Now Renault Is Driving Upmarket

But can it steal share away from Germany's juggernauts?

Renault CEO Louis Schweitzer has a reputation for making long shots pay off. In 1996, the $37 billion French auto maker built the Continent's first miniature minivan, the hugely successful Scenic. Then Renault took a big gamble in 1999, when it linked up with Japan's troubled Nissan Motor Co., which is now in the black. Schweitzer's latest project is no less audacious: to move the midrange Renault brand upmarket by launching fancy new cars with a dash of Gallic flair. The new offerings: the Avantime, a large, airy coupe, and the unconventional Vel Satis sedan. "Renault has to be present in the upper end of the market," says Schweitzer.

He's not alone in this thinking: Mass producers from Ford Motor Co. to Toyota Motor Corp. have expanded into the luxury-car business. Posh models have fatter margins and boost the prestige of the entire product range. But for the past half-century, the German manufacturers Mercedes-Benz, BMW, and Audi have dominated the lucrative upper end of the market. And earlier French efforts to get back into premium segments have sputtered. Last year, Renault sold fewer than 14,000 of its Safrane sedans, which targeted the lower range of Europe's premium market.

SLEEK RIDE. So industry experts are skeptical of the targets Renault has set for the Vel Satis, the Safrane's successor, which goes on sale next January: 60,000 unit sales, or 3% of the upscale market in Europe, at a starting price of around $30,000. Luxury cars are a fiercely competitive business, with the Germans rolling out ever more variations of such proven hits as the Mercedes E-Class and the BMW 5-series. Even mighty Toyota is struggling to establish its premium Lexus brand in Europe.

Renault wants to hedge its bets in the segment by launching the Avantime this September: It will sell for slightly less than the Vel Satis. Yet Renault can't rely on its home market for the bulk of its luxury-car sales. The French don't even buy a fifth as many premium cars as their German neighbors. And when the French do buy luxury cars, they prefer Mercedes and BMW. The Safrane, which copied German styling, barely made a dent in these buying patterns. "I felt very unhappy with the Safrane," says Renault chief designer Patrick Le Quement.

So Le Quement has designed the new upscale models as an alternative to the conservative, status-conscious German style. Both the Avantime and Vel Satis are long and sleek in front, with a roof that drops off abruptly in the rear. The back windshield curves around the sides, creating a bright interior. The cars are also equipped with fold-away video screens that can hook up to DVDs, camcorders, or game consoles. "We've designed this car from the inside out, and all seats have equal status," says Le Quement. "Privilege and comfort aren't reserved for the driver."

"THE TROUGH." The cars have won good initial reviews from the automotive press. But Renault investors might wish the company would spruce up its aging small-car lineup a little faster. Although Renault doubled profits to $1 billion last year after massive early-retirement costs the year before, its market share in Europe slipped to 10.5% in 2000, from 11% in 1999. No matter, say Renault execs. "It's true that this will be the trough of our product cycle. But it's important for us to reestablish a presence in the upscale end," says Georges Douin, Renault's product-planning director.

Renault's upscale ambitions aren't going to break the bank. The Avantime, derived from the platform of the Espace minivan, cost $200 million to build. The Vel Satis, which shares a platform with the Laguna sedan and the next Espace minivan, cost $500 million. One source of savings: Its powerful 3.5-liter, V6 engine was one of the first components jointly produced by Renault and Nissan. It's anyone's guess if Renault will see a return. But Schweitzer can't resist making one more calculated bet.

By Christine Tierney in Geneva

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