Clouds over Renault
Looks like the perfect storm is brewing for Renault and the company is in for some tough years ahead. At one point, all possible crises coincided – from financial to technological and managerial, the question of the concern’s survival is raised. Words forgotten for decades reappeared – loss, layoffs, plant closures. Perhaps we would not be particularly worried about the fate of the French manufacturer, but he is the main shareholder of AVTOVAZ and has his own localized production in our country. The general problems of the company can seriously affect our automotive market.
For starters, what news from Renault points to a difficult situation. The first and most important is the financial results of the past year, when a net loss of 141 million euros ($153.1 million) was announced for the first time in ten years, compared with a profit of 3.30 billion euros recorded a year earlier. For the year, the company’s revenue decreased by 3.3%. As a result, dividend payments to shareholders decreased by three times compared to a year earlier. Without hesitation, the international rating agency Moody’s downgraded the long-term ratings of Renault Group from "Baa3" to "Ba1" ("junk") with a stable forecast that the company will not be able to restore the operating margin in the medium term.
To survive, the company will have to seriously tighten its belts and cut costs by two billion euros over three years. The situation is aggravated by the introduction of new European anti-pollution standards, to which the company has not had time to fully adapt.
The coming twentieth year began with a general decline in the automotive market in Europe by 7.5%. In order to combat global warming, automakers are forced to comply with the maximum amount of carbon dioxide emissions of 95 grams per kilometer, otherwise they are subject to a huge fine. Plus, since January 1, the taxation of cars was increased following the example of France, which introduced a sharp increase in fines for the most polluting cars. In general, January 2020 for the Renault group (Alpine, Dacia, Lada) became worse by 16.3%. Dacia at the same time fell by 31.4%, and the share of the car manufacturer decreased to 2.7% compared to the same period in 2019. But the Romanian brand is the main player for Renault in the European automotive market, bringing the main profit.
The issue of production cuts and plant closures was on the agenda. The last such decision at Renault dates back to 1997, with a site in Vilvoorde (Belgium), then it affected 3,100 Belgian employees. First of all, this may apply to lines with a minimum load. For example, Nissan in Barcelona (Spain), where its utilization rate barely exceeded 30% in 2019. For example, the Romanian Dacia plant in Pitesti uses 99% of its capacity. At the same time, according to plans, part of the production will completely switch to the new electric platform of the alliance by 2022.
Renault is in a critical situation in China, where the manufacturer sold just under 180,000 vehicles in 2019, down 17% from the previous year.
In Latin America, the Renault plant in Córdoba, Argentina, was also hit hard by the crisis last year, with an utilization rate of just 14%.
The concern is developing a situation with an overabundance of production space against the backdrop of another cycle of changing the model range and a general decline in the global market.
The Renault plant in Moscow was also under threat. The press discusses information that within a few years French cars may stop being produced in the capital, and the main production site will be a plant in Togliatti, the lines of which are also not loaded at full capacity. It is possible that the Renault Nasha Strana Moscow plant, in turn, will completely move to the GM-AvtoVAZ site as early as 2022, where all models on the B0 platform will be produced. The Moscow site is waiting for a complete closure or reorientation to the production of Nissan and Mitsubishi cars. But this will depend on the prospects for the existence of the Renault-Nissan-Mitsubishi alliance itself.
Nissan’s 2019 performance reports are even worse, with a net loss of 26.1 billion yen ($237 million) in the third fiscal quarter, a 10-year high. In our country, the demand for Nissan cars fell by 16.3 percent, to 395,000 cars, while global sales fell by 8.1 percent. I don’t think it’s worth expecting that against the background of such results, the Japanese brand will expand production. On the contrary, according to Bloomberg, Nissan plans to cut at least 5,200 additional jobs worldwide. Only a radical renewal of the model range and an increase in the production of electric vehicles will help to turn the tide. But this requires investments and funds. And this is a vicious circle, when in order to develop, you first need to shrink and free up finances.
The affairs of both the entire concern and Renault in particular are not very good. And the prospects for a rapid improvement in the situation are not yet foreseen. Great hopes are placed on the new head of Luca di Meo, who previously headed the Spanish brand SEAT. But he will take office only from July 1, 2020. The pause again does not play into the hands of the French manufacturer, such expectations for making serious decisions are a great luxury. Let’s hope that for Renault this is just the beginning of a new stage of development and then everything will go according to a positive scenario.
As consumers, we see that these processes delay the emergence of new competitive models in our market. The second generation Duster is already several years late. Keeping market share and sales only at the expense of outdated Logans will not work for a long time. Competitors are increasingly entering the niche of budget cars, offering more modern options. Even the most loyal supporters of the brand are starting to look towards Korean and even Chinese manufacturers. If the situation does not change, then the results of 2020 may become negative.
Come on, Renault, hold on, you still have a lot of capital – these are still brand-loyal buyers who hope for quality cars at affordable prices, don’t let them down.