The Logan didn’t hit its price target, but it’s exceeding its sales targets, and it’s proving crucial to the success of Renault chairman Carlos Ghosn’s Commitment 2009 turnaround plan, writes Mark Bursa.
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Carlos Ghosn’s turnaround plan for Renault, Commitment 2009, was announced in a blaze of publicity last year. It set ambitious growth targets for the company – 800,000 extra units sold in 2009 compared with 2006, together with a 6% operating margin in the same year.
Ambitious it might be, but it looks like that volume target is likely to be met – and all because of one car. The Renault/Dacia Logan, Renault’s much-publicised “EUR5,000 car” for emerging markets, might not have hit its price target, but in sales terms, it’s turning out to be “the little car that could”.
The Dacia plant in Pitesti, Romania, churned out 248,000 Logans last year, an increase of 70.7% over 2005’s 145,000 units. And now, with large volume production coming on stream in Iran, Moscow and India, together with lower-key ventures in Morocco and Colombia as well as plans to build it in Brazil, up to 700,000 Logans could be produced a year by 2009 – making a sizeable dent in that 800,000 extra vehicles a year target.
Logan is evolving fast – already a wagon version, the Logan MCV, and a panel van derivative have been unveiled. And Luc-Alexandre Menard, who heads up all Renault’s non-European operations, says a total of six bodystyles will be produced, including a hatchback and a pick-up.
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By GlobalDataFurthermore, Menard maintains that the plan to take the Logan into China is not dead. This plan was put on hold at the end of 2005 after lengthy discussions with Dongfeng Motor, Nissan’s Chinese partner. Menard says the Logan will make it to China, “but not until after 2009, after Commitment 2009”. Renault chairman Carlos Ghosn added: “China will be back on the table when we’re profitable.”
One of the main reasons for delaying China is the physical demand of setting up production in emerging markets on Renault’s engineering department. “When you take a decision to set up a 250,000-car plant in Iran or a 70,000-car plant in India it takes up a lot of resources at engineering level. A lot of people have to be dedicated to these projects,” Menard said.
By 2009, plants in India, Russia and Iran will be up and running at something close to initial capacity, so Renault’s engineering department will be less stretched – and will be able to devote staff to setting up in China, Menard believes.
Renault has a roll-out plan for Logan around the world. Ghosn said this was being carried out “in an organised fashion”. The Dacia plant in Pitsesti, Romania, remains central to the strategy – especially now Romania is an EU member state. Renault chairman Carlos Ghosn said: “Every car we produce in Romania is sold – so the plant will continue to expand.” Engineering and service centres are being added, while more suppliers are opening up around the plant.
Menard said hourly production had been increased from 25 cars per hour to 40 cars per hour, and the target was 60 cars per hour by 2008. The next bottleneck was the paint shop – the plant will shut for a period this August in order to upgrade the paint shop to cope with the target production flow. This will involve a new layout as well as more modern equipment. The bodyshop will need to be expanded too, especially as it now has to cope with an increasing number of body styles.
Ghosn also hinted that Renault was interested in taking over the other Romanian car factory, the former Daewoo factory in Craiova, which was taken over by the Romanian Government after Daewoo’s collapse and continues to produce low volumes of outmoded Daewoo models. “There is a second plant available in Romania – and many car makers are competing for this,” said Ghosn. “We have an interest in maximising our presence in Romania.”
Some of the Pitesti Logans are supplied to Renault’s Moscow-based Russian joint venture, Avtoframos, as CKD kits. Here Menard says production will be doubled from the current 80,000 unit level to 160,000 by 2009 – not just Logans, but also other Renault models such as the Clio Symbol, a four-door sedan version of the Clio subcompact hatch. Renault is pending US$150m at Avtoframos, and the expansion will increase staffing there by 1,000 to 2,400.
Local content is slowly rising too – currently it’s about 50%, and Menard hopes to hit 50% by 2009. But he admits it’s been a struggle to source locally, though the arrival of other manufacturers – Ford, GM, Toyota, GM and Nissan – has helped. “Little by little, the possibility of buying parts in Russia is becoming a reality,” he said.
Last year Renault entered discussions with the biggest Russian auto maker, AvtoVAZ, with a view to setting up a much larger-scale venture to build the Logan. Menard said talks were continuing despite reports that AvtoVAZ had opted instead to hire MagnaSteyr to design and produce its next generation of cars.
Menard believes it’s imperative to get into Russia now, as the car market is starting to show accelerated growth. “It will be close to 3m units a year by the time we have finished expanding Avtoframos,” he said. “The long-term fundamentals of the Russian economy are good, and the level of motorisation per person is still very low. So demand for cars will keep on growing.”
A deal with AvtoVAZ would give Renault access to much more of the market, as AvtoVAZ has the most extensive distribution network in Russia. But Ghosn is not banking on a deal being completed. “It is possible that the negotiations will give no result,” he said.
What appears to be on the table is a similar arrangement to the AvtoVAZ-GM deal: a joint venture producing cars in part of the sprawling Togliatti plant, but separate from the main AvtoVAZ line. It’s not clear whether this would replace the GM JV or be an additional venture – Togliatti is big enough to accommodate another line, and AvtoVAZ vice-president Maxim Nagaitsev told the recent Autoinvest 2007 Conference that the GM venture was “developing successfully”, according to the Russian Kommersant business daily.
However, Renault is believed to be after a more central role with AvtoVAZ – possibly even a large-scale JV resulting in something like the Dacia deal, with Logan, or a derivative of it, becoming the main AvtoVAZ model. But it seems Russia is keen to protect its car producer and retain and develop independent R&D capabilities.
Regardless of the outcome, Renault will remain a major player in Russia – and through Logan it’s about to become a big player in two other fast-growing emerging markets – India and Iran.
Menard confirmed that Indian Logan production in partnership with major Indian auto maker Mahindra & Mahindra, would start in April 2007. This will be far from a CKD operation – while some parts will be imported from Romania, the well-established supplier network in India will allow local content levels of 50% from Job 1.
And the venture will take on a new complexion in 2009 when a new, greenfield plant opens up in Chennai. This will be a joint venture between Renault, Nissan and Mahindra, and could produce up to 300,000 cars a year – many of them Logan derivatives.
Meanwhile in Iran, pilot production of Logan has now started at the Iran Khodro factory near Tehran. Locally, the car is called the Tondar90 sedan – MCV and van versions will also be built there and total capacity is 150,000 units a year. Renault has invested US$1.5bn in Iran.
Understandably, Ghosn is worried that US-Iran tensions might result in sanctions that would damage the Renault venture. “I hope this won’t happen. The Iranian domestic market is very promising,” he said. “I’m confident Iran will become a great market for Renault.”
Mark Bursa
