Risking his words one day coming back to haunt him, Renault president and chief executive officer Carlos Ghosn on Wednesday unveiled a plan dubbed ‘Renault Commitment 2009’ that he said would make the automaker “the most profitable European volume car company”.
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He and his staff will have their work cut out.
2005 profit off
At the end of the press statement detailing The Plan, were 2005’s results – gross operating profit off 37% year on year to EUR1.32bn (US$1.6bn), compared to a reported analysts’ consensus of EUR1.39bn, while profit on sales fell to 3.2% from 5.2%. Get cracking, Carlos.
Three major commitments
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By GlobalDataRenault has made three major commitments: position the next Laguna model line, scheduled for a 2007 launch, among the top three models in its segment in terms of product and service quality; achieve an operating profit margin of 6% in 2009; and sell an additional 800,000 units in 2009 when compared to 2005.
Some of that looks like a tall order. The Laguna, a stylish five-door hatchback and wagon line about the size of a Chevrolet Malibu or Honda Accord, competes with the likes of Ford’s Mondeo and GM Europe’s Opel/Vauxhall Vectra in Europe – and that’s a sinking class.
The reason is that, especially here in the UK, fully-equipped volume-maker models are priced about the same as similar-size entry-level ‘prestige’ models. If you’re an up and coming biscuit company sales representative, do you go for a loaded top-line Laguna or a nicely-equipped starter pack BMW 318? It’s a no-brainer.
The company bean counters have also discovered that the prestige brands depreciate less – far less. That means higher residual values and consequent lower monthly lease rates, or a better resale price after three years or so. Again, it’s a no-brainer.
Private buyers also get scared off. The volume brands have to offer huge discounts to shift the metal into company and daily rental fleets and the vast turnover depresses residual values for the private punter who paid near full price. He soon discovers it’s better to pay a bit more up front for the Audi or the BMW and get more back a few years hence, than he would with the Renault or Ford.
Company cars are less common in Europe than in the UK but there’s still the image issue – bragging rights are better with a BMW parked in the driveway than a Renault, even if the 3 can be a more common sight on the roads these days.
Again, good luck Carlos.
“A new, exciting page in the history of Renault is being written, he said.
Record product roll-out
During the plan, Renault will launch a record 26 new products which it claimed would be better focused on the needs and aspirations of customers.
On top of two planned 2006 debuts, including five- and seven-seat Logan station wagons, it will launch an average of eight models each year from 2007 to 2009, which is double the number launched from 1998 to 2005. Half of these cars will expand the model line.
On top of the just-launched redesigned Clio, and lightly worked over Megane (the company’s and Europe’s top-seller) and Espace MPV/minivan, we can expect a redesigned Megane family (hatchbacks, sedan, wagon, a coupe-cabriolet and the Scenic small MPV/minivan), Twingo (a low-cost city hatchback) and Kangoo and Master (cargo and passenger van lines).
Renault will also develop a luxury range of five vehicles to start, and it plans to double its sales in this segment where previously the likes of the 25, Safrane, Avantime and Vel Satis have largely flopped outside parochial France – the oddly styled Avantime, built by Matra, lasted barely a year.
The automaker also plans to contest new segments such as SUVs, 4x4s, crossovers and so far unspecified ‘niche vehicles’.
It will also develop vehicles to spur growth in markets outside Europe, following on from the successful Logan which is doing well in several emerging markets.
Sales, quality and productivity boosts
Sales outside Europe are expected to grow 80% from 27% of total sales in 2005 to 37% in 2009.
The average age of Renault products sold in Europe will drop from 3.8 years last year to 2.2 years in 2009.
All this is is expected to increase sales by an additional 800,000 units in 2009 compared to 2005.
More words that could come back to haunt Ghosn: claiming the next Laguna will be among the top three in its segment in product and service quality.
While Renault has greatly improved its perceived interior quality in the last decade or so, there is plenty of anecdotal evidence from our colleagues in the UK consumer press that component quality and the dealer network still need attention. A well-known fleet magazine had to have a manufacturer-supplied brand-new ‘long-term test’ Megane replaced a couple of years ago because of bugs in the newly-launched electronic key card system and there have been numerous reports of premature automatic transmission failures on a number of models.
UK dealer service reportedly can be indifferent and the importer itself is known to resist ‘goodwill’ payments on out-of-warranty premature major component failures, according to consumer websites and newspaper columns just-auto has seen.
Clearly, more than just new products are required for success as it takes a long time for an automaker to overcome market perceptions for poor quality or service back-up – even though problems may have long since been sorted out.
Renault aims to improve competitiveness through a cost reduction programme that will focus on: reducing purchasing costs by 14% in three years; reducing manufacturing costs by 12%, increasing capacity utilisation from 60% in 2005 to 75% in 2009 and reducing logistics costs by 9%.
It will also cut general and administrative costs from 5.1% of revenues to less than 4% and reduce distribution costs per unit in Europe by 8%.
Research and development expenses and investments for new vehicles will not exceed 11.5% of revenues in the 2006-2009 period.
Environment and new technology
Turning to the environment, Renault said that 50% of petrol-powered engines for sale in Europe in 2009 would have the ability to operate with a mixture of gasoline and ethanol. By the same date, all diesel engines will be able to operate with 30% diester, a fuel obtained from vegetable or animal oil.
Within the Alliance, which includes Nissan, Renault is working on alternative technologies, such as hybrids, fuel cells and electric vehicles. In France by the end of the plan, Renault will test fuel cell vehicles.
“With a clear vision, and prioritised, precise and measurable objectives, I am convinced that Renault will become, in the framework of the Alliance, a great company with sustainable high performance in the global automotive industry,” said Ghosn.
Graeme Roberts
