Renault's Manual Overdrive
By Gail Edmondson
Step inside Renault's Romanian factory and check out the anatomy of one of the world's least-expensive cars. French automaker Renault has taken a revolutionary approach to building its new $6,000 Logan, combining a simple design with an unorthodox approach to manufacturing.
To get a quantum reduction in costs, Renault went back to basics and tapped Eastern Europe's low labor costs. Instead of a glittering temple of modern manufacturing, the Logan is build in a renovated, 40-year-old factory of formerly state-owned Romanian auto maker Dacia, which the French carmaker bought in 1998.
At first glance, the body shop and assembly hall appear to be, well, more than a bit dated. Most modern car plants have hundreds of robots, and production lines are nearly silent.
By contrast, there's only one robot in Dacia's vast, noisy assembly hall. Its giant orange arm gracefully applies glue to windshields moving down the production line -- a task that requires absolute precision in the amount squirted on the rubber rim around the glass.
The rest of the work in the factory, which produces some 175,000 cars a year, is handled by 1,060 employees. A visitor walking around the factory nearly bumps elbows with the many workers on the production floor, and fork-lifts beep constantly to clear the aisles.
PIGS, POTATOES, PASSENGERS.
Yet on closer inspection the Dacia plant, where Renault began producing its $6,000 Logan sedan last year, is a symbol of the the global auto industry's changing dynamics. From China to India, new markets beckon, and the concept of a car that can be sold around the world is ever more alluring.
Renault bought the nearly bankrupt Dacia with the goal of designing and building a simple, affordable car for emerging markets, one without the technology-in-overdrive that has pushed prices too high for much of the world's population.
The Logan was conceived with an emphasis on space -- designed to comfortably accomodate "four adults, a pig, 220 pounds of potatoes and a kitchen sink," according to one Logan manager. Renault originally had no intention of selling the no-frills Logan in the West, but reports of the $6,000 car had consumers demanding it from dealers.
Renault finally relented and introduced the Logan to Western Europe in June, where it retails with an extra airbag and a three-year warranty for $9,200. In France, the wait now runs six months.
Renault is hardly the first auto maker to build a car for the world's masses. Other companies such as Fiat have tried. But world-car models have never really caught on. Renault may finally have found the right approach, however.
Renault's designers say the concept wasn't the problem. Rather, it was the approach of trying to strip features off a Western car to make it cheap and attractive in emerging markets. Trouble is, removing passenger-seat airbags and the like doesn't significantly cut costs.
Higher complexity and higher costs are designed into most cars: Consider the number parts used to form a dashboard, electronic controls, and the curvature of the windshield. Redesigning such parts isn't easy or cheap.
BACK TO THE FUTURE.
Renault set to work designing a model with a $6,000 price tag from scratch. The key was a simple design that reduced manufacturing to basics and allowed for much of the work to be done easily by humans instead of robots.
Design engineers cut the number of welding points from 4,300 to 3,750, for example. The outfit spent $600 million upgrading the 40-year-old plant, which runs 24 hours. Compare that to the investment needed for a highly automated Western factory, which can easily run to $2 billion.
Of course, low labor costs are also crucial. In developing economies like Romania, cheap labor lets auto makers build modern models for prices that haven't been seen for 30 years.
The average worker gets paid $240 a month, plus some meal tickets. A June 17 Deutsche Bank report pegged production cost for the Logan at $1,089 per car, less than half the estimated $2,468 for an equivalent Western vehicle like a Volkswagen Golf.
"Humans sometimes offer an advantage when it comes to quality," says Simon Valin, a Spanish-born industrial manager at Dacia, who arrived from Renault's Argentina operations in 2002 to help ramp up the Romanian plant for the Logan. Valin insists that welding quality at Dacia is among the best at Renault. The engines and transmissions are produced on site in Pitesti, and they'll be exported to other Logan sites all over the world. Some 50% of components are produced locally, which is vital to keeping down overall costs.
Getting suppliers to move to Romania and produce in or near Pitesti was key to making the Romanian venture pay off. In the early months after Renault took over Dacia, suppliers were hesitant to come to Romania," says Renault Chairman Louis Schweitzer. But the French automaker's huge investment finally lured companies such as Continental, Valeo, and others.
Valin picked up the pace in 2002, buffing engineering, quality, manufacturing, and safety processes for the Logan launch. Renault also invested heavily in technology where it was needed, especially in state-of-the-art quality-control and testing machinery.
There is one problem with the low-cost, high-quality Logan that no one anticipated. Runaway demand for the Logan in Western Europe has Renault managers scrambling to find a way to produce more of the cut-rate model quickly.
The company is now cloning its Romanian approach at low-cost Logan production sites around the world. A plant in Russia started operations in June, and Morocco and Colombia ramp up later this year, followed by Iran, India, Brazil, and China in 2006 or beyond.
"You could call it 'viral manufacturing,'" says Christoph Stürmer, senior analyst at market researcher Global Insight in Frankfurt. "The cost and technology are so simple, and the car is easy to put together, you don't need robots. And the investment in manufacturing is relatively low, so you can have factories all over that don't have to produce huge volumes to finance themselves."
Renault's idea to blend ingenuity with simple manufacturing is an innovation that is already forcing rivals to change gears. Volkswagen is studying a concept to produce a small car in China for $3,600, and Indian automaker Tata Motor has said it may try to conceive a $2,400 car.
Those models are years away from hitting the market, though. When it comes to pioneering no-frill cars, Renault is setting the pace.
Edmondson is senior European correspondent in BusinessWeek's Frankfurt bureau
Edited by Patricia O'Connell