Renault strives for positive operating margin for the automotive division

Reconstructs its production network and releases new models

2013/05/10

Summary

Renault Group's Sales Volume Renault dropped its global sales for 2012 from the previous year for the first time in four years by 6.4% y/y to 2.55 million units. The sales in the European market continued to decline in 2012 with a decrease of 18% y/y to 1.27 million units.


 On the other hand, Renault as a whole group increased its sales percentage in non-European countries by 50% to 1.28 million units. The continued growth outside of the European market did not cover for the decreased sales in the European market.


 The 2012 operating profit for the automotive division ended with a loss for the first time since 2009 from a profit of 330 million Euros in 2011 to a loss of 25 million Euros.


 Renault aims to achieve a positive operating margin for automotive division and exceed the 2012 sales volume in 2013. The automaker will expand and enhance its businesses outside of Europe


 In order to strengthen its cost competitiveness within Europe, Renault will cut costs by transferring production site to less costly Morocco, cut jobs at the French plant where labor costs are higher and adjust the number of operation days in Spain.


 At the same time, new models, such as the Captur, EV Zoe, Clio Estate, new Logan will be launched to expand its share in Europe.

 In Russia, the company will use shared platforms and parts with AvtoVAZ in order to establish an annual production capacity of 1.7 million units. At South Korea's Renault Samsung, it will release Nissan models and Renault's rebadged models and electric vehicles (EVs) to attain a domestic share of 10% on a long term basis. The production system will be restructured in India, Brazil, and China.


Related reports:
European OEM strategy: cost reduction and expansion beyond the EU (Apr. 2013)
Equipment on new European models (2): PSA, Renault, GM, Ford, and Volvo (Oct 2012)

Renault's goals for 2013

Global market estimate * Renault estimates the global automobile market to grow by 3% in 2013.
* Growth estimates are respectively: 6% for Eurasia, 6% for Euromed-Africa, 3% for Americas, and 3% for Asia-Pacific. Europe, on the other hand, is estimated to shrink by 5% (Original estimate was a 4% increase for the global market and 3-4% decline for Europe).
Strategies for non-European markets * Increase the rate of vehicle sales in non-European markets.
* Expects sales growth in Russia, Brazil and India.
* Execute plans for reviving its business for Renault Samsung in South Korea.
* Organize sales and local production structure in China.
Strategies for European market * Expand its share by launching new models.
* Expand profit by reducing cost and increasing efficiency.
Production structure and cost reduction * France: continue negotiation to strengthen production competitiveness.
* Spain: strengthen competitiveness by restructuring its production system.
* Aims to cut 600 million Euros in cost by deploying "Monozukuri", a new production management approach introduced from Nissan
  (Targeted reduction for 2012 was 500 million Euros; actual result was 583 million Euros).
Fund investment/R&D * Maintain investment and R&D cost combined to 9% or less of revenue
  (Investment: 4.3%, R&D cost: 3.8%; a total of 8.1% for 2012).
* Continue with R&D of powertrains and EVs.
* Encourage co-development of the CMF1, a platform for C/D segments shared with Nissan.
Aim * Exceed sales volume from previous year for 2013.
* Achieve a positive operating margin for the automotive division.
* Achieve a positive free cash flow for the automotive division.
* Attain cumulative free cash flow of two billion Euros for 2011-2013.
  (It was 597 million Euros for 2012, 1,084 million Euros for 2011).