ARE WE AT THE BOTTOM OF THE RAILCAR MARKET? Midwest Association of Rail Shippers July 2017 Midwest Association of Rail Shippers J u l y 2 0 1 7
Forward-Looking Statements Statements in this Presentation not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those discussed. These statements include statements as to our future expectations, beliefs, plans, strategies, objectives, events, conditions, financial performance, prospects, or future events. In some cases, forward-looking statements can be identified by the use of words such as may, could, expect, intend, plan, seek, anticipate, believe, estimate, predict, potential, continue, likely, will, would, and similar words and phrases. Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of the date they are made, and are not guarantees of future performance. We do not undertake any obligation to publicly update or revise these forward-looking statements. The following factors, in addition to those discussed in our other filings with the SEC, including our Form 10-K for the year ended December 31, 2016 and subsequent reports on Form 10-Q, could cause actual results to differ materially from our current expectations expressed in forward-looking statements: exposure to damages, fines, criminal and civil penalties, and reputational harm arising from a negative outcome in litigation, including claims arising from an accident involving our railcars inability to maintain our assets on lease at satisfactory rates due to oversupply of railcars in the market or other changes in supply and demand weak economic conditions and other factors that may decrease demand for our assets and services decreased demand for portions of our railcar fleet due to adverse changes in the price of, or demand for, commodities that are shipped in our railcars higher costs associated with increased railcar assignments following non-renewal of leases, customer defaults, and compliance maintenance programs or other maintenance initiatives events having an adverse impact on assets, customers, or regions where we have a concentrated investment exposure financial and operational risks associated with long-term railcar purchase commitments reduced opportunities to generate asset remarketing income operational and financial risks related to our affiliate investments, including the Rolls- Royce & Partners Finance joint ventures fluctuations in foreign exchange rates failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees improvements in railroad efficiency that could decrease demand for railcars the impact of regulatory requirements applicable to tank cars carrying crude, ethanol, and other flammable liquids asset impairment charges we may be required to recognize deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs competitive factors in our primary markets, including competitors with a significantly lower cost of capital than GATX risks related to international operations and expansion into new geographic markets changes in, or failure to comply with, laws, rules, and regulations inability to obtain cost-effective insurance environmental remediation costs inadequate allowances to cover credit losses in our portfolio inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business 2
Agenda About GATX Industry Background Recent Industry Performance Current Trends Looking Ahead 3
About GATX $7.6 billion in assets and interest in 146,000 railcars worldwide Investment-grade ratings from S&P and Moody s 122,000 railcars and 600 locomotives in North America 6 major railcar maintenance facilities and 5 field repair centers in North America Industry-leading railcar management capability As of 12/31/16 4
Industry Background: North America Railcar Ownership RAILROADS (20%) Ownership of railcars has been declining LESSORS (52%) Shift from railroad and shipper owned railcars to lessor market share NORTH AMERICAN FLEET BY CAR TYPE In 2000, 53% of railcars were owned by railroads Virtually no tank car ownership due to complexities and regulations Lessors dominate the tank car segment due to complex services and compliance requirements 9% 8% 4% 32% Focus of capital investment on infrastructure 20% 25% 19% 52% 22% SHIPPERS (19%) 10% TTX (10%) Shipper market share has been relatively constant since 2008 at ~19% Alternative focus of capital on core business versus railcar investments Fleet is predominantly focused on intermodal, flat cars, and boxcars Overall market share has remained steady since 2008 at ~10% of the North American fleet 32% Covered Hopper 22% Open Top 25% Tank 9% Flat 8% Boxcar 4% Intermodal Approximately 1.6 million railcars UMLER as of April 2017 5
Lessor Market Share LESSOR TANK CARS Approximately 407,500 tank cars in North America About 80% of tank cars are owned by lessors, with the balance owned by shippers GATX is the second largest tank car lessor LESSOR FREIGHT CARS Approximately 1.2 million freight cars in North America Ownership is more balanced across owner types than tank 43% lessors, 26% railroads, 18% shippers, and 13% TTX 6% 13% NORTH AMERICAN LEASING SHARE 20% 12% 15% GATX 16% Union Tank Car 18% Wells Fargo 12% Trinity 15% 18% Based on more than 841,500 lessor-owned railcars 16% 13% CIT 6% SMBC 20% Other NORTH AMERICAN TANK CAR LEASING SHARE 9% 8% 16% 10% 19% GATX 38% Union Tank Car 16% Trinity 19% 38% Based on approximately 325,000 lessor-owned tank cars 9% CIT 8% SMBC 10% Other UMLER as of April 2017; SMBC counts are estimated post ARL purchase 6
Industry Performance: Carload volumes have declined as mix has changed 2008 2016 4% 5% 20% 39% 3% 7% 23% 26% 5% 11% 3% 5% 11% 2% 14% 3% 5% 13% 39% Coal 2% Petroleum Products 11% Chemical 5% Forest & Paper Products 3% Food / Kindred 11% Farm Products 5% Auto 4% Metals 20% All Other 26% Coal 5% Petroleum Products 13% Chemical 5% Forest & Paper Products 3% Food / Kindred 14% Farm Products 7% Auto 3% Metals 23% All Other Based on 2008 carloads of approximately 20.3 million Based on 2016 carloads of approximately 16.9 million AAR as of 12/31/16 7
Coal and sand are majority of 2017 YTD improvement 3,000,000 2,500,000 Quarterly Commodity Carload Traffic, North America All Other (2Q06 Prior Peak) Down 0.7MM 2,000,000 1,500,000 1,000,000 500,000-1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14 4Q14 3Q15 2Q16 1Q17 All Other Coal & Coke Sand, Stone, Minerals, & Related Products Grain Petroleum Products Source: AAR (2Q17 Carloads; Pre-Recession Peak excludes Mexican carloads) 8
Weak comps make coal and sand look impressive 15% Change in NA Carloads 10% 5% % Change 0% -5% -10% -15% -20% 2013 2014 2015 2016 2017F 2018F 2019F Coal & Coke Sand, Stone, Minerals, & Related Products Source: AAR (2013 2016), IHS as of 1Q17 (2017 2019) 9
But overall demand fundamentals remain challenged 5% Change in NA Carloads 4% 3% 2% % Change 1% 0% -1% -2% -3% 2013 2014 2015 2016 2017F 2018F 2019F All Other (excluding Coal & Sand, Stone, Minerals, & Related Products) Source: AAR (2013 2016), IHS forecasts as of 1Q17 (2017 2019) 10
Energy related fundamentals remain weak $120 NA Oil & Gas Industry Forecast 20% 20 U.S. Coal Consumption YOY Change (million short tons) $100 15% - WTI $ / BBL $80 $60 $40 10% 5% 0% % Change Oil & Gas Extraction (20) (40) (60) (80) $20-5% (100) $0-10% 2012 2014 2016 2018F 2020F WTI $/bbl % Change Oil & Gas Extraction (120) 2015 2016 2017F 2018F Electric Power Coke Plants Retail & General Industry Source: IHS as of 1Q17 (2017 onward forecasts), EIA as of January 2017 (Oil), EIA as of June 2017 (Coal) 11
New car backlogs continue to decline but are still well off historical lows 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Tank Freight Mean Backlog Since 1994 Railway Supply Institute as of April 2017 12
Growth in railcar supply only now turning negative Attrition & Fleet Growth of NA Fleet (in 000s) 79 48 56 16 10 (31) (39) (11) (1) 1/1/2016 vs. 1/1/2015 1/1/2017 vs. 1/1/2016 4/1/2017 vs. 1/1/2017 Gross Attrition New Builds Net Fleet Change Low scrap steel prices have failed to spur meaningful attrition UMLER (comparing 2015, 2016, 2017 fleet counts) 13
Idle cars are high, but have moderated slightly 35% 30% 25% 20% 15% 10% 5% 0% Source: AAR as of June 2017 14 Idle North American Fleet % Idle Mean Since 2010 Roughly 22% of NA fleet considered idle Defined as having no moves in past 60 days 91% stored empty 35% tank cars 27% covered hoppers 15% gondolas Recent velocity declines activated some cars ~70k fewer cars reported idle vs peak in June 2016
Velocity has moderated, but insufficiently to offset demand weakness 28 Weekly Train Speeds, North America 27 26.8 27.2 26 MPH 25 24 24.0 23 23.1 22 2010 Wk1 2010 Wk27 2011 Wk1 2011 Wk27 2012 Wk1 2012 Wk27 2013 Wk1 2013 Wk27 2014 Wk1 2014 Wk27 22.5 2015 Wk1 2015 Wk27 2016 Wk1 2016 Wk27 2017 Wk1 Source: AAR & FTR o For every 1 MPH change in rail velocity, railcar demand changes ~50K cars o Trough-peak demand variance implies idling/activation of ~1/6 of the N. A. fleet 15
Excess railcar supply impacting NA industry fleet 14 Industrywide Implied Carloads/Car 100% Industrywide Select 3- Month Movement Pct. 13 95% 90% 12 85% 11 80% 75% 10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2Q17 70% Jan-'15 Mar-'15 May- '15 Jul-'15 Sept-'15 Nov-'15 Jan-'16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Source: Umler as of April 2017; AAR carloads as of June 2017; Railinc CLM analysis Coal 30K Gallon 16
Weak industry performance has stalled new railcar orders Orders still remain low with 1Q17 net orders (~4,800) near lowest point since 2009 crisis 160,000 Net Orders Over Time 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - Source: ARCI (2017A = annualized 1Q17 data) 17
Rail loading growth sluggish compared to intermodal and truck 8.0% % Change in Loadings % Change 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 2014 2015 2016 2017F 2018F Carloads Intermodal Truck Source: FTR, IHS as of June 2017 18
Macroeconomic forecast is mixed 12.0% Broad Based Economic Indicators 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 2014 2015 2016 2017 2018F 2019F 2020F 2021F GDP Growth Manufacturing Growth Housing Starts Growth Light Vehicle Sales Growth Source: IHS as of 1Q17 (forecast starts 2017) 19
Will new developments in 2017 affect the railcar market? CSXT adopts precision railroading Proposed federal infrastructure plans in US and Canada What might they be, and will they get done? New leadership at USDOT Changes in energy markets and (maybe) energy policy A pro-coal US administration Pipeline construction Mexican energy market liberalization 20
Has the railcar market bottomed? Some industry observers assert that the worst of the supply and demand imbalance is over, but market signals are mixed, and backlogs remain high relative to past market bottoms Coal and sand offer near-term hope, but broad demand picture is uncertain Customer retention and modal share shift remain longer-term concerns in the carload market Absent a new demand driver, return to balance in the railcar market will be slow It is notoriously difficult to call a bottom and time a recovery 21
22 Questions?