EXCLUSIVE INTERVIEW: JOSE MARIA ALAPONT

Larry Silvey: What effect has the U.S. recession had on Federal Mogul’s U.S. aftermarket and OE business and how have you handled it? And how have you handled the economic downturn in other markets around the world?

Jose Maria Alapont: Federal-Mogul began a comprehensive restructuring program anticipating the market downturn in the third quarter of 2008. We decided to restructure our company to implement a variable cost company strategy to align our entire cost base to the lower customer demand caused by the market downturn, while maintaining our drive for leading technology and innovation. The variable cost company strategy has allowed us to restructure to operate profitably in the second quarter and third quarter of 2009 and we are now well positioned to take advantage of any demand increases that come as the recovery of the markets strengthen.

Our aftermarket business has helped offset the impact of the OE market decline. This is one of the main strengths of the Federal-Mogul business structure. We have seen a shift in the aftermarket in product mix as customers are purchasing more accessories or DIY products or deferring repairs due to the difficult market/financial environment. We expect demand for significant repairs and fleet repairs to strengthen the longer we face economic challenges as customers are keeping vehicles longer.

Federal-Mogul has an excellent balance between revenue derived from the OE and Aftermarket segments, with about 60 percent OE and 40 percent aftermarket. This balance, combined with our geographic and product portfolio diversity has helped the company to offset the global market decline and combined with our restructuring, to realize strong financial performance and cash flow, even at the lower sales level of the current market.

LS: With continued consolidation of the industry, do you anticipate that there will be acquisition opportunities? If so, what kinds and in what markets…and when? If not, why don’t you think so?

JMA: We have a solid growth plan, diversified business model, leading technology and innovative solutions, a

FOR VIDEO EXCERPTS OF THIS INTERVIEW, CLICK HERE.

competitive manufacturing network with a steady shift to best-cost locations, combined with a proven ability to generate cash flow sufficient to internally fund our R&D, capital investment and minimal debt service requirements. As of the end of the third quarter 2009, Federal-Mogul had $1.3 billion of liquidity with $800 million cash and a $500 million revolving credit line. We have enough liquidity to consider acquisitions that will add new technology to our existing portfolio, especially in the areas of fuel efficiency, emissions reduction and safety products. We also are considering strategic opportunities surrounding the electrification of the vehicle and related technologies. Federal-Mogul is also interested in market consolidation opportunities that may enhance our global diversification and market reach in both OE and aftermarket business segments. This could come in the form of acquisitions or majority joint ventures.

We are positioned for additional growth in emerging markets such as China, India, Brazil, Russia and Eastern Europe where we currently have subsidiaries or joint ventures manufacturing our major product lines to serve the local markets.

LS: China and India are certainly emerging as viable global markets. What are your plans to sell to those markets? How big is their potential for Federal-Mogul? Also, what are your current - and future - plans to manufacture in those markets and what will that mean for the U.S. aftermarket?

JMA: China, India and Brazil are significant growth opportunities and these automotive markets have passed through the economic downturn without a significant impact and they are now already growing again. We will expand our dominant position to take advantage of growth opportunities in these markets. We currently offer and manufacture our complete OE product portfolio in China and continue to win new business with Asian customers in their home markets and in other regional markets where they are expanding. We operate 8 manufacturing locations in China. We are also strengthening our Asian presence with our new Headquarters and technical center in Shanghai, China which opened in June 2009. Federal-Mogul’s aftermarket distribution center is located in Shanghai. Further, we recently opened a new headquarters in Delhi, India. We operate 5 manufacturing sites in India, covering our major product lines. Federal-Mogul operates 7 manufacturing sites in Brazil and recently expanded our operations in Araras, Brazil.

Federal-Mogul has a comprehensive global strategy for growth in best cost countries which includes expansion of activities and manufacturing capacity in all product lines. This expansion will align itself with the vehicle parc in emerging markets for our Aftermarket group and will help provide a competitive source of supply for OE and Aftermarket customers. Our extensive global best cost manufacturing base, representing over 25 percent of total capacity, will allow us to support customer needs in all markets for premium brands, OE replacement, and private label and entry level products.

Federal-Mogul’s investments in China, India, Brazil and other emerging countries are part of its strategy to expand in emerging markets, offering its leading products and services to both new and existing customers, while leveraging a single engineering and manufacturing structure to serve OE and aftermarket customer requirements.

LS: I’m sure you do a fair amount of customer research in the markets you serve. Please tell us what your U.S. customers’ needs, complaints and concerns are these days. What, specifically, are you doing to meet their needs? Are these needs and concerns different in the other markets you serve?

JMA: We actively seek our customers’ input and listen to their needs. What we keep hearing is consistent across the regions. Leading technology and innovation, competitive cost, global product availability and world class quality and service are at the top of their list. This becomes even more important for the aftermarket as the balance of foreign and domestic nameplates within the vehicle fleet continues to evolve. We have a strong range of parts available for not only American makes but Asian and European as well. Our global OE leadership gives us access to the latest coverage and technology as it is needed.

Product availability means that we have the right parts on the shelf and we can ship them to our customers when needed. Therefore, it is important for manufacturers and channel players to develop Integrated Product Supply models to optimize the process. Working capital management will be a key driver as with other steps in the IAM chain and we must learn to work with each other to find the balance between timely local product availability and inventory positioning. Redundancy in offerings will need to be reduced to allow for the expansion of even more diverse make/model coverage. Product category mix will be adjusted to adapt to new vehicle technologies. The industry will need to move beyond line reviews and category management to collaborative Product Planning.

LS: As a global company, what can Federal-Mogul offer its customers that others can’t?

JMA: Federal-Mogul is a global company with a unique balance of OE and aftermarket business and world class leading technology and innovation which allows us to support our customers with their new strategy for smaller, more fuel efficient vehicles, reduced emissions and improved vehicle safety. Regarding aftermarket customers, we use our globally-linked technical centers and manufacturing footprint to bring to market products that increase confidence in the repair by solving a problem, making the job easier and improving vehicle performance, all at a competitive cost. Our global manufacturing footprint allows customers a global source for local markets covering domestic and foreign nameplates and we have technical and product design resources in every major market to ensure that we are responding to the unique characteristics of each market with relevant and timely products and services.

LS: How do you think the shakeout of the domestic automakers will affect the U.S. auto aftermarket? How will it affect your business in the U.S.?

JMA: The recent challenges faced by U.S. vehicle makers have forced the reduction of some of their vehicle makes and closure of dealership locations. This creates an opportunity for the independent aftermarket as these vehicle owners will be in need of service. Federal-Mogul has extensive coverage of repair parts for these vehicles, and along with our all-makes OE credibility, our leading brands can benefit from this market trend. We are also observing a longer term trend toward more foreign-branded vehicles in the U.S. market. This increased diversity of nameplates in the U.S. vehicle parc will create new repair challenges. Considering Federal-Mogul’s extensive global OE presence, we are well positioned to assist our customers with this additional complexity coming into the U.S. repair market in the coming years.

PAGE 2

LS: Do you think that the auto aftermarket is changing fundamentally or is in the process of evolving naturally? Please explain.

JMA: The economic downturn as well as the emerging government energy policy is leading to some fundamental changes in the aftermarket. These events have accelerated trends that were already occurring in the vehicle parc as well as how these vehicles are being serviced.

Moving forward, we will see a proliferation in the number of vehicle makes on American roads. Together with European nameplates, Japanese and Korean brands are growing and soon we will see Chinese and Indian makes penetrating the market here.

The types of vehicles now being sold are shifting away from light trucks and SUVs to smaller sized passenger cars with fuel efficient powertrains. As a result, the IAM will need to serve not only the large population of traditional vehicles that are remaining in operation but also the newer down-sized vehicles that feature more modern, fuel-efficient technologies.

The aftermarket will be pressed to keep up in terms of service know-how, available coverage and having the latest in what is evolving technology. We are a global leader in technology and service and are supporting our customers to succeed in managing these emerging challenges.

LS: In your opinion, are we going to see the U.S. aftermarket rebound next year? Why or why not? What will be the main drivers as to whether it does or doesn’t rebound?

JMA: There are already signs of market recovery. Based on what we see happening from a more macro-economic standpoint, we expect a progressive recovery in 2010. Things should begin moving in the right direction, however we need to be very cautious because we are coming from very low levels and it will take some time before the markets come back to where they were. A key driver for the aftermarket is miles driven. A period of relatively low fuel prices has helped the miles driven on U.S. roads rebound in recent months to year-ago levels. However, this needs to be tempered by concerns over oil price and the unemployment outlook in 2010.

There is a great deal of pent-up demand for vehicle service that can only be put off for so long. When those service occasions happen, we hope that the vehicle maintainer performs the complete job and uses quality, premium parts from a trusted supplier. The improved performance and longer life of these parts make them the best value for the vehicle owner. Value is a key driver among consumers these days.

Other positive factors are that vehicle owners plan to keep their vehicles longer and the opportunity made available to the IAM by the transformation of the U.S. dealer networks that will continue in 2010.

LS: Clearly, universal data standards would help the aftermarket’s efficiency, not to mention its profitability. In your opinion, what are the obstacles in the way and how can this industry overcome them?

JMA: We have talked much about the importance of making new coverage available to the market to serve the evolving needs of the aftermarket. Having the parts available when needed is our mission but if the channel is not aware of the availability, we have not accomplished anything.

The part needs to be available; otherwise the customer will turn to the OE dealer because they know they will have it. The OEMs have a data deployment advantage in that replacement part information arrives at the same time as the vehicle platform is rolled-out.

Therefore, it can only help the IAM to adopt standards that allow rapid dissemination of data through to the end user. When the manufacturers, distribution and service providers find standards that they accept and embrace, we will be that much closer to having a truly integrated supply chain. Federal-Mogul, with our global and leading customer base, product technology and market position is fully committed to support the independent aftermarket with world class data and product service.

LS: It seems as though everybody is jumping on the green and electric vehicle bandwagon though we haven’t heard much news from Federal-Mogul in this regard. What are you doing specifically in this vein? How do you see vehicles changing in order to meet new U.S. energy policies?

JMA: Federal-Mogul is committed and focused on delivering leading and affordable technologies to our customers that help them meet these challenges.

There will be a diverse number of new, alternative propulsion technologies to emerge during this century, replacing some of the traditional petroleum based systems that have been dominant for so many years.

In addition to alternative energies, we have technology that enables the vehicle makers to improve fuel economy and emissions performance as they downsize and turbo-boost future powertrains.

The downsizing trend in engines with its corresponding increase in cylinder pressure, mechanical and thermal loading allows us to leverage our expertise and leading technologies in diesel and gasoline engine technology. This applies to innovative piston, ring and liner designs and extends to our ability to implement durable, low-friction bearings and robust, efficient sealing strategies. Recent developments in our ignition group with materials and high-energy systems provide cost-effective ways to execute advanced combustion strategies while providing flex-fuel capability. These products not only enable future technologies, like downsizing, they can provide an immediate benefit to today's engines through improved efficiency.

Downsizing from V-8 to 4 cylinders is an especially new trend in the U.S. Europe is already dominated by 4 cylinders and small V-6s with solid participation from F-M in diesel and gasoline. Most of these technologies are suitable for the forecasted upcoming downsizing in the U.S. In addition, our technologies position us to win new business as the U.S. demand shifts to smaller and diesel engines.

Federal-Mogul’s new friction formulations are free of any heavy metals or heavy metal compounds of the elements lead, cadmium and antimony. We also eliminated from our friction formulations the use of all potentially hazardous man-made fibers, like mineral fibers and others, which have been substituted by bio-soluble replacement products. The continuing discussion on industrial and traffic-caused emission of ultra-fine dust is addressed by the development of friction formulations showing a significantly reduced wear, hence contributing to the reduction of emissions of airborne dust.

With our strong liquidity, we are looking for opportunities to further develop technology solutions for alternative powertrains and vehicle safety systems. We are interested in developing technologies that are critical to the emerging electrification of the vehicle and will either consider companies with proven technologies that can benefit from our global footprint, commercialization and manufacturing expertise, or promising technologies that need further development through our world-class engineering and product development processes.

Federal-Mogul’s leading portfolio, together with our strong liquidity, positions us to further develop products that support customer strategies to respond to market demand or regulatory requirements for green technologies. Federal-Mogul is well positioned to take advantage of the proliferation of alternative propulsion and other vehicle technologies that will enter the market in the near future. With our strong OE presence, we will be on the forefront of technology development and among the first to offer this same technology to our customers in the global aftermarket, supporting their strategies to be first to market with the high quality parts, available when required, to ensure successful repair and enhanced customer confidence.

Federal Mogul’s leading technology and innovation, world class manufacturing and engineering capability, market leading brands and customer service, combined with our track record for strong financial performance and liquidity enable the company to successfully operate in today’s environment while also preparing Federal-Mogul to capitalize on new growth opportunities as the overall economy and global automotive markets strengthen.