President's Letter for 2001 Annual Report

To Our Shareholders:

This quite possibly has been one of the most, if not the most, difficult year our Company has seen in the last twenty years. At the beginning of 2001, the industry forecast for each of our groups predicted a slow first half followed by a robust second. This was not to be, as almost all of the North American sectors experienced declining sales.

Our government, along with the Federal Reserve, has pursued a strong dollar policy for the last several years. While a boon for the consumer as lower prices on imported products, the strong dollar caused a deflationary scenario in the room air and refrigerator segments. Early in the first quarter, it became apparent that the room air market was moving to Asia, for not only compressors, but also complete systems. This required us to rethink where we should manufacture rotary compressors. After consid- erable study, we determined that we could compete with Asia by moving production of these compressors to our factory in Brazil, thus enabling us to consolidate manufacturing in North America. As a positive result, Tecumseh do Brasil had an outstanding year despite being hampered by a very soft market at home. A 30% devaluation of the Real over the past eighteen months has enabled Brazil to keep pace with the Asian pricing.

The Engine and Power Train Group did not enjoy a robust lawn and garden season, as the spring and summer weather for most of the nation was uncooperative. Our saving grace for the Group was a stronger than usual build of snow product. Tecumseh' s dominant position in snow is being challenged by the introduction of a new snow engine by our main competitor. They are utilizing their dominant position in the residential lawn and garden market to leverage their entry into the snow market. Although we see the threat as serious, we believe that we will continue to enjoy supremacy due to the strength of our broad product offering.

As the weather and the dollar refused to cooperate, by the summer it was apparent that additional measures were required. We came to the conclusion that business was not going to return to what we have considered normal in the past and that to attempt to maintain business as usual would be foolhardy. Therefore, we offered an early retirement package to our North American salaried work force. The retirement package did not reduce the stipend due to early retirement and allowed us to downsize in the most humane way possible. The response by those who stayed has been phenomenal, as there is a renewed energy, desire, and demand for change that must be present if we are to continue manufacturing in the USA.

All indications are that 2002 is going to be another difficult year. We expect demand for pumps, compressors, engines, and transmissions to be flat to down, year over year. When demand is slow, competition from offshore increases and the strong dollar prevents us from being as competitive as we need to be at home and abroad. While every year is fraught with such challenges, we must see them as opportunities if we are going to succeed in the global market- place. Accordingly, we continue to evaluate the movement of our manufacturing base to Brazil, India, and Asia.

We would like to take this opportunity to extend thanks to those who retired this year for their years of faithful service and wish them the best in the years to come; to all the employees in the USA and abroad who helped us weather this difficult year; and to our Board of Directors who have been invaluable in helping us make the hard decisions. Finally, thank you to those share- holders who have had the foresight and willingness to stay with us through these difficult times. Your patience will be rewarded, as we will emerge a stronger, more responsive, and profitable Company in the future.

Todd W. Herrick
President and CEO

Kenneth G. Herrick
Chairman of the Board of Directors,

January 31, 2002