As the song almost goes “What a difference 3000 kms makes”.
That’s the median distance between Renault’s stricken production plants in France and its Moscow success story “Avtoframos”.
Renault has bought the remaining of “Avtoframos” from the Moscow Government and now owns 100% of the business. Renault paid approximately € 49 million for the remaining 5.9% shareholding, as was retained by the local authorities.
The Avtoframos plant was created in 1998 on the former OAO Moskovitch factory, a joint venture between Renault and Moscow city. Renault bought 26% of the shares of the JV in 2004 and in 2006 increased this to 94.1%.
The plant was at full production by 2005, necessitating a doubling of capacity in 2010 to 160,000 cars per year.
Thus far Renault has invested about € 480 million in the production of 6 models for the Russian market: Logan, Sandero, Fluence, Duster, Latitude and Koleos.
The Moscow plant is supplied with containerised SKD’s via a > 2-week supply chain from Turkey and Romania using truck, train and short sea services. These container volumes have decreased as the car manufacturer plant has increased its localisation inline with the original Industrial Assembly Agreement under Russian Government Decree 166.
Additional plant improvements are being carried out to expand production to 188,000 cars per a year.
Compare this with the challenges the car giant faces in its home markets. Renault has traditionally built small cars for Europe. That market is in the depth of recession as both Renault and its French home grown competitor Peugeot-Citroen face burgeoning losses and chronic overcapacity. Renault said its revenue dropped over 13% percent in the third quarter as the continual downturn in its traditional key markets of France, Italy and Spain caused sales to decrease. The company reported third quarter sales of €8.45 billion ($10.9 billion), down from €9.76 billion a year earlier and warned that Europe’s car market “remains a source of concern.” Renault’s European sales crashed over 18%, nearly twice as fast as the overall European market decline.
PSA Citroen is possibly even worse, burning through a staggering €100 million per month.
Fortunately for Renault, the charismatic leader of the Renault-Nissan Alliance, Carlos Ghosn has led the former state owned giant into the emerging markets, often in the face of critiscm and bemusement; whilst PSA Citroen appears to have done comparatively little and is now reduced to selling the family silverware (Gefco sold to RZD Russian Railways for $1 billion) and surviving on the support and goodwill of the French government, as the company restructures.
Renault now has manufacturing sites in 38 sites and 17 countries. This has no settling effect on the French workforce; who are seeing their manufacturing base being whittled away as market forces push Renault to lower cost countries and new, developing markets.
Whilst the company faces chronic overcapacity in Europe it is very busy investing in the emerging markets. According to reports from Wuhan in central China, Renault has applied for a license to invest $1 billion in a plant building 200,000 cars per year with its Joint Venture partner Dongfeng.
Renault now employs 2000 workers outside Tangiers, Morocco in Africa’s largest and most modern plant building Dacia models. The company invested $1.5 billion in a 147,000 car per annum production facility and is contemplating a tripling in capacity.
France’s La Tribune has reported that Renault is considering a 75,000 cars per annum facility in neighbouring Algiers and are pressuring the former French colony to keep arch rival Volkswagen out of the scene. Given the turbulent relationship between the 2 countries, it will be interesting to see which way this goes.
Renault is enjoying a Dacia inspired success story as it cannot sell enough of the budget brand. It is taking the concept a stage further and will develop two super economy cars, one to compete with the cheapest car in the world, Tata’s Nano. With these new models, Renault will increase market share in the developing markets.
The first low-cost €5000 model will be developed within the Renault-Nissan Alliance and on the market by the end of 2014. The second, ‘super low- cost’ € 3,000 model will go toe to toe with the Tata Nano. Following the new pattern, both models will be produced in India. There are no plans to retail them in Europe.