Renault in the fast lane

It hasn’t been an easy ride for French car-maker Renault. The first half of this year saw its car sales drop by nearly four per cent. The company however, maintains that sales will pick up in the latter half – and that its Renault Commitment 2009 is well on track.

The 2009 commitment was made on February 9, 2006. Its first priority was quality. The first step in its quality initiative has been the launch of the New Laguna launched in October. The sedan was recently showcased by Renault with the company claiming that the New Laguna range will have exacting quality standards. The company says that the New Laguna has been engineered and manufactured at previously unknown levels of quality. To back its claims, Renault is offering a three-year, hundred thousand mile warranty on the new Laguna models.

The second part of the 2009 Commitment is profitability. Renault has effected cost cuts across the board. Purchasing costs are set to be slashed by 14 per cent and manufacturing costs cut by as much as 12 per cent. Part of the process includes doing in-depth studies of its organization, methods and processes. Regional Management Committees were set up to deal with the specific needs of each region and enhance the importance of the company’s international operations.
Early in 2007, Carlos Ghosn, president and CEO of Renault said: “The first half of 2007 will continue to be difficult, in line with 2006. The second half, however, will mark the start of our product offensive. After the launch of Logan MCV and Logan Van, four new vehicles will come on the market: the new Twingo, then the sedan and station wagon versions of Laguna, and lastly, the Group’s first cross-over, foreshadowed by Koleos Concept. Eight other vehicles will enter the production stage. With these launches, Renault will return to growth in 2007 starting in Autumn. Last July we set annual profitability milestones to ensure that we remain on track for our commitment of 6 per cent operating margin in 2009. Today, we are reaffirming the 3 per cent operating margin milestone for 2007.”

The third part of Renault’s Commitment 2009 plan is growth. This will be done by stepping the launch of new models. Renault says that it will launch 26 new models by 2009. Much of the growth is expected to come from outside Europe where sales are pegged to grow by as much as 80 per cent. Total non-European sales are expected to make up 37 per cent of total sales by 2009 compared to 27 per cent in 2005.

Part of the new product blitz are country-specific models. For example, Renault and partner Nissan Motor Co are studying the feasibility of launching a US$3,000 car in India. Ghosn, who heads both Nissan as well as Renault, is quoted as saying that the car if deemed possible, will be manufactured in collaboration with an Indian car maker. If this happens, Renault will run head on into competition with other Indian car manufacturers such as Tata Motors, which is planning a low-cost car priced at US$2,500 next year.

“The very likely situation is, if we build a car like this, it will be done in India because the suppliers are there, the plants will be there, and the environment in India would be very favourable to a frugal product definition and to frugal engineering and manufacturing,” Ghosn is quoted as saying.

Another component of Renault’s growth strategy will be the launch of sports utility vehicles and four-wheel drives. Its Korean Samsung unit is planning a crossover in which will be called the Koleos in Europe where it will be launched next year. Nissan’s Qausquai SUV is reportedly enjoying an unprecedented demand in Japan and Europe. In Europe, Renault’s highest selling vehicles belong to its Megane line which the Twingo, Kangoo and Master models. The other popular vehicle is its Espace multi-purpose vehicle.

Renault, like other car-makers, is racing for higher market shares in countries like India, Brazil and Eastern Europe. Its no-frills Logan model, is one of the fastest selling models in countries like Venezuela and is expected to do well in other developing markets. While it retails at around US$8,500 in some countries like Romania, the Logan is not considered a low-cost car in India where it sells for US$10,000.

It remains to be seen whether Renault’s recently launched Laguna range, priced at around US$31,000, will match the company’s expectations. The Laguna III, which goes on sale this October, is an upscale model of the earlier sedan and is expected to be the first step in turning around Renault’s fortunes.

Automotive Industries caught up with Ghosn, and asked him if he thought the New Laguna’s commercial launch in would start Renault’s turn-around?
Ghosn: Not the New Laguna alone, but the product offensive as a whole. When we announced the Renault Commitment 2009, we said that the first two years would be tough: without new launch on our main markets, our sales automatically decreased. This first phase of the plan was devoted to preparing the 26 products and the technology, which will allow us to meet our three commitments. We now start a much more enthusiastic phase that Renault has been eagerly awaiting: the product offensive. New Twingo has been launched in June, New Laguna will be introduced in October and other products will follow. We are confident that the arrival of new products will lead us back to growth in Europe and boost our expansion outside of Europe.

AI: What makes the New Laguna such a special car – why did you decide to kick-start your new model blitz with this particular car?
Ghosn: New Laguna is important for us since it is the emblem of our commitment to quality. So the entire company joined forces to provide a level of reliability, durability, perceived quality and service never yet attained at Renault. No other Renault vehicle has been tested as extensively as New Laguna. To test its road-holding qualities for instance, 120 cars were driven over the equivalent of six million kilometers through freezing cold in Russia, extreme heat in Argentina, high humidity in Malaysia and on the dusty roads of Australia. New Laguna is also the first step of Renault’s move back into the premium segment. To meet the expectations of customers on the D-segment, New Laguna has classical lines and has been designed for genuine driving pleasure with complete peace of mind. On the top of that, we paid a particular attention to its cost ownership, which is very important for the fleets. As you know, fleets represent 50 per cent of the D-segment customers in Europe. New Laguna is a strong offer for them, thanks to its competitive ownership cost, including price, warranty, fuel efficiency (the 110hp dCi version emits 130 g of CO2 per kilometer), maintenance cost and resale value. Of course, customers will have the final word. But we feel good about the attractiveness and the competitiveness of New Laguna.

AI: Will the New Laguna be targeted at European and North American markets or do you expect the sedan to do well across the globe?
Ghosn: New Laguna has not been targeted at the US market, where Renault is not present. It will be launched in Europe and in numerous other countries like Australia, Russia, New-Zealand, Singapore, Lebanon, Argentina, Chili, Turkey, China and many others. We put New Laguna through all kinds of grueling road conditions to make sure that it is well adapted to every market. For instance, its air-conditioning has been tested in Dubai, with a temperature between 35 to 47°C. For the previous Laguna, there was a time lag of 18 months between the launch in France and the launch in the first countries outside Europe. As we took into account the specificities of each market very early in the project, we will be able to launch the New Laguna in Western Europe in two weeks and four to eight months later in the other countries.
AI: What will be the next step in your plan to launch 26 new models by 2009? Do you think Renault will be able to meet this objective?

Ghosn: Two products of the Renault Commitment 2009 plan have been introduced last year: Logan MCV and Logan Van. At the Frankfurt Motor show, we presented 10 new models:
-Four are renewals of the line-up: Twingo, New Kangoo and the two New Laguna (sedan and estate).
-Four models are completely new in our line-up: Clio Grand Tour, Koleos – the first crossover of the Group – Sandero, a hatchback developed on the Logan platform and Logan pick-up.
-The two last models are show cars that prefigure future models of the range: Laguna Coupe Concept and Kangoo Compact Concept.
After Twingo, three new models will be launched before the end of the year (Laguna sedan, Sandero and Koleos). Next step is 2008: we will be rolling out a new vehicle every month on average. Never before has Renault developed so many models in such a short time and to such exacting quality. I have no doubt that we will be able to launch the 26 new models.

AI: Some analysts have expressed reservations about the Commitment 2009 plan saying that it may take longer than anticipated. What do you say to this?
Ghosn: We maintain our three commitments for 2009. We gave milestones to make the market aware of the evolution of our plan. And so far, we are on the right track. Our quality commitment is materializing with the launch of Laguna. The 3.5 per cent operating margin of the first half of 2007 enabled us to confirm our 3 per cent objective for the year, as well as to prepare the 4.5 per cent milestone for 2008, before reaching the 6 per cent we committed to for 2009. And lastly, the first wave of product launched should lead us to achieve our commitment of selling 800,000 more vehicles in 2009 than in 2005. I am confident. It is like a race: you cannot be sure until the finishing line, but I am confident.

AI: How are the feasibility studies on the potential of a US$3,000 car in India going?
Ghosn: We are working very seriously on a US$3,000 car. Renault and Nissan are in discussions with the Indian Bajaj to define the product. We are now at the phase of advanced engineering. It is too early to say whether it is possible or not. An Indian car manufacturer announced that it would launch a US$2,500 car in 2008. We will see. The question is: will the car only be sold on the Indian market or could it be sold globally?

AI: Do you think Renault Nissan is in a good position to offer low cost cars in the developing world? And if so, why?
Ghosn: Yes, we are in a good position: Renault is the only car manufacturer to sell a profitable low cost car around the world. We have already a strong low cost offer with Logan. Today, we sell all the Logan that we can produce and we are looking for additional capacities to answer to the demand. That is why Renault and Nissan are investing in new capacities in low cost countries like India and Morocco. We continue to develop vehicles derived from the Logan platform. By the end of our business plan in 2009, a total of six vehicles will have been derived from the Logan platform. We are also working on the next generation of low cost vehicle, which requires a new breakthrough.