Renault review could derail Ghosn efforts

Paris: Renault's strategy to boost operating margin could be under threat now that France's second-biggest auto group has decided to review the launch of some top-end car models because of soaring fuel prices.

Renault, like other mass carmakers, is trying to boost sales to reduce cost per unit despite big increased costs for steel, aluminium and plastics. Sales to emerging countries are playing an important role in this strategy.

The announcement last month that Renault will hold fire on a replacement for its Espace mini-van was seen as a wise move in response to an unfavourable commercial climate.

"It's a continuation of recent industry trends - Renault is not the only manufacturer putting the brakes on larger products," said Morgan Stanley analyst Adam Jonas.

In the longer term, Renault's decision to hold back on development work in the top of the range sector "is not a positive development, as car companies tend to make less money on smaller cars", said Jonas.

Chief executive Carlos Ghosn is playing at least two cards at a time as the group rolls out no-frills cars such as Logan and the new ultra-cheap vehicle with India's Bajaj while at the same time moving up market with the model range to capture bigger average revenues per vehicle.

The revamped Megane family, its best-selling model due to be unveiled at the Paris Auto Show in October, is the next eagerly awaited step. But if the group's focus moves away from top of the range vehicles in the longer term, Ghosn's aim to increase revenue per unit will become harder to achieve.

Under the Commitment 2009 plan, Ghosn aimed to boost Renault's operating margin to 6 per cent in 2009, via 4.5 per cent in 2008 and compared to 2.6 per cent in 2006.

"One of the main pillars of Ghosn's strategy is to increase revenue per unit. This does not appear to be working, for anybody," Jonas said.