Renault mulls salvation in new luxury

Paris:

Renault SA is considering adding two upscale brands and further expanding in emerging markets to decrease the automaker's reliance on Europe's shrinking volume car market.

Renault may revive the Alpine marque to offer sports cars and create another high-end brand to sell luxury models, Chief Operating Officer Carlos Tavares said in an interview last week at the French automaker's headquarters in the Paris suburb of Boulogne-Billancourt.

"You need to be competitive across the world," Tavares said. "That's why we have been managing the change from a European-focused company toward a global carmaker."

Tavares' ambition to create two new units comes as the 113- year-old company faces slumping sales in western Europe, where the automaker earned about 65 per cent of 2011 revenue. The region's car deliveries will shrink 7 per cent in 2012, the fifth straight annual decline, as consumers hold back spending over concerns the sovereign debt crisis will spread, the European Automobile Manufacturers' Association said this month.

"We may have one day a luxury brand," he said. "That would help from a profitability standpoint because everybody's always looking at VW and what Audi represents for the VW group."

Renault's five-month European deliveries dropped 19 per cent, compared with a 7.3 per cent decline for the industry as a whole in the region, according to ACEA data.

European carmakers are looking for ways to expand outside their home region and grapple with rising excess production capacity in western Europe, which may more than double to about 2 million vehicles in 2012, according to researcher IHS Automotive. General Motors Co. said last week that it may close a German factory, while Fiat SpA shuttered an Italian plant at the end of last year.

"All eyes in Europe are on VW, wondering how to compete against the number one player," said Mike Tyndall, a Barclays analyst in London. "So the question for Renault would be: can an upscale offering be credible?"

Renault's five-month deliveries worldwide fell 5.7 per cent to 1.07 million vehicles, according to the carmaker's website. The French automaker's European market share during that period dropped to 8.3 per cent from 9.6 per cent, according to ACEA data. The carmaker, which hasn't reported any profit figures for 2012 yet, posted a 0.7 per cent decline last year in earnings before interest and taxes to 1.09 billion euros.

Alpine was founded in the 1950s and became well-known among sports-car enthusiasts for the A110 and Berlinette, which was introduced in 1962. Alpine signed a partnership with Renault in the mid-1960s and its cars were distributed through Renault dealers. Renault bought a majority of Alpine in the early 1970s. The carmaker stopped making Alpine models in 1995.

"Having a sports car brand such as Alpine would represent a real strategic shift," said Carlos da Silva, an analyst at IHS Automotive in Paris. "Renault considered that option to be much too costly up to now."

Tavares pointed to Nissan's development of the Infiniti brand as a possible model for what he's considering for a Renault luxury marque. Infiniti originally started in 1989 in the US as a Nissan offshoot before evolving over a 20-year period into a full-fledged luxury brand of its own.

Renault may do something similar with the Initiale Paris label, which is currently used on special edition versions of the brand's models, Tavares said.

Renault plans to make a decision on the new strategy yet this year, Tavares said. In Europe, Audi, Mercedes and Bayerische Motoren Werke AG dominate the luxury market.

"The creation of two high-end brands would represent the first bold strategic move by Tavares," da Silva said.

Renault also plans to expand outside Europe in emerging markets, the COO said. The Renault-Nissan alliance targets raising its Russian market share to 40 per cent by 2015 from 33 percent following the takeover of Lada maker OAO AvtoVAZ. Russia is forecast to surpass Germany as the largest auto market in Europe in 2014.

The French carmaker has signed a tentative agreement with Dongfeng Motor Group Co. to start producing cars in China, the world's biggest auto market, by the end of 2015. Renault is also in negotiations with the Algerian government to build a factory in the country to expand in North Africa.

"You'll be surprised in a few years to see the market share that we have in some regions outside Europe," Tavares said. "The ambition we have in Europe is to make sure that you, as a consumer, will hesitate between a Volkswagen and a Renault."