Overview

The following Management Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Stoneridge, Inc. (the "Company"). This MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements.

We are an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the medium- and heavy-duty truck, agricultural, automotive and off-highway markets.

For the year ended December 31, 2008, net sales were $752.7 million, an increase of $25.6 million compared with $727.1 million for the year ended December 31, 2007.

Our net loss for the year ended December 31, 2008 was $97.5 million, or $(4.17) per diluted share, compared with net income of $16.7 million, or $0.71 per diluted share, for 2007. Earnings per share for 2008 include $(5.15) per share for restructuring expenses, an after-tax non-cash goodwill impairment charge and a non-cash deferred tax asset valuation allowance.

Our increase in net sales was predominantly attributable to net new business sales. This increase was partially offset by volume reductions and contractual price reductions at our major customers in the automotive vehicle market for the year ended December 31, 2008.

Our 2008 net loss was due to a non-cash goodwill impairment charge of $65.2 million and a non-cash deferred tax asset valuation of $62.0 million.

We achieved income from continuing operations excluding restructuring, the effect of the goodwill impairment charge and the deferred tax asset valuation allowance ("other non-recurring items") in 2008 of $22.8 million, or $0.98 per share, compared with $17.6 million, or $0.75 per share, in 2007. We aggressively pursued restructuring efforts starting in late 2007 and during 2008 to adjust the cost structure and eliminate overhead centers to enhance profitability in robust economic times and protect profitability when market adversity occurs. We recorded after-tax restructuring expenses of $12.3 million, or $0.53 per share in 2008. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS 142") and SFAS 109, Accounting for Income Taxes, the 2008 results also include an after-tax non-cash goodwill impairment charge in our Control Device reporting segment of $46.1 million, or $1.97 per share, and a non-cash valuation allowance against deferred tax assets of $62.0 million or $2.65 per share. The impact of the non-cash impairment charge and deferred tax asset valuation allowance was driven by adverse equity market conditions that caused a decrease in current market multiples and our stock price as of December 31, 2008.

Affecting our profitability were restructuring initiatives that began in the fourth quarter of 2007 to improve the Company's manufacturing efficiency and cost position by ceasing manufacturing operations at our Sarasota, Florida and Mitcheldean, United Kingdom locations. Related 2008 expenses, primarily comprised of one-time termination benefits and line-transfer expenses of approximately $15.4 million. Restructuring expenses that were general and administrative in nature were included in the Company's consolidated statements of operations as restructuring charges, while the remaining restructuring related expenses were included in cost of goods sold.

In 2008, our PST Eletrônica S.A. ("PST") joint venture in Brazil, which is an electronic system provider focused on security and convenience applications primarily for the vehicle and motorcycle industry, continued to perform well, resulting in equity earnings of $12.8 million compared to $10.4 million in the previous year. We also received dividend payments from PST of $4.2 million and $5.6 million in 2008 and 2007, respectively. We currently hold a 50% equity interest in PST. The results of PST in 2009 will be impacted by fluctuations in foreign exchange rates.

To supplement the Company's consolidated financial statements presented on a basis in accordance with generally accepted accounting principles ("GAAP") in the United States, the Company's management also uses and discloses certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they alternatives for, GAAP-based financial measures. The Company includes these non-GAAP financial measures because it believes they provide useful information with which to evaluate the performance of the Company. The non-GAAP measures included in this Annual Report on Form 10-K have been reconciled to the comparable GAAP measures within the accompanying table, as required under Securities and Exchange Commission rules regarding the use of non-GAAP financial measures. They should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

A reconciliation of GAAP net loss and earnings per share ("EPS") to adjusted net income before restructuring related expenses and other non-recurring costs and EPS is presented below (in thousands except per share data):

                                                           For the Year Ended
                                                              December 31,
                                                    2008                        2007
                                            Dollars         EPS         Dollars         EPS
Adjusted net income per share before
restructuring related expenses and other
non-recurring items
Net income (loss)                          $ (97,527 )   $   (4.17 )   $  16,671     $    0.71
Total restructuring related expenses,
net of tax benefits                           12,286          0.53           915          0.04
Goodwill impairment, net of tax benefits      46,052          1.97             -             -
Deferred tax asset valuation allowance        62,006          2.65             -             -

Adjusted net income before restructuring
related expenses and other non-recurring
items                                      $  22,817     $    0.98     $  17,586     $    0.75

Diluted weighted average shares
outstanding 1                                 23,367                      23,548

1 - Basic and Diluted weighted average shares outstanding are the same for 2008 periods as a net loss caused the dilutive shares to have an anti-dilutive effect.

Recent Trends and Market Conditions

The automotive and commercial vehicle industries experienced significantly unfavorable developments during 2008 (primarily the second half of 2008), particularly in North America and Europe. These trends include:

General Economic Factors:

Disruptions in financial markets and restrictions on liquidity are adversely impacting the availability and cost of incremental credit for many companies. These disruptions are also adversely affecting the global economy, further negatively impacting consumer spending patterns in the automotive and commercial vehicle industries. Our customers and suppliers are attempting to respond to rapidly changing consumer preferences, restricted liquidity and increased cost of capital any of which could negatively impact their business and could result in further restructuring or even reorganization or liquidation under bankruptcy laws. Any such negative event could, in turn, negatively affect our business either through loss of sales to our customers or through our inability to meet our commitments (or inability to meet them without excess expense), due to the loss of supplies from any of our suppliers so affected.

Production Levels and Product Mix:

In the U.S. and Europe, overall negative economic conditions, including the deterioration of global financial markets, reduced credit availability and lower consumer confidence have significantly impacted the automotive and commercial vehicle industries. As such, automotive and commercial vehicle production and sales have deteriorated substantially and are not expected to recover significantly in the near term. Therefore, considering the drastic changes to consumer demand for vehicles, and corresponding decrease in production and demand for our products, as well as are common share price, we tested our goodwill for impairment and recognized a pre-tax non-cash $65.2 million goodwill impairment charge in 2008.

In recent years, and continuing into 2008, General Motors, Ford and Chrysler ("Detroit Three") have seen a steady decline in their market share for vehicle sales in North America. Declining market share, inherent legacy issues with the Detroit Three and the impact of declining consumer confidence have led to recent, unprecedented production cuts and permanent capacity reductions. During 2008, the Detroit Three North American production levels declined approximately 21% compared to 2007. These declines will have a continuing negative impact on our sales, liquidity and results of operations.

In addition, in order to address market share declines, reduced production levels, negative industry trends (such as change in mix of vehicles), general macroeconomic conditions and other structural issues specific to their companies (such as significant overcapacity and pension and healthcare costs), the Detroit Three and certain of our other customers continue to implement or may implement various forms of restructuring initiatives (including, in certain cases, reorganization under bankruptcy laws). These restructuring actions have had and may continue to have a significant impact throughout our industry, including our supply base.

Outlook

In the fourth quarter of 2008 the North American automotive and the global commercial vehicle markets experienced the beginning of a significant decline that is unprecedented in its breadth, depth and speed. It is currently accelerating into the first part of 2009. The uncertainty of the activity of the global economy makes it difficult to predict how demand for automotive and commercial vehicle products will develop in 2009.

Significant factors inherent to our markets that could affect our results for 2009 include general economic conditions and the financial stability of our customers and suppliers as well as our ability to successfully execute our planned restructuring, productivity and cost reduction initiatives. We are undertaking these initiatives to mitigate significant sales volume reductions in our served markets and customer-demanded price reductions. Our management team is focused on improving operational efficiency while adapting to the needs of our customers.

We continue our transition to low-cost manufacturing locations. Initially, this initiative will result in restructuring costs stemming from facility closures and production relocations. However, the longer-term effects of such an initiative will enable us to reduce our operating costs and increase global sourcing capacity to our customers.

We will continue to monitor business conditions and will take the necessary steps to address the current economic environment.

Results of Operations

We are primarily organized by markets served and products produced. Under this organizational structure, our operations have been aggregated into two reportable segments: Electronics and Control Devices. The Electronics reportable segment includes results of operations that design and manufacture electronic instrument clusters, electronic control units, driver information systems and electrical distribution systems, primarily wiring harnesses and connectors for electrical power and signal distribution. The Control Devices reportable segment includes results from our operations that design and manufacture electronic and electromechanical switches, control actuation devices and sensors.

Year Ended December 31, 2008 Compared To Year Ended December 31, 2007

Net Sales. Net sales for our reportable segments, excluding inter-segment sales,
for the years ended December 31, 2008 and 2007 are summarized in the following
table (in thousands):

                                 For the Years Ended December 31,                $ Increase /      % Increase /
                                 2008                        2007                 (Decrease)        (Decrease)

Electronics             $ 520,936          69.2 %   $ 441,717          60.7 %   $       79,219              17.9 %
Control Devices           231,762          30.8       285,403          39.3            (53,641 )           (18.8 )%
Total net sales         $ 752,698         100.0 %   $ 727,120         100.0 %   $       25,578               3.5 %

The increase in net sales for our Electronics segment was primarily due to new business sales and increased sales volume in 2008. Contractual price reductions and foreign currency exchange rates negatively affected net sales by approximately $2.0 million in 2008.

The decrease in net sales for our Control Devices segment was primarily attributable to production volume reductions at our major customers in the North American automotive market. Additionally, the loss of sensor product revenue at our Sarasota, Florida, facility had a negative impact on net sales.

Net sales by geographic location for the years ended December 31, 2008 and 2007 are summarized in the following table (in thousands):

                                 For the Years Ended December 31,                $ Increase /       % Increase /
                                 2008                        2007                 (Decrease)         (Decrease)

North America           $ 557,990          74.1 %   $ 522,730          71.9 %   $       35,260                6.7 %
Europe and other          194,708          25.9       204,390          28.1             (9,682 )             (4.7 )%
Total net sales         $ 752,698         100.0 %   $ 727,120         100.0 %   $       25,578                3.5 %

The increase in North American sales was primarily attributable to net new business sales of electronics products. The increase was partially offset by lower sales volume in our North American automotive market. Our decrease in sales outside North America was primarily due to reduced volume in light vehicle products and reduced European commercial vehicle sales volume.

Consolidated statements of operations as a percentage of net sales for the years ended December 31, 2008 and 2007 are presented in the following table (in thousands):

                                            For the Years Ended December 31,                $ Increase /
                                           2008                         2007                 (Decrease)

Net Sales                         $ 752,698         100.0 %    $ 727,120         100.0 %   $       25,578

Costs and Expenses:
Cost of goods sold                  586,411          77.9        559,397          76.9             27,014
Selling, general and
administrative                      136,563          18.1        133,708          18.4              2,855
Gain on sale of property, plant
& equipment, net                       (571 )        (0.1 )       (1,710 )        (0.2 )            1,139
Goodwill impairment charge           65,175           8.7              -             -             65,175
Restructuring charges                 8,391           1.1            926           0.1              7,465

Operating Income (Loss)             (43,271 )        (5.7 )       34,799           4.8            (78,070 )

Interest expense, net                20,575           2.7         21,759           3.0             (1,184 )
Equity in earnings of investees     (13,490 )        (1.8 )      (10,893 )        (1.5 )           (2,597 )
Loss on early extinguishment of
debt                                    770           0.1              -             -                770
Other (income) expense, net            (351 )           -            709           0.1             (1,060 )

Income (Loss) Before Income
Taxes                               (50,775 )        (6.7 )       23,224           3.2            (73,999 )

Provision for income taxes           46,752           6.2          6,553           0.9             40,199

Net Income (Loss)                 $ (97,527 )       (12.9 )%   $  16,671           2.3 %   $     (114,198 )

Cost of Goods Sold. The increase in cost of goods sold as a percentage of sales was primarily due to $7.0 million of restructuring expenses included in cost of goods sold for the year ended December 31, 2008. The negative impact of restructuring expenses were partially offset by a more favorable product mix and new business sales.

Selling, General and Administrative Expenses. Product development expenses included in SG&A were $45.6 million and $44.2 million for the years ended December 31, 2008 and 2007, respectively. The increase was primarily related to development spending in the areas of instrumentation and wiring. The Company intends to reallocate its resources to focus on the design and development of new products rather than primarily focusing on sustaining existing product programs. The increase in SG&A expenses, excluding product development was due primarily to increased compensation related items.

Gain on Sale of Property, Plant and Equipment, net. The gain for 2008 was primarily a result of selling manufacturing lines which was part of the line transfer initiative at our Mitcheldean, United Kingdom facility. The gain for the year ended December 31, 2007 was primarily attributable to the sale of non-strategic assets including two idle facilities and the Company airplane.

Goodwill Impairment Charge. A goodwill impairment charge of $65.2 million was recorded during the year ended December 31, 2008. During the fourth quarter, as a result of the deterioration of the global economy and its effects on the automotive and commercial vehicle markets, we were required to perform an additional goodwill impairment test subsequent to our annual October 1, 2008 test. The result of the December 31, 2008 impairment test was that our goodwill was determined to be significantly impaired and was written off. The goodwill related to two reporting units in the Control Devices segment.

Restructuring Charges. The increase in restructuring charges that were general and administrative in nature, were primarily the result of the ratable recognition of one-time termination benefits that were due to employees and the cancellation of certain contracts upon the closure of our Sarasota, Florida, and Mitcheldean, United Kingdom, locations. Additionally, in 2008, we announced additional restructuring initiatives at our Canton, Massachusetts, Orebro, Sweden and Tallinn, Estonia locations. The majority of this charge resulted in the recognition of one-time termination benefits that were due to affected employees. No fixed-asset impairment charges were incurred because the assets were transferred to our other locations for continued production. Restructuring expenses that were general and administrative in nature were included in the Company's consolidated statements of operations as restructuring charges, while the remaining restructuring related expenses were included in cost of goods sold. These initiatives were substantially completed in 2008.

Restructuring charges recorded by reportable segment during the year ended December 31, 2008 were as follows (in thousands):

                                                                             Total
                                                                         Consolidated
                                                                         Restructuring
                                 Electronics       Control Devices          Charges

  Severance costs               $       2,564     $           2,521     $         5,085
  Contract termination costs            1,305                     -               1,305
  Other costs                              23                 1,978               2,001
  Total restructuring charges   $       3,892     $           4,499     $         8,391

Severance costs relate to a reduction in workforce. Contract termination costs represent expenditures associated with long-term lease obligations that were cancelled as part of the restructuring initiatives. Other exit costs include miscellaneous expenditures associated with exiting business activities, such as the transferring of production equipment.

Restructuring charges recorded by reportable segment during the year ended December 31, 2007 were as follows (in thousands):

                                                                             Total
                                                                         Consolidated
                                                                         Restructuring
                                 Electronics       Control Devices          Charges

  Severance costs               $         542     $             357     $           899
  Other costs                               -                    27                  27
  Total restructuring charges   $         542     $             384     $           926

Restructuring related expenses, general and administrative in nature, for the year ended December 31, 2007 were primarily severance costs as a result of the ratable recognition of one-time termination benefits that were due to employees upon the closure of our Sarasota, Florida and Mitcheldean, United Kingdom locations that were announced in 2007.

Equity in Earnings of Investees. The increase was predominately attributable to the increase in equity earnings recognized from our PST joint venture. The increase primarily reflects higher volume for PST's security product lines and favorable exchange rates throughout most of 2008.

Income (Loss) Before Income Taxes. Income (loss) before income taxes is summarized in the following table by reportable segment (in thousands):

                                             For the Years Ended
                                                 December 31,            $ Increase /       % Increase /
                                              2008          2007          (Decrease)         (Decrease)

Electronics                                $   38,713     $  20,692     $       18,021               87.1 %
Control Devices                               (78,858 )      15,825            (94,683 )           (598.3 )%
Other corporate activities                     10,078         8,676              1,402               16.2 %
Corporate interest expense                    (20,708 )     (21,969 )            1,261                5.7 %
Income (loss) before income taxes          $  (50,775 )   $  23,224     $      (73,999 )           (318.6 )%

The increase in income before income taxes in the Electronics segment was related to higher net sales, which increased by $79.2 million in 2008. This was partially offset by increased restructuring related expenses of $3.4 million in 2008 when compared to 2007.

The decrease in income before income taxes in the Control Devices reportable segment was primarily due to the goodwill impairment charge of $65.2 million recognized in 2008. Additionally, net sales reduced by $53.6 million and the segment recognized an additional $4.1 million of restructuring related expenses in 2008.

The increase in income before income taxes from other corporate activities was primarily due to an increase in equity earnings from our PST joint venture of $2.4 million in 2008.

Income (loss) before income taxes by geographic location for the years ended December 31, 2008 and 2007 are summarized in the following table (in thousands):

                                 For the Years Ended December 31,
                                 2008                        2007                $ Decrease       % Decrease

North America           $ (47,795 )        94.1 %   $  12,405          53.4 %   $    (60,200 )         (485.3 )%
Europe and other           (2,980 )         5.9        10,819          46.6          (13,799 )         (127.5 )%
Income (loss) before
income taxes            $ (50,775 )       100.0 %   $  23,224         100.0 %   $    (73,999 )         (318.6 )%

Our North American 2008 profitability was adversely affected by the $65.2 million goodwill impairment charge, which was offset by new business sales of electronic products. Other factors impacting the 2008 results were increased restructuring related expenses of $8.9 million and lower North American automotive production. The decrease in profitability outside North America was primarily due to increased restructuring related expenses of $6.5 million and design and development expenses. The decrease was partially offset by increased European commercial vehicle production during the first half of 2008.

Provision for Income Taxes. We recognized a provision for income taxes of $46.8 million, or 92.1% of pre-tax loss, and $6.6 million, or 28.2% of pre-tax income, for federal, state and foreign income taxes for the years ended December 31, 2008 and 2007, respectively. The increase in the effective tax rate for 2008 was primarily attributable to the recording of a valuation allowance against our domestic deferred tax assets. Due to the impairment of goodwill the Company was in a cumulative loss position for the period 2006-2008. Pursuant to the accounting guidance the Company was required to record a valuation allowance. Additionally, the effective tax rate was unfavorably affected by the costs incurred to restructure our United Kingdom operations. Since we do not believe that the related tax benefit of those losses will be realized, a valuation allowance was recorded against the foreign deferred tax assets associated with those foreign losses. Finally, offsetting the impact of the current year valuation allowances, the effective tax rate was favorably impacted by a combination of audit settlements, successful litigation and the expiration of certain statutes of limitation.

Year Ended December 31, 2007 Compared To Year Ended December 31, 2006

Net Sales. Net sales for our reportable segments, excluding inter-segment sales,
for the years ended December 31, 2007 and 2006 are summarized in the following
table (in thousands):

                                 For the Years Ended December 31,                $ Increase /       % Increase /
                                 2007                        2006                 (Decrease)         (Decrease)

Electronics             $ 441,717          60.7 %   $ 442,427          62.4 %   $         (710 )             (0.2 )%
Control Devices           285,403          39.3       266,272          37.6             19,131                7.2 %
Total net sales         $ 727,120         100.0 %   $ 708,699         100.0 %   $       18,421                2.6 %

The decrease in net sales for our Electronics segment was primarily due to a substantial decline in medium- and heavy-duty truck production in North America. Medium- and heavy-duty truck production in 2007 was unfavorably impacted by the new 2007 diesel emissions regulations that were implemented on . . .