Tuesday, January 26, 2021

Renault is reducing the capacity of its factories and remaking its brands

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Renault will reduce the capacity of its factories by a quarter, deepen cost reductions and revise its brands in a turnaround plan aimed at reviving the ailing French automaker.

In a move to draw a line under the expansionist era of former boss Carlos Ghosn, the French automaker will abandon its revenue and market share targets and focus solely on operating margins, cash flow and return on investment.

New CEO Luca de Meo on Thursday announced a strategy to increase cost savings by 50%, from € 2 billion to € 3 billion by 2025, while raising profitability targets.

As part of the plan, Renault will reduce the plant’s capacity from 4 million cars to 3.1 million cars by 2025.

Mr de Meo is trying to convince shareholders that he can turn the automaker back after years of sluggish sales and a difficult relationship with alliance partner Nissan.

After suffering its first loss in a decade in 2018, Renault was hit by the Covid-19 pandemic, forcing it to take out a state-guaranteed loan of 5 billion euros and put in place a plan to cost reduction of 2 billion euros, including 15,000 job cuts, with nearly a third in France.

Mr de Meo, who joined Volkswagen last summer, called the plan “a profound transformation of our business model”.

The company also wants a fifth of its revenue to come from services and data by 2030.

The strategy of moving from “volume to value” clearly departs from Mr. Ghosn, who had targeted the sale of more than 5 million vehicles by 2022 and wanted alliance with Nissan and Mitsubishi to become the world’s largest automaker.

Instead, Renault aims to achieve an operating margin of 3% by 2023, rising to 5% by 2025.

Renault will reduce the number of “platforms” – the basis on which a car is built – from six to three, and the number of engine variants from eight to four, in order to reduce costs.

The group will also revise its four brands – including Dacia-Lada and Alpine – to prevent vehicles from overlapping. Alpine, which so far only manufactures the A110 sports car, will become a fully electric brand and develop a battery-powered sports car with Britain’s Lotus.

Despite pressure from automakers to create electric cars, Renault will cut its investment budget from 10% of its sales to less than 8% by 2023.

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