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Making money: French carmakers

The big French brands are not as influential as they used to be. At one time, the Renault 5 and the Peugeot 205 were the staples of the nippy urban chic scene and the Espace and the 504 estate the mainstay of the load-lugger business

Now there is far more competition and many more reasons to lose ground to those competitors.

In the UK last year, both showed growth and a determination to climb the sales charts.

Peugeot, at the end of 2010, gained a little bit of market share, moving from 5.14% to 5.38%. Sales for the year were 109,000.

Peugeot UK is in the sweet spot of new products and new ideas arising simultaneously.

There would be great anxiety if Jon Goodman, the new chief executive, had not brought efficiency improvement with him.

Renault was flat on its back in 2009. It had decided to stand aloof from daily rental and cut sales to 63,174.

Renault is the most volatile of all the carmakers, swinging from reckless discounting to conservative common sense.

The figures for the start of this year are insufficient to assess a trend, but the SMMT’s January arithmetic shows Renault sliding again by 34% and Peugeot allowing competitors to have 18% of its business.

According to the City analysts, Renault is high risk while Peugeot is merely “running hard to stand still.”

Citi Bank was somewhat spooked when Renault decided against paying a dividend.

Renault is acutely aware of the very low value that investors are ascribing to its shares. It has reached the point where investors are implicitly saying that the company would be worth more if some of the businesses were sold off rather than remaining part of a lowly-valued group.

Renault has made formal statements that there will be “no revolution” in the structure of the company just to boost the share price.

There is an argument for splitting Renault and Nissan back into two parts such that shareholders would get higher share values from independent companies than they do on the sum of the parts.

Renault has set itself a target operating margin of 5% which compares with the 2.9% of last year.

It’s quite an exciting prospect.

The problem is that it has promised major advances before, only to disappoint.

And the last time that it managed to make 5% operating margins was way back in 2004.

The commitment for 2009 was for a margin of 6% but the figures came up with a loss of 1.2%.

When asked where the improvements are coming from that will sustain the new margin projections, Renault board members point to benefits from the alliance with Nissan.

All very good, say the stockbrokers, but the alliance has been in place now for 10 years and there has never been a sniff of a gain of that magnitude.

Analysts worry that no carmaker has any control of the major swing factors.

The European economy is very volatile; the 30% overcapacity in carmakers and car factories means that there is no opportunity for pushing up the price of new cars – no matter how good they are; and raw materials prices just carry on going up.

Major factors in the Renault share price are the shareholdings in Nissan and in Volvo Truck.

Neither of those two companies are any better placed than Renault and it is no more likely that the value of the shareholding would improve.

Volatile also are the manufacturing subsidiaries in Iran and India and the joint venture with Avtovaz of Russia.

Peugeot is running really hard just to stand still, according to some of the stock analysts.

Huge costs were taken out of the business last year and that success lends credibility to the forecast that €1 billion can be removed this year.

That’s what Peugeot Citroën said it could do when it talked to the analysts.

But when you run the spreadsheet you discover that €1bn is all that stands between the automotive making a profit and showing a loss.

Raw materials are up in price which means that sub-contracted items are also up.

The group has repaid the French state loans which means that it will start to burn cash again as it tries to protect its investment in better manufacturing equipment and the next generation of products.

There is general agreement that the product improvement is very evident and highly material if the group is to progress.

At one time, cheaply-made cars were excusable because so much of the income arose outside the sophisticated markets – in China and South America in particular.

But they have grown up and will no longer take cast-offs.

Some of the financial moves evident in the balance sheet data suggests that Peugeot Citroën could be on the look-out for an alliance partner.

This would not be surprising given that Renault has one, Fiat has one and VW is heading for the title of world’s biggest car company and no longer needs one.

Size matters and Peugeot Citroën is a mere human being in the land of the giants.

Peugeot Citroen's plans and products

Peugeot Citroën pushed its vehicle sales up to 3.6 million last year –a 13% rise. It also managed a half per cent of market share improvement out of Europe to reach 14.2%.

The bigger part of the rise was outside Europe. In China it improved sales by a massive 30%. Europe was very patchy for the two brands – down 3.8% in total.

Within that were a dramatic 22% fall in Germany, an 8% drop in Italy. However, Spain (4%) and the UK (3%) were up.

It was particularly impressive that it had a positive, though modest, increase in the sophisticated European market.

Peugeot and Citroën now rank fourth and sixth respectively.

The group ,which has always done well on CO2, made another step change in the fleet average, taking it down to 132g/km.

The strategy on CO2 reduction is pinned to three product development programmes: the e-HDI micro-hybrid system, the Peugeot iOn and matching Citroën C-Zero full electric mini-cars and the diesel hybrid line starting with the Peugeot 3008.

Renault's plans and products


Carlos Ghosn has established a six-year business plan called Drive the Change which translates to “we need a plan that allows us to build a secure strategic outlook and ensure a continuity of what we are doing”.

It is always instructive to look at the mission statements of these large and unwieldy international companies.

Renault’s says: “We will work on seven key levers to meet our objectives:

  • Pursue innovation
  • Strengthen the product offer
  • Reinforce the brand image
  • Excellence in customer relations in the dealers and distributors
  • Reduce costs
  • Control investment costs and research spending
  • Maintain market positions in Europe and expand elsewhere.

Some of these objectives are self-evidently contradictory.

The clues given on new products from Renault and Nissan are that the Alliance will have 1.5 million electric cars on the road by 2016 and will have the capacity to make half a million a year by 2015.

Twingo phase two comes this year, new Clio, new Dacia family car and Dacia LCV next year. Ghosn is planning an even broader assault outside Europe and is preparing Fluence, Latitude and SM7 for that role.



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