President's Letter for 2005 Annual Report

To Our Shareholders:

As we entered fiscal 2005 we set a goal to be flexible and nimble enough to not only work on processes for financial health, but also to anticipate and work around swings in the external environment. During the last fiscal year we faced rising energy and commodity prices, unpredictable currency fluctuations and numerous conflicts throughout the world. Yet, despite these challenges, I am pleased to report our efforts are bearing fruit in the following areas: a more balanced global manufacturing footprint, realigned management structure and continued progress in the area of technology with market-driven products.

Several years ago, we recognized the need to become a global company, rather than just another multinational firm with many separate entities. In the interests of improved systems integration and more efficient communication within and between our various business units around the world, we continue the path of organizational restructuring and implementation of the SCG2 (Simple Common Global Growth) program begun in 2004. By the end of 2006 we expect approximately 50% of our existing businesses to have gone live with forty modules of a common ERP system that include finance, manufacturing, procurement, order management and product development. While it will take some time to fully realize the benefits, we are confident these improvements will help us react to changes in business conditions and provide better management of a global company.

Our efforts in improving process and leadership are showing encouraging directional results. For example, the Electrical Components Group, Fasco, has steadily improved operational performance since mid-year, with the results of the last six months in 2005 exceeding comparable 2004 results by 130%.

Our global focus is vital to our continued success since we do business in over 120 countries, with 18% of revenues from Europe, 12% from Asia (including the Middle East), 12% from South America and the rest from North America. We will continue to strengthen and reconstitute the organization, keeping the focus on key market segments. We are bringing on new talent and leadership, of which the most notable in 2005 was the recruitment of a Group President for our largest business unit, Compressors. Also in 2005, we hired a specialist firm in restructuring and turnarounds to lead restructuring efforts at the Engine and Power Train Group.

In 2005 we continued to enhance manufacturing productivity, making changes that strengthened our global position. We consolidated 875,000 sq. ft of facilities, while simultaneously making $113M in new investments to improve utilization to improve manufacturing efficiency, tool new products, expand production in low cost countries and enhance overall product quality. To align to the needs of the marketplace we will continue to make improvements in our planning and performance management systems that began in 2005.

Through our 75 year history, Tecumseh has developed and manufactured products that are deeply ingrained in the lives of millions of consumers worldwide. Tecumseh products are critical components of refrigeration equipment, air conditioning systems, vending machines, automobiles and trucks, appliances, office machines, outdoor power equipment, lawnmowers, snowblowers, pumps for residential and garden applications, and hundreds of additional products that touch people's lives every day. In challenging times some companies might retreat from new product development, however, we believe tough times demand bold thinking. So in 2005 we have actually accelerated product development in several established markets. In addition, we continued to invest in new technologies and responsible environmental stewardship.

Among these new products are: a chiller for cooling vests used by soldiers in the Persian Gulf; a battery powered air conditioning system for golf carts; technology for brushless direct current (BLDC) high efficiency motors used in applications such as HVAC systems and electric bikes; components for the clean diesel market; and integrated commercial refrigeration systems such as Silensys (Europe) and Vector (North America).

We also continue to work on new refrigerant technology, including CO2 research, and we are developing new products to work with the next generation of environmentally-friendly refrigerants. Over the next two years, I expect increased integration of Tecumseh's global technological talent and increased discipline in our execution and market focus.

As we entered 2005 we encountered many uncertainties and variables, yet our core values never changed. In fact, they remain the foundation for the strong global company we are building. Our values speak to all our stakeholders, including investors, customers, employees, suppliers and the communities in which we do business.

Our Values

• Integrity - We pursue our business in a socially responsible manner, adhering to the highest standards of legal and ethical conduct and expecting the same from those with whom we do business.
• Accountability - We are responsible for our decisions at the individual, team and company levels.
• Excellence - We strive for excellence in all we do; from product quality and performance to customer service and the internal processes that support those ends.
• Teamwork - We value the power of teamwork and evaluate results as a team.
• Stakeholders - We conduct our business with the best interests of the employees, shareholders, customers and suppliers in mind.

Prepared for New Challenges

Decisions made and actions taken in 2005 will continue to drive our company toward positive results in the coming fiscal year. With a stronger management structure already in place and continually improving integration around the world, we are well on our way to becoming an integrated organization focused on global markets for heating, ventilation, air conditioning and refrigeration systems using our strengths in compressors, motors and other key sub-systems.

We expect 2006 to present new challenges, but as we did in 2005, we will be flexible and resourceful enough to ensure success. We will take full advantage of our new organizational structure, improved processes and reliance on talent management. We will continue to maintain global leadership in established markets and develop new technology and applications for emerging and niche markets. We have established a firm foundation based on our core values. To these we have added careful planning and timely execution of those plans. In 2006 we will continue to build on the momentum we achieved in 2005.

Todd W. Herrick
Chairman of the Board of Directors,
CEO and President