Vehicle Group SCM Breakout Session – Supplier Event March 2011

• Introduction (Harrison/Houle) • Market Ramp Up (Dickenson) • Supplier Development (Greenwald) • Japan Tsunami Update (Rollero) • Open Discussion

To be the most admired company in our markets. Measured by • Customers say: “We want to do more business with Eaton.” • Shareholders say: “Eaton is one of my best investments.” • Employees say: “I am proud to be part of the Eaton team.” • Suppliers say: “Eaton is one of my most valued customers.”

Global • Employees - 299 • Number facilities • Truck – 15 • Auto – 32 • Vehicle – 47 Mark Greenwald Bill Braun Marie Wartham Bill Bennett Stuart Harrison

NAFTA EMEA North East Asia • Employees - 142 • Employees - 61 • Employees - 28 • Number facilities • Number facilities • Number facilities • Truck – 8 • Truck – 2 • Truck – 1 • Auto – 12 • Auto – 10 • Auto – 7 • Vehicle – 20 • Vehicle – 12 • Vehicle – 8

Steve Houle Marco Rollero Bryan Huang

Brazil India • Employees - 52 • Employees - 16 • Number facilities • Number facilities • Truck – 3 • Truck – 1 • Auto – 1 • Auto – 2 • Vehicle – 4 • Vehicle – 3

Rogerio Branco Raju4 SB © 2011 Eaton Corporation. All rights reserved. 4 Vehicle Group Supply Chain Management Purpose: • To accelerate value creation, by leveraging Eaton‟s size, scale, resources and assets in partnership with our business, suppliers and customers. Role: • Lead value creation and delivery from the supplier base to our stakeholders/customers via: • Strategic Sourcing • Category & Commodity Management • Supplier & Program Management • Materials Management & Trade Compliance • Supplier Quality Management

VG Best Practice Standardization – Globally / Regionally

Purchasing Supplier Program Materials & Development Management Logistics

•Commodity Strategy •Commodity & Manufacturing •New Program BOM Mgt • Standard Material Processes •Supplier Strategies & Technical Competence •Flawless Launch •SIOP, Customer Scheduling, Roadmaps •Supplier Capability Assessment •New Technology • Material Plan, Inventory Mgt •Source Selection •APQP & Launch Readiness Commercialization •Strategy Deployment •Contract Management •Supply Performance Imp •Product Aligned Cost Out •Materials Assessment (MMA) •Total Material Cost Out •Global Reach •Systematic Reporting (LZ) Eaton Vehicle Group SCM Foundation EBE Processes Drive Functional Excellence 6 © 2011 Eaton Corporation. All rights reserved. 6 Why global SCM processes? • Support cross region cooperation… speak the same SCM language • Best cost country sourcing (20-40% of any region comes from outside region) • Extension of increasingly global products into new markets • Agile global supply chain with currency, demand, other fluctuations

• Harvest scale economics Supplier • Leverage with suppliers Development SCM Program • Process tools and training development Architecture Management • IT infrastructure „EPM‟ Integrated Supply Chain • Develop world-class process capability Management Trade • Global process with global input (vs multiple & Risk Purchasing Management regional processes) Materials & • Supports Manufacturing Excellence (IS) Logistics • Build organizational capacity & capability • Standard process, tools, training • Better ability to move personal across regions

• Introduce VG Organization Leadership to key Suppliers • Provide key updates for Market and performance issues • Create Open Dialogue with Supplier Partners on any issues • Secure Supplier Commitments to Join Eaton in Proactively Meeting Challenges of the Market Place • Strengthen Relationships & Strategic Alignment to the Eaton Strategic Imperatives

Scott Dickenson

10 © 2011 Eaton Corporation. All rights reserved. 10 Feb 2011 PMI new orders rose to 60, output to 11 Feb 2011 PMI new orders59.5, ©rose 2011input Eaton to Corporation.price 60, output Allto rights 76.7 reserved to. 59.5, input price to 76.7 11 Fuel prices

Mar 14 diesel price increased 3 cents to $3.908 a gallon, barrel prices $99

Jan freight up 7.6% yoy, Manufacturing/Automotive recovery helping freight

2011 Q1 Q2 Q3 Q4 TOTAL 2011 Q1 Q2 Q3 Q4 TOTA January February L

Eaton 47 54 59 67 227 Eaton 1/18 46.3 57.5 63.5 71.8 239 PP PMI

Eaton OEM 50.8 57.4 Eaton OEM 51.7 62.1 67.6 64.5 245.8 build plan build plan

FTR 46 48.3 52 54.7 201 ACT 52.3 60.0 63.2 68.5 244 Dec 23 Feb 10th

2011 Q1 Q2 Q3 Q4 TOTAL March January 227k~244 +7% Eaton 2/18 45K 57K 65K 73K 240K February 239k~246k +3% PMI March 240k ~260k +8% Eaton OEM 52.1K 63.5 73.4 70.6 259.6 build plan 13% Aggregate Change from PP

ACT 52.3K 60.0 63.2 68.5 244K Feb 10th K K K

2000 30%

27% 27% 26% 25%

1500 22% 20% 19% 17% 17% 16% 16% 16% 15% 14% 1000 12% January 11% 11% 10% February 8% 8% 8% March 5% 500 4% 4% 3% 3% 3% 3% February 2% 1% 0% 0% 0% 0% March -1% -2% March 0 -5% (M/M) Septemb Novembe Decembe January February March April May June July August October er r r January 630 652 699 727 743 717 698 737 868 947 948 949 February 629 672 713 747 742 749 834 820 881 938 951 949 March 629 656 730 788 805 869 922 937 950 965 977 988 February 0% 3% 2% 3% 0% 4% 19% 11% 1% -1% 0% March 0% -2% 2% 3% 8% 16% 11% 14% 8% 3% 3% 4% March (M/M) 16% 22% 27% 17% 26% 27% 16% 17% 12% 8%

FORECAST „10/‟11 „10/‟11 Corp PMI Q4/Q1 Q1/Q1 Q1/Q1

5.6% 1.7% -2.7%

-3.8% 2.6% -1.4%

13% 15% 6.1%

-10% 0.2% 4.7%

NAFTA Q1 production expected to be the strongest of 2011; February LV Sales up 27% with Easier credit and lease incentives.

Europe LV up 1.7% (PMI 3.4%) with strong export

* South Asia includes India, Thailand, Australia,Malaysia and Indonesia

February 2011 Sales up 27% Thousands of Units 1,400 1,200 1,000 800 600 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010 2011

Feb '11 Feb '10 % Change YTD 2011 YTD 2010 % Change Chrysler 94,412 84,201 12.1% 164,304 140,680 16.8% Ford 153,592 135,944 13.0% 278,056 246,676 12.7% General Motors 207,028 141,454 46.4% 385,925 287,286 34.3% Honda 98,059 80,671 21.6% 174,328 148,150 17.7% Nissan 92,370 70,189 31.6% 164,217 132,761 23.7% Toyota 141,846 100,027 41.8% 257,702 198,823 29.6% Hyundai 76,339 58,056 31.5% 141,342 110,681 27.7%

U.S. Big 3 Brands 455,032 361,599 25.8% 828,285 674,642 22.8% Asian Brands 458,351 349,623 31.1% 828,840 668,726 23.9% European Brands 76,419 67,208 13.7% 149,468 131,605 13.6%

Total Lt. Vehicles 989,802 778,430 27.2% 1,806,593 1,474,973 22.5% SAAR 13.3 10.3 PAST RUN RATES: Sept SAAR 11.7 Oct SAAR 12.2 Nov SAAR 12.2 Dec SAAR 12.5 Source: Ward‟s Auto.com Jan SAAR 12.5

1,800 1,600 1,400 1,200 1,000 800 600 400

Thousands of Units 200 0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010 2011

E.U. Pass Cars Change in 2011 YTD 2010 YTD Share VW Group 22.2% 20.7% 1.5% PSA Group 13.8% 14.4% -0.6% Ford 7.6% 8.5% -0.9% Volvo Car Corp. 1.9% 1.6% 0.3% GME 8.1% 7.7% 0.5% Renault Group 10.7% 10.8% -0.1% FIAT Group 7.5% 9.2% -1.7% BMW Group 5.1% 4.3% 0.7% Toyota Group 4.5% 4.9% -0.4% Daimler Group 4.3% 4.0% 0.3% Other Asians* 12.3% 12.0% 0.3%

* “Other Asians” includes Honda, Nissan, Hyundai-Kia, Suzuki, Mazda, & Mitsubishi

Source: ACEA 21 © 2011 Eaton Corporation. All rights reserved. 21 Vehicle Supply Prime Risk Identification • Auto • Truck • Current suppliers where • Suppliers with extended there is capacity supply chain or protracted discrepancies between production cycles (ie: Eaton demand and steel, gears, import parts) market capacity(ie: Steel) • Current suppliers where • Suppliers with extended there is capacity supply chain or protracted discrepancies between production cycles (ie: Eaton demand and market capacity(ie: Steel) steel, gears, import parts) • Small suppliers with low • Small suppliers with low purchasing power purchasing power • Components with • Components with extended validation extended validation cycles Primarycycles risk areas are different between auto & truck and risk management approach need to recognize uniqueness of major risk areas

EMS 1, 6.5mm

Steel grade Q1 Material shortages in EMEA (kgs) EMS1 6.5 mm 67,000 Global Valve Steel SIOPEMS1 16.5 Planning mm GR 2,000 EMS1 16.5 mm HR 8,000 EMS1 19.0 mm GR 9,000 January 20, 2011 EMS1 19.0 mm HR Next steps for WW10,000 team Total Q1 2011 Shortages 96,000 • Each region to identify representative to support process •EMS 1, 6.5mm – 30 tons • Obtain WW requirement information from each of the (in addition to 4 tons previously obtained for Europe) regions for 2011. © 2011 Eaton Corporation. All rights reserved. 13 13 •Original roll date from Villares was 2/14, ship date• lateObtain February. capacity information for each of the suppliers. •We have worked with Villares to move up the roll date to 1/24, ship date mid-February. •Remaining 30 tons to still be negotiated. • Build working PPC documents by supplier.

•Europe current usage is 32 tons per week, BGH• onlyEvaluate able to supply capacity 25 tons per vs.week demand by month for each supplier. • Identify short & long term issues. 13 © 2011 Eaton Corporation.• All rights reservedConsolidate. & publish information13 to WW team. • Set up monthly meetings with each region to review PPC & demand or capacity changes.

AUTO TRUCK ACTION (Focus Materials) (Focus Materials) Eaton controlled/targeted -Steel -Imported material inventory ramp -Imported material -Steel Supplier additional controlled/targeted -Imported material -Imported material inventory -Steel Introduction/approvals of -Steel -Gears additional suppliers -Forgings

• Velocity of the supply value chain (all elements keeping pace) • Staying ahead of the market (not only now but 2012!) • Quality and delivery performance (contribution to premium freight) • Constrained commodities • Unknown risk (Japan, increasing commodity costs)

Mark Greenwald – Director of Supplier Development Dan Thelen – Manager, Supplier Development, North America Gregorz Jozwiak – Manager, Supplier Development, Europe

 Vehicle Group – Supplier Development Organization . Who Are We?

 Supplier Performance – Main Themes . Systemic Quality Issues

 Supplier Governance – Key Policies Impacting You! . Supplier Qualification . DMR Fee Administration . TS16949 3rd Party Certification . CQI-9, 11 and 12 . Supplier Excellence Manual

 Rebuilding Organizational Capability . ‟09-‟10 Lag

 Key Takeaways

© 2011 Eaton Corporation. All rights reserved. Who Are We?  Structure . Located In 5 Regions . Regionally Based & Deployed . Support All Vehicle Group Businesses  Governance . Centralized Policy and Procedure Deployment . Drive Common Global Systems . Metrics Based  Approach . Non-Generalist Approach . Deploy Commodity/Process Expertise

 Supplier Assessments . Quality Systems and EHS . Manufacturing and Technical . Capacity Verification  Flawless Launch . Advanced Quality Planning . PPAP Support  Development . Variability Reduction . Quality Systems . Process & Tooling  Issues Resolution

Manage The Change . Ineffective communication to Eaton – nature and timing . Lack understanding of change process/requirements . Poor planning – driving compressed timing Problem Solving . Ineffective problem solving – repeat issues . Poor communication & reaction to issues . Failure to address the systemic root cause Sub-supplier Management . Lack system of governance . Failure to clearly communicate expectations . Lack technical expertise and support structure

Change! . Migration of existing EHS Quality Systems Assessment (QSA) questions to a formal EMS based set of questions • Aligns to Eaton‟s environmental policy • Meets external stakeholder expectations regarding “Greening” of Eaton‟s supply chain • Minimizes business continuity risks within the supply chain

Impact! . All Quality Systems Assessments (QSA) will include EMS based assessment questions • Will have own separate score (i.e. no longer a part of the total QSA score) • Questions focus on evidence of management systems rather than qualitative assessment of compliance • Influencing factor in new business awards

Update! . Application of $250 fee when issuing a DMR • Administrative fee for costs associated with corrective action review and closure • Policy definition found in Eaton‟s Supplier Excellence Manual under “Cost of Poor Quality” Impact! . Consistent application of $250 DMR administrative fee across Vehicle Group

Change! . Supply base migration to ISO/TS 16949 3rd party certification • QMS which defines requirements for design, development and production of products • Aligns to Eaton customer specific requirements

Impact! . Major consideration when awarding new or replacement business

38 © 2011 Eaton Corporation. All rights reserved. 38 Special Processes CQI-9, 11, 12 Change! . Compliance to AIAG Special Process Heat Treat CQI-9, Plating CQI-11 & Coating CQI-12 • Customer specific requirements ISO/TS 16949 • Provides for continual improvement, emphasizing defect prevention and the reduction of variation Impact! . Annual self assessment requirement • Applicable to operations “in house” or outsourced to service provider • Close monitoring of suppliers with HT processes (in-house & outsourced)

Supplier Expectations .Change In Manufacturing Processes .Lot Traceability

Supplier Qualification .Initial Supplier Assessment .On-site Assessment

Approving Parts For Production .Advanced Quality Planning .Production Part Approval

Supplier Development .Improving Quality Systems .Improving Process Control

Link: Doing Business Link: Selling To Us

© 2011 Eaton Corporation. All rights reserved. Rebuilding Quality Competency 2009 & 2010 were challenging business environments - driving a reduction in continuous improvement activities and taking a huge toll on our Human Capital.

Question…what have you done to assess the impact on your quality organization’s Human Capital losses and Continuous Improvement Efforts?

43 © 2011 Eaton Corporation. All rights reserved. 43 What Has Your Organization Done To… People Quality . Evaluate impact of lost specialized skills . Reinstate training and skills development . Evaluate talent gap - upgrade talent Process Quality . Reinstate Kaizen/Lean events . Speed-up process capability improvements . Improve data management and communication networks Perception Quality . Assess customer‟s perception of quality performance . Assess organization‟s perception of quality

 Supplier Development . Regionally deployed – Globally aligned . Driving common global standards  Supplier Performance . Three global themes . Manage Change . Problem Solving . Sub-supplier Management  Governance – Key Policy Changes . Systems assessment now includes EMS . DMR administration fee of $250 . Migration to ISO/TS 16949 3rd party certification . Special Processes audit CQI-9,11,12

 Rebuilding Organizational Capability . People Quality • Evaluate resources and skills component . Process Quality • Reinstate continuous improvement plans/projects . Perception Quality • Organizational and customer perception

Steve Houle Marco Rollero

© 2011 Eaton Corporation. All rights reserved. Restricting Factors to Light Vehicle Production in Japan and Globally Light Vehicle Production in Japan restricted by the following factors: •Condition of the facility and availability of workers •Issues with the condition of the communication, road, rail and port infrastructure as well as the availability of various fuels •The ability to secure an ample and stable power supply as well as other necessities such as running water and sewage/waste water treatment • Additional restrictions on suppliers inside “protection radius” from Fukushima Power plant •A stable supply of components/systems to ensure output of components and systems

Analysts say it is just a matter of time before more supply-chain disruptions develop for manufacturers globally- visibility on Tier 2-3-4 not completely clear as for now

• According to Nissan Motor Co. CEO Carlos Ghosn, about 40 component suppliers in Japan remain in difficulty after the earthquake • Electronic components, plastics and rubber are in short supply and will affect Japanese automakers and rivals outside the country • Japan accounts for a sizeable chunk of the technology in cars, including 20% of worldwide semiconductor production, according to iSuppli • Through the Tier-2 and -3 supply chain, the majority of OEMs utilize electronic components from Japan • The downstream effects are beginning to impact volume outside of Japan. Several variables will influence how quickly these issues take effect and how quickly the OEMs can overcome supply disruptions • Impact varies from immediate to 4-6 weeks downstream (many suppliers managing long supply chain with additional inventory bank) • Even if you or Eaton are not directly affected, Customer call-offs could be impacted dramatically as the OEM misses other parts to complete the Vehicles

Source: IHS Global Insight, 21 March 2011; Automotive News Europe 23 March 2011 53 © 2011 Eaton Corporation. All rights reserved. 53 Automotive Component Suppliers in Japan (non-conclusive list of suppliers- public information)

Supplier Name Manufacturing components Status

Thermal system components, Planning to start production Denso Corp Powertrain control. from 21st March 2011.

tire segment, auto-related Production stopped till further Bridgestone parts, notice.

Automotive interiors, batteries 5 production plants closed till Johnson Controls for automobiles & hybrid further notice. electric vehicles Drivetrian, Brake & Chassis, 11 plants closed till 22nd March Aisin Seiki Ltds Engine related products, Body 2011. related products. Emissions Systems , Thermal Production ongoing. BorgWarner Inc systems, Turbocharges, Drivetrian systems. Integrated vehicle control, Production ongoing. TRW Automotive Inc braking system, suspension system, engine components, steering system Production stoppage in 1 plant NSK Bearings & 2 partial production stoppages. Electronics, Airbags, Inflators, Production ongoing. Autoliv Inc Crash testing.

Seat belts, Airbags, steering Production ongoing. Takata Corp wheels

Source: Supplier websites

• Team is meeting twice a week to review approach and status • Daily e-mail updates provided to plant managers and executive team • Direct suppliers have been contacted to • Identify affected (potentially) parts • Mitigation plans starting week of 21-March • Remaining sensitive to the lives lost and concern for the people there. • Addressing two fold problem: • Supplier end (potential lack of material) • Customer end (potential reduction of sales volume)

Japanese Earthquake Response Divison Target Date Comment Auto

1st Tier Suppliers Identified 18-Mar 2nd Tier Suppliers Indentified 25-Mar SCM to Canvas Supplier base Mitigation Plans Created Customer Advice Developed 25-Mar Reviewed by Legal, distributed to Sales on 21-Mar Long Term Monitoring in-place

Clutch 14-Sep

1st Tier Suppliers Identified 18-Mar Spring Suppliers, Bearings 2nd Tier Suppliers Indentified 26-Mar Steel suppliers are running. SCM to Canvas supply base Mitigation Plans Created 26-Mar Contacting Corp for intel on long term impacts Customer Advice Developed 25-Mar Reviewed by Legal, distributed to Sales on 21-Mar Long Term Monitoring in-place

Transmission

1st Tier Suppliers Identified Complete 18-Mar Bearing Suppliers, Board Manufacturers for ECU 2nd Tier Suppliers Indentified 26-Mar Need to confirm electrical component suppliers Mitigation Plans Created Customer Advice Developed 25-Mar Reviewed by Legal, distributed to Sales on 21-Mar Long Term Monitoring in-place

Hybrid

1st Tier Suppliers Identified Complete 18-Mar Hitachi as primary supplier of main components. 2nd Tier Suppliers Indentified 25-Mar Tracking Sigma for housing, Hitachi to confirm Mitigation Plans Created Customer Advice Developed 25-Mar Reviewed by Legal, distributed to Sales on 21-Mar Long Term Monitoring in-place

“If you can‟t get that core part, it doesn‟t matter if you get 50% of your components from Japan or just half of 1%,” said IHS Automotive analyst Michael Robinet. “Welcome to the global automotive industry.”

• Audi, VW, Fiat announcing no immediate disruption but anticipating May issues • Daimler and BMW announcing no disruption • Toyota and Honda overtime in EU has been cancelled • Staged downtime at GM facilities in Europe (Zaragoza and Eisenach building the current Corsa), loss of ~1300 units per day • Volvo output in Europe may only have until early April until component supply is starved- Genk plant already announced 2 weeks shutdown • PSA‟s production of diesel engines will be hit from 23 March as a result of electronic components made in the area affected by the natural disaster (althoug latest news seem to remove the holdback)

57 © 2011 Eaton Corporation. All rights reserved. 57 Impact on Light Vehicle Production in USA • Chrysler Group LLC • Restricted dealers from ordering vehicles in 10 paint colors produced at factory in Japan. • Ford Motor Co. • Restricted dealer orders for "tuxedo black" and three red paint shades; affects F- 150 and Super Duty pickups, Explorer, Expedition, Focus, Taurus, Lincoln MKS and Navigator. • Fuji Heavy Industries (Subaru) • Canceled overtime shifts at Subaru of Indiana (Legacy, Outback, Tribeca and Toyota Camry) until April 1; no parts shortages reported • General Motors • Resuming Chevrolet Colorado and GMC Canyon production at Shreveport, La. plant; shortage of undisclosed parts from Japan halted production week of March 21. Alleged shortage of electronic parts could hit as early as 3 weeks from now

Toyota Motor Corp. • Informed dealers March 25 that they face a shortage of 233 parts numbers for at least 30 days; Toyota Motor Sales will not fill any orders of short-inventory parts to replenish dealer stock • North American vehicle and engine plants (13) running; overtime curtailed • Sent memo to workers in U.S. and Canada March 23, warning thinning supplies will cause some interruptions in production; no definite time frame for stoppages • Prius availability in the U.S. could be affected by damage to a hybrid battery plant; RAV4 crossover also affected

Japan: • Extended production suspension through March 31; facing rolling blackouts and supply shortages affecting all of OEMs

• Supplier razionalization • Improved Material Management • Demand management • Supplier integration • Advanced Quality Planning • New Product introduction • Build regional capabilities …… • By being competitive you keep us competitive assuring continuous mutual growth

All