President's Letter for 1997 Annual Report

To Our Shareholders:

The expression, "It's a small world," took on increased meaning for us in 1997 as we acquired two compressor plants in India and began the process to explore additional opportunities in the Far East and or Oceania.

On July 14, 1997, we announced the completion of the acquisition processes by which we obtained the refrigeration compressor manufacturing facilities of Whirlpool of India Ltd. in the State of Haryana and separately 100 percent of Siel Compressors Ltd. of Hyderabad, Andra Pradesh.

The combination provides Tecumseh with a rare balance of refrigeration appliance compressor capability along with unitary air conditioning compressor manufacturing and distribution throughout India. We have named the new company Tecumseh India Private Limited.

These critical acquisitions are an important segment of our forward strategic planning which also provides for future investment in the Eastern Pacific.

One possibility which has surfaced involves Australia and New Zealand where we have been engaged in very preliminary discussions with our long time licensee, James N. Kirby, Ltd. of Milpera, N.S.W., Australia. The Kirby organization has been a licensee of Tecumseh Products Company since 1956 -- forty-one years of a mutually profitable association and friendship. Our global reach extends from North America to Brazil, to France, to Italy (with our Engine and Transmission Group) and now to India. Australia and New Zealand would make a welcome addition.

It is clear that the future of Tecumseh Products Company is dependent to a substantial degree upon our ability to build a cohesive global family of cooperating manufacturing and distribution entities. These in tune with each other for collective advantages in economies of scale, but sufficiently independent to make the most of purely regional opportunities.

The portion of our world business dependent on air conditioner sales did not get much cooperation from the weather in 1997. Our major markets of North America, South America, Europe, and China all experienced extended cool spring weather for the second year and a corresponding slackening of consumer demand. As a result of this, the unsold inventories of room coolers and unitary air conditioners will inhibit future business growth until these surpluses can be worked off.

Fortunately a significant part of our compressor business is not weather related. For example, our commercial refrigeration products have become mainstays in the fast food industry, also in water coolers, and in ice makers. Our high efficiency CFC-free appliance compressors power domestic and export models of name brand home refrigerators and freezers.

The experience we learned from a half century of appliance compressor production will serve us well in opening and expanding the growing consumer base throughout India.

World currency relationships in 1997 benefitted our engine sales in much of Europe resulting in important product increases. These gains complemented our strong performance in North America where we combined a second year of higher than usual demand for snow equipment engines along with a very solid lawn and garden effort with major merchandisers.

Effective September 1, 1997, United States Government Standards Phase I EPA required emissions limitations on all small gasoline engines shipped after that date. This was a difficult and complex changeover, but one we accomplished with a minimum of inconvenience to our customers. Protecting the environment is one of our highest priorities. This is not a one shot affair, but rather a continuum of planning in every thing we do and every product we make.

As we look toward the 1998 fiscal year, we are a bit more cautious in our expectations. The unsettled financial conditions of the "Seven Tigers" in the Far East will not be substantially improved in the short term. We expect a bit more down-side potential in the region, due not only to currency and credit excesses, but also to heightened competition and low-priced distress inventory. At home the domestic economy is still strong, but seems to lack some of the "excessive exuberance" we have heard so much about.

The necessity to increase operating efficiency and reduce costs is present in all our planning and in our customer negotiations. The growing trend of major product manufacturers is to reduce the number of suppliers thereby concentrating purchasing and purchasing clout for maximum effect.

For component suppliers, such as we, this is a two-edged sword. High volume business is what we are geared for, but the pressure on margins however may in the final analysis reach counter-productive levels.

Our challenge will be to work hand in hand with our customers to establish fair and equitable pricing, which provides us with the means for continuous research and product improvement.

While development of our new scroll compressor is progressing, no date has, as yet, been set for introduction pending final cost and potential sales analysis.

We believe 1998 will be a good year, but definitely without the froth of previous years. In other words we will be in the trenches fighting for every order, domestic and international. We have been there before.

In thanking our employees and Board of Directors for their loyalty and exceptional efforts in our behalf throughout 1997, we must also remind them to prepare for the considerable tasks which encompass our plans for 1998.

Todd W. Herrick
President and CEO

Kenneth G. Herrick
Chairman of the Board of Directors,

January 30, 1998