Renault raises its cost reduction plan to € 3 billion until 2025

The way of Renault to return to profitability will be much harder than it announced last May. The French group, owner of the Renault, Dacia, Lada and Alpine brands, has announced its intention to achieve a cost reduction of 3,000 million euros until 2025, when it expects to have reduced its production capacity by 20%, from 3, 9 million current vehicles up to 3.1 million. Luca de Meo, its CEO, has reiterated the need to change the pace of the automobile conglomerate to put aside volume and give way to value and has intoned the mea culpa: “We failed in the past or else we would not be in the current station.” The goal is to regain a 3% operating margin by 2023, after it went into a loss in 2019 for the first time in a decade.

The cost reduction will affect all parties related to vehicle production. It will bet on markets such as India, Latin America and South Korea, where it plans to market vehicles with higher added value. The intention is to take advantage of the higher business margin that Europe continues to offer (70%) and hence the group’s initial plans include strengthening the plants in Spain, Romania, Turkey and also Morocco, precisely the countries with the lowest labor costs.

Regarding Spain, where Renault has four plants – two vehicle assembly plants and another two for engines and gear changes – employing 11,000 people, Luca de Meo stated in a press conference after the event: “ This plan in principle is good for Spain, but it will depend on their competitiveness ”and“ on the competitiveness that they are able to negotiate in the country ”. The management of the brand in Spain and the unions maintain a negotiation to renew the collective agreement.

In a conference, Luca de Meo has avoided revealing where these cuts will be made and has asked for patience to reveal which centers will be most affected “out of respect for our stakeholders and especially our workers.” The group has already advanced its intention to cut its workforce by more than 14,000 people, although then the target cut was 2,000 million per year in 2022. That intermediate step has been delayed a year, until 2023, but has also been raised to 2,500 millions of euros.

The intention is to reduce the cost of manufacturing each vehicle by around 600 euros, which is to optimize the use of the production centers, which start from the current 70% to 120% within five years. De Meo’s strategy at Renault is similar to the one he successfully carried out at Seat: raising the sales price of the average vehicle so that each of them brings more margin to the group. And that will go through a reconfiguration of the relevance that the group gives to each segment.

The two smallest types of cars, which currently offer 70% of the group’s profitability, will lose prominence in 2025 to 50%. The largest segments, which have a greater capacity to offer benefits, must go from their current contribution of 15% to 40%. In parallel, the group will reduce the complexity of its system by halving the platforms to build vehicles (from six to three) and the types of engines that will power its vehicles (from eight to four).

In the race that the group plans to start now, its Renault franchise brand will play a relevant role. It will be its spearhead in the electrification of its catalog and will take advantage of its existing hybrid engines to maintain the transition towards a reduction of emissions that, according to De Meo, is in line this year to meet the objectives of the EU.

In the next few years, 24 new vehicles (14 of the Renault brand) will be launched, of which more than ten will be electric. One of them, seen today at Luca de Meo’s presentation, is an updated version of the Renault 5 with electric propulsion. Despite this effort to launch new models, investment in their launch will be reduced.

The roadmap presented this Thursday is the great task that Italian Luca de Meo had to take on when he decided to take the reins of the French group. Based on this development program, in addition to the new distribution of markets decided within the alliance with Nissan and Mitsubishi, Renault must try to regain market position, profitability and give value to shares that have suffered a sustained decline since the first months of 2018.