Traditional Suppliers


Eaton Vehicle GroupWe manage power

Power

DistributionPower

Creation

Improving the creation of

power in an increasingly

regulated world.

Power

Optimization

Efficiently distributing

power from creation to use.Optimizing power for

increasingly diversified

needs.

What moves the

vehicle

Optimizing

performance

Power flow across

vehicle


Summary

1. Solid Second Half: Expectations of a solid

second half forecast achieving 17.4M with continued

inventory burn off and demand matching

2. Continued Growth: Economic fundaments

supporting continued growth in housing, wages, and

further mix shift to light trucks

3. Continuous Improvement: Demand and

government issues aside, company strategy and

structure MUST continuously improve. New

capabilities and value proposition are key to success

4. Enhance customer competitiveness:

Suppliers are continually challenged to align footprint

and technology portfolio with customers and regional

growth opportunities.

5. Synergies are Great: Synergies between

light and commercial vehicles are greater than

ever

6. Efficient deployment of capital

issues: Network and location (footprint) issues

largely resolved past 10 years. However, Demand

Conditions, Company Strategy/Capabilities), and

Government still poised to dramatically change the

global industry..

7. Dramatically Different Future: Future

of manufacturing is dramatically different, global

networks, compression of development cycles,

entrance of non-traditional competitors changing

landscape


Production and Sales Footprint Efficient Deployment of Capital...•Consumer Confidence/Light Vehicle Sales •% of Disposable Income Spend on Fuel vs. Car/Truck Mix •Housing Starts(Permits)/U.S.

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