Can Renault Do It Again?

The carmaker's fortunes ride on a new lineup of Méganes

It's the world's fiercest car market. More than one-third of all autos sold in Europe are compacts, with the planet's leading auto makers all jousting for share. Success in this segment can translate into handsome profits: Just look at the $14,000-plus Volkswagen Golf, the category's long-reigning champion. Whereas failure can weigh down a carmaker's fortunes across the board. Behold Fiat, which tried to revive itself with the midsize Stilo. European drivers, famous for their demanding sense of style and engineering, gave the Stilo a thumbs-down. Fiat is now in more trouble than ever.

This time it's French carmaker Renault's turn to roll the dice, in what is one of the most important car launches of the year in Europe. On July 2, CEO Louis Schweitzer unveiled the first two models in Renault's totally redesigned Mégane family. European drivers know the first-generation Méganes well. The current Mégane Scénic, a cross between a compact and a minivan launched in 1996, gave rise to a series of copycats and changed the way Europeans thought about family cars. "We were expecting to assemble 350 Scénics a day, and we ended up producing as many as 2,000," says Yann Vincent, director of Renault's Douai plant in northern France.

Today, the Mégane series, starting at $14,300, accounts for more than a third of the Renault auto division's revenues of $33.5 billion. And the company expects to generate half of the division's profits with the new series. So if the fresh line-up doesn't go over, it will be a severe blow. Says Pierre-Alain De Smedt, executive vice-president for engineering and purchasing: "We can't afford to get it wrong."

De Smedt speaks from hard-won experience. Before the Scénic took off, the French auto manufacturer's sales had languished, forcing it to lay off thousands of workers and shutter a factory in Belgium. The Scénic gave Renault such a boost that in 1999, the once-sickly carmaker stunned the world by acquiring control of Japan's troubled Nissan Motor Corp. Yet lately, Renault has been struggling with an aging lineup of small cars and delays in launches of larger models, such as the $29,600 Vel Satis. Profits at the auto unit plunged 86% last year, to $214 million.

Success of the new Mégane line isn't vital just for Renault but for Nissan, too. As part of the alliance's cost-saving strategy, Nissan will build future compacts, such as the $13,200 Almera, on the Mégane platform. With the two carmakers expected to produce up to 2 million cars a year on the joint platform and combine purchases, executives hope to realize savings of close to $1 billion a year. More than a simple chassis, this platform includes the powertrain, suspension, and axles, as well as ventilation, steering, and electronic systems. "More than 20 different vehicles will be built on this platform--and at a much lower cost than if each company had developed its own," says De Smedt, formerly a top exec at Volkswagen, Europe's parts-sharing pioneer.

But for all this to happen, the new family of Mégane cars has to succeed on the highways of Europe. Car buffs like the daring looks of the new Mégane sedan, which features Renault's signature touches, such as an elongated hood and a roof that drops off sharply to a curved rear window. The wheels are set wider apart, to create a sportier look. Dan Strong, deputy motoring editor at London-based Auto Express magazine, gives it high marks. "It's a bold move to design a car that looks so different. Renault is showing there's room for innovation in this class, whereas many of the others go for a safer look."

The real test will come this fall, when the new sedan and two-door hatchback are due to hit showrooms. Renault has plowed $2.1 billion into the new series and is banking on rich returns--especially from now through the fall of 2003, when the fifth-generation Golf comes out. "We're aiming to boost sales 10% over the previous generation of Méganes," says Schweitzer.

Renault will roll out four more Mégane models in the coming year. The seven-car lineup includes a less curvaceous, more masculine five-seat Scénic and a coupe-cum-convertible. Rounding out the brood will be a longer minivan that seats seven. Nifty features include storage bins in the floor and a keyless card that unlocks the door and activates the ignition.

Such touches may help Renault attract a younger generation of buyers. Indeed, while the original Scénic will go down as a legend, other models in the Mégane family were not particularly memorable. The Classic car, in particular, struggled with an ungainly silhouette. "The Classic car was the hardest one to sell in Germany because of that big trunk," says Renault dealer Bernd Schultz in Frankfurt. In Europe, half the buyers of the Mégane sedan were over 60. Excluding the Scénic, which is still going strong, sales of other Méganes fell 31% in 2001.

Renault figures that one way to attract more buyers, especially in Germany, is to mimic some of Volkswagen's moves. Chief designer Patrick le Quement admits he had the Golf in mind when he designed the new Mégane cars' interiors, notably the dashboard's higher-grade fit and finish. "Our goal there was to get closer to the Golf, which sets the standard," he says.

Renault also wants to upgrade its image. Its new cars suffer fewer defects than any middle-market brand except Toyota Motor Corp., according to recent surveys. Yet the French have lagged behind rivals in "perceived quality"--the fit and finish that convey an aura of solidity. That's where Nissan's knowhow has come in handy. At the Douai plant, Renault installed machines developed by Nissan for a fastidious fit of the doors onto the new Méganes. "When it comes to industrial processes involving precise measurements, the Japanese are masters," says Carlos Tavares, head of the Mégane project.

Nissan and Renault initially struggled to find common ground on the single platform. Because Nissan sells compacts all over the world, it had a longer list of requirements than did Renault, which sells mainly in Europe and Latin America. In the end, Renault came up with an adjustable platform that filled the bill. "The discussions were tough," says an executive familiar with the talks. "But that was good, too, in that it showed that one partner in the alliance wasn't crushing the other."

It remains to be seen how many of the new Mégane models will be winners. That's one area where the previous lineup fell short. "Building five cars on one platform--no one else had done that. But at the end the day, only one of those products was a home run," says John Lawson, an auto analyst at Schroder Salomon Smith Barney in London. Now Schweitzer's team must prove it can improve its batting average.

By Christine Tierney in Paris, with Andrea Zammert in Frankfurt

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