What to expect from Renault's new strategic plan

PARIS -- When CEO Luca de Meo introduces the new-look Renault on Thursday, he will be pivoting from a strategy focusing on volume and global scale to profitable sales in growing segments, with an emphasis on individual brands over regions. 

De Meo’s plan, which he calls Renaulution, will replace Drive the Future, the last midterm plan from longtime CEO Carlos Ghosn, who stepped down following his arrest in Japan in November 2018 on charges of financial wrongdoing at alliance partner Nissan.  

De Meo is expected to share the podium with deputy CEO Clotilde Delbos, who is also Renault CFO. Delbos was instrumental in devising a plan with group Chairman Jean-Dominique Senard that will cut 2 billion euros ($2.4 billion) in costs in the next two years. That plan was revealed before de Meo took over as CEO on July 1.

In a repudiation of Ghosn’s volume strategy, a key lever of that plan is a reduction in global production by 20 percent. De Meo’s mantra – drawing on his experience at Volkswagen Group as head of its Seat brand – is “value over volume.”

De Meo and Delbos will focus first on shoring up Renault’s finances. The automaker lost a record 7.29 billion euros in the first half of 2020, and in the second half drew down 3 billion euros worth of French-government backed financing. A negative contribution from Nissan, in which Renault holds a 43 percent stake, deepened the pain. 

Ghosn’s plan, which covered the years 2017-22, envisioned revenue of 70 billion euros in 2022, from 51 billion in 2016; and operating profits of 7 percent in 2022, from 6.4 percent in 2016. Within that 2022 profit, 50 percent would come from outside Europe, up from 25 percent in 2016. 

Ghosn sought to increase profits and synergies with Nissan in part by increasing overall sales by 40 percent, with growth coming outside of Europe.  

Those expectations largely failed to pan out. Renault pulled out of the China passenger car market last year, left Iran in 2018 after the re-imposition of nuclear sanctions and in the pandemic year of 2020 lagged the overall market by seven percentage points, losing 21 percent against a global drop of 14 percent.  

And the needle did not move much on Ghosn’s overall goal of rebalancing Renault sales from 52 percent in Europe to 40 percent by 2022. Europe accounted for 49 percent of the group’s sales in 2020. 

De Meo and Delbos say the cost-cutting plan and a new focus on profits are already having an effect. Orders are up, inventory is down and average transaction prices are higher, de Meo and sales chief Denis le Vot said on Tuesday in announcing annual sales results.

Revised profit targets will probably be announced on Thursday, with Morgan Stanley suggesting in a note to investors that automotive earnings before income and taxes could be 0.7 percent in 2021 and 1.8 percent in 2022. Overall group margins could 2 percent to 4 percent by 2022, the investment bank said. 

Arriving last July in the middle of a model cycle, de Meo will have to wait several years for any radical product changes to take effect. But he said in an interview with Automotive News Europe in November that he had thoroughly overhauled product planning in a swift, six-week review, including killing or revising six or eight projects.  

One immediate change is the introduction this year of a full-hybrid version of the Captur small utility vehicle, which under Ghosn and his brief successor Thierry Bollore (now CEO of Jaguar Land Rover) was scheduled only to have a plug-in hybrid powertrain. That could help bring higher transaction prices for the Captur, as Renault’s second most popular model.  

De Meo also will move Renault away from a reliance on lower-margin small cars such as the Clio, the group’s best-seller, toward the compact segment, where the Megane has languished. The original Megane and Scenic variant were key to reviving Renault in the 1990s -- when de Meo started his first stint at Renault -- and he has turned to that heritage with a near-production compact EV concept called the Megane eVision. 

That vehicle will go into production by the start of 2022. It may be joined by other historically minded EVs, according to recent reports, including new versions of best-sellers such as the Renault 4 and Renault 5. 

Other new products that could be announced as early as Thursday include a new compact utility for budget brand Dacia and several EVs for underutilized sports car brand Alpine. 

A number of models could be on the chopping block, too, as part of an effort to streamline Renault lineups, including the Espace minivan, Scenic/Grand Scenic minivans, and potentially the Talisman midsize sedan. None of those models have full- or plug-in hybrid options. 

De Meo is also expected to lay out his vision and leadership for the group’s brands, including how they will be managed. His first major announcement as CEO was to put the brands at the heart of the group rather than regions. 

He has already dropped some hints. Renault’s Formula One team and racing efforts are now under the Alpine umbrella, and de Meo has suggested that high-performance versions of Renault cars could bear the Alpine tag, much as he did at Seat with Cupra (now a standalone brand) and at Fiat with Abarth. This week he named Laurent Rossi, the group’s head of strategy and a former Google executive, as CEO of Alpine. 

Dacia, the Romanian brand reborn as a European and global sales leader under former Renault CEO Louis Schweizer, will be a balancing act: De Meo’s desire for higher transaction prices could risk its “value for money” DNA. The brand, which already delivers double-digit profit margins, would move slightly upmarket, comparable to the airline Easyjet's "cheap and cheerful" image rather than no-frills budget carrier Ryanair.

A fourth brand, centered on mobility, is also expected to be revealed in more detail. It's not clear if one of Ghosn's targets -- so-called robotaxis operating in 2022 -- will still be a part of that.