President's Letter for 1998 Annual Report

To Our Shareholders:

Global business in 1998 was anything but boring. Quite frankly, we were not prepared for the magnitude of the Asian financial crises and how quickly this would expand from Japan, South Korea, Thailand, and then throughout the Pacific Rim. As a consequence our sales to the domestic economies of these countries in 1998 were significantly lower than 1997; however, our sales to exporting manufacturers into the group remain at substantial levels. Our subsidiary companies, Tecumseh Europe S.A. and Tecumseh do Brasil Ltda., also experienced the negative effects of the Asian crisis, primarily reduced exports. Brazil's own financial crisis, which became apparent at year's end, will challenge our operations there in 1999.

The preliminary discussions with our Australian licensee, James N. Kirby Ltd., which we advised you of last year, did not progress to conclusive negotiations for Kirby's Australian, Thailand, and New Zealand interests. The severity of Thailand's currency and credit problems have placed the assets of Kirby's Bangkok satellite company, Kulthorn Kirby Co. PLC, in which we have a minority interest, in a condition of uncertain valuation not conducive to mutual determination. To a large degree the economic malaise in Thailand mirrors the financial difficulties of much of the Pacific Rim countries. Future investment in the eastern Pacific may have to be placed on hold until asset values have stabilized and/or the regional economy improves substantially.

Our acquisitions in India and our new company, Tecumseh India Private limited, gave us cause for optimism in 1998. We refurbished the manufacturing facilities purchased from Whirlpool and production of refrigerator compressors increased -- quality and performance improved.

We began construction of a new compressor facility to manufacture our latest CFC-free high efficiency compressor models. Progress achieved to date indicates completion in the second quarter 1999.

Success of this rather formidable logistical undertaking has been achieved through cooperating teams of technicians from our Brazilian, French, and U.S. manufacturing staffs working in concert with their vary capable hard working Indian counterparts.

Our air conditioning compressor facilities purchased last year from Siel Compressors Ltd. of Hyderabad, Andra Pradesh, are in full production with measures in place for additional expansion.

Our domestic and global compressor sales activities revealed a very fundamental truth in 1998. The world is experiencing a period of significant excess manufacturing capacity in many segments of the compressor industry. Japan, South Korea, Thailand, North American, South America,a nd Europe all at this point in the world's present economic cycle have created some degree of excess compressor manufacturing capacity. We believe this excess capacity was created in the expectation of continuous economic growth.

When this premise is circumvented or stalled by financial crisis due to national credit and currency anomalies, the supply and demand balance is distorted. During these periods, the obvious result is ever increasing pressure on margins as countries and companies vie for the business that is still available. In this super competitive climate, during 1998, your Company held its own as the figures in this report indicate; however, in preparing the Company for the new century, we must place stronger emphasis on programs were we excel, programs providing growth, and increased value to our shareholders. Conversely, it is prudent that we continually monitor projects that under changing world conditions do not meet our objectives. In these non-performing product programs were the expected future cash flows are less than carrying amount of the program assets, account rules require us to recognize asset impairment losses and write down the program assets to fair market value.

Due to the protracted nature of the Company's scroll compressor program, we have recorded an appropriate charge to net income in 1998 as required. This action will lay the ground work for lowering costs and enhancing future efficiencies, which can only augment our position as a leading low cost producer of air conditioning compressors.

Additionally, as promised in last year's annual report, the Company repurchased 960,000 shares of its Class A common stock in open market during 1998. We expect to repurchase a like amount of Class A common stock during 1999.

Our engine operations were not noticeably affected by the Asian monetary flu, turing in a solid performance in North American and better than expected gains in European markets, where we are the only U.S. manufacturer with local engine production facilities. We benefited from strong engine products on both continents, products tailored to fit local preferences as well as application preference. For example, Tecumseh "Snow King" engines now command more than 85% of the North American market for show throwers.

Forward looking development programs promise engine and carburetor features, which will demonstrate not only the most reliable easy starting ability, but also adherence to EPA and California Air Resources Board emissions requirements through year 2006.

Predicting the business outlook for 1999, the last year in this century, is a daunting task. Most global indicators point to an economic slowdown; however, we are counting on our great diversity of products and markets. Our strong positions in North America, South America, Europe, and now India should provide opportunities. We will do our best to make the most of these opportunities.

Before closing, we want to recognize the dedication and effort that so many of our employees contributed during this unusually challenging year. To them, and to our Board Of Directors, we send our heartfelt thanks!

Todd W. Herrick
President and CEO

Kenneth G. Herrick
Chairman of the Board of Directors,

January 30, 1999