Renault Eyeing Cooperation With Other Auto Makers

(chinatrucks.com, Dec.30, 2009)Renault SA (RNO.FR) is looking around for potential partners to share fixed and development costs in a variety of technology projects and to achieve economies of scale through increased volumes, a senior executive said.

Chief Operating Officer Patrick Pelata told a group of journalists that Renault is having "serious" discussions with Germany's Daimler AG (DAI.XE) and many other automotive companies, including Chinese ones, about possible collaboration in areas such as engines, transmissions and platforms.

"We are in talks with at least one other company in each of these sectors," Pelata said.

All car makers that have been battered by the severe industry slump over the past 18 months are looking for ways to forge alliances as a way to share costs.

Pelata disclosed that Renault had been talking to Japan's Suzuki Motor Co (7269.TO) before that company eventually decided to link up with Germany's Volkswagen AG (VOW.XE).

Renault's local rival PSA Peugeot-Citroen (UG.FR) and Japan's Mitsubishi Motors Co (7211.TO) recently announced they plan to deepen their existing collaboration.

Renault and its Japanese partner Nissan Motor Co Ltd (7201.TO) are stepping up their industrial cooperation with Russia's AvtoVAZ (AVAZ) in a bid to make the three companies the powerhouse of Russia's automobile industry in the coming years.

The Russian market has collapsed this year, with sales running about half the level of a year ago, but Pelata said he's confident that the Russian market will perk up in the second half of next year, and that eventually Renault, Nissan and Avtovaz together will control between 25% and 30% of the Russian market.

Renault and Nissan are already linked through cross-shareholdings, and Renault has a 25% stake in AvtoVAZ.

The three companies together will have sales of seven to eight million vehicles around 2013, Pelata said, and volume production of this magnitude will generate significant economies of scale.

Pelata said Renault's revenue in 2009 could be 17% to 18% below that of 2007, but the company expects to reduce fixed costs by 18% over the two years while investment spending will be down 24%

Renault's revenue for the first nine months of this year was down 20% from the same 2008 period. However, its automobile sales have recovered sharply in October and November. Renault posted revenue of EUR40.68 billion for 2007 and EUR37.79 billion in 2008.

One of the goals set by Chief Executive Carlos Ghosn for 2009 included achieving a 6% operating margin. However, the collapse in demand for automobiles in mid-2008 and over the next 12 months, has pushed the company into the red and Renault posted a net loss of EUR2.73 billion in the first half of this year.

Pelata said he's convinced that Renault would have been able to hit the 6% margin target if the market hadn't collapsed as it did, but acknowledged that another Ghosn goal of boosting volume sales by 800,000 vehicles between 2005 and 2009 wouldn't have been reached.

"We're trying to understand what went wrong and identify our weak spots," Pelata said. Renault is gauging its performance against that of other volume car makers like Fiat SpA (F.MI), VW and Toyota Motor Co (TM), he said, and these studies will be used to draft a new road map for the company after the four-year Contract 2009 ends in two weeks' time.

Pelata said Renault expects the European automobile market to fall by at least 8% but more likely by 10% in 2010 as government incentives that have been propping up sales come to an end or are wound down.

He said "the jury's still out" on the outlook for the U.S. market next year, however. Renault is absent from the U.S. market, but is present through its Japanese alliance partner Nissan Motor Co. Ltd. (7201.FR), in which it has a 44% stake.

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