The city of Pitesti, Romania, is drab even in sunshine. The skyline is dominated by crumbling apartment blocks and a half-finished university building, with cranes and excavators standing idle nearby.
It is a sharp contrast to some of the splendid buildings in the capital of Bucharest, such as the Parliament palace or the copy of the Arc de Triomphe that were built to satisfy Nicolae Ceausescu's ego. Yet, this is the place that Renault SA has chosen to build a 'world' car. It is the home of Dacia SA, the moribund state-owned automaker that Renault purchased in 1999. And it is the site of Dacia's assembly plant, which Renault has begun to renovate. It is an enormous task. For this is a plant where time has stood still.
Outside the plant, one sees scattered lumps of concrete, bits of wire and roaming dogs - the debris one might expect at an abandoned building. Inside, the stamping plant, assembly line and welding shop are dark and dismal. Renault has begun to clean up this mess. But one cannot quickly reverse 30 years of neglect.
Renault's executives understood the difficulty of a turnaround in 1998, when they visited Pitesti to negotiate the purchase of Dacia. 'Nothing had changed since the 1970s,' says Christian Esteve, a former boss of Renault UK and now deputy general manager of Dacia in charge of marketing and finance. 'Even the technical work sheets were still in French.'
Dacia may have humble beginnings, but Renault has big plans for it. The French automaker estimates that demand for cars and trucks in emerging markets will grow by 9.9 million units over the next decade. Renault's solution: a $5,000 car. Renault plans to build Dacia into a worldwide nameplate that will sell half a million vehicles a year. The Romanian government offered Renault an eight-year holiday from a tax on profits. The government also offered a three-year waiver on its value-added tax. In return, Renault has budgeted $220 million to modernize Dacia and renovate the plant. That accounts for virtually all of the auto industry's investment in Romanian vehicle assembly. (See chart on Page 25.)
But money alone will not fix the antiquated attitudes of Dacia's workers and managers. When Renault took over the plant 18 months ago, workers in the paint shop did not wear any protective gear in the spray booth. Renault introduced breathing masks and protective clothing, but employees were reluctant to use the gear. They thought they would lose their hazardous-duty bonus by wearing the masks. Because the average Dacia worker earns $100 a month, this was not a trivial issue. So Renault added the bonus - which was up to 20 percent of wages - to the workers' regular pay.
Francois Blanc, director of human resources, agrees that Renault's biggest task is to change the minds of the work force. 'In 1999, workers were like soldiers, standing at attention and rushing immediately to do what was suggested,' he says. 'They were just used to taking orders.' Workers on the assembly line were paid only if 450 cars a day were produced - regardless of customer demand.
Despite Dacia's obsession with output, its factory's productivity was quite poor. Even as Renault improves quality, it expects to boost the plant's efficiency, too. It now takes 52 hours to build each SuperNova. The goal is to build one in 25 hours by 2004.
To improve productivity, Renault is organizing the workers into teams. The automaker is slashing the payroll, too. With the union's acquiescence, Renault will shed 11,000 jobs. The company's suppliers will absorb 2,000 of those workers as the plant outsources assembly of wire harnesses, seats and other parts. Meanwhile, Renault will hire 500 new workers to handle design and engineering.
Although Renault must retrain the workers, Esteve says poor management is the main problem. 'The poor quality of management meant we had to give far more support than we thought,' he says. Renault has flown in 75 French managers on three-year contracts, plus 75 on six-month contracts.
These managers will overhaul a corporate bureaucracy that choked on its own paperwork. Renault plans to give middle managers more authority. It will streamline a hierarchy that once required 18 signatures to purchase paper for the copier. 'Managers were just there to fight each other,' Esteve says. 'All decisions were passed upward.'
The supply chain is another big problem. Dacia's suppliers enjoyed a monopoly - one part, one supplier. The price of parts rose accordingly. Renault is solving that problem. The company cut purchasing costs 20 percent last year and expects to cut prices another 12 percent this year.
Esteve admits that Renault's suppliers were stunned by the primitive conditions. But Johnson Controls Inc. now makes seats for Dacia. The company discovered that its employees are good, and quality is improving. All Dacia suppliers will become part of the Renault quality system by 2004. Moreover, manufacturing costs are so low that Johnson Controls has started to export parts from Romania. 'I know of three suppliers who weren't very keen and are now looking to expand,' Esteve says. 'It's a country waiting to be discovered.'
The two automakers first established ties in 1966, when Renault granted Dacia a license to build the Renault 8 and Renault 12. The relationship broke down during the communist years, and was revived eight years after the revolution of 1989.
Dacia executives never forgot their former partners. 'It was 30 years of lost time, but Dacia recognized what a great job Renault had done,' says Constantin Stroe, the 59-year-old Romanian director general of the plant. 'Cars built in the 1970s are still running on the streets.'
Stroe says Peugeot, Fiat and Daewoo courted Dacia in the 1990s. 'But none of them wanted to keep the Dacia brand. Renault did, and that's what made the difference.' Meanwhile, Renault wanted to enter the newly liberated East European market. The French automaker had lost its bid for Czech carmaker Skoda in 1990. So it considered other options.
'In 1995, we started to think about what would be the right model for emerging markets,' says Manuel Gomez, Renault's senior vice president of international operations and chairman of Dacia. 'We knew it was not possible to stretch the Renault brand to meet the demands of new markets. So Dacia is Renault's answer to the entry level.'
The Romanian company already exports vehicles to South America, China, the Middle East, the Balkans, Poland and the Czech Republic. Renault will expand exports on the strength of a new model, the X90. It will be based on the Renault-Nissan B platform and sized between the Clio/Micra and Megane/Almera. A sedan and wagon, due to be launched in 2004, will be followed by a pickup. The development team will include Renault engineers at the Paris Technocenter and at Dacia.
The automaker's marketing plan is simple: reliable transport for a low price of e5,000, or $4,500. Not surprisingly, Russia will be a market for the X90. The Moskvich plant in Russia will build the X90 in a knock-down operation. Renault also expects to sell Dacias in Asia, though it owns Korean automaker Samsung and has a partnership with Nissan Motor Co. Renault wants Samsung to build a higher quality, larger car. Dacia is more advanced in its global strategy than Samsung, Gomez says.
And with Renault in charge, Dacia's long-awaited renovation has begun. The automaker has cleaned the engine assembly area and the wire harness plant. The floors are scrubbed, the glass skylights are clean and new lights brighten the area.
This is heady stuff for a veteran like Stroe, a Dacia employee since 1968. After the communist collapse, Stroe set three goals: Survive, find an investor, and build an all-Romanian car. Now he has achieved all three goals: 'It's like a dream come true.'
E-mail writer Anthony Lewis at [email protected]