How Renault boss aims to recapture its va-va-voom

14 January 2021, 17:01

Few companies will have been happier to see the back of 2020 than Renault.

Even before COVID-19 struck, the French car-making giant was struggling with falling sales and profitability, reporting a net loss of €141m (£123m) for 2019 - down from a profit of €3.3bn (£2.9bn) in 2018 and its first loss in a decade.

The company was also struggling to recover from the shock arrest in Japan, in November 2018, of Carlos Ghosn, its former chief executive, amid accusations of financial misconduct and misusing company funds.

Mr Ghosn, who jumped bail in Japan in December 2019 and subsequently reappeared in his native Lebanon, was the architect of a three company alliance between Renault, Nissan and Mitsubishi that was widely regarded as having failed to live up to its potential.

The whole affair put strain, in particular, on the relationship between Renault and Nissan.

Then came COVID-19 and Renault, in common with other carmakers, was forced to close down production at sites from Morocco to South Korea in response to social distancing rules.

While nearly all carmakers suffered lower sales as a result, Renault was hit particularly badly, with its 2020 sales down 21% on 2019, compared with declines of 15% at Volkswagen and 8.4% at BMW.

Among its peers on continental Europe, only PSA - owner of Peugeot, Citroen and Vauxhall - fared worse, suffering a 27.8% fall.

As the ratings companies downgraded the company's credit rating to 'junk' status, Renault was forced to seek state aid, receiving a €5bn (£4.4bn) bail-out package from the French government in June.

By then, the company had announced 15,000 job cuts worldwide, including 4,600 in France, where it had a workforce of 48,000.

The support from the French government, which with a stake of just over 15% is Renault's biggest single shareholder, came with strings attached.

The company had to promise to keep its two main French plants open and was also made to join a pan-European alliance collaborating on electric battery production.

It all meant that Renault had to take a good long, hard look at itself.

In January last year, even before the pandemic had struck Europe, Renault had named Luca de Meo, an Italian-born former Volkswagen executive whose career had begun at Renault, as its new chief executive.

It was seen as an attempt to draw a line under the Ghosn era.

Mr de Meo, who had previously been running VW's Spanish business Seat, joined at the beginning of July last year and today he unveiled his strategic vision for the company.

The plan, which he called a 'Renaulution', will be seen by many as a repudiation of what Mr Ghosn had sought to do.

In essence, Mr de Meo envisages Renault as a smaller, more focused company, putting the emphasis not on sales volumes and market share but instead on profitability.

Cost-cutting is, inevitably, part of the plan.

Renault aims to reduce its costs by €2.5bn (£2.2bn) by 2023 and by €5bn (£4.4bn) by 2025 - representing a much more ambitious target than those set out last year when it announced its big job cuts.

According to the company, much of the heavy lifting here has already been done, with no more job cuts planned.

Future savings have been identified through other means, for example, by rationalising Renault's supplier base.

The company's portfolio of brands will also be overhauled to ensure there is less duplication between the core Renault marque and its other brands, Dacia, Lada and Alpine.

There will be a greater emphasis on electric vehicles with Alpine, the sports and racing car brand, becoming all-electric.

Longer term, the company also intends to diversify its sources of revenue, depending less on volume car production.

It is aiming to make at least a fifth of its sales from "data, mobility and energy related services for the benefit of vehicle users" by 2030.

Mr de Meo said Renault had already streamlined its operations and reallocated resources to what he described as high-potential products and technologies.

He added: "This boosted efficiency will fuel our future line-up: tech-infused, electrified and competitive.

"And this will feed our brands' strength, each with their own clear, differentiated territories; responsible for their profitability and customer satisfaction.

"We'll move from a car company working with tech to a tech company working with cars, making at least 20% of its revenues from services, data and energy trading by 2030."

Utiopian? Maybe.

But at least Renault has faced up to the fact that, from the millennial generation on, consumers are less interested in buying and owning a car and more interested in paying to use one.

It is looking ahead to a time when car sharing and ride-hailing will be more widespread and acknowledging that cars will have to be designed for that eventuality.

It means coming up with different models of car finance and with more accessible pricing.

It also means collaborating with cities and local authorities to reduce pollution and come up with more efficient ways of using limited road space.

Where Mr de Meo and his deputy, Clotilde Delbos, were less clear was what all this means for the alliance with Nissan and Mitsubishi.

The pair were careful to nod to the alliance.

Today's presentation to the media and investors included a message from Makoto Uchida, president of Nissan - which owns 15% of Renault - in which he said he supported the plan.

Ms Delbos said that, with the alliance, the three companies had the scale to work more efficiently - it was just that, to date, they had not used that to its fullest potential.

A lot of what Renault said was sensible.

Yet the fact that the share price - which has fallen by 12% during the last year - barely moved on the news reflected firstly that the company had said a lot of this already and, secondly, that Renault now has to execute on this plan.

It may also reflect the fact that the European car industry remains blighted with overcapacity.

The competitiveness of the market was highlighted by the fact that Renault is targeting an operating margin of 3% by 2023 and 5% by 2025 - margins that are pitifully low by comparison with many of its sector peers.

And that competition will intensify once Fiat Chrysler and PSA complete their merger.

The combined business, to be called Stellantis, will be the world's fourth largest carmaker behind Volkswagen, Toyota and the Renault-Nissan-Mitsubishi alliance itself.

That competition will be especially intense in electric vehicles: the broker UBS told clients today it expected to see an "unparalleled EV offensive" from VW this year putting it at least alongside Tesla as the world's biggest battery electric vehicle maker.

Mr de Meo's plan is certainly forward-looking.

But it is going to take a lot of work before this company recaptures its old va-va-voom.