Renault: The crisis is over as Luca de Meo restores the diamond
“I want you to stop writing that Renault is in danger of disappearing”, introduced Luca de Meo during the press briefing for the presentation of the half-year results. It must be said that the boss of the French car group had just announced excellent quality results to resume its stock market action with gains of more than 6% on the very first stock exchanges after the announcement. It’s a real victory for a company whose shares have been falling steadily for a year, accompanied by a slump after withdrawing from Russia, Renault’s second market.
Early Results
Because even if not everything is rosy for Renault in this complicated half year (the withdrawal from Russia cost the group’s balance sheet more than 2 billion euros and flushed the net result with 1.36 billion euros into the red), the company has remained the same placed its key financial metrics in the green. “We are three years ahead”said Luca de Meo happily.
Operating margin has more than doubled to 4.7% from 2.1% a year ago, cash generation is close to €1 billion and debt has been sharply reduced to less than €500 million… All this in an industry-specific environment has never been so despicable: rising prices, falling volumes, shortages of parts… However, Luca de Meo confirms that Renault has never been so efficient in ten years.
In reality, Renault’s real structural performance indicators had already been released a few weeks earlier on the occasion of the business results. On July 12, the diamond brand announced it had improved key commercial weaknesses that led to disaster three years ago. First, Renault has rebalanced its sales to individuals, which are most profitable. With 53% of sales, they increased by 13 points in the half year. This achievement makes it possible to resume the virtuous circle of increasing residual value (the resale price), which was another black spot for the group. In addition, Renault has regained control of electrification after being a leader, and the diamond brand that has become obsolete is back in the limelight with high-performance products: E-Tech technology or the new Mégane current celebrated by the press and its start looks promising.
Austral’s Great Expectations
But it’s the performance in the compact segment that excites Luca de Meo. This is one of the shortcomings he noticed when he took charge of the group in July 2020. The share of sales in this segment rose by a third to just under 32% in the first six months. . It was the arcana that boosted sales. But Renault has high expectations of Austral, which is set to be marketed by the end of the year. For Luca de Meo, this compact SUV should make people forget the Kadjar’s failure by significantly improving its unit profitability with a 25% higher average transaction price and twice the margin. “Austral will have the best hybrid engine in the world with an efficiency of 44% and will emit 15 grams less CO2 than the best product in this segment.”assures Luca de Meo, who believes he has a real trade war machine there.
This achievement is not limited to the Renault range, as Dacia and Alpine are also part of this dynamic. The budget Romanian brand exploded in sales during the quarter to a market share of almost 5% in Europe. His new Jogger, his 5- to 7-seater SUV, sold 50,000 units, double the original targets. For Dacia, it’s a way of finding price ranges where it didn’t exist. In addition, the brand has completely stopped the inflation trap by passing the additional costs almost entirely on to the prices. So consumers were not discouraged. For its part, Alpine is finally waking up thanks to the creation of a Formula 1 team in its name, giving it a new visibility.
Further increases in profitability in sight
For Luca de Meo, the group is now sitting on new performance drivers that are far from being reflected in financial accounting. By basing its legitimacy on the higher segments, Renault can hope for greater profitability once its product plan has reached cruising speed… For now, the range renewal is still in its infancy. Austral will support the group from 2023 if successful. The new R5 planned for 2023 also promises to strengthen the diamond brand in the very dynamic segment of electric cars. 2024 will be the turn of a completely redesigned Scénic (and especially an SUV) to increase sales and profitability. Dacia is also on the eve of an extremely ambitious product plan with the launch next year of a new Duster, the brand’s ATM, but also the Bigster to reach the top of the segment. Finally everyone is waiting for the rest at Alpine with an SUV…
In less than three years, Luca de Meo has completely transformed a Renault formerly focused on volume and the city car segment (Clio, Captur) towards a group obsessed with creating value, even if it means it , sacrificing volume. The price effect, i.e. the proportion of sales that increases solely through price and not through sales volume, rose again by 7 points in the first half of the year, after having risen by 9 points in 2021. But contrary to what one might think, Renault also benefits from the economic situation, since in a market that cannot meet demand, the French group can afford to choose the models to sell and, above all, not to offer discounts on sales. The real test of Renault’s pricing power will therefore come in 2023, when the semiconductor shortage will be gone and consumers will finally have a choice.
