2018 Guide to Effective Proxies

2.17.3 Business strategy | 297 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES COMPENSATION DISCUSSION AND ANALYSIS Executive Summary Our Business and Strategy GATX is the leading global railcar lessor, owning and leasing railcars in North America, Europe, and Asia. Most of our railcar leases are full-service leases under which we provide maintenance, engineering, administrative, and a variety of other value-added services. We operate an extensive network of railcar maintenance facilities in the United States, Canada, and Europe dedicated to performing timely, efficient, and high quality maintenance for our railcar leasing customers. In addition, we operate the largest fleet of US-flagged vessels on the Great Lakes and invest in a group of joint ventures with Rolls-Royce plc, a leading manufacturer of commercial aircraft jet engines, that lease aircraft spare engines. Railcar leasing is our core business, accounting for approximately 85% of our 2016 revenue. Our rail customers operate in cyclical markets, such as the petroleum, chemical, fertilizer, food/agricultural, transportation, and construction industries. Combined with changing macroeconomic conditions and swings in railcar supply, this results in significant volatility in utilization and lease rates for railcars over time. At the same time, railcars have very long useful lives of 20-45 years. Thus, we have to proactively manage our business with a long-term view, which includes buying, leasing, maintaining, and selling railcars into constantly changing business conditions over decades. We believe that the key to generating long-term shareholder value involves optimizing asset growth and asset return by emphasizing each at the appropriate point in the railcar business cycle. For example, in stronger railcar markets, we focus on increasing lease rates and lengthening lease term to lock-in attractive lease revenue as long as possible. At the same time, we de-emphasize new railcar investment due to the high railcar prices usually present in such a market. Conversely, in weaker markets, when railcar prices tend to be lower, we seek to invest in additional railcars on favorable terms. We also aggressively reduce lease rates to maintain asset utilization and shorten lease terms to position the Company to capture value when lease rates improve. The following chart illustrates our approach to managing leases through these cycles over the past decade. Managing Leases Through Cycles STRONG MARKET 0 2006 32 54 66 62 60 45 35 41 63 67 64 2007 2008 Renewal Lease Term Lease Price Index* 2009 2010 2011 2012 2013 2014 2015 2016 -35.0% -25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% 45.0% 10 20 30 40 50 60 70 Renewal Lease Term (months) Lease Price Index* WEAK MARKET STRONG MARKET WEAK MARKET 17% 14% 5% -11% -16% 7% 26% 35% 39% -20% 32% The cyclicality of our industry is also illustrated by the backlog of orders at the railcar manufacturers. Rising backlogs tend to represent a strengthening market while falling backlogs tend to represent a weakening market. While we invest in railcars at all points in the business cycle, we strive to achieve lower railcar cost by trying to place large new railcar orders and acquire existing fleets in weaker markets when asset prices tend to be lower. The following chart illustrates this cyclicality and our efforts to focus on the lower points in the business cycle for large railcar investments. * The Lease Price Index is an internally generated business indicator measuring the percentage change between the average renewal lease rate and the average expiring lease rate weighted by fleet composition. GATX CORPORATION - 2017 Proxy Statement 27 Total of 02 pages in section GATX CORPORATION