Renault SA (RNO), struggling to maintain a European foothold in larger cars, plans to bolster its upscale offering with South Korean imports. The strategy may be hampered by worker protests and French government resistance.
A version of the Renault Samsung SM5 sedan, to be unveiled next week and assembled at the French company’s Korean plant, will be a focus for demonstrations at the Paris Motor Show in October, Fabien Gache of the CGT union said in an interview. The family car, which features a massaging driver’s seat, would be Renault’s only luxury model entirely built outside of France.
Like Fiat SpA (F), Renault is under increasing government pressure to build vehicles and source parts at home. Renault’s share of the European market for mid-sized cars has slumped by more than half since 2003 as consumers shunned the Laguna model in favor of Volkswagen AG (VOW) and General Motors Co. sedans.
“They’ve basically been chased out of the upper segments,” said Max Warburton, a London-based analyst at Sanford C. Bernstein, who has an “outperform” rating on Renault. Introducing the SM5 is “a pragmatic move that allows them to keep something on the road in this vehicle category.”
The French government, which owns 15 percent of Renault and appoints two members to its board, this year demanded that the automaker buy more components locally and forced Chief Executive Officer Carlos Ghosn to backtrack on plans to move production of the Clio subcompact to Turkey.
Renault shares have fallen 6.4 percent this year, the worst performance in the 10-member Bloomberg European Auto Manufacturers Index, which has added 2 percent in the period. The stock rose 2.3 percent to 33.89 euros in Paris today.
The SM5 and its European “Latitude” versions are derived from the French-built Laguna family car. The third-generation Laguna, introduced in the second half of 2007, missed a 190,000 volume target for the first six months of 2008 by half. Sales have dwindled further. The vehicle starts at about 26,000 euros in France.
Renault’s European share of mid-sized car sales fell to 3.4 percent last year from 7.5 percent in 2003, while GM and Volkswagen won customers to their Opel Insignia and Audi A4 sedans, according to consultant J.D. Power & Associates. In France, the price for the A4 begins at 26,530 euros, while Insignia starts at 22,200 euros. Pricing for the Latitude, which will be sold in Europe next year, hasn’t been disclosed.
While demand for the Megane and Scenic compact cars, boosted by “cash-for-clunkers” programs, boosted Renault’s market share in France in the first half, its share of deliveries in Germany shrank in the period.
Renault already has more excess capacity in western Europe than most rivals. Its factories in the region are running at half their potential output, according to IHS Automotive, compared with utilization rates of 67 percent for GM (GM), 68 percent for Peugeot and 84 percent for Volkswagen.
Introduced in Korea early this year, the SM5 contributed to a 61 percent surge in Renault Samsung Motors’ first-half unit sales to 87,693 vehicles. The Renault unit accounted for 6.5 percent of the carmaker’s global deliveries.
French Industry Minister Christian Estrosi will be “keeping a close watch” on Renault after receiving assurances that the volume of SM5 imports will remain “marginal,” spokeswoman Gaelle Gicquel said. “The minister wants Renault to keep a maximum of manufacturing in France.”
‘Made in France’
Engines for the Latitude will be made in France, Renault spokeswoman Gita Roux said. The vehicle will not undermine domestic production because only 5 percent of overall SM5 output from the Renault Samsung Motors plant in Pusan will be destined for western Europe, she added.
“We saw what happened when they considered relocating Clio production,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg who advises holding Renault’s stock. “It will be interesting to see how this proceeds, and how much influence the government and unions actually have.”
Estrosi is heading a broader “made in France” initiative to encourage domestic investment as President Nicolas Sarkozy braces for the traditional showdown after the summer break between the government and unions, with his approval ratings at a near-record low.
“There’s a gap between the government’s rhetoric and actions as Renault’s main shareholder,” said Gache, who represents the CGT union at Renault. “We’ll be pushing them to prevent imports from harming sales of models made in France.”
Peter Braendle, a Zurich-based fund manager at Swisscanto Asset Management, which oversees $62 billion, said French political considerations will limit the scope of any upscale strategy based on imports.
Paris Motor Show
“The situation leaves me rather skeptical of Renault’s ability to make production decisions on purely economic considerations,” said Braendle, adding that excessive government influence is one of the reasons that he doesn’t own any Renault shares.
The CGT union intends to bus in workers to demonstrate at the Paris Motor Show on Oct. 8, in protest at the SM5 plan and a broader perceived shift toward overseas production by Renault and Paris-based PSA Peugeot Citroen (UG), Gache said.
Renault, based in the Paris suburb of Boulogne-Billancourt, has not said whether it will build a Laguna successor for the model’s plant in Sandouville, western France. In 2008, it scrapped a planned replacement for the Espace people-carrier produced at the same factory, which employs 2,400 people.
Before the introduction of the Logan in 2004, Renault had said its low-cost Dacia brand was not intended for western Europe. Five years on, the Logan and other no-frills Dacia models made up 11 percent of full-year French registrations.
“They also said there would be no mass imports when they launched the Logan, and look where we are now,” Gache said.