Ghosn's Renault: Bowed, but Not Beaten

The Renault-Nissan CEO may not have delivered on his promises yet, but he still intends to increase sales and decrease European dependence

Auto industry superstar Carlos Ghosn took the stage at the Paris headquarters of Renault Feb. 8 with none of the rousing, world-beating promise in his voice that he had just a year ago. Ghosn—who is CEO at both Renault and Nissan and has been hailed as a miracle manager for saving Nissan—vowed a year ago that Renault would increase sales by 800,000 cars and earn a robust 6% operating margin by 2009.

But so far he has offered little concrete evidence of acceleration. Last year, in fact, net profit was down 15% on flat revenues. "It was a transition year," said a sober Ghosn, insisting Renault's operating margin will rebound to 3% in 2007, after falling to 2% last year, and hit 6% on time in 2009.

Reintroducing the Laguna

Renault's future growth is riding on some 26 new cars—24 of which are still in the pipeline. Only a few arrive this year: the new Twingo city car, a Laguna sedan, a Samsung crossover, and the low-cost Logan station wagon. The majority of new models will start hitting the market in 2008, at the rate of one a month—and half of the 26 are totally new cars. "It's too early to judge Ghosn by his 2009 targets," says Adam Jonas, analyst at Morgan Stanley (MS) in London.

Ghosn's ability to work magic at Renault will get its first real test in September, when he unveils the new Laguna sedan. The current Laguna is unprofitable and its replacement is the first effort by the ambitious 52-year-old manager to push Renault's larger cars upmarket, with sticker prices starting at $32,000. Ghosn's challenge is to bring costs down, improve quality, and give the car improved cachet in a European sedan market dominated by the German premium brands. "It will take until 2008 to see whether the work I've done is healthy for the group," says Ghosn.

Renault's car sales fell by 4% in 2006, as aging models failed to compete with hot new cars from rivals. But behind the scenes, Ghosn was also slashing unprofitable rental fleet sales to help restore higher resale values and bolster Renault's brand image. Ghosn insisted a quality leap in the Clio III, introduced last year, is a portent of things to come. Breakdowns in the first 12 months declined 40% and warranty costs were down 30% compared with the previous Clio. The quality gains have helped boost the resale value of the new Clio by 6%, Ghosn said.

Looking for a Legacy

Boosting quality is vital to the success of the new Laguna, which failed to stand out in a crowded and upmarket field of sedans. The Laguna competes with the Ford (F) Mondeo, the BMW 3 Series, and the Mercedes C Class. Ghosn is determined to place the Laguna among the top three sedans in service and product quality. "If Ghosn can make Renault compete with cars selling for $32,000, that would be heroic," says Morgan Stanley's Jonas.

The second feat is expanding Renault's global footprint. Five new versions of the low-cost Logan, launched in 2004, are in the works and the recently launched van already has a five-month wait. To meet the challenge of competitors like Toyota (TM) who have vowed to undercut the Logan's $7,000 sticker price, Ghosn says the next-generation model will cost even less. "If he succeeds in growing Logan's sales to 1 million and lowers Renault's dependence on the European market," Jonas adds, "that will be his legacy at Renault."

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