Good day ladies and gentlemen, and welcome to the First Quarter 2008 ArvinMeritor Earnings Conference call. My name is Lacy and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today’s call, Mr. Terry Huch, Director Investor Relations. Please proceed.

Thank you, Lacy. Good morning everyone, and welcome to the ArvinMeritor first quarter 2008 earnings call. On the call today we have Chip McClure, our Chairman, CEO and President, and Jim Donlon, or CFO. The slides accompanying today's call are available at www.arvinmeritor.com. We will refer to the slides in our discussion this morning. The content of this call which we are recording is the property of ArvinMeritor. It is protected by US international copyright law and may not be rebroadcast without the express written consent of ArvinMeritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Let me refer you to slide 2 for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you will find the reconciliation to GAAP in the slides on our website. Now, I'd like to turn the call over to Chip.

Thank you Terry. And good morning everyone. Before we turn to the presentation, I want to take a minute to talk about the current environment and the conditions under which we are operating. As everyone knows, North American heavy duty Class 8 truck markets continue to be in the midst of a downturn. It’s a downturn we anticipated. However, conditions are being exacerbated by scheduling fluctuations by our customers. We are fully focused on managing the issues as prudently as we can and we are taking proactive measures to mitigate the impact from this after market. In times like these there are often issues that lie outside of our control and we are clearly feeling the effects of these. We are taking aggressive actions to manage the issues we can and focus on improving our operational and financial performance. As I will discuss in greater detail a bit later, while we are expecting some of the trends in the US to continue in to the second half of the year, we will move ahead with our global strategies and our Performance Plus program will help us offset any future impact. Now let's turn to slide 3, and review some of the highlights in the first quarter. As you read in this morning's news release, we earned $0.08 per share in the first quarter from continuing operation before special items. Our sales from continued operations were $1.7 billion, up $95 million year-over-year, despite a weekend history in a slowing US economy. We attribute this growth to a strong demand for our commercial vehicle and light vehicle products outside of the US, as well as currency exchange rates that favorably impacted our total revenue. As you know, we are focusing significant time and resources on our operation globally. These efforts, combined with…

Thank you, Chip. Slide 11 shows our income statement for the first quarter before special items. For the first quarter, the only special item is restructuring. This quarter we recorded $10 million of expense for previously announced restructuring actions. You may also note that there were four non-recurring items in the quarter, which are shown on slide 18. But those amounts have been included in the result we are showing you today. As Chip said earlier, sales were up by $95 million. On a constant currency basis, sales were about flat, with lower sales in North America, offset by higher sales in Europe, Asia and South America. In the first quarter, 60% of our sales were outside of North America. When you look at gross margins, operating income or EBIT, conversion was better than the same quarter last year. As you saw in the margin walks that we took you through, the improvement in conversion was primarily due to Performance Plus cost reductions and smaller net reductions for non-recurring items than we experienced last year. SG&A cost were $92 million, last quarter SG&A was up about $40 million year-to-year, and we explained much of the increase related to Performance Plus cost that were offset in the cost of sales line, as well as cost to meet the exceptional demand we were seeing in Europe. We projected that SG&A in the upcoming quarters would be in the range of $95 million to $100 million, and trending down. Our cost came in a little lower than we had forecast, and about $20 million lower than the last quarter. But they are still up year-over-year, so we have some more work to do. On balance though, I would say that the extra effort we put in to Performance Plus, European operational improvements, and…

(Operator Instructions). And our first question will come from the line of Jonathan Steinmetz with Morgan Stanley. Please proceed.

Great, thanks. Good morning everyone.

Good morning Jonathan.

Just a few follow-up questions here on the cash flow, specifically on the payables on slide 14. Could you go into a little bit more detail, you listed four factors here. Which was the largest in terms of the drain, and can you be a little bit more specific about some of these payments that distress suppliers cost you?

Well, I would just mostly say that the biggest factor overall Jonathan, is more expeditious rate of dealing with our payables than was our previous practice. We've been working on some service centers and some collection of various activities from individual plants into better servicing center. And as we have done that, we find that we are paying at a more expeditious rate than we previously had before.

And the reason you made that change and is that desirable?

It's difficult from a cash flow standpoint, but it is appropriate for interaction with our suppliers and our vendors and over the term, we will get to a better cost situation for ArvinMeritor with the bringing together of our efforts from individual plants into service centers.

Okay. Do you get better [returns] in terms of pricing for doing that then?

As we would reduce variability with the supply community overtime, that may be possible, but in the short term, that's not something that is an immediate driving factor.

Okay. And do you have any specific number on what the payments that the distressed suppliers cost you?

We won't say. It's a significant double-digit number, but we won't go into a specific numbers. It was significant.

Okay, two other quick questions. One, how much you gave a walk on the LVS side with the 0.5 from Europe and South America as a benefit, can you just comment on between those two reasons with South America especially important. And then secondly on LVS, you also talked about a legal or commercial dispute. Can you just clarify those about $10 million, what exactly was that?

Yeah, let me kind of walk through the second one first and I'll let Jim kind of go through these volume mix in a moment. But if I look at the customer dispute, it was actually one that, one of our customers back in 2006 decided to go forward with a field service campaign, which affected about 750,000 vehicles. They actually did file suit and we actually booked to reserve of about $11 million back in 2006. And again, as we move forward to look to solve these both on legal and commercial basis went ahead and booked an additional $9 million reserve, which takes it up to $20 million for this situation.

And what was the part that related to or the type of component at least?

I don't think we really give out the details on that Jonathan, but it was, as you can tell it was just on the light vehicle side.

Okay and on the South America?

On South America, what I would share with you is that volumes were up about 20% in South America and on Europe, things were up about 10%. So, we had a big pick up in both regions. Our business in Europe is, of course much more significant than in South America. So on balance, about evenly split with one being a higher percentage increase and the other one being on a larger base.

Thank you very much.

Okay. Thank you, Jonathan.

And our next question will come from the line of Brian Johnson with Lehman Brothers. Please proceed.

Yes. Could you give us some color on aftermarket and its contribution to CVS in the quarter in terms of the revenue growth and in particular what kind of revenue did Mascot bring in?

Well, actually, I will start in reverse and then I can let Jim kind of give you a little bit more detail. Mascot really was an acquisition, we just completed in December. So, really it just very small, I mean, really very negligible if you look at the fiscal quarter obviously on a go forward basis we see that as a bolt-on acquisition. I think it is really going to help us in the remanufacturing as I kind of indicated. The remanufacturing is one of the corner stones on the commercial vehicle aftermarket. I do envision that will help to better position us not only in remanufacturing in general but as I indicated the Mascot name is a well recognized name in that arena. So I think it will help us as we look to continue to grow our commercial vehicle aftermarket business.

Okay overall for aftermarket, I would just comment that here in North America, the sales levels were about even with last year but what we are finding is some big opportunities as we go out to Europe and out into Asia and South America. So our growth profile is now on the world markets while the North American market held about steady.

And of the 29% of segment revenue from the presentation pie chart that is specialty in aftermarket, what’s roughly the geographic split within that slice of the pie?

That is mostly a North American piece of the pie. Most of our specialty business is here in North America and at this point most of our aftermarket business is North America where looking to grow both of them globally but at this point it's mostly a North American slice of pie.

Okay thanks.

And our next question will comes from the line Brett Hoselton with KeyBanc Capital Market. Please proceed.

Good morning gentlemen, how are you today?

Very good. Yourself Brett?

I am doing great. I got to go back to Jonathans question here, because I am asking myself. Jim, you are one of sharpest CFOs I’ll just say in the automotive industry and obviously with that, I know you could go beyond but where is the return on investment capital for this decision or is that not one?

There will be one out overtime, Brett. I guess you are referring to the one of investing into working capital?

Yeah, you are excluding out payment terms and so on and so forth.

And what we are looking at is that, as we can work through and get into a better steady pattern with our suppliers and our vendors that can open the door for us out overtime for some new commercial arrangements with them. And so it's an investment that we're making now, that we believe will bring the return at a later point in time, and this is a particularly tough time where in the supply community where by working with our suppliers right now, it's particularly important for them, and it will bring us some good features for the future.

Okay, so placing that into my universal translator, I'm hearing you say that you think you can win more business in the future by treating your suppliers better today.

More business, better terms, better arrangements with them, just an overall better supply-customer relationship that we'll -- if we address this at this point in time.

Yeah. Is this a kind of one-time issue in the quarter, or are we going to see the same thing in the second and third quarter, or fourth quarter and obviously this is all embedded into your cash flow, if that is correct?

Yes. We are seeing the biggest effect right now, and what we believe is that as we go out through the year, as you could tell, we did not adjust the guidance by this amount. So, we believe that there can be some adjustments as we go out through the year. We will be continuing to pay in a more expeditious rate, but there is also some benefits that we can achieve out later in the year. I would also comment to you that, that there have been some developments of new suppliers that have gone on in Europe and in Asia and this will bring us better prices and better terms out overtime.

Okay. The Performance Plus initiative Chip, I see your chart here that says, you are pretty much on target so on and so forth. What I'm wondering is, in my mind you have restructuring initiatives, stuff about your spending cash, and the non-restructuring stuff. I'm wondering can you give me a sense of, if you were to break this chart into restructuring and non-restructuring, would you be essentially on track on both of them, would you be a little bit ahead on one, a little bit behind than the other. How should I think about that?

Well actually, if you remember, when I first rolled this out, there were six pillars of Performance Plus. And as I look at that the ones that are going to be the longer term one, will be the restructuring one. So, those I wouldn't expect as much of those to be in this year, some of that I think we've indicated don't even complete until 2010, 2011 and 2012. The ones that are more immediate ones would be in the area of overhead and would be in the material side of that. And that's clearly what's you are seeing a lot there and that's not to say that there are on several the restructuring ones, that we did announce, such as the Brussels one last year and more recently Frankfurt, Germany that are being rolled into there now. So, there is some of that in the restructuring side in this chart that we presented today, but obviously more that I would say as far as the more immediate payback would be in the area of overhead and direct material optimization material cost reductions.

Okay. Remanufacturing, you’ve got a lousy reputation on the street. Why you guys are getting in to it?

Well, actually when you look at those that have been very successful at it. If you can manage it right and remanufacturing is a unique industry. And you got to understand, things like core inventories and that type of things. But those that actually do well at it are very successful at it. And I think what you're referring to is, there have been historically a lot of the multi-type shops and as we see this kind of consolidation in that, I think it was probably best demonstrated in the engine remanufacturing side for years. We've had very successful remanufacturing business in Plainfield, Indiana on the brakes and driveline remanufacturing. So, we've had good success at it. Those that we have focused on it, as I'd indicated in the engine side, we have been successful at it. It’s obviously some others that have had difficulties, but in our case, we've been successful at it with a facility in Plainfield, Indiana and do envision that as part of the cornerstone. For the growth in the Commercial Vehicle Aftermarket is the remanufacturing and we do see a lot of opportunity there. I will tell you, as you look at it primarily in the commercial vehicle, I should also mention, primarily in the commercial vehicle side. In the commercial vehicle side, the second, third and sometimes fourth owners, remanufacturing products become a very important pipeline of aftermarket parts for them. So, we see that both from our experience in our one facility and watching in the industry see it as a good opportunity.

The legal and commercial had 1.7% reduction so on and so forth, the $9 million. Is that a one-time or do you think, I mean, do you think, you've got covered at this point in time?

Well, we feel that and obviously we are on discussion with our customer right now. We feel it is resolvable. So, I think, we've booked. We feel we have all the proper reserves at this point and feel that we can go forward and get this resolved, but I need to call that out.

Okay. And one more and I'll let it go. European CVS, I mean, feel free to pass on this Chip. How do I as an outsider interpret, how much of a price increase you got from your customers in Europe?

Well actually when you look at it, it’s difficult to segment that out. And let me just give you, as I indicated in previous discussions, it's really several different parts, one is going to be material cost. second is premium costs that we've indicated that we are doing to support that, and third is just in the base cost. So really beyond that, I really can't go into detail, but as I can tell you with a number of different customers, we continue to look at it in those categories, and referring in that way, part of which you also look at. There are a lot of different customers, not just truck customers for axles, but a lot of trailer customers and quite frankly, as I indicated in my comments, we're growing in the aftermarket side albeit still a small segment over there. So when you look at it in a broader sense you've got to look at not just the truck OEMs, the trailer OEMs, but also the aftermarket side. Now, obviously overlaid on that and I think Carsten back at our analyst day, indicated some of that. We've also got the operational improvements that we starting to see flow-through on the lean side. So in addition to it, it is not all pricing. Obviously our obligation is we've also get to make sure we are improving our costs and, as we indicated with some of the metrics that we use within our plants, and indicated at the analyst day, we are seeing better margins as result of our focus in the lean in the overall, all matter of production system.

Thanks very much, gentleman.

And our next question will come from the line of David Leiker with Robert W. Baird. Please proceed.

Good morning.

Good morning David.

As we have this working capital item, what should we expect going forward on a normal level? Just kind of transition to something that we should expect next several years to be normal or is this temporary thing that gets some folks over the hump?

This is more of a temporary thing, we're getting over here, and now it will flow into a normal pattern as we go forward. As a matter of fact, I would say because of some of the difficulties of this quarter, this quarter might be even a little bit more than what we would see in the normal situation. So we've made some adjustments. Those will now stay with us, we'll go forward with them, and if anything some of the special items we did this quarter will work back in our favors as we go out through the rest of the year. So it's transitional.

Okay. I don't think I have heard you quantify the size of this order that you have from Hyundai across these various products, can you put a number on that?

I don't think we do that except for the volumes looking at that, and really all I can do is give you the number of units looking at this point.

Okay, what was the number Jim at the end of the quarter that sold and factored receivables, the balance at the end of the quarter?

Just one second, I'm pulling that up here. It's the increase that we had during the quarter was about $1.15, but I don't have that level that brought in to, I'm getting that just one second. About 400.

400? That's great. And if we look at the Performance Plus, it seems as though, if you finish this $20 million in the actions here on an annualized run rate, you're pushing $80 million, you’ve got more than half of the year or less to go through that. Is there a timing issue that the actions going forward are going to be less than what we have seen here at the beginning or are you running ahead of a $75 million number for this year?

No. I think it's safe to say it's probably a bit more than later, and obviously we laid that out in the chart. We're trying to giving you both our internal targets, what we've got the implementation plans from. What we refer to is idea generation all the way through implementation is $197 million, with near run rate of $115 million. So, clearly what we want to trying to do is to continue to give you visibility to that, and as you indicated, you're right David, four months into it, we feel good about the progress at this point, and obviously want to accept the external target of 75, as you can see from the chart, there is opportunity above that.

Right.

But I also indicated, we need to also recognize that part of that needs to be there if you were to offset the uncertainties in the market and material economic pressures and price down to it. So, we're trying to factor all that in there. So yes, and I look at it as a gross numbers, your statement is correct. We're quite frankly on track, we feel good about the progress, but we can't ignore the items or issues that occur in our industry, such as material economics, price down detractors. So we are looking to do that, and clearly want to make sure we can meet or exceed that target.

So, as we enter that, that you will need some other Performance Plus savings to offset these other items that you had traditionally kind of find of ways of growing the business to offset.

Well the answer is yes. As you know, in this business both the LVS and CVS side, the expectations from our customers continue to be cost competitive on a global basis. And as we indicated when we have rolled this out, Performance Plus as a transformational program that we going through and as part of that, we do look for the Performance Plus to indeed help offset some of that.

And the last thing here. Just curious have you done any sensitivity analysis on our guidance. You are going to a 2.2% GDP number for the year to get your number. That was off by 50 basis points. Then how much of an impact on EPS do you think that might have, that may help equal?

We've showed at a prior point in time here; let me pull that up here. Some work that we did about the sensitivity and I'm believing, it was back at our Analyst Day, where we showed that if truck volumes came in down a bit, and there would be a $12 million impact, [Class 8] it came in at a 198,000 would be a $12 million impact, medium duty and trailer and aftermarket would be another $12 million impact. We also showed at that time various efforts that we had underway to try and be able to compensate, so that we could still hit within our range. So, I think, the answer is, we've done our sensitivities and they would show that we could have a downward slide of $25 million or thereabout and we have our eyeball set on something that we would try and do to try and compensate and still comeback in the range.

Great, thanks. We will go and take that out of your analyst, your slides from that day. But thank you very much.

Okay.

And our next question will come from the line of Douglas Carlson with Banc of America. Please proceed.

Hey, guys, thanks. My first question is on the slide 7 your Class 5-8 production helped EBITDA by 1.4 percentage points. Can you interpret that the European businesses is capturing the volume and fix some of the capacity constraints there? And I guess, how far along are you on the improvement capacity there? there may be a problem?

Yeah. The answer is yes. I think, it does reflect it that way. If you could go back to slide 5 for a moment and then I will come back to answer in more detail. Slide 5 kind of indicates a lot of things we have been doing in Europe to address that. We kind of presented this at the December 11th Analyst Day and as you can tell at the lighter green, which shows the improvements kind of across the board that was seeing to address that. If then go back to Slide 7, Yes, as you look at that , I think a lot of the issues, now I will tell you not all the issues. We will continue to still have some premium cost but far less premium cost and we have had historically last year. So I think we are bringing that down. The other thing that we had indicated back in December is that we are also making additional capacity investment in Europe. A lot of that doesn't come online towards second half with fiscal year-so. So as you look at it from Slide 5, you can see the details we have done from as far as lean manufacturing etcetera. Coming to Slide 7, so yes we are seeing the improvement, although we’re still having some premium cost to make sure we support our customers. And then finally as we look at it the second half of this year a lot of the additional capacity that we began making investments on at the end of the year will start coming online to further address, to be able to support the customers in Europe.

Did the cash flow look now that it's lower, have any impact on the capacity you are looking to do in the second half? You got enough cash with that?

Yes we do. We are of course scrutinizing our CapEx plans very carefully, but at this point our liquidity position is excellent, and we have the funds with which to invest if the projects are good payouts.

And I should mention all these CapEx that I kind of indicated have already been factored into some of this as we look at the guidance is going forward.

Okay and then there is a quick follow-up here on this Emissions Technology true-up which I guess will be a working capital item next quarter. I don’t think you gave size on that. Is that meaningful?

It's significant. It's on the order of -- it's just under $30 million.

Okay. And finally you address this, I think in Detroit, there are some questions around an [Opec] deal, and you're looking at your various alternatives, one of them maybe in some type of VEBA. Is there any more discussion on that, any update there?

I would just say we're continuing to work on that, we would like to accomplish something there, and we are establishing the baseline material from which we can go forward. It would be a good deal for ArvinMeritor and a good a deal for the counterparty UAW, so we're working toward accomplishing that when we can.

Great. Thanks, guys. I appreciate it.

And we have time for one more question. Our last question will come from the line of Rob Hinchliffe with UBS. Please proceed.

Thanks, good morning.

Good morning, Rob.

I have a few questions. In CVS this 3.5% negative margin impact from lower North American volume, I guess without that, implies margins would have been over 10%, so a couple of questions there. One, is there anything structurally different that will prevent you from recapturing that 3.5% in volumes return, and then also is that margin impact based on using the Mexican plant, the new Mexican plant that you are building, or is it based on the cost associated with your US plants, one of which is targeted for closure?

Let me take on the first part, then I'll let Jim kind of address the second one, but as you look at the production volumes, actually the production volume decrease in North America really pertains to both truck and trailer, and as Jim had indicated, we continually follow both. I think as we had indicated that at the Analyst Meeting here at Dearborn a couple weeks ago, that Class 8 orders again had another month, and December it was above 20,000 units, so we are guardedly optimistic. But obviously, you've got to look at the timing on those orders of the Class 8 trucks when they occur. But we’d start to see a little bit of return there, and obviously on the other side we are watching very closely what happened to the trailer side on that. So as you look at that that minus 3.5 percentage points, that really is looking a production volume reductions in both the truck and trailer side.

Did you break it Chip in the impact from each?

We have not. No, it just on a geographic basis.

Okay.

At overall I would just say that this has been based on our current operating pattern that does not include the Mexican plant at point, it's something that will come online and help us in 2009. But in this figure and in this calculation it is working from our current operations.

Okay. And then, you mentioned on one of the slides about working with customers on commodity prices. Can you talk about the impact, what the incremental impact in '08 looks to be as a result of the higher commodity cost?

Rob it's kind of difficult, we have individual arrangements with each of our different customers about this, and I think it's probably better that I do not go into too much detail here. There maybe another time we could cover something, but at this point in time as we cover this with our individual customers it's a pretty sensitive topic.

Okay and then one real quick housekeeping one. These items of non-recurring nature that are included in the results, the $1.40 to $1.60 includes the change in employee benefit policies and the legal issue and all that, right?

Yes, it does.

Okay. Thanks everybody.

Okay, thank you Rob.

Ladies and gentlemen, It looks like we have time for one last question that is going to come from the line of Peter Nesvold. Please proceed.

Thanks for first letting me in there at the end. Quick question also on slide 7, when I look at the North America OE production volume being at 3.5% headwind year-over-year, I mean, I guess I do have discussion I had sometimes when companies have declining cash flow and improving GAAP results, but I am really struck with the fact that your CVS EBITDA margins are 60 basis points higher year-over-year despite the 30% decline in Class 8 build. As to what I understand is the 3.5 percentage point headwind, as we progress through the year based ACTs numbers which are lower than yours, but even then based on ACT’s were growing by calendar third quarter. So is it fair to expect that as we exit calendar 2008, that 3.5 percentage point headwind is at least zero, if not slightly positive?

The only thing I commented on Peter, is that this was analysis that was done on the first quarter of this year compared to first quarter of last year. And last year the volume rack up was up to almost 90,000 for the Class 8. So I think as we go through this year I don't think with ACT we get back up to a 90,000 quarter. So I don't think we will recapture all of this 3.5 as we go through this year, but will get some part of it and then at some future point if volumes were to be at 90,000 again then we'd have a good shot at that 3.5.

But I've seen over the last year I mean at 90,000 units you normally make a lot of money on the incremental volume.

That is good memory. We did have a lot of costs for what we've called high volume penalties, and Carsten and his team have been working for nearly a year now on the preparation towards being able to handle the next upturn without all those high volume penalties. One item that will help of course is the New Mexico plant, but we think for the future we can recover better than what we had the last time around.

Okay then last quick question on this slide and I am done. If I look at the European improvement and I look at slide 7 versus slide 5, it looks like a lot of the European improvement by the time we exited the quarter was in place, a little bit to go still, but most of those were in place at the end of the quarter. I am curious how much of it actually impacted the quarterly result itself. So how much momentum do you have going in to fiscal second quarter, might I see even more improvement in fiscal second quarter in Europe versus what you show here in slide 7.

I would say that we picked up some of it during the quarter. And therefore the run-rate by the end of the quarter would be an improvement and we would expect that we would get that for the full amount of the second quarter. There is still some significant amount of expediting costs that were going on to try and keep up with the production, and as Chip pointed out the capacity actions don't really come on until later in the year. So I would say So I would say something slightly better than our first quarter for the second quarter because of the actions that occurred during the quarter, but the big pick up, the big rest of it doesn't come until till late into the second half of the year.

Thanks again for the time.

Peter, thank you, and have a good day.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.