OVERVIEW

General information and characteristics of GATX Corporation ("GATX" or the "Company"), including reporting segments, is included in Item 1, "Business", of this document.

The following discussion and analysis should be read in conjunction with the audited financial statements included herein. Certain statements within this document may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," or "project" and similar expressions. This information may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In addition, certain factors, including Risk Factors identified in Part I of this document may affect GATX's businesses. As a result, past financial results may not be a reliable indicator of future performance.

This "Management's Discussion and Analysis of Financial Condition and Results of Operations" is based on financial data derived from the financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP") and certain other financial data that is prepared using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see "Non-GAAP Financial Measures" at the end of this Item.

GATX Corporation leases, operates and manages long-lived, widely used assets in the rail, marine and industrial equipment markets. GATX also invests in joint ventures that complement existing business activities. Headquartered in Chicago, Illinois, GATX has three financial reporting segments: Rail, Specialty and American Steamship Company ("ASC").

The Company's former Air segment has been segregated and presented as discontinued operations for all periods presented, see "Discontinued Operations" for additional information.

DISCUSSION OF OPERATING RESULTS

The following table presents a financial summary of GATX's operating segments:


                                                                    Years Ended December 31
                                                             2008               2007            2006
                                                              (In millions, except per share data)

Gross Income
Rail                                                     $    1,015.2       $      950.2      $   883.0
Specialty                                                       159.4              162.1          135.7
ASC                                                             271.5              233.0          209.8

Total segment gross income                                    1,446.1            1,345.3        1,228.5
Other (loss) income                                              (3.0 )              0.7            0.6

Consolidated Gross Income                                $    1,443.1       $    1,346.0      $ 1,229.1

Segment Profit
Rail                                                     $      308.6       $      267.3      $   247.9
Specialty                                                       105.9              117.5           98.9
ASC                                                              26.2               20.7           32.0

Total Segment Profit                                            440.7              405.5          378.8
Less:
Selling, general and administrative expenses                    168.0              158.7          146.7
Unallocated interest expense, net                                 0.3              (11.8 )          5.6
Other income and expense, including eliminations                  2.8                  -           (1.0 )
Income taxes                                                     73.6               72.8           76.1

Income from continuing operations                               196.0              185.8          151.4
Income (Loss) from discontinued operations, net of
taxes                                                               -               17.9          (38.8 )

Consolidated Net Income                                  $      196.0       $      203.7      $   112.6

Basic earnings per share - income from continuing
operations                                               $       4.12       $       3.73      $    2.97
Diluted earnings per share - income from continuing
operations                                               $       3.89       $       3.44      $    2.65
Dividends declared per common share                      $       1.08       $       0.96      $    0.84
Investment Volume(a)                                     $      781.3       $      634.0      $   763.1
Income from continuing operations, excluding tax
benefits and other items                                 $      172.8       $      165.7      $   145.5
Diluted earnings per share, excluding tax benefits and
other items                                              $       3.44       $       3.08      $    2.55

(a) Reflects portfolio investments and capital additions and in 2008, includes $188.2 million of assets acquired through assumption of debt.

Financial Performance Measures

The following table presents certain financial performance measures for the
Company based on continuing operations for the years ended December 31:


                                                       2008       2007       2006

        Return on equity ("ROE")                        17.2 %     16.0 %     13.8 %
        Return on assets ("ROA")                         3.2 %      3.2 %      2.8 %
        ROE, excluding tax benefits and other items     15.2 %     14.3 %     13.3 %
        ROA, excluding tax benefits and other items      2.8 %      2.8 %      2.7 %

[[Image Removed: (GRAPH)]]

2008 Highlights

• Income from continuing operations for 2008 was $196.0 million, an increase of 5.5% or $10.2 million compared to $185.8 million recorded in the prior year. 2008 results included aggregate benefits of $23.2 million from the reversal of tax reserves, gain on the sale of an office building and the reversal of environmental reserves. 2007 and 2006 results included deferred tax benefits of $20.1 million and $5.9 million, respectively. The items for each year noted herein are referred to throughout this Item 7 as "Tax Benefits and Other Items".

• Excluding the impact of the Tax Benefits and Other Items from all years, income from continuing operations in 2008 was $172.8 million, an increase of 4.3% or $7.1 million over 2007. The increase was primarily due to railcar lease rate increases and significantly higher railcar scrapping income at Rail and a higher contribution from ASC, partially offset by higher maintenance expense at Rail and increased SG&A expenses. The increase in 2007 compared to 2006 was primarily due to the impact of a larger active fleet, lease rate increases and higher asset remarketing income at Rail combined with increased earnings from the Specialty marine joint ventures, partially offset by a decrease in earnings at ASC primarily due to unfavorable operating conditions on the Great Lakes.

• Total investment volume was $781.3 million in 2008, compared to $634.0 million in 2007 and $763.1 million in 2006.

• Including the aforementioned Tax Benefits and Other Items, GATX's ROE was 17.2% in 2008, compared to 16.0% in 2007 and 13.8% in 2006. Excluding the aforementioned items, ROE was 15.2% in 2008, up from 14.3% in 2007 and 13.3% in 2006.

Segment Operations

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, including affiliate earnings, attributable to the segments as well as ownership and operating costs that management believes are directly associated with the maintenance or operation of the revenue earning assets. Operating costs include maintenance costs, marine operating costs, asset impairment charges and other operating costs such as litigation, provisions for losses, environmental costs, and asset storage costs. Segment profit excludes selling, general and administrative expenses, income taxes and certain other amounts not allocated to the segments. These amounts are discussed below in Other.

GATX allocates debt balances and related interest expense to each segment based upon a pre-determined fixed recourse leverage level expressed as a ratio of recourse debt (including off balance sheet debt) to equity. The leverage levels for Rail, Specialty and ASC are set at 4:1, 3:1 and 1.5:1, respectively. Management believes that by utilizing this leverage and interest expense allocation methodology, each operating segment's financial performance reflects appropriate risk-adjusted borrowing costs.

Segment Summary

Rail benefited from strong market conditions over the period of 2006-2008, marked by high asset utilization, rising lease rates and robust investment volume. Capitalizing on this strong operating environment, Rail took a number of strategic steps to position the Company for the downcycle that typically follows a period of strong demand. Specifically, Rail extended term on lease renewals (new leases with the current customer) thereby limiting the number of railcars scheduled to be renewed during the downcycle. Additionally, Rail took advantage of high asset and commodity prices by selectively selling and scrapping targeted assets viewed as less desirable within the fleet. Finally, Rail grew its fleet while maintaining a disciplined investment strategy. Fleet utilization during this period was very high, with North American utilization at approximately 98% for the entire period and Europe utilization increasing from 91% at the start of 2006 to 97% at the end of 2008. Lease renewals were executed at higher rates with pricing on cars in the GATX Lease Price Index ("LPI", see definition below) showing increases over the average expiring lease rates throughout the entire period. Additionally, the average lease term on renewals of cars in the LPI exceeded 63 months for the entire period, significantly higher than historically experienced. Investment volume totaled $1.6 billion over this period, resulting in 22,000 cars added to the fleet, including 5,000 cars acquired as part of a committed purchase program and 3,650 from the Allco Finance Group Limited portfolio, more than offsetting the 16,000 railcars that were sold or scrapped.

The onset of the economic recession and volatile capital market environment has created significant challenges for Rail's North American and European customers. In this environment, it is likely that Rail's fleet utilization and lease rate pricing will decline. Competition for lease renewals will be intense as Rail and its competitors seek to keep their fleets highly utilized. In addition, certain customers may face financial distress which may further hamper Rail's ability to keep its cars on lease. Assignments (cars moving from one customer to another) are likely to increase, which will result in increased maintenance expense as a result of cars being serviced prior to being placed with a new customer. These challenges will be formidable for the entire industry in 2009; however, as a result of the actions of the past few years discussed herein, Rail is better positioned to manage through the downturn. In 2009, Rail has approximately 15,000 cars in North America that have leases scheduled to expire, compared to an average of over 19,000 in each of the last three years. Additionally, by exercising discipline in its investing decisions over the last three years, Rail has the ability to capitalize on the current market disruption by pursuing railcar investment opportunities if they become available.

Rail's segment results are summarized below (in millions):

                                               Years Ended December 31
                                            2008         2007        2006

               Gross Income
               Lease income               $   872.5     $ 839.5     $ 780.0
               Asset remarketing income        31.3        32.2        19.7
               Other income                    93.6        59.7        60.6

               Revenues                       997.4       931.4       860.3
               Affiliate earnings              17.8        18.8        22.7

                                            1,015.2       950.2       883.0
               Ownership Costs
               Depreciation                   178.4       165.8       146.1
               Interest expense, net          118.1       114.0        98.6
               Operating lease expense        143.5       153.4       163.0

                                              440.0       433.2       407.7
               Operating costs
               Maintenance expense            239.6       218.4       201.7
               Other operating expense         27.0        31.3        25.7

                                              266.6       249.7       227.4

               Segment profit             $   308.6     $ 267.3     $ 247.9

Rail's Lease Income

Components of Rail's lease income as of December 31 are outlined below (in
millions):


                                      2008        2007        2006

                     North America   $ 683.8     $ 679.0     $ 644.7
                     Europe            153.7       131.4       108.0
                     Locomotives        35.0        29.1        27.3

                                     $ 872.5     $ 839.5     $ 780.0

Lease Price Index

The Lease Price Index ("LPI") is an internally generated business indicator that measures general lease rate pricing on renewals within Rail's North American fleet. The index reflects the weighted average lease rate for a select group of railcar asset types that GATX believes to be representative of its overall North American fleet. The LPI measures the percentage change between the weighted average expiring lease rate and the weighted average renewal lease rate. Average renewal term reflects the weighted average renewal lease term in months.

The following table sets forth certain metrics for railcars in the LPI:

                                                 2008       2007       2006

             Average Renewal Lease Rate Change     5.2 %     13.6 %     16.7 %
             Average Renewal Term (months)          63         67         64

Rail's Fleet Data

The following tables summarize fleet activity for Rail's North American railcars
as of December 31:


                                            2008          2007          2006

           Beginning balance                112,445       110,478       108,151
           Cars added                         7,542         6,019         6,302
           Cars scrapped                     (4,151 )      (2,392 )      (1,763 )
           Cars sold                         (2,860 )      (1,660 )      (2,212 )
           Ending balance                   112,976       112,445       110,478
           Utilization rate at year end        97.9 %        97.9 %        98.5 %

[[Image Removed: (GRAPH)]]

The following table summarizes fleet activity for Rail's European railcars as of December 31:

                                             2008         2007         2006

            Beginning balance                19,435       18,471       18,854
            Cars added                          397        1,089          607
            Cars scrapped or sold              (108 )       (125 )       (990 )
            Ending balance                   19,724       19,435       18,471
            Utilization rate at year end       97.1 %       97.2 %       95.5 %

The following table summarizes fleet activity for Rail's North American locomotives as of December 31:

                                               2008       2007       2006

               Beginning balance                 615        517        504
               Locomotives added                   5        117         55
               Locomotives scrapped or sold       (5 )      (19 )      (42 )
               Ending balance                    615        615        517
               Utilization rate at year end     96.6 %     92.9 %     92.0 %

Comparison of Year Ended December 31, 2008, to Year Ended December 31, 2007

Segment Profit

Rail's segment profit in 2008 rose 15.5% or $41.3 million over 2007. The 2008 results included a $12.0 million gain on sale of an office building and the reversal of $8.2 million of reserves due to the settlement of an environmental liability, both in Poland. Excluding the impact of these items, the favorable current year variance of $21.1 million was primarily due to a significant increase in scrapping gains, higher lease income and favorable foreign exchange rate effects, partially offset by higher maintenance costs.

Gross Income

Gross income for 2008 was $65.0 million higher than the prior year. The increase was significantly impacted by a $15.3 million increase in scrapping gains and a $12.0 million gain on the sale of an office building in Poland. Rail's North American lease income was $4.8 million higher than prior year primarily due to higher lease rates realized on renewals and assignments over the past two years. In North America, the average lease renewal rate on LPI cars increased 5.2% in 2008 over the average expiring lease rate. In Europe, an average of more than 700 more cars on lease contributed $7.8 million in additional lease income, while stronger foreign currencies added $14.5 million in lease income. In 2008, locomotives contributed $5.9 million in additional lease income due to an average of 90 additional locomotives on lease.

Other income in 2008 was $33.9 million higher than prior year primarily due to the $12.0 million gain on sale of the office building in Poland and significant scrapping gains in North America of $29.1 million compared to $13.8 million in 2007. Scrapping gains increased in 2008 due to the combined impact of higher steel prices and a greater number of cars scrapped. During 2008, as scrap steel prices rose to record levels, Rail accelerated the scrapping of certain railcars. As the price of scrap steel has now dropped significantly, Rail expects reduced gains in 2009.

The decrease in affiliate earnings in 2008 reflects the impact of a $3.3 million loss in market value of derivative hedging instruments at the AAE Cargo affiliate. Excluding this item, earnings from AAE increased primarily due to a higher number of cars on lease and favorable foreign exchange rates.

Ownership Costs

Ownership costs in 2008 increased $6.8 million primarily due to depreciation and interest expense associated with portfolio additions over the last 12 months and the effect of stronger foreign currencies, partially offset by the effect of lower interest rates. The mix of ownership costs was impacted by the acquisition in 2008 of approximately 3,600 previously leased in railcars for $70.1 million and the assumption of $74.7 million of related nonrecourse debt.

Operating Costs

Maintenance expense in 2008 increased $21.2 million, $5.1 million of which was due to stronger foreign currencies. Excluding the currency impact, maintenance expense increased $16.1 million, primarily comprised of $4.4 million due to increased volume of compliance inspections, $4.2 million due to higher material prices and increased railroad repairs of wheelsets, and $3.4 million due to costs associated with conversions of certain railcar types. Maintenance expense in 2009 is expected to increase due to higher inspection costs as a significant number of tank cars in North America will be required to undergo scheduled compliance maintenance. Additionally, maintenance expenses may increase further in 2009 due the potential for increased assignments resulting from the current weak economic environment. Assignments generally result in cars being serviced prior to being placed on lease with a new customer as opposed to lease renewals that do not typically involve a servicing event.

Other operating costs in 2008 decreased $4.3 million, primarily due to the reversal of $8.2 million of reserves resulting from the settlement of an environmental liability in Poland and remeasurement gains on non-functional currency denominated assets. Partially offsetting the decrease was a $3.6 million increase in the estimate of the litigation loss in Poland (see note 18 to the consolidated financial statements) and an increase in the provision for losses. In 2008, a $6.9 million provision for losses was recorded on a direct finance lease related to a customer that

declared bankruptcy. A loss provision of this magnitude is unusual at Rail as approximately 97% of its railcar leases are characterized as operating leases, which are not reserveable assets under GAAP.

Labor Agreements

Employees at two of Rail's Canadian service centers belong to the Communication, Energy and Paperworkers Union of Canada. Although both service centers are covered by the same union, each contract has separate terms and conditions. Both contracts expired in January 2009 and negotiations are ongoing.

Comparison of Year Ended December 31, 2007, to Year Ended December 31, 2006

Segment Profit

Rail's segment profit in 2007 rose $19.4 million or 7.8% over 2006. The increase was primarily the result of an average of 3,000 more railcars on lease and rate increases achieved in the last two years on lease renewals and assignments, a significant increase in asset remarketing income from the strategic sales of certain railcar types and locomotives and the effect of stronger foreign currencies. The increase was partially offset by increased ownership and maintenance costs.

Gross Income

Rail's North American average active fleet grew by approximately 1,800 cars over the prior year. Additionally, lease rate increases were realized on both renewals and assignments. In North America, the average lease renewal rate on LPI cars increased 13.6% over the average prior expiring lease rate, compared to 16.7% in 2006. The combined effects of the active fleet growth and lease rate increases contributed $31.7 million in additional lease income. In Europe, an average of 1,200 more cars on lease and lease rate increases contributed $9.7 million in additional lease income, while strengthening European currencies added $13.7 million in lease income. Locomotives contributed $1.8 million in additional lease income, primarily due to higher lease rates on certain overhauled locomotives.

Asset remarketing income was $12.5 million higher in 2007 as Rail took advantage of the strong market and strategically sold certain targeted railcar types and locomotives. Other income was comparable to the prior year as lower third party repair revenue was offset by higher gains from scrapped railcars. As Rail's fleet of cars under full service leases has grown, service center activities have become increasingly focused on fleet repairs and regulatory compliance for its fleet, resulting in fewer opportunities to service third party railcars. Scrapping gains increased primarily due to higher steel prices as the number of cars scrapped in each year was comparable. In 2007, scrapping gains of $9.1 million were realized compared to $8.4 million in 2006.

The decrease in affiliate earnings in 2007 primarily reflects the absence of $4.9 million of market value gains on derivative hedging instruments at the AAE affiliate recognized in 2006. Excluding the effect of the derivatives, earnings increased primarily due to growth in the size of the active fleet.

Ownership Costs

Ownership costs in 2007 increased $25.5 million primarily due to depreciation and interest associated with fleet growth, partially offset by lower interest rates. The comparative mix of ownership costs was affected by the purchase in 2006 of approximately 4,700 railcars that were previously leased in under operating leases.

Operating Costs

Maintenance expense in 2007 increased $16.7 million, $5.6 million of which was due to strengthening foreign currencies. Excluding the effect of currency rate changes, maintenance expense increased $11.1 million, comprised primarily of $4.4 million due to unanticipated repairs of certain railcar types, $3.3 million due to higher material prices and increased railroad repairs, including the replacement of wheelsets, and $1.3 million primarily due to increased volume of compliance inspection and related repairs.

Other operating expenses in 2007 increased $5.6 million, largely driven by higher freight and transportation costs related to higher assignment activity and foreign exchange remeasurement losses on non-functional currency denominated assets, partially offset by a decrease of $1.1 million in asset impairment charges. Asset impairment charges of $1.1 million in 2006 primarily related to a loss on the sale of a European repair facility.

Railcar Regulatory Issues

On January 13, 2009, the U.S. Pipeline and Hazardous Materials Safety Administration, in coordination with the Federal Railroad Administration ("FRA") issued final interim rules that, among other things, established new interim design standards for pressurized tank cars that transport toxic-by-inhalation hazardous materials ("TIH cars"). The designation "final interim" indicates that the FRA intends to continue to research enhanced design standards for TIH cars and will issue a subsequent rulemaking in the future that will prescribe final design requirements. Under the interim rules, TIH cars built after the effective date of the ruling must be built to a higher pressure class rating relative to U.S Department of Transportation specifications for tank cars. Unlike the original version of the rules proposed in April 2008, the interim rules adopted . . .