Ghosn Puts His Stamp on Renault

February 19, 2006

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 inNorth America, where the company has moved to limit its future liabilities for retiree healthcare.

At Renault’s annual press conference in Paris , Ghosn unveiled his plans for the French automaker, including a bold plan to raise sales volumes by almost one-third within four years. The plan includes bringing 26 new Renault models to market including a number of upscale models. “That’s not a forecast, it’s a commitment,” said Ghosn, who used the same approach to launch the Nissan turnaround in 1999.


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 Europe. However, Ghosn appears to have calculated that an offensive thrust by Renault would put extra pressure on the European operations of General Motors and Ford, which are struggling.

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 Spain to Renault Truck, which is part of the Volvo Group (unrelated to Volvo Cars, a subsidiary of Ford). By reducing the number of parts unique to each model and leveraging the vehicle platforms and powertrains it shares with Nissan, Renault hopes to halve research and development costs for each new model, Ghosn said. “It’s a question of doing twice as much with the same amount,” Ghosn said. Some 3000 new engineering staff will be hired, mainly in Romania, Korea, and Brazil.

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 said.

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.

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