The Ready-Aire Temperature Control Products Unit

In 2003, our air conditioning business was impacted by many of the same factors that affected our radiator and heater core business – competitive pricing pressures and soft demand due to customers reducing inventory and an unusually short and cool summer.

These unfavorable conditions offset substantial new customer programs, including three significant additions: an expanded relationship with AutoZone, as well as new agreements with Carquest and Pep Boys. As a result, year-over-year sales for the Unit showed a slight decrease and inventories were higher than we wanted throughout the year.

The Ready-Aire business, which provides customers with a full line of automotive and light truck temperature control products, is an excellent strategic complement to our Heat Exchanger Unit. Transpro’s strong reputation in the marketplace and many significant customer relationships have enabled us to effectively cross-sell Ready-Aire products to some of the same customers as our Heat Exchanger business.

We have positioned our Ready-Aire Unit to be a lean, customer-focused player in its served industry. Our 2003 initiatives included:

• Introduction of our “kit program,” which was designed to help our customers serve their customers better and manage the broad based line of products – a significant inventory challenge for this segment of the industry. The kits, which bring together all the necessary components to do a complete air conditioning repair, help take the guesswork out of inventory decisions. Each level of the distribution channel can eliminate unneeded inventory by creating a stocking plan modeled on the kit research.
• Lowered costs and improved quality through more in-house production. Our “H Series” remanufactured compressor line was first started up in 2002 and reached full production capability in 2003. In addition, during the year we moved production of R4 remanufactured compressors in-house and expanded our hose and evaporator production.
• Expanded global sourcing arrangements to enhance our competitiveness while maintaining product quality. The Temperature Control Products Unit has developed great flexibility in terms of optimizing “make versus buy” decisions due to the combination of our in-house manufacturing capabilities and excellent international relationships.
• Began the ISO 9001 certification process, which we expect to complete in 2004.
• Completed implementation of the JD Edwards MRP/MPS system, which was demonstrating its ability to enhance customer order fill rates by the second half of 2003.

Despite difficult conditions, the Automotive and Light Truck Strategic Business Group achieved a great deal in 2003. As we move into 2004, we believe that, with reasonable recovery of our markets, and despite the challenges we see ahead, we are postured for much improved performance.