2006 Detroit Auto Show, Part VIII by Bengt Halvorson (1/9/2006)
Jeep Compass, Toyota Camry, Nissan Sentra and Urge.
Just as he did at Nissan, Carlos
Ghosn is planning to use a new product offensive to boost the fortunes of
Renault with a combination of judicious cost-cutting and a move upmarket.
At the same time, Ghosn also is
ordering Nissan to move deeper into the commercial vehicle market and to
maintain a close watch on costs, including those in
At Renault’s annual press
The new product offensive also is
designed to reduce Renault’s dependence on the Mégane compact. “This heavy
dependence on a single product is a source of vulnerability for the company,”
Ghosn said. Ghosn also ruled out any attempt by Renault to enter the North
American market before 2009.
Ghosn faces a big challenge moving
Renault back into the limelight. The one big difference between Nissan and
Renault, however, is that Ghosn is starting from a position of relative
strength. The goal to boost sales was announced after Renault posted a
19-percent increase in net income. Most of the increase came from a 35-percent
boost in Nissan’s contribution to Renault. Without the increase in Nissan’s
contribution, Renault’s net income would have dropped 16 percent, according to
the figures provided in a year-end financial report. Renault revenue grew only
1.3 percent in 2005.
Nevertheless, with $3.9 billion in
profit in the bank, Ghosn was able to sidestep a showdown with Renault’s
hard-nosed unions. Since the company is planning to sell an additional 800,000
vehicles before the end of the decade, there is no need for layoffs, Ghosn said.
At Nissan Ghosn eliminated more than 20,000 jobs in his effort to make the
Japanese automaker profitable again.
Renault, like other European
automakers, faces a host of challenges, including intense competition, higher
prices for basic materials and the extra costs from a new wave of EU safety and
environmental standards. Meanwhile, most forecasts, from inside and outside the
auto industry, expect demand for new vehicles to be relatively flat across
Ghosn also is promoting closer
cooperation with its alliance partners. Thus, South Korea–based Renault Samsung
Motors is developing sport-utility vehicles and crossover models for
distribution in other Renault markets, he said.
Just last week, Nissan announced
plans to supply a light truck built in
Not everyone, however,
was impressed by Ghosn’s new plan for Renault and its Nissan alliance.
“Carlos Ghosn’s plan for the
company amounts to rather less than a reinvention of the European small car
business,” Sanford Bernstein analyst Stephen Cheetham wrote in a research note.
A planned Megane revamp could lift profitability briefly to the promised
six-percent margin in 2009, but beyond that, the target remains “implausible and
a long way off.”
But Renault’s room for improvement
is limited by the absence of any plan to reduce the company’s “large and
increasingly uncompetitive French and Spanish manufacturing footprint,” Cheetham
Meanwhile, the growth at Nissan has slowed. Earlier this month it reported that net income rose by less than one percent to $1.20 billion during the third fiscal quarter, which ended December 31. Nissan unit sales were up only 0.4 percent, substantially slower than the ten-percent increase posted earlier in the fiscal year.
Meanwhile, Nissan North America
said that it will stop offering comprehensive medical coverage for retirees in
its manufacturing division in favor of an annual stipend, in an effort to save
money. Nissan’s North American manufacturing unit also is switching its pension
plan from a defined benefit to a 401(k)-like contribution plan for new hires.
The retiree healthcare decision affects employees who turned or will turn 65 after Jan. 1, 2006. Nissan’s number of retirees is expected to jump to about 3500 in the next ten years.