Renault is beginning to talk like a proper global car producer. While its financial results for the first half of the calendar year published Wednesday morning show that its profits are down a bit, the narrative on prospects is upbeat and sophisticated.
Despite the gentle kicking from the equity analysts about the year-on-year profit fall, the operating margin is still 4.4% which is well above trend for volume car producers. Delightfully for Renault, it is also above rival Peugeot Citroen’s Tuesday result which was 4.1%.
This is an interesting moment in Renault’s development because the much-fancied Carlos Ghosn, saviour of Nissan, is now in the driving seat at Renault as chief exec. He has been there for a few months only but is already taking tough decisions. He spotted the muddle that was emerging in the small car range with new Clio, classic Clio, Modus, Twingo and Logan and has canned the new Twingo despite its launch being imminent.
The finance people at Renault were a bit coy this morning about saying what the real problem was, but the inference is that production cost was OK and it was that they had to do “more customer analysis to stick to the customer expectation.” In translation, that means redesign. That will cost €60 million for tooling that has to be scrapped.
Later, CFO Thierry Moulonguet referred to the price segmentation of the small car sector becoming increasingly sophisticated. Getting the right car in the right slot is vital. The complexity of the situation for Renault is that the new Clio is out within a couple of months and that the Clio classic will run alongside it for a year or two. Twingo is off the same platform. The Modus is not selling well. This is coded in Renault-speak as being “too optimistic on the size of the sector”. Good car; good price; too small. Logan – made by Dacia – meanwhile is selling too well, and availability in Western Europe has been rationed.
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By GlobalDataThis is the cause of some surprise. Critics thought that a car with a come-on price of €5,000 (minimum transaction price €6,500) would take sales from the rest of the range. It hasn’t; it competes with older used cars. The dealers thought that the margin would be hopeless. It isn’t. But having sold a quarter of total production – 25,000 – in western Europe in a heartbeat, availability has been capped. The whole point of the Logan strategy is to sell it in eastern Europe. And once the sales bases are established, to follow through with the offer of Renaults as the market becomes more prosperous. There is a production plant for Russia and there will be production in South America also. The decision has already been taken to “extend the Logan family”.
The bottom line for the segment is that Renault is still increasing sales and market share… but not profits. Hence the expensive rethink.
The other part of the internationalisation of course is Nissan. The cost savings arising from component and platform sharing have only just begun, and there are massive opportunities for efficiencies from sharing best practice in manufacturing.
Renault still has to talk like a company independent of Nissan because that is its legal status. But in reality its economies are those of the world’s fifth largest car maker. Hence the growing confidence.
Rob Golding