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GATX Corporation
Railcar Outlook
Presentation to NEARS
April 20, 2011
Unless otherwise noted, GATX is the source =
for
data provided
![](3D"slide0003_image003.gif")
![3D"master_slide_rgb_2011D.jpg"](3D"master03_image001.jpg")
![](3D"master03_image004.gif")
Page
NYSE: GMT
=
Forward-Looking
Statements
This
presentation contains statements that may constitute forward-looking
statements within the meanin=
g of
Section 27A of the Securities Act of 1933 and Section 21E of the Securitie=
s Exchange Act of 1934 and are subject to the safe h=
arbor
provisions of those sections and the Private
Securities Litigation Reform Act of 1995.=
Some of these statements may be identified by words such as “anticipate,”
“believe,” “estimate,” “expect,”
“intend,” “predict,” “project” or othe=
r words and terms of similar meaning. Investors are cautioned that any =
such
forward-looking statem=
ents
are not guarantees of future performance and involve risks and uncertainti=
es, including those described in GATX’s Annual R=
eport
on Form 10-K and other filings with the SEC, and that actual results or developments may differ
materially from those in the forward looking statements.
Specific factors that might cause actual results to differ from
expectations include, but a=
re not
limited to, general economic, market, regulatory and political conditions =
in
the rail, marine, industri=
al and
other industries served by GATX and its customers; lease rates, utilizatio=
n levels and operating costs in GATX’s primary
operating segments; conditions in the capital markets; changes in GATX’s credit ratings and
financing costs; regulatory rulings that may impact the economic value and operating costs of a=
ssets;
costs associated with maintenance initiatives;
competitive factors in GATX’s primary markets including lease pricing
and asset availability; ch=
anges
in loss provision levels within GATX’s portfolio; impaired asset cha=
rges
that may result from
changing market conditions or portfolio management decisions implemented b=
y GATX; the opportunity for remarketing income; and =
the
outcome of pending or threatened litigation. Given these risks and uncertainti=
es,
readers are cautioned not to place undue reliance on these forward-looking statements, which reflect
management’s analysis, judgment, belief or expectation only as of the date hereof. GATX has based these forward-look=
ing
statements on infor=
mation
currently available and disclaims any intention or obligation to update or
revise these forwar=
d-looking
statements to reflect subsequent events or circumstances.
2
Page
=
=
<=
span
style=3D'mso-special-format:bullet;position:absolute;left:-2.54%'>•<=
/span>Founded
in 1898 as a railcar lessor=
3;
<=
span
style=3D'mso-special-format:bullet;position:absolute;left:-2.54%'>•<=
/span>Listed
on NYSE in 1916
•Initiated
quarterly dividends in 1919 an=
d paid without
interruption ever since
•One
of the largest railcar lessors in the world, with an owned a=
nd
managed fleet of 167,000 railcars, including 121,000 railcars in North America
About GATX
3
Page
Today’s Goal=
s
=
=
=
226;Provide
market perspective from a lead=
ing buyer,
seller, and lessor of railcars
=
226;Understand
and learn from historical influences that led to current market
conditions
=
226;Discuss
future expectations about the
railcar market
•Provide
insight to rail shippers about fleet management tact=
ics
and strategies to ensure cost-effective, reliable rail fleet
capacity
4
Page
Current Railcar Market Perspective
=
•Significant recovery in
carbuilding
•Increases in rail
traffic
–Though not back to 2008
levels
•Demand improvement
=
;
–Though not in all
fleets
•Return of liquidity=
3;
–Though from different
sources and with different expectations
•A railcar recovery =
is
occurring
–How strong and for how
long?
5
Page
![](3D"slide0008_image005.gif")
How did the North American fleet fare in the “Great Recession”?<=
span
style=3D'font-size:89%;mso-special-format:lastCR;display:none'>
12/31/07
12/31/10
Change
Non-MOW Freight =
Railcars in North America
1.69MM
1.60MM
(5.4%)
New Cars Built in North America, prior
12 months
66,185
16,535
(75.0%)
Sources: UMLER, ARCI
![](3D"slide0008_image007.gif")
![](3D"slide0008_image009.gif")
Ownership
Share
12/31/07
6
Page
![](3D"slide0009_image010.gif")
Did
the recession change the lessor landscape?
=
=
Top 10 Lessors, 12/31/07
Company
Fleet
Size (000)=
GE
148
GATX
120
CIT
107
Union Tank
97
First Union
60
Trinity
48
Andersons
24
ARL
23
Babcock*
20
Helm
19
Top 10 Lessors, 12/31/10
Company
Fleet
Size (000)=
12/31/07
Rank
GE
127
1
GATX
120
2
CIT
112
3
Union Tank
98
4
Trinity
68
6
First Union
66
5
ARL
26
8
Andersons
25
7
Greenbrier
16
11
Helm
11
10
Source: UMLER *Babcock fle=
et
size estimated
7
Page
How bad was the recession compared to longer-term history?
=
=
226;Q1
2010 had the lowest delivery total (2,550) in more than two
decades
–2 standard deviations below mean quarterly deliveries
over the preceding 17 years
=
226;2010
total production (16,535) was less than half the industry’s
natural replacement rate
8
Page
So what happened?<=
span
style=3D'mso-special-format:lastCR;display:none'>
=
&#=
8226;Economic
expansion
&#=
8226;Over-speculation
in railcars (and other assets)
&#=
8226;Economic
Collapse
&=
#8211;With
the self-reinforcing cycle of higher rail velocity
&#=
8226;Shake-out
&=
#8211;Allco
&=
#8211;Babcock
&#=
8226;Retrenchment
and Consolidation
&#=
8226;Are
things different?
9
Page
The Uniqueness of the Mid-2000s Railcar Boom
=
•At the turn of the century, demand for rail freigh=
t finally caught up to capacity
–The last up-cycle was first railc=
ar
boom under this new railr=
oad
paradigm
•<=
/span>Liquidity was at all-time high in the mid 2000s=
3;
•<=
/span>Input costs were cheap until 2004
–<=
/span>New cars could be built rapidly and for low cost&#=
13;
–<=
/span>S259 allowed for cheap upgrades
=
–<=
/span>Incentive to take capacity out via scrapping was
low
•<=
/span>2004-2006 price increases were a generational step-function increase=
–<=
/span>The market reacted with aggressive buying as risin=
g prices coincided with high demand and long backlog=
s
10<=
/span>
Page
Why might the current railcar market be different?
=
&#=
8226;During
the recession, railcar prices stayed high=
&=
#8211;Despite
a brief collapse, steel prices came back
&=
#8211;Component-supplier
consolidation
R=
26;Until
very recently, railcar prices were more cost-driven
than demand-driven
=
&#=
8226;Railcar
investors appear more cautious=
11<=
/span>
Page
Drivers of the Cur=
rent
Market<=
/div>
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=
&#=
8226;Growth
in New Markets
&=
#8211;Domestic
Intermodal
&=
#8211;Frac
Sand
&=
#8211;Crude
Oil
&#=
8226;Organic
Growth
&#=
8226;Fleet
Replacement
12<=
/span>
Page
Scrapping Matters<=
span
style=3D'mso-special-format:lastCR;display:none'>
=
•<=
/span>Over 190,000 cars were scrapped or casualtied 2008-2010
•<=
/span>During this period, heavy-melt scrap pricing experienced extreme volatility,
from over $500/GT to under
$100 within a single calendar year (2008)
–<=
/span>Even in 2009, when scrap prices were 2/3 off of th=
eir 2008 highs, over 68,000 cars were scrapped
•With scrap prices again approaching record highs, =
2011 may see continued scrap activity, unless demand causes economics to override scrap <=
/span>decisions
Sources: UMLER, GATX
13<=
/span>
Page
What will get
scrapped?
=
•<=
/span>There are still “targets” remaining:&#=
13;
–<=
/span>135,000 medium-cube 263K GRL gravity covered hoppers
–<=
/span>72,000 70T boxcars
–67,000 steel-bodied 263K GRL medium-cube open-top =
cars
–<=
/span>60,000 early-1980s and older tank cars
=
–50,000 large-cube 263K GRL pneumatic covered hoppers
•<=
/span>Not all of these cars will be scrapped, but it is =
not unreasonable to think that 10% to 15% of the North American fleet will be subj=
ect to
attrition in
the next 5 years.
Sources: UMLER, GATX
14<=
/span>
Page
Near-Term Railcar Market Expectations
=
•Expect continued scrapping, tempered only by the <=
/span>demands of traffic increases
–Even then, physical life limitations and the drive
toward more efficient de=
signs
will continue some scrapping
•<=
/span>New car demand appears solid through at least 2012 but there are risks:
–<=
/span>Saturation in new markets
–<=
/span>Effect of bonus depreciation expiration
–<=
/span>Macroeconomic issues
•<=
/span>Decreasing availability and increased operating costs will continue to drive lease rates upward
15<=
/span>
Page
Medium/Long-Term Railcar Market View
•<=
/span>Railroad drive to efficiency is likely to push out
remaining inefficient cars&=
#13;
–<=
/span>Railroads are likely to incentivize shippers to go
286
–<=
/span>Tank car rule changes are expected to support
“final conve=
rsion”
to 286
=
–<=
/span>Unit-train/bulk and intermodal should continue to
grow
–Carload traffic will likely evolve; growth will be
there, but it will conti=
nue to
look different
•More transloads and/or large block destinations on=
Class
Is
•Continued reliance on Class II and III roads
<=
/span>
•<=
/span>Tax-motivated buyers are expected to go back to le=
asing as policy changes and interest rates rise
–<=
/span>Railroads have better uses of capital
<=
/span>
–<=
/span>Shippers want to focus on core business
•<=
/span>Lessor landscape appears stable---for now
•
16<=
/span>
Page
Tactics and Strategies for Rail Shippers
=
•<=
/span>Make a multi-year
fleet plan and source railcars accordingly
•<=
/span>Understand your carriers’ position on 286K&#=
13;
–Even if you think 286K is not for you, in the next
capacity crunch the decisi=
on may
be made for you
•<=
/span>Understand your exposure (and your lessors’ exposure) to:&#=
13;
–<=
/span>Increased operating costs
–<=
/span>Fleet attrition
–<=
/span>Changing regulations
•<=
/span>Consider price/term tradeoffs; longer-term =
operating leases can be “the best of all
worlds”: low cost,
full-service, risk mitigation, and flexibility
17<=
/span>
Page
Questions?
=
=
Paul
F. Titterton, CFA
Vice
President and Executive Director
Fleet
Portfolio Management
GATX
Corporation
+1
(312) 621-6489
18<=
/span>
=
;
=
5/11/2011
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