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April 5, 2005

FRANCE: Renault opens Logan CKD assembly plant in Russia

Renault Chairman and CEO Louis Schweitzer on Tuesday opened the Moscow production plant of Russian subsidiary, Avtoframos, which is building the Dacia-designed Logan.

Renault Chairman and CEO Louis Schweitzer on Tuesday opened the Moscow production plant of Russian subsidiary, Avtoframos , which is building the Dacia -designed Logan.

The new car will be marketed in Russia as a Renault from late summer 2005.

The plant cost €230 million and can build 60,000 vehicles a year, using the tools and methods of the ‘Renault Production Way, claimed to be one of the most efficient automotive manufacturing systems in the world.

Avtoframos is jointly owned by Renault (76%) and the Moscow City Authorities (24%).

Renault said the Logan, designed for a broad customer base of first-time car owners in emerging countries, is “especially appropriate” for Russia, where cars selling at under €8,000 take 80% of the market.

The opening of the Avtoframos plant marks the first stage in the international Logan programme. Manufactured since 2004 at Dacia ’s Pitesti plant in Romania, it will also be produced during 2005 in Morocco and Colombia, to be followed by Iran in 2006 and India in 2007.

Simultaneously, the marketing effort will extend to more than 30 countries this year, spanning Central and Eastern  Europe, Africa, the Middle East and Latin America, in addition to Western Europe from June 2005.

Renault is targeting aggregate sales of more than 1 million Logans per year by 2010.

A commercial success in the fast-growing Russian market, Renault has increased sales there tenfold in five years and sold 16,126 vehicles in 2004, an increase of 42% over 2003. With a 4.6% share of the market for foreign brands, Renault is the leading European automaker in Russia.

The Mégane accounted for nearly half (47%) of Renault ’s sales in the country as of end-February 2005. The Symbol , a three-box sedan version of the Clio, ranked second, accounting for 39% of the brand’s sales.

Renault has established an extensive distribution network numbering 60 dealerships and 81 outlets in 41 cities to date; it already covers nearly every city in the country that has a population greater than 500,000. Renault ’s goal for the second phase of market penetration is a presence in all towns and cities of more than 300,000 inhabitants.

The network is backed by the resources of the Renault training centre. Since opening in 1999, the centre has trained more than 1,800 staff.

Dealers can order spare parts for 24-hour delivery from a central parts warehouse and Renault Assistance, a roadside assistance programme, has been operational in Russia since 2001.

In a country with a population of 142 million and a car ownership rate of only 167 vehicles per thousand inhabitants, the Russian automotive market offers substantial growth potential. It is a highly dynamic market as attested by its expansion of 30% between 2000 and 2004 – much more than the developed markets of Western Europe, Japan and the United States.

In 2004, the Russian automotive market totalled 1,382,872 passenger and light commercial vehicles in three categories.

Ranking first were Russian-brand cars manufactured in Russia, with sales of about 1,028,000 units last year. These were followed by imported foreign brands, which totalled almost 280,000 units in 2004 and should see a slight increase in market share in 2005.

Foreign-brand vehicles built in Russia continued to command only a limited – but fast-growing – share of the market, with 70,000 units sold in 2004.

The market structure has been shaped by two factors: the fact that most consumers have limited budgets which restrict their choices, and the strong demand for foreign cars.

With 80% of the cars sold in Russia priced at less than €8,000, the Logan reflects a major strategic ambition for Renault . As the group’s entry-level product for this market, the Logan is a unique offering that will enable Renault to appeal to a broader customer base.

The €230 million investment in the Avtoframos plant is the largest investment in Russia by a European automaker to date.

The plant in Moscow is also one of the first to use a completely knocked down (CKD) process. Parts are manufactured either in Russia by local suppliers (20% to start, with local content gradually rising), or at the Dacia plant in Pitesti, Romania, where they are stored in a central parts warehouse near the plant and dispatched to Russia by road freight.

The plant has three main workshops: body-in-white, where the body panels are welded together; the paint shop; and final assembly. The plant’s production rate is 12 vehicles per hour.

Discussions have now reached an advanced stage with automotive systems suppliers, with the aim of having them accompany Renault in Russia in the form of local partnerships with local  companies.

Renault has already signed agreements with five Russian suppliers: ZIL , for stampings; Interkos IV, the manufacturer of the stamping press to be used by ZIL ; Bor Glassworks, the supplier of all of Logan’s glazing; Elast Technologies (mud flaps) and Sotex (seating foam).

The Avtoframos plant currently employs 800 people, 540 of whom are in production positions. The average age of employees is 32, and women account for 30% of hiring. The entire supervisory team (shop managers and basic work team leaders) received training lasting from one week to several months in Renault ’s plants in France, Turkey and Romania. By the end of March 2005, 112,000 hours of training had been undertaken by the plant’s workforce.

The plant is conducting an intensive recruitment drive to hire production workers, technicians, storekeepers and fork-lift operators in order to meet the staffing needs of production operations.

A total of 1,000 people, including 850 production workers, will be hired in the course of 2005.

When the plant reaches full capacity at the end of 2006, Avtoframos will have a total workforce of 2,000.

Forecasts point to growth of 6% in the Russian automotive market in 2005, translating to sales of more than 1.4 million vehicles, one third of which will carry the badge of an international brand.

Continued growth is forecast for the years ahead, with significant gains by imported vehicles and foreign vehicles manufactured locally. These two categories combined could amount to a total volume of 600,000 units in 2008.

In this context, Renault has set a sales target of 100,000 vehicles per year in Russia by 2008, which will include 60,000 Logans built at the Avtoframos plant.

The feasibility of doubling the plant’s capacity to 120,000 vehicles per year in the medium term is currently under study.

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