Renault saw its net profits rise by 43% in 2004, reaching €2.4 billion.

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The company’s sales have been boosted by particularly strong sales in outside western Europe, and a revamped model line, typified by the distinctive Megane. However, the company should not become too complacent; and the continuing high prices for raw materials and fierce competition will make 2005 a tougher year for the company.


Its performance overseas has been particularly strong, with 27.2% of its total sales now coming from outside of western Europe. Going forward, the company also hopes to benefit from the introduction of the new Clio later on this year and increasing sales of the Logan, the company’s budget, €5,000 car.


The Renault recovery has been underway for a while: M&A activity has broadened its geographical spread, especially in Asia. Central to this was its purchase of a 44% share in Nissan and control of Samsung Motors. More recently Renault bought Dacia, a Romanian company which manufactures the Logan. The company has gained from the widening of its range, whose lifecycle has been reduced to an average of 3.5 years. Renault has also successfully tapped into emerging markets, enjoying especially strong growth in Turkey, Russia and North Africa. However, on the down side, the company has still not been able to penetrate the US market.


Although Renault’s 2004 results are impressive, it is likely to see a substantial narrowing of margins in 2005. The principal reasons for this include continuing high raw material prices, a stagnant European new car market (not least in Renault’s home market) and fierce competition. Even the company has indicated that it hopes for an operating margin of “over 4%”, much lower than the 5.9% figure that was recorded last year.

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Nevertheless, Renault’s achievement over the last few years has been remarkable. Two decades ago it would have been impossible to imagine that the company would be the leader of the world’s fourth largest automobile group, not to mention one of the most profitable. The automobile industry, however, remains a precarious business to be in. Given incessant cost pressures and stagnant demand in the West, Renault’s new president, Carlos Ghosn, who is due to take over from Louis Schweitzer in April, may struggle to replicate his predecessor’s success.


SOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.