DETROIT, Jan 9 (Reuters) – French mass car manufacturer Renault SA said it expects to be able to speed up vehicle deliveries to customers and slash inventories to 30 days of supply by the end of 2001.
In an interview at the Detroit car show, Louis Schweitzer, president of Renault, said European car market sales will grow in 2001, allowing the company to make sales and earnings progress.
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He warned that long-term growth in the world car business could be jeopardised if problems of fuel consumption and environmental damage are not addressed. Schweitzer said the U.S. automotive industry had been particularly slothful.
Schweitzer said Renault was determined to make progress toward eventually cutting to 14 days the time between customers ordering cars and delivery.
All major car makers are seeking to transform the industry by embracing build-to-order to drastically speed up deliveries. Car buyers could go into their local dealership, choose the car they want, and have the exact specification delivered to their door a couple of weeks later.
Now, buyers often can have the car today with 10 percent off, even though it’s the wrong colour, has a 2.0 litre engine, not the 1.6 litre required, and has been stored in all weathers for the last two months at the local disused airfield. Or they can pay the full price and wait three months for the car they really want.
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By GlobalDataINVENTORY POLICY MAKES US. MARKET SENSITIVE
Schweitzer said cutting stocks of cars will help the European industry avoid the calamity now being suffered by U.S. car makers who are faced with the financially crippling task of shifting a massive build-up of unwanted cars which have been beached on dealer forecourts when buyers suddenly disappeared.
“One element that makes the U.S. market so sensitive to changes is the inventory policy. The standard inventory is 60 to 70 days in the U.S. If there is a drop in the market you immediately have a huge inventory problem because you have to cut this down to size,” he said.
“In Europe we traditionally have lower inventories of between 45 and 50 days. At Renault we are in the process of changing our distribution system to build-to-order to achieve a 30-day inventory goal. This will make us much less sensitive to a downturn. We will have this in place by the end of 2001,” he said.
Schweitzer said this move will shake up Renault from top to bottom.
“It requires re-engineering of the whole company, the relations with the dealership, the relationship with the suppliers, the way we manufacture, the way we process orders, the way we get the sales moving. Eventually we hope this will allow us to be able to build to order and deliver a car in our main markets in two weeks, and make massive reductions in our inventories.”
Experts say build-to-order is potentially risky for manufacturers, and very expensive at least in the short term.
HOLY GRAIL
The holy grail is the $US3,600 per car that can be saved, using the internet and electronic commerce, according to a report last year from bankers Goldman Sachs.
Schweitzer declined to predict the precise bottom line impact of build-to-order, but saw many benefits, including a reduction in sensitivity to economic fluctuations and a cut in the amount of money now consumed by special offers and incentives.
“Today we build about two thirds of our production to dealers orders and one third to final customer orders. The objective is to reverse these figures,” he said.
Schweitzer expected some growth in the European car market in 2001. Sales in 2000 were about 14.8 million compared with the previous year’s record 15.2 million.
Renault sales in 2000 were about 2.3 million, flat on 1999. Some analysts expect a tougher 2001 for Renault as its successful models like the Megane Scenic run out of steam.
Schweitzer said the launch of the new Laguna large family car this month should help the company.
“Unless there is a major crisis in the U.S. economy which I do not foresee we should have continued growth, robust growth in Europe and hopefully growth in the car market. I am confident that there will be top line growth for Renault, and bottom line growth.”
ENVIRONMENT CHALLENGE
Schweitzer said the automotive business attitude to environment will determine its long term growth potential.
“The future of car companies very much depends on how well they address the fuel crisis and climate change. You see today very different standards. The Europeans are working hard to reduce fuel consumption. you can say fairly that nothing is happening in the U.S.
“I believe that if the car industry as a whole does not address the climate change issue over the next 10 years then the growth of the car industry as a whole will be inhibited,” Schweitzer said.
To link to a related feature article on the subject of ‘build to order,’ please click here.
