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  1. Analysis
March 20, 2003

Renault after the Avantime: a luxury strategy in chaos or in clover?

“The abrupt end of the Renault Avantime was entirely predictable.” “This is merely the latest in a long line of failed French luxury cars.” “Buyers will always choose a BMW, Audi or Mercedes over a Renault.” All three statements are received automotive wisdom and have been much spoken since Avantime production ground suddenly to a halt in late February. A careful examination of Renault’s luxury car strategy however, suggests things may be less straightforward than that. Glenn Brooks reports.

By bcusack

“The abrupt end of the Renault Avantime was entirely predictable.” “This is merely the latest in a long line of failed French luxury cars.” “Buyers will always choose a BMW, Audi or Mercedes over a Renault.” All three statements are received automotive wisdom and have been much spoken since Avantime production ground suddenly to a halt in late February. A careful examination of Renault’s luxury car strategy however, suggests things may be less straightforward than that. Glenn Brooks reports.

The failure of the Avantime will have little impact on something going largely unnoticed by the doomsayers: the steady rise in the fortunes of Renault elsewhere in the €25,000-€50,000 market.

The news pages of European car magazines were caught off guard by the announcement in late February that Matra’s parent, Lagardère, had ordered an immediate end to Avantime production. While it was obvious to even a casual observer that the big coupé wasn’t exactly doing a brisk trade among the targeted chic-shoppers of London, Paris and Barcelona, advertising was ongoing and sales slowly improving. Furthermore, new versions were being added every few months, with the long-awaited glass-roof, automatic transmission and diesel engine options finally becoming available.

The modest sales up-tick, was, however, too little too late: Matra pulled the plug amid mounting losses, declaring the Avantime a ‘commercial failure’. Then an extraordinary thing happened. Renault decided the car must disappear. Across Europe, posters were hauled off billboards, press vehicles were withdrawn, demonstrator cars ordered out of showrooms as delivery lorries arrived to retrieve them, with dealers ordered to cancel all pre-booked test-drives. Logistically, alone, it was an impressive retreat. Just as intriguingly, only a few days later, visitors to the Geneva motor show could find no trace of the vehicle on Renault’s stand. It was as if it had never existed.

Damage limitation?
So was all this the result of a panic attack at Paris headquarters or simply a swift and efficient programme of damage limitation? There is an increasing amount of evidence pointing to the latter. A sudden end to the Avantime adventure was never going to be anything more than a minor setback to Renault; something that had been factored in from the very beginning of the car’s (outsourced) development. Chairman Louis Schweitzer had, after all, stated as recently as January: “there is no plan to transfer Avantime production to a Renault plant”, when asked what would happen in the event of Matra being sold. With hindsight, his relaxed manner spoke volumes: Renault was well aware that the car had already failed, while Lagardère was having no luck in finding a buyer for its unprofitable Matra division.

R.I.P Renault Avantime

As January moved into February, Lagardère unwound its small shareholding in Renault S.A. and vacated its seat on the board. The writing was on the wall: this was now a divorce and neither parent wanted custody of their problem child. Lagardère had been openly seeking bids for Matra since the middle of 2002 but an exit from the car assembly business was beginning to look like the more likely option. So rather than being taken by surprise, as some commentators have suggested, senior management at Renault had ample evidence of the supposed shock ahead. When it came, there was no panic, just a simple sense of regret that a low-risk experiment had failed. Renault’s management announced that it was sorry that the car had not sold better but that efforts must now be fully focussed on marketing the other high-priced models in its range. Analysts looked in vain for signs of the supposed ‘financial disaster’ that some casual observers had labelled the Avantime. There was red ink aplenty, but it surrounded Matra and Lagardère, not Renault.

What remains of Renault’s luxury vehicle ambitions?
Now that the dust is beginning to settle, what remains of Renault’s luxury vehicle ambitions? While some claim that the Vel Satis must now also be doomed and with it, the Première Dealership Programme (the red-carpet treatment for potential upmarket model buyers), there is not much evidence to support these suspicions. On the other hand, there is much to suggest that Renault will continue to hold its nerve. Off-lease cars, for example, continue to be largely contained within dealer networks’ stock. Critics are right to point out that this only artificially inflates resale values and that privately sold cars attract far-lower bids. Nevertheless, it does work to a certain degree by sending a strong signal to buyers that the company is serious about addressing the resale value issue.

With more steps like these being put in place, Renault might just be starting to manage that seemingly impossible trick: moving an everyday brand name upmarket and drawing a line under past mistakes and embarrassments. The Avantime was, after all, a low-risk model: a small and largely hand-built niche vehicle, spun off an obsolete platform whose costs had been repaid many years earlier. The financial risk, let us not forget, was all with Matra. So an end of production decided upon by the assembler, impacted Renault in almost only one-way: a blow to its own image. By dealing swiftly with the after-effects of a car that flopped, the company has arguably done itself a great service. It has acted like a company that only produces winners and deals quickly and ruthlessly with models that do not measure up.

While that might well be the theory, putting just such a strategy into place has to be the hard bit. Back at the Geneva show, journalists pressed Louis Schweitzer on this point. To his credit, the chairman remained unruffled, arguing that new and unusual styling, far from being a liability, is exactly what Renault needs to move itself away from big-volume but low-margin mainstream sales: “(losing the Avantime) … is a sadness but it calls nothing into question regarding our strategy. The design was a positive factor, just as it is a positive factor for the Mégane.”

Louis Schweitzer instinctively understands that people almost always buy cars because they like the look of them. More and more buyers are becoming attracted to models that break the mould of ‘me-too’ design. Monsieur Schweitzer seems determined that Renault should be at the forefront of peoples’ minds when they think of a car that looks different to that of their neighbours’.

Buyers drawn to ‘bustle-back’ look
With order books for the company’s new Golf rival already bulging, it would seem buyers are at one with Schweitzer and the team under design chief, Patrick le Quément. Many seem to be especially drawn to Renault’s new ‘bustle-back’ look, preferring the shape to the comparatively staid lines of rival models. Depending on which senior insider you talk to, this has come as either a great relief to Renault, or as an endorsement of an unshakeable self-belief. One thing upon which they all agree, however, is that the Mégane range and its high-volume Scénic are Renault’s bread and butter. They keep the lifeline of cash flowing and the cycle of reinvestment on track.

What recent successes like the Mégane range have finally done, is to give Renault the financial cushion that year-on-year large profits provide, breaking the former feast or famine cycle and turning the pattern on its head: big profits allow big R & D investments, paving the way for tomorrow’s successes and a move upmarket out of the cut-throat, wafer-thin profit margin end of the market.

B5 platform for premium models
While Renault is only in the early stages of this process, compared to, say, Volkswagen, it has found a highly successful formula. By basing the premium-priced Espace, Grand Espace and Vel Satis models on the big-selling B5 (Laguna) platform, the company has needed to spend relatively little money on the development of its luxury vehicles. Seen in this light, a subcontractor’s decision to kill a slow-selling model based upon an outmoded platform seems almost an irrelevance. Indeed, what is the point of crowding showrooms with a conspicuous failure when other models can be quickly developed to take its place, all spun off a relatively low-cost platform and built on the same line? The Vel Satis, Espace and Grand Espace are perfect examples of that philosophy, all assembled alongside the Laguna at the giant Sandouville plant.

Bottom line implications
These luxury models also have another bonus for their maker’s bottom line: it matters less if the least expensive Laguna versions need to be sold as loss-leaders. Supposing that on each €19,000 base model Laguna, Renault makes only the barest of profits or sustains a small loss. Then, for argument’s sake, add in the undoubtedly better margins attained by the big selling €20,000-€25,000 mid-range versions. With Laguna sales totalling some 250,000 units across Europe last year, the model is arguably Renault’s biggest earner.

Then, and here’s where it gets interesting, think of the effect on profits of 18,000 Vel Satis and 48,000 Espace and Grand Espace sales for the same period, the former priced at between €30,000 and €47,000 and the latter starting at €26,000 and reaching just under €49,000. And that’s before options, in all cases. Sprinkle in a few Clio V6s (coming to a showroom near you in the next few weeks at €36,600 a pop) from the current long waiting lists and you begin to see how you don’t have to have BMW prices or volumes to make serious money in the luxury sector.

So what does the future hold for Renault and its search for ever-greater fortunes and the slow but steady expansion of its luxury-vehicle niche? Even without Nissan’s predicted future successes and the huge savings of integrated future Renault-Nissan-Infiniti-Samsung-Dacia platforms, it would seem that Carlos Ghosn stands to inherit control of a company bound for even higher highs, when he takes over as chairman in 2005. This might also prove to be the year, perhaps, when a small number of carefully preserved, vaguely familiar and unusual-looking cars emerge from padlocked garages and appear at various Concours d’Elégances. Ever-larger amounts of money might begin to change hands as the value of these once-ridiculed big coupés climbs steadily higher. Surely not? Two words: ‘Citroën SM’.

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