Renault has announced a stronger than expected first half operating margin of 4.1% versus 3.5% in the same period of last year. However, the firm cuts its expectations for 2009 sales and said that the ‘deterioration in the macroeconomic environment has far exceeded the worst-case scenarios envisaged when Renault Commitment 2009 was launched two years ago’.

In the first half of this year Renault generated an operating margin of EUR865 million, i.e. 4.1% of revenues, vs. 3.5% in first-half 2007 in what it described as ‘a particularly difficult economic context’.

The company said that first half group vehicle sales were up 4.3% on last year at 1,325,500 units helped by the launch of five new products—Clio Grand Tour, Grand Modus, New Kangoo PC and LCV and Logan Pick-Up. Group revenues came to EUR20,942m, rising 2.3% over the same period in 2007, on a consistent consolidation and accounting basis.

However, Renault cautioned on the outlook and said that the deterioration in the macroeconomic environment centres on five main factors:

• The surge in oil prices, which has slowed growth on auto markets, changed the sales mix and increased transportation costs;
  
• Rising raw material prices;
  
• Negative foreign exchange fluctuations;
  
• The financial crisis, which has increased the cost of corporate financing;
  
• The slowdown in the major European automotive markets.

Renault said that in the light of the ‘conjunction of five factors of such magnitude’ it has decided to take immediate action to maintain its competitiveness and profitability. These measures include:

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• A hike in sales prices to absorb the costs arising on the surge in raw material prices;
  
• The simplification of the product plan, by halting or postponing projects deemed less important;
  
• A freeze in new hires in Europe.

Other measures are under consideration include:

• A 10% reduction in the corporate overheads through a voluntary redundancy plan, primarily in Europe;
  
• The reorganisation of production sites, in particular by cutting back to just one shift at the Sandouville plant in view of declining demand for D-segment sedans in Europe (and Laguna III hasn’t been especially well received outside France against some strong competition in Europe).

Other adjustments may follow if the situation continues to deteriorate, Renault said. They could concern the B-segment and production levels at the Flins plant.

Furthermore, the ratio of R&D spending and investment to revenues will be cut to 10% by 2010 at the latest, from 11.4% in 2007.

However, the firm said that the planned product offensive will continue in Europe in the second half of 2008 with the launch of Laguna Coupe and the beginning of the renewal of the Mégane line.

It said it remains on track to achieve an operating margin of 4.5% for full-year 2008, while warning that ‘worsening economic conditions would make this milestone more difficult to attain’.

In 2009, the growth forecast for the three brands, Renault, Dacia and Renault Samsung, should enable the Group to sell more than 3m vehicles (previous plan was 3.3m). Including Lada, the sales objective is over 3.8m units.

The Group is continuing to aim for a 6% operating margin in 2009.

See also: LONDON SHOW: New products will get Renault through crunch – UK MD

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