Renault is beginning to look like an unlucky company. The finest symbol of this was Sunday’s televised display of the French automaker attempting to maintain its domination of the Hungarian Grand Prix with a three-wheeled car.
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Wheels do go missing in F1 racing for all sorts of reasons, but this one fell off because it was not fixed properly. For its poor spanner work, Renault was sentenced to miss the next event.
Renault’s half year financial results showed bad luck in production planning. It switched off output at the end of 2008 just before 90% of Europe began introduction of a scrappage scheme (which was invented in France and which always hoovers up small cars in which Renault is a lead player).
In its results meeting yesterday, the consequence of that duff decision was made clear. In the first half of the year it lost EUR2.7bn compared with a profit the year before, ahead of demand drying up. It did however maintain its world market share of 3.7%.
The results also show an impairment charge on capitalised R&D. This is a bit of a collectors’ item. New cars do have bad performances. Laguna however has been a classic horror. It took EUR1.1bn to develop we now know, and chief executive Patrick Pelata said “we do not see a flow of revenues to pay that back.”
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By GlobalDataHence the impairment charge. It is rare that a model failure is so huge that the cost of it features in the question and answer session of the half year results presentation. It’s not the first time that Renault has been unlucky with a model. It had to drop the Espace – a vehicle with which it invented a new sector in a stylish manner and then lost the plot.
Renault bought a controlling stake in Russia’s Lada a year ago and was quite pleased about outwitting GM and Fiat who were both in the race. Oh-ho. “Russia is one of our hopes but not now.”
The Russian market has halved in volume and the rouble has collapsed. Logan production is going well. “This is not good news for the bottom line now, but good news for the future.”
As for the countries where demand is going bonkers – very bad news. Renault has got as far as hiring a man to devise a China entry strategy while everybody else is hiring bean counters to tally the money. It will take two years to get going. In India, Renault is worried that the price of small cars has been driven so low by Tata and Suzuki Maruti there is now little for Renault to contribute.
And of course Renault is in France which is bad luck because the French like to go on strike. “There is a big risk on strikes and this is a French specificity (sic).”
Renault owns a bank (RCI) which is unlucky because this one, like so many, has a junk rating. As it has a junk rating, and is a wholly-owned subsidiary, it affects the borrowing power of the manufacturing business. Thiery Moulongue said RCI has been able to keep “a reasonable level of access to funding” which is a glass-half-full sort of a statement when it’s really half empty. “We would not consider the sale of a stake in the bank.”
There is a very real debate in Renault as to whether it should give up on large cars altogether (remember Avantime) and it admits that it has been making large cars that were not good enough to achieve large prices but that this has now been addressed with largish cars with small prices. New Scenic is now priced below old Scenic, for example. If this is progress, then tell the institute of chartered accountants how it works.
Fleet and daily rental sales were hacked back because Renault did not like the buy-back terms. They now think that they may have been “over-prudent” and that the strategy should be “amended.” Getting the timing on that wrong was another piece of bad luck.
The loss of Alonso’s wheel occurred under pressure. But many of the mistakes at Renault seem to be occurring in the run of play. After a while, a run of bad luck like this one can come to be mistaken for bad management.
Rob Golding
See also: FRANCE: Renault swings to heavy loss
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