Carlos Ghosn commitment to growth
February 9, 2006 – In the face of other manufacturers closing plants, reducing products and laying off employees Carlos Ghosn is making plans to grow Renault. Yesterday Carlos Ghosn, President, and Chief Executive Officer announced “Renault Commitment 2009”, an ambitious growth plan to “make and sustain Renault as the most profitable European volume car company”. Renault made three major commitments;
Now Ghosn is in charge of both Nissan and Renault. Nissans marketshare in 1999 was around 4 percent. Today it is 6.35 percent. In a case study for General Motors and Ford Motor Company, Nissan sold off assets that were not core to their business. Nissan cut jobs, shored up their losses and started the slow climb in marketshare by bringing out a new product and their sales have been going up ever since. Like Honda and Toyota, Nissan built its own luxury line, instead of buying older companies with lots of heritage and problems of their own. Infiniti, however, didn’t fare well at first and it wasn’t till the homerun Infiniti G35, built by a race car driver, hit the streets that Infiniti took off. Ghosn is now going to have to do the same for Renault.
The good news is that, unlike Nissan, Renault is profitable. That may be why Ghosn is trying to hold off on letting go of employees as he did back in 1999. The existing lineup of Renault is made up of; the Megane family, Twingo, Kangoo and Master. Renault is saying they will bring out 26 new products “better focused on the needs and aspirations of its customers”.
In layman’s talk that means they are going to go head to head with Toyota Hyundai and Honda in Europe, the companies that are taking marketshare away from Renault. Renault is accelerating its plans to launch new vehicles, bringing out 8 new vehicles each year for the next three years.
Five of these vehicles will be in the luxury range, though plans were vague as to whether there would be a luxury brand, as Nissan has with Infiniti, or whether there would just be luxury vehicles. Luxury brands are those with a sale price of over $27,000 euros. Some analysts look at the VW Phaetons jump into the luxury market, but this is just the type of point one needs to make for a definitive luxury brand, instead of trying to change the DNA, or perception by the public, of a complete company. Volkswagen has always been known as “the people’s car” and the luxury brand for Volkswagen is the Audi.
The rest of the vehicles will be in new segments such as SUVs, 4X4s, crossovers, and niche vehicles. All of this sounds very American, but Ghosn insists that Renault still has no current plans to be in the United States, shoring up its losses at the moment. Renault is also supporting growth outside of Europe, where Renault is forecasting growth of total sales from 27 percent in 2005 to 37 percent. Part of this will happen from the new product alone; the average age of a Renault product sold in Europe will drop from 3.8 years in 2005 to 2.2. You can also expect Renault to start touting their fuel economy numbers and CO2 numbers as they climb back into the public eye.
According to Ghosns’s commitment paper, by 200950 percent of gasoline-powered engines for sale in Europe in 2009 will have the ability to operate with a mixture of gasoline and ethanol. Also, diesel engines will be able to operate with 30 percent diester. Diester is a fuel produced from vegetable or animal oil. Unlike for Nissan, Renault will have hybrids, and fuel cells and even electric vehicles. Renault and Nissan will use their alliance to reduce their purchasing costs by 14 percent, and their manufacturing costs by 12 percent and increasing their capacity utilization from 60 percent to 75 percent in 2009. Renaults capacity rate is calculated on the basis of a full capacity rate of 5,000 hours per year.
Renault has the same problem Ford and other manufacturers have; sales declined at home (4%) while the international sales climbed (212%). The success was brought on by Renault’s Samsung Motors products; the Logan, the SM5 and the SM7 models. The SM7 is Renault Samsung Motors’ top-range saloon for the Korean market.
It was reported that Ghosn said on a live French television report, “Renault does not need restructuring at the moment. What Renault needs is growth, new products, and a good brand image.” Renault posted a 2005 3.367 million euros of net income and a gross operating profit of 1.32 billion euros ($1.6 billion), down 37.4 percent from 2004. Ghosn has said he will use the operating margin as his benchmark to success, stating that his objective is to increase the operating margin to 6 percent by 2009. At the end of 2005, it was 3.2 percent.