Blog: Dave LeggettRenault's 'problem'

Dave Leggett | 4 January 2006

All things considered, Renault looks at first sight like it isn't doing too badly. It is still in business, making profits and it is still a French corporate icon that can hold its head high(ish). The Renault Clio III is even European Car of the Year. So, what's up?

Renault's bread and butter cars are the high-volume low-margin Clio and Megane/Scenic where competition from other makers, in Europe, is at its strongest. In the higher-margin areas of the market Renault clearly struggles; it has never managed to successfully carry off large cars outside of France (Espace was always a special case) and has little prospect of doing so. Renault market share in Europe is down this year, once again (how much fillip will Clio III provide? We'll see, but that is a very tough part of the market to make any money). Declining European share is an established trend that it is hard to see going into reverse.

And Renault has a relatively high European cost base that makes it difficult to compete in the segments where it is strongest in product terms. Performance outside Western Europe isn't bad, but how much money can you make on the Logan? Infiniti in Europe may fly and eventually be a nice little earner but it is still some way off (/news_detail.asp?art=49673), though future outlandish and upscale Renault designs (remember Avantime?) could find a more natural home under that brand perhaps. Infiniti Europe starts late this year in Russia and there is apparently no hurry on rolling the brand out to the rest of Europe. 

Renault's big safety net is Nissan. The bumper cheques regularly sent over from Japan can certainly hide its structural failings. But there is perhaps a perverse downside to the support that Nissan provides to Renault's profits. If Nissan wasn't there the pressures to cut the cost base, even in France, would be more pressing and it is at least arguable that a cost-cutting programme with more activity shifted to lower cost places is in the company's best interests in the long-term (the other major European volume makers are doing it).

As things are, Renault can carry its high European cost base and everyone is, more or less, happy. But the problems will mount if the profit contribution from Nissan falls off for any reason. Then Renault could be exposed on its European operations. No doubt Carlos Ghosn would like to begin cutting the Renault European cost base now, in a serious and orderly manner, rather than have to embark on emergency surgery in a few years' time. The big question, as ever with Renault, is whether the French political establishment would accept that, or how much they will accept, especially when the company is actually making a profit.

FRANCE: New Clio and Logan seen boosting Renault sales this year


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