Good day, everyone, and welcome to the ArvinMeritor third quarter fiscal year 2008 earnings conference. At this time to get a start, I am pleased to turn the floor over to Director of Investor Relations, Mr. Terry Huch. Please go ahead, sir.

Thank you, Operator, and good morning, everyone, and welcome to ArvinMeritor's third quarter 2008 earnings call. On the call today we have Chip McClure, our Chairman, CEO and President and Jay Craig, our CFO. The slides accompanying today's call are available at www.arvinmeritor.com and we will refer to the slides in our discussion this morning. The content of this conference call which we are recording is the property of ArvinMeritor, Inc. It is protected by US and 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 today may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Let me refer you to slide two 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 would like to turn the call over to Chip.

Thank you, Terry, and good morning, everyone. Let's begin by saying how proud we are of our global team for the strong results they delivered this quarter. We believe our third quarter results tell a very clear story. Even though we are operating in one of the most challenging markets we have seen in years, we have been able to improve our earnings due to the aggressive actions we have implemented, including significantly reducing our cost, refocussing our business, improving the fundamentals of our operations, and driving a profitable growth strategy. With a strong global leadership team, and the right focus, we are well positioned to continue executing on our goals and successfully delivering a solid performance. Over the longer-term, we believe that our diversified customer mix, global footprint, and strong product portfolio will continue to help us manage through the short-term challenges in the industry. Before I discuss our third quarter highlights, I would like to take a moment to recognize Jim Donlon, who is becoming the ArvinInnovation CFO. Jim has been a tremendous asset to the ArvinMeritor team for over three years. We have achieved success in a difficult market, in large part, due to Jim's expertise and commitment. We wish him great things as CFO of ArvinInnovation. At the same time, we are delighted to have Jay Craig step in as our new CFO. He is ArvinMeritor's Controller for the last two years. Jay has been an integral part of our team. We are benefitting from his knowledge of our business and his experience in the automotive industry. He has been a great help in developing many of the strategies we currently have in place. Jay will be a strong contributor to our success going forward. Now let's turn to slides 3 and 4 which outline the…

Thank you, Chip. Our results for this quarter were good and I think they foreshadowed what lies ahead for ArvinMeritor in the next few chapters. Slide 12 shows our income statement for the quarter. Sales were up 21% for all the reasons, Chip mentioned. I will take you through the business unit margin explanations in a few minutes and you will see how the sales increases helped us convert at a higher rate. As a result, gross profit was up 42% from last year's third quarter and came in just short of 10% of revenue compared to 8.3% last year. SG&A was up significantly. A portion of the increase related to half balance sheet securitization. The costs associated with these sales, which were $6 million this quarter are recognized in SG&A, whereas the costs they replaced were an interest expense. This is one of the reasons our interest expense was down from last year. Another reason for the higher SG&A cost was our decision to increase marketing efforts for commercial vehicle aftermarket. Despite a challenging freight environment North America CVA had an all time sales record this quarter, which is a good indication that our marketing efforts are working. Lastly I will mention that our SG&A cost for the year ago period were lower due to compensation factors. It became clear during the third quarter last year that we would not meet all of our financial targets for the year. As a result, we reversed a portion of the annual variable compensation we had accrued for employees in the first half of the year. In spite of that, operating income was up 60% year-over-year to $72 million. For continuing operations before special items income before taxes was up 132%. Our after affiliate income, interest expense and taxes income was $56…

Gentlemen, thank you. (Operator Instructions). We will take our first question from Patrick Archambault from Goldman Sachs.

Hi, good morning.

Good morning Patrick.

Yes. I think you touched on it in slide 24, but can you give us a sense of what declines you would start to need in Europe before really you start to see margins start to compress there. It sounds like the capacity constraints have made; it is such that at least the first, the drop off in the first few units might actually be positive for margins. Would you just give us a little color as to what the sensitivity might be on that on the downside?

Sure. That is a good question Patrick. As you know, a year ago we really struggled with some that, there was a lot of premium cost. So as we look at that even with what is factored in there right now. I think it will actually put it into more of a reasonable phase as far as trying to reduce the premium cost, and as we have indicated we have been putting additional capacity in place. So as we look at the volume productions that are actually in our plans and what Jay laid out for both the balance of this year and going forward into 2009. I think that clearly should help us, unless there is a significant drop off, and again you have got two different markets there, you have got Western Europe and you have got Eastern Europe. Western Europe, I think is where a lot of softness is being seen. We continue as do our customers see strong growth in the Eastern European part of it. So as we see it right now I think, as you indicated right up front that with the softness as we see it in Western Europe will actually help reduce premium cost both for the balance of this year and more importantly going into 2009.

I think Patrick the only thing I would also add is that, to meet some of the additional capacity requirements that we are asked to by our customers we have not added additional facilities or significant additional headcount. So that if the volumes come in slightly lower than people anticipate it should not require a lot of significant restructuring costs.

Okay, great. On the US side, can you just remind us what you estimate replacement demand is for North America?

Well, we are looking at replacement demand in North America is probably in the 240,000 to 250,000 range for next fiscal year.

Okay, great. Finally, can you quantify the compensation portion of the expense that was in SG&A for this quarter and give us a sense, is that a one time issue or is that something that maybe extended into fourth quarter as well?

I do not think we are prepared to give a specific quantification of it at this time. I would say it was one of the largest components in the year-over-year comparisons of SG&A. Just to give a little more color other than that, were in my remarks earlier. If you recall last year at this time the performance of the business was suffering, so we had a release of the expected incentive compensation payments. Obviously this year we are performing quite well, so those incentive compensation payments are expected to be made. So the comparative swing is quite large. In the fourth quarter we do not expect that to have as significant impact. It may have a slight impact. However, overall we expect SG&A to get back to more normal trends and be more consistent on a quarter-over-quarter period comparison.

Okay, thanks, that is helpful. Then last just on raw materials, it sounds like there was a gap between recoveries and gross costs for this quarter. Can you give us a sense as to what your expectations are for the year on that and if you see yourself offsetting, most of your gross costs through customer recoveries, or as I think you have said in the past or if there may be some, some probability that you might actually have to take a little bit of extra expense on that item?

Let me try to show that Patrick, and then I will let Jay weigh in a little bit. Obviously as we indicated earlier we have been working with our customers to make sure there is a pass-through. I think as you look at the absolute size of it, given the huge headwinds that exist out there, I think it is a reflection of the fact that we have indeed been able to work with our customers to look at that pass-through going forward. As Jay indicated some of it is a timing issue you look at. Quite frankly some of it is non-steel related type of material costs that are not as easy to index that way. I think it is safe to say that as we look at the steel program we have been successful in working with our customers to do that. Then secondarily as we indicated is part of our Performance Plus Wave 2. First of all we demonstrated in the third quarter, we know how to do it, we are doing that together with our customers and obviously have an obligation from a cost reduction internally. However, as we indicated by kicking off Wave 2 Performance Plus we also recognize that these headwinds are going to continue. We recognize the need in addition to working with customers to pass-through the increases is define ways to offset the costs and so we are actually doing it on both sides.

Okay, great. Thank you very much.

You are welcome.

Next we will hear from Eric Selle with JP Morgan.

Hello, can you hear me.

Good morning.

Good morning. I was caught off guard. Going through your balance sheet what was your off balance sheet factorings total at the end of the quarter. I think it was around 482 at the end of the March quarter?

Yes, it was $491 million at the end of this quarter.

Okay. So basically you are really seeing some of that net debt roll off because of working capital. As you look into the fourth quarter are we going to continue to see some of that working capital as a source or should that reverse?

As far as the factoring programs themselves we see them remaining relatively consistent, although sometimes they fluctuate with the customer receivable balances as you would expect. Again, just to remind folks, the vast majority of those factoring programs are customer sponsored. So, they are related directly to primarily European customers that we have, but they do fluctuate with the receivable balances.

Then the on balance sheet working capital what trend should we look for in the fourth quarter on that?

Working capital should improve in the Q4. Again Q3 is traditionally our strongest sales quarter and does require a fairly large investment in working capital. We are quite proud that that investment this year was significantly below what we invested last year, which was due in large part to our aggressive improvement in our receivable collection activities. However, we tend to see the fourth quarter come down as our sales volume comes down in that quarter.

Great, thanks a lot for your time.

(Operator Instructions) We will hear next from Brian Johnson at Lehman Brothers.

Yes, couple of questions. In the Performance Plus Wave 2 few questions. Is this evenly split between LVS and CVS in terms of the costs it is going after?

Well, as a matter of fact what we have done is, as we have indicated in the past a lot of that was based on percent of sales it will be about one-third or two-thirds.

Yes. I mean split by sales, which seem to roughly if my calculation is right look like it was about $20 million of Performance Plus in CVS this quarter out of the 428.

You are directionally correct.

In addition to the cost savings given the issues around working capital, are you doing anything operationally around working capital as part of this Wave?

Oh, absolutely. When you look at it on the inventory side of it we are very much looking at that both Carsten Reinhardt and his team, and Phil Martens and his team are very much looking at that. We track that the same way we track the other parts of that. Thoroughly we are looking to do and we have talked about that in several previous calls an area that we have looked at within ArvinMeritor production systems within the area of lien manufacturing and that type of thing is obviously we continue to lien our plans. We see opportunities to reduce inventory and at the same time with our suppliers, we are looking at working with them to get different terms there. So, yes, we do see that within the operations.

Do you have a target for inventory days or overall cast cycle days for '09 that you could share?

Actually I can not share here. Obviously as you look at it, it is different across the platform quite frankly between OE and aftermarkets. We have got different demand needs there. We have also got to factor in as part of what we are looking is our total inventory throughout the pipeline depending where things are sourced too. So, I just giving one number, obviously we are looking at it as year-over-year improvement. It really is different based on whether it is an aftermarket OE customer and where it is located in the world.

Do you have a gap like you did in Performance Plus the best-in-class that you would like to close?

Yes. As we look at that we continue, as part of our continuous improvement culture because we want to continue to identify where the gaps are. Literally if you will facility by facility and then put action plans in place within those facilities to make sure we can close that gap.

In terms of days gap, I mean, length of the magnitude?

No. As I said before Brian, as I look at it, it is really is facility-by-facility and market-by-market.

Okay. Then on the off-highway ex the MRAP, when you look at your expectations going forward to next year are you looking really at the market or are you looking at your participation in those market share?

As far as, off-highway.

Yes.

Yes. As you look at Brian, as you know, we have had a very strong position off-highway in Asia Pacific. Our plant, Suzhou, China, I was just there a couple of week ago is literally going 24/7 and as I indicated in my comments, we need to look at how we can increase that capacity there. As you know, we just announced the fact that we are reentering the off-highway market here in North America, South America, Europe and Africa. So, as I look at that I continue to see strong market demand in the market we have been serving for the last number of years being China in particular and secondarily probably other parts of Asia Pacific, as they continue to build infrastructure. I think as importantly as we reenter these markets and I will tell you the response from our customers in these markets of the Americas, Europe and Africa have been very positive. I see that increase going forward as we continue to reenter these markets.

Okay, thanks.

Okay. Thank you, Brian.

Our next question will come from Himanshu Patel with JP Morgan.

Hi, can you hear me.

Yes indeed. Good morning, Himanshu.

Good mornin. Just a couple of questions, can you give us an update on the state of recovery discussions on raw materials with the OEM's particularly on the light vehicle side just directionally speaking have they gotten anymore constructive or is it as difficult as it was before.

Well let me first of all say that when you look at any request for material price increases the discussions are difficult. I will tell you that as I look at that and as we indicated in our comments and as you look at the both the margin improvement and as importantly the small size of the material cost as a factor, I think sufficed to say that yes, we have been able to be successful both in the LVS and CVS side to do that. I think the difference this time from time stats is because it was such a rapid increase in the raw material cost that I do not think there is any question in anybody's mind that these material costs are real. So, although they are difficult discussions I would certainly say that it made the discussions easier. I am really talking both LVS and CVS and any questions specifically LVS, I will tell you really on both sides I think, because of the fact that it was recognized by everybody that the material costs starting with raw material are indeed real.

Okay. Then we have heard some grumblings about from other suppliers about freight costs becoming a big issue particularly inbound freight costs. Well first of all was that a material issue for you this quarter and in particular I am wondering how that affects the profitability of your CVA business.

Himanshu, it was a fairly significant issue. We are tracking that at a very detailed level. As we look through our recoveries from customers, we are not solely focused just on steel; we are focused on all the commodity cost increases including the rising cost of transportation. So, but we are also through the Performance Plus initiative one of the particular individual initiatives was focused particularly at better freight management, which we have seen significant reductions overall in our freight cost even with the rising cost of fuel and the pass-through effect of that on our cost. Overall, we have seen a net-net dramatic improvement in freight cost.

Okay. I want to go back to an earlier question I think. I mean, clearly Europe is a very big portion of the LVS business and also material portion of CVS. I am just wondering your preliminary '09 outlook look relatively benign on Europe. I am just wondering what is developing your thoughts there, is it that, is it a simpler saying that the bottlenecks in Europe are material enough on the CVS side that if you had maybe a 5% volume decline you would be agonistic to that from a profit perspective or are you just saying that the incoming data is not that bad yet and therefore you are not willing to be so concerned on the European top line?

Well, let me start and then I will let Jay weigh in. When you look at I think you touched on some of that in the CVS side as far as the bottlenecks, as the volumes more normalized that helps to reduce the premium cost for that. Secondly, as I indicated in my comments, when you look at the platforms along with LVS, they continue to be very strong sellers in the market. So, those are two positives. The third positive is the fact that we do continue to see the strength in Eastern Europe side. So, the real weakness I think everybody is focused on is in Western Europe. Quite frankly, we are seeing some of that too. So, it is when you look at it on balance the market, continue strong in Eastern Europe with weakness in various markets in Western Europe but then offset, as I would have indicated on the CVS side with bottlenecks and then on the LVS side with the platforms we are on.

Add a couple of comments I think on the CVS side we are seeing fairly divergent set of opinions from the OE customers and what their expectations are next year for European volume. I think our course of action is we are planning for I would not say the worst, but for lower volumes and I think the best example I can give of that is the Performance Plus Wave 2 Program that Chip mentioned we are focusing heavily in Europe on the cost reduction side. So, it is a big part of Wave 2 just to hedge our best-to-bet, if the volumes end up softer.

Okay, thank you.

Our next question will come from David Leiker at Robert W. Baird.

Good morning

Good morning, David.

Looking at first Craig on the SG&A line can you talk about interest and marketing cost as being two of the big drivers relative to what we saw in the first two quarters, can you quantify those at all?

Sure. I think what I mentioned was the cost of factoring, which was included in SG&A or sale of receivables as compared that mix of borrowing as compared to traditional interest costs from debt. That impact gross for the quarter was approximately $6 million. The CVA marketing investment was approximately $3 to $4 million. Then there was a fairly large component related to this incentive compensation change year-over-year. So that was the dimensioning the various components.

Sequentially the compensation went to that large of an issue, right?

I am sorry, could you…?

Relative to first and second quarter, the comp is not that big of an issue, is it?

No. It really impacted us this quarter and we expect the impact in the fourth quarter to be lower.

Okay. Then, these other two are the factoring, the marketing obviously continues. Is this a new level in terms of these factoring costs for you or is that something one-time going on there unusual?

Again, the factoring tends to vary with receivables and as we see the reduction in working capital in the fourth quarter. I think we should expect to see that cost decline. As far as the mix between our bowings, between year-over-year comparisons I think you should expect that the factoring costs will be higher as a percentage of a mix compared to interest costs as we changed our bowing strategy. As far as sequentially quarter-over-quarter, we may see that go down slightly as our investment in working capital declines.

Okay. Over the course of your going through your slides, several times Chip you made comments that gaining share. Can you give us some thoughts in terms of where you are seeing the greatest share gains?

Well, as I indicate some of that is in the off highway side. As I indicated first of all we have had a very strong position in Asia Pacific and that market continues to be strong and see growth there. As we re-enter off highway side, we see some of that there. That is going forwards into the future. As I look at it currently a lot of that is in the CVA side and I think we indicated in the last earnings call that when we look at both Europe and in South America on CVA, we see growth. If I look at it currently a lot of the market share opportunity we are seeing is in CVA both Europe and South America. If I then look on the LVS side, and I would refer you back to my slides that shows some of the platforms, obviously we blend, add successfully on some of the platforms I think have shown share gain within the LVS phase.

Okay, great. On the Performance Plus, you have done a great job here and on a run rate, you are ahead of what your targets are, is there a point in time that you raise that $150 million target for 09?

Well, as we said at this point, we are recognizing that there is headwind with material cost side of that, so for us to do that right now what we have said is we are recognizing the reality that is going on in the marketplace. So at this point no, we are not prepared to raise that, but obviously as part of our commitment or if you will recommitment to those targets in '09, we want to put those things in place to make sure we are doing that, obviously we stayed with the focus on Europe. The other thing I should mention clearly is on these things we are very volume dependant, so depending what the volumes do will dictate our reflection there.

The last thing here is in the commercial vehicle business, the contribution margin here looks pretty nice, it is obviously being held back somewhat by steel. Do you think your normal level there now with where you need to be or is there still some upset on the contribution margin?

Well, obviously as we have said I think what we would like to do is look for more on the upside part of that. If you notice although we are showing North America up year-over-year, suffice it to say last year at this time for this quarter, the North American mark was pretty much bottomed out. So, as we look at the North American rebound into '09, we do expect that we will show margin improvement from there.

I am understanding your raw material in Europe weakening a little bit that somewhere down the road you could hit a 10% margin in that business?

Again, our long-term goal, as we stated previously can be mentioned in a couple different manners. One is to have a return on equity that would be top quartile and the way we look at that, that would require us to have EBITDA margins above 10%. So it would be 10% to 12%. So that is what we are focused on as the long-term goal. We are certainly very pleased with the progress and the trend, particularly given the external forces that we are faced with right now, but we are focused on a long-term goal of 10% to 12% EBITDA margin.

Great, thank you very much.

(Operator Instructions) We will go now to Brandon Ferro with KeyBanc Capital Markets.

Good morning, everybody.

Good morning, Brandon.

Can you give us a sense of what your largest non-steel commodity buys are, maybe which ones are more or less minimal to index pass-through and maybe a total dollar exposure?

Certainly one of the largest ones would be fuel, which we talked about in transportation cost, and we are tracking that as well very closely and our discussions with customers include changes in that cost as well. Other ones would be aluminum and copper on the LVS side, but there are much smaller risks, but primarily it is deal. I mean, if we look at the largest single component of our products, that is the main area and it is the main component and is the main area of focus for us on the recovery discussion.

I should mention Brandon, the second point. Some of those do have indexes in place and I think we talked earlier about the fact that on the fuel side, we are indeed having discussions with customers on that as we speak.

Okay. Also on Performance Plus, Wave 2, relative to the first Wave, can you remind us what the restructuring, non-restructuring is of that 75 million, meaning more or less cash spend on the second Wave versus the first?

I think we expect it to be relatively consistent, although for this year our estimate of restructuring is lower than our initial estimate was. Certainly we will be looking closely as we come off the 2009 peak. We may have some capacity rationalization here in North America. We will be updating that as we get further into the Wave 2 program.

Okay. Concerning Western Europe, some of your CVS facilities, can you give us a sense of maybe where utilization levels might stand now and where you see that coming down to potentially as volumes come down?

Well, first of all, as Jay had mentioned, even with some softening we are seeing in Western Europe, these are existing facilities we have. As we have mentioned in some previous earnings calls, within these existing facilities, the first thing we did was put in as part of our ArvinMeritor Production System additional lien activities which actually indicated significant improvement in throughput on the existing equipment. So that was phase 1. Phase 2 is we have in constant with our customers made some capital commitments to put additional capacity in place which is beginning to come on line in the second half of this year and those within existing facilities. So those two things are taking place right now. As Jay had indicated, even with the, you know, if there is softening for the second half of this year, which we do envision, which still shows the year-over-year increase, and with 3% softening next year year-over-year, we still feel that the capacity that we have either had in place and made more efficient or the additional capacity we put in place, we do look to that being fully utilized going forward.

We have reached the top of the hour so we are going to have to end the call now. I would like to thank everybody for their participation.

Ladies and gentlemen, this does conclude ArvinMeritor's third quarter fiscal year 2008 Earnings Call. We thank you all for your participation today. You may now disconnect your lines, and have a great day.