It was about 11 p.m. as I wandered through a maze of alleyways in the walled city of Marrakech. I was with Renault Chairman Louis Schweitzer.
We were staying in a riyad, a guest house that belonged to a wealthy trader in times past. The next day, we were to drive through the desert to Morocco's Atlas Mountains in Renault's new four-wheel-drive Megane RX4.
Although Renault had invited me to test drive the car, Schweitzer spent much of the time defending Renault's global ambitions and its merger with Nissan. Some industry analysts believe the Nissan merger may be straining Renault's resources, and the company's stock has suffered accordingly.
Schweitzer remains optimistic. That night, and during a four-hour desert drive the next day, he defended his plan to turn Renault into a global powerhouse. Schweitzer believes he can expand into new markets by purchasing and reinvigorating crippled automakers such as Dacia and Samsung.
But Renault's most ambitious deal - the merger with Nissan - remains a work in progress. Schweitzer acknowledged the cultural difficulties Nissan and Renault executives have encountered. He said he does not plan to merge the two companies' corporate cultures. However, the language gap has made coordination more difficult, Schweitzer said.
'One major point we have learned from Nissan is that we were too French-centered as a company. Communication is still one of the big problems. English is the common language. We only have about 15 people who can speak Japanese, while Nissan has few people who can speak French. The problem with communication - particularly with the Japanese - is the fear of losing face by admitting you do not understand.'
Japanese executives also are accustomed to promotions based on age and seniority. However, Nissan's managers are getting used to having younger people in management positions, Schweitzer said.
Renault also is beginning to promote women to managerial positions.
'We also made two female managerial appointments, which the Japanese at first found hard to accept,' Schweitzer said. 'At meetings, the women complained they were treated as if they were not there, but this will improve with time.'
With the acquisition of Nissan and Romanian automaker Dacia - plus its bid for Samsung's bankrupt automotive subsidiary - Renault has embarked on a high-risk strategy for fast global growth. The question is, will it work? Analysts believe Dacia and Samsung make sense, giving instant access into the tariff-bound countries of Romania and South Korea. But Nissan is more of a risk.
Schweitzer has publicly pledged Nissan will break even in the fiscal year ending March 31, 2001. But Nissan has few new products to roll out in its home market in Japan this year. Sales likely are to remain stagnant for a while, said Peter Schmidt of Auto Industry Data.
'Nissan has massive debts and sales are spiraling downwards in Japan, North America and Europe,' Schmidt said. 'Renault may have put the brakes on, but Nissan is like a supertanker. It's difficult to stop. At the moment it is still moving and in the wrong direction.'
Last October, Carlos Ghosn - Renault's top executive at Nissan - announced plans to shut five factories, cut costs 20 percent and eliminate 21,000 jobs by 2003. Nissan also will coordinate product planning with Renault. For example, future generations of the Renault Clio and Nissan Micra will share the same platform.
This, at least, is the plan. Nissan already has begun pressuring its suppliers to cut prices. But the other cost-cutting measures will take time. Does Renault have the management talent to carry out its turnaround? At the moment, Renault has dispatched a small team of 20 executives to the Japanese automaker. Recently, Renault solidified its control by shuffling senior management (see box). Ghosn is managing the changes at Nissan well, Schweitzer said. 'He has a very big job to do.' So much so that he is apparently slipping up in his plans to spend at least one hour a day learning Japanese. 'He has had to reduce this to two hours a week because of his work commitments,' Schweitzer said. 'It is also a very difficult language to learn.'
Samsung and Dacia
Although Nissan still is in trouble, Schweitzer has not backed away from his plans for globalization. Recently, Renault offered a $50 million bid for Samsung, with an additional $400 million payment in the future. That's about half of what some industry analysts expected. At the moment, however, there are no other bidders. Samsung may have to settle for it.
Schweitzer believes Samsung would be a good fit because it uses Nissan production methods to manufacture a sedan based on the Nissan Maxima. Moreover, South Korea is a key market. In the next decade, Korean sales of cars and trucks are expected to rise 112 percent, according to DRI-McGraw Hill. Renault wants a piece of that.
'There is quite clearly a need to expand our presence in this region of the world,' Schweitzer said. 'Samsung presents an opportunity, but the price will have to be right.'
Renault also is moving ahead with plans to produce a '$6,000 car' through its Romanian subsidiary Dacia, which it purchased for $50 million last July. Renault plans to spend an additional $219 million to upgrade the assembly plant, buy tooling and launch new models for sale in Eastern Europe.
'If we are successful in the first stages then we will look to develop the vehicle for other markets,' said Schweitzer. 'But there are issues to be addressed. We have to have the right model. It will have to be reliable and it will have to be affordable.'
To achieve this, compromises were necessary, he said. For example, Renault is likely to choose an engine that is durable but not especially sophisticated. A Dacia car would also produce more noise and vibration at high speeds than Western European autos. Renault also would favor low-cost Eastern European suppliers.
'You can't make a $6,000 car using component suppliers from Western Europe,' Schweitzer said.
Renault wants to produce this car by 2003. To do so, the company must upgrade Dacia's decrepit assembly plant and improve suppliers' quality control. 'Dacia has a very good work force but it is using manufacturing techniques that have not changed for 30 years,' Schweitzer said. According to Schweitzer, Dacia's production volumes could range from 100,000 to 200,000 vehicles a year. 'If we are successful with this car, then Russia could be a good market for it. Russia of course already has a $6,000 car in the Lada, but it is 30-year-old $6,000 car. We have to make sure ours is modern and reliable.'
Plans for Russia
Renault already produces a few Meganes at its new plant in Moscow, a joint venture with the city's government. It is assembling semi-knockdown kits and plans to add a paint shop early next year. The automaker committed $420 million to upgrade the assembly plant, expand production and adapt the Megane to the Russian market. However, Renault has lost interest in a second proposed joint venture with Russian automaker Moskvich.
'Russia is an interesting market,' Schweitzer said. 'We are employing some 150 people there and it does have great potential. We did look at doing a deal with Moskvich, but it fell through. I went to the factory and could not believe what I saw. Such old technology! Even the most recent production equipment - still probably some 10 years old - was still packed in boxes unused.'
In fact, horror stories abound about the quality of Moskvich cars. Renault executives have heard tales of vehicles that left the Moskvich production line without wheels, seats and instrument panels. Yet, apparently all have been sold, said Michel Faivre-Duboz, Renault's senior vice president of vehicle engineering. 'I was told that the customers finish the cars themselves,' he said.
Perhaps Renault's most promising overseas venture is in Curitiba, Brazil, where the automaker built a $1 billion assembly plant. It produced about 30,000 cars last year, and Renault hopes to double production this year. Given Brazil's unpredictable economy - plus growing competition in that market - Renault's investment would appear to be chancy. However, the company limited its financial risk when it obtained a substantial subsidy from the state of Parana.
With Nissan, Dacia and Samsung in its lineup, Renault hopes to boost vehicle sales from 5 million units to 8 million units. That would make the French company one of the world's top five automakers, Schweitzer said. And it would break Renault out of its dangerous dependence on the Western European market.
The company has to globalize fast, analysts agree. 'I would like to have seen the company grow organically into the Far East, as it has in South America and Russia,' said analyst Schmidt. 'The moves for Samsung and Dacia make a lot of sense. These are difficult markets for importers and I expect the company to make a very quick return on its investment.'
But as rival automakers launch yet another round of mergers, some believe Renault should pause to digest its latest acquisitions. Said one analyst: 'Someone ought to think about cutting up the company credit card.'