Renault S.A.

13-15 quai Le Gallo
92513 Boulogne-Billancourt
Cedex
France
Telephone: (+33) 1-76-84-50-50
Fax: (+33) 1-41-04-51-49
Web site: http://www.renault.com

Public Company
Incorporated: 1945 as Regie Nationale des Usines Renault
Employees: 130,573
Sales: $55 billion(2004)
Stock Exchanges: Euronext Paris
Ticker Symbol: RNO
NAIC: 336111 Automobile Manufacturing; 336211 Motor Vehicle Body Manufacturing; 336312 Gasoline Engine and Engine Parts Manufacturing; 336322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 522220 Sales Financing

One of the world's pioneering auto makers, Renault S.A. is also one of Europe's largest. Renault's annual revenue of more than $55 billion, along with its payroll of more than 130,000 employees in 2004, also makes it one of France's flagship corporations. Renault manufactures automobiles in partnership with Renault-Nissan Motor in Japan, Dacia in Romania, Renault-Samsung Motors in Korea, and Dong Feng Motor Corp. in China. In addition to the company's automobile division, Renault's finance division is one of France's largest credit providers, principally underwriting the purchase of the company's automobiles. After a rocky period in the mid-1990s, marked by the former government-run company's privatization and capped by stagnating sales and the failed attempt to fuse the company with Sweden's Volvo, Renault has recaptured both its market position and its spirit. Upon setting a new company production record of 2.2 million vehicles in 1998, Renault announced intentions to double that number by the year 2010, while increasing the share of its foreign sales to 50 percent of total sales, compared with just 20 percent in 1997. Under CEO and Chairman Louis Schweitzer, Renault has taken strong steps to meet its goal, including the opening of a FRF 4 billion production facility in Brazil in December 1998 and the cementing of crucial business alliances in Asia and Eastern Europe.

Automobile Pioneer

The closest parallel in the French automobile industry to Henry Ford was Louis Renault. His youthful interest in mechanical contrivances, especially steam engines and electrical devices, was accepted by his well-to-do family, and he was allowed to have his own workshop on the family's property.

Soon after he finished his military service and his father passed away, Louis convinced his older brothers Fernand and Marcel each to invest FRF 30,000 to build an automobile firm, which would be called Renault Freres. In 1899, Renault Freres received its first down payments for motor cars at FRF 1,000 per vehicle. Primarily an assembly operation in the early years, Renault Freres expanded operations as fast as it could acquire components and erect buildings. Engines, tires, radiators, gears, steel, and electrical equipment all came from other companies. By 1899, the industry had already generated a considerable range of specialist component firms. Marcel Renault soon joined the active management of the company to lessen the workload of his brother Louis, who preferred to work in the shop rather than attend to commercial details. By 1901, the company had become the eighth-largest firm in the automobile industry based on its small, inexpensive, and reliable car. The company's success should not be measured only by sales and profits, however, but also by its imitators. Louis Renault's transmission system, for example, was eagerly copied by other small car manufacturers.

Perhaps the most important ingredient in the firm's early success was the publicity Renault's cars received as a consequence of their racing prowess. Both Marcel and Louis Renault were expert racing drivers, and they were victorious in numerous international events. Unfortunately, in 1903, while competing in the Paris-Madrid race, Marcel Renault was killed. Louis immediately withdrew his cars from the racing circuit, and his company did not compete again for several years.

After 1905, Renault's taxicab became its largest selling product. Work began on this line late in that year when the company won an order for 250 chassis. The large orders for cabs soon made Renault the most important French automobile producer.

The firm did considerable export business during this period. In 1912, for example, nearly 100 Renault cabs were in service in Mexico City, and Renaults outnumbered all of the other types of taxicabs in Melbourne. By 1914, the company had 31 dealers in foreign countries, from Yalta to Shanghai. Louis Renault himself did not take as much interest in these marketing matters as he did in the technical aspects of his business. He considered himself more of an inventor than anything else and took out in his own name about 700 patents for devices that he had made personally or that had been developed in his factory.

Like several other automobile firms, Renault participated in the development of aviation in France. In 1907, the company began to experiment with aircraft engines, attempting to extract the most power possible from lightweight, air-cooled motors. While somewhat successful technically, this activity brought no profits at the time. Nevertheless, the discoveries and the experience that resulted found their justification in the war that soon followed. During World War I, the company became an important manufacturer of all sorts of military equipment, including aviation engines and the light tanks that proved so effective in 1918.

Postwar Technocracy

After the war, the Renault factory expanded. Nonetheless, though the firm remained among the top producers in France during the interwar period, Louis Renault was slow to adopt new technical and organizational ideas. This reluctance significantly hindered the company's growth. In addition, when Paris was liberated near the end of World War II, Louis Renault was jailed on a charge of Nazi collaboration. He died in prison before his case could be examined, and the provisional government of Charles de Gaulle nationalized the company. The government installed some inspired technocrats to operate the company along commercial lines, and they made it into a showpiece of French industry. The firm built up its own production of machine tools, and its factory was the first in Europe to use automation. In 1948, the company began to manufacture a miniature car called the Quatre Chevaux (4 CV or hp), which had been planned secretly during the war by Renault technicians.

The Quatre Chevaux proved to be a symbol of the social philosophy that has guided Renault ever since, first under Pierre Lefaucheux and then under his successor Pierre Dreyfus. An idealistic kind of technocrat, Dreyfus regarded the car as a social instrument that every family had a right to possess. Therefore, the firm concentrated on a large production of relatively small and inexpensive cars, the models gradually growing in size as French incomes and living standards rose. The other feature of this social philosophy was the idea that a firm owes its workers not only a wage but also as full and happy a life as possible. With state support, Renault led the field in welfare and labor relations.

It is possible to view the introduction of the Quatre Chevaux either as an example of effective business management or as the use of a state firm to provide a lower-cost product. During the 1950s and 1960s, the company maintained its record for effective product innovation. The Dauphine was manufactured to fit into the market opening between the inexpensive economy models and the higher-priced models. The new model soon became quite popular and outsold all others for the next five years. A second distinctive aspect of Renault's success has been its emphasis on exports. It was one of the first companies in the automobile industry to make a serious effort to develop a sales organization in the United States.

Because of the interest in Renault cars in the United States, the company was aiming initially to penetrate the market by supplying 1,000 cars per month. However, the United States ordered no fewer than 3,000 cars in only one month. Consequently, Renault increased their daily production rate from 300 to approximately 500 units, with company production facilities working near capacity for months in advance. Continued expansion into the international automobile market remained one of the company's main concerns for years, and plans were therefore made for the construction of plants abroad. Sales agreements using existing local networks were made in Brazil, Argentina, Algeria, and India.

By the end of 1959, Renault was estimated to be the sixth-largest automobile manufacturer in the world. At the beginning of 1960, when the U.S. automobile market began to shrink, sales of the Dauphine dropped by 33 percent in comparison with the previous year. It was a period of stagnation on the U.S. domestic market and, as a result, Renault was faced with the problem of adjusting to the specific requirements of the American motorist.

In France, meanwhile, preparations were underway for new car models, which would be known as the R-4 and the R-8. These were vehicles that had a third side window on a four-door body. Subsequently, an error was made on a project that was to have been a large six-cylinder vehicle. Once the accounts had been completed, it was discovered that the price of the car ought to have been 25 percent higher than originally planned. The swift and decisive intervention of Renault's chairman, Pierre Dreyfus, established the parameters of the new car, which was to have four cylinders, a functional styling, and a competitive price. The result was the R-16, which remained in production until the mid-1970s and had features that have been retained into the 21st century. As a parallel development to car production, Renault also had begun to manufacture the Estafette, a commercial vehicle for door-to-door deliveries, which was replaced by another model in the beginning of the 1980s.

During the 1970s, Renault went through a period of signifi-cant expansion. The success of the R-5, a particularly well-designed and highly reliable vehicle, allowed Renault to stay at the top of the European league of manufacturers. At the same time, a widely based program initiated in 1977 enabled the firm to purchase 46.4 percent of the shares in American Motors in 1980. The U.S. company then began production of the Alliance and the Encore, corresponding to European versions of the Renault.

The relationship began in 1979 when the two corporations signed an agreement. American Motors became the exclusive North American importer and distributor of Renault cars, and the French corporation would market American Motors products in France and several other countries. This was followed by the direct purchase of approximately $500 million in American Motors securities. American Motors chairman Gerald Meyers resigned in 1982 and was replaced by Paul Tippett, Jr., who then named Renault's Jose Dedeurwaerder as president and chief operating officer. Other Renault personnel took their places in the corporation and on the board of directors as the first modern trans-Atlantic company was established.

Regrouping in the 1980s and 1990s

By the mid-1980s, however, Renault's small deficit had turned into a $1.5 billion loss. Georges Besse arrived in 1985 with a mandate to prevent any further losses. Besse, a pragmatic engineer who had rescued the state-owned Pechiney Metals Group, was unable to go much beyond symbolic measures in helping the company. The Socialist government in France had backed away from tough industrial decisions that it feared would hurt the party in national elections. In addition, Besse's timing was unfortunate since powerful French communists had been arguing that Renault should worry more about upgrading French operations and protecting French jobs than spending money abroad on American Motors. The communists claimed that there was an imbalance between investments needed at home and expansion abroad. AMC's losses in 1986 made those arguments even more compelling. Nonetheless, Besse was able to cut some 20,000 jobs from the payroll, while instilling a new profit-driven culture in the government-owned company.

In November 1986, Besse was assassinated by the French terrorist organization Direct Action. This event, however, was not the only one that had an adverse effect on Renault. The company also was suffering from a series of poor marketing judgments that had reduced its share of the domestic auto market. Once the largest car manufacturer in Europe, Renault had slipped to sixth place. Besse's successor, Raymond Levy, pushed through Besse's restructuring of the company, eliminating an additional 30,000 jobs and leading the company toward its privatization in the 1990s.

In March 1987, Renault announced that it would withdraw from the U.S. market by selling its share in American Motors to the Chrysler Corporation. Under this agreement, which American Motors voted to accept, Renault was to receive over $200 million for its AMC shares and bonds over a period of five years. The company was also paid royalties from Chrysler's marketing of AMC's newly launched Premier. In exchange, Renault agreed to export between $2 billion and $3 billion worth of automatic components to Chrysler.

In 1990, the former Regie Nationale des Usines Renault converted its status to that of Renault S.A., a first step toward privatization. At the same time, the company entered into agreement with Volvo to merge the two companies' operations, including an exchange of shares that would give the Swedish automotive maker as much as 20 percent of Renault. This ambitious cross-ownership plan fell through in 1993 when Volvo's shareholders rejected the plan.

The Volvo failure would prove only the beginning of a somber period in Renault's history. Hit by an extended European recession, facing dwindling market share and increasing global competition, Renault would slip into losses by 1996. Nevertheless, under a new CEO and chairman, Renault had already begun to strike back against misfortune. In the early 1990s, despite the poor economic climate, Renault began expanding its international presence, building new operations and cooperation agreements in such countries as Turkey, China, and the Czech Republic, as well as strengthening the company's Latin American operations and entering the Russian market. Whereas Renault had previously done little to enter the growing Asian countries, the company now began to move toward building a presence in these developing markets.

More importantly, Renault—driven more and more by the need to provide profits, as the French government's position was reduced from 80 percent to just 45 percent by 1995—went back to the drawing board for its new car designs. Indeed, during the 1990s the company would appear to recapture the spirit of innovation that had produced the indomitable R-4 and R-5 with the introduction of the Clio in 1992, which would take the lead as France's best-selling car. In 1993, the company debuted the Twingo, another success. In the larger-sized realm, Renault continued to dazzle auto buyers with the popular Megane (the number two selling car in France), the minivan Espace, and 1997's hit Kangoo.

The company's net loss in 1996 of FRF 5 billion, chiefly due to rising production costs, proved only a temporary setback. A streamlining of the organization and the reduction of production costs by nearly FRF 4,000 per automobile would return the company to profitability the following year. In 1998, the company forecast an all-time production record of 2.2 million vehicles. According to CEO Schweitzer, however, by the year 2010 this record would seem ancient history. Continued cost-cutting measures were expected to produce some FRF 20 billion in savings, while the company's strategy called for production to reach more than four million vehicles per year, with foreign sales to account for some 50 percent of the company's total, compared with just 20 percent in the late 1990s. As a primary step toward this goal, Renault prepared to open a new FRF 4 billion production facility in Brazil in December 1998.

Refocusing on Core Strengths

Cost-cutting lifted Renault out of its 1996 losses of $680 million to earnings of $1.5 billion in 1998 and a combined profit in 1998 and 1999 of $1.65 billion. A series of divestitures followed that refocused the company on its core automobile business. In 1999, the carmaker sold its subsidiary Renault Automation to Italy's Comau. In 2000, Renault Véhicules Indus-triels, the automaker's heavy truck division, was sold to Volvo AB for $1.6 billion. Renault received a 15 percent stake in Volvo and paid the Swedish automaker $460 million for another 5 percent of Volvo's shares. The deal, which included U.S.-based Mack Trucks as well as Renault's European truck operations, made Volvo the world's second-largest truck manufacturer after Mercedes-Benz and the third-largest maker of heavy diesel engines. Though the Volvo, Renault, and Mack brand names were kept separate, the companies' powertrain, purchasing, and product development divisions merged. Renault's logistics unit CATFrance was sold to the European consortium Global Automotive Logistics in 2001, and Fiat-owned truck manufacturer Iveco purchased Renault's bus unit, Irisbus, the same year. In 2003, the French automaker divested itself of the last of its non-core businesses, selling 51 percent of Renault Agriculture to Germany's Claas, the largest European manufacturer of farm equipment.

With the divestitures and returned profits came new acquisitions intended to strengthen Renault's global presence, especially in Asia. In September 1999, the company purchased a 73 percent stake in the Romanian firm Automobile Dacia Pitesti S.A. in order to gain a foothold in the expanding Eastern European auto market. In 2000, Renault bought 70 percent of the South Korean Samsung Group's faltering automotive unit for $512 million, renaming it Renault Samsung Motors Corp. Renault made the venture break even two years ahead of schedule in 2002 and positioned the Korean automaker to serve as the center of its Asian operations. In November 2004, Renault pledged $571 million over three years to develop new gasoline engines and begin production of sport-utility vehicles at Renault Samsung's Busan, South Korea, factory by 2007.

Risky Alliance Pays Off

By far the most important acquisition Renault made at the turn of the 21st century was its 1999 purchase of 36.8 percent of the Japanese company Nissan Motor. The deal was considered a mistake by many industry watchers. Nissan was in difficult financial straits due to a weak Asian economy and ineffective marketing in the United States. Critics cited poor brand identity, unexciting car design, and a lack of features that would distinguish Nissan's products from those of competitors. The Japanese company had entered into merger talks with Daimler-Chrysler, which withdrew its offer after examining Nissan's finances. Differences in Japanese accounting practices made it nearly impossible for Daimler-Chrysler accountants to calculate precisely the extent of Nissan's debts. According to Japanese accounting rules, assets were reported at historical purchase prices rather than current market prices, and the financial obligations of a company's subsidiaries were not reported in the main company's financials. As a result, considerable liabilities could be hidden in subsidiaries' books. Nissan claimed $16.7 billion in debt, but analysts estimated the company's actual debt at almost twice that amount. Industry watchers looked askance at Renault, only in its second profitable year after near-bankruptcy, entering into such a complicated financial tangle. In addition, other commentators cited Renault's failure in the U.S. market as evidence that it lacked the wherewithal to aid Nissan in overcoming its marketing problems and strengthening its U.S. market presence.

The $5 billion deal, the largest foreign investment ever made in a Japanese company, created the world's fifth-largest auto-maker, measured by unit sales. The Renault and Nissan brands maintained their individual identities and focused on their strongest markets: Renault in Europe and Latin America and Nissan in Asia and North America. The French company appointed cost-cutting whiz Carlos Ghosn president of Renault-Nissan and charged him with generating $3.3 billion in savings between 2000 and 2002. During 1999, the new management closed five plants and idled 16, 500 workers, an action unprecedented in Japanese business. In 2000, Ghosn cut Nissan's work-force by 6 percent and reduced component costs by 10 percent. He also made plans to reduce Nissan's underutilized production capacity by more than half, cut suppliers from 1,145 to 600 over three years, close sales outlets in Japan, and streamline dealer networks in Europe and the United States. By the end of 2000, commentators hailed the Renault-Nissan deal as a brilliant union of automakers with high-volume production in three key global auto markets—Europe, Asia, and the United States. Nissan's strengths in engineering and manufacturing and Renault's expertise in cost-cutting and new product development were perceived as an extremely strong match. Analysts expected Nissan to contribute nearly half of Renault's $1.32 billion earnings in 2000, the Japanese automaker's second full-year profit in nine years. The two companies formed a new joint firm in the Netherlands to combine planning for parts and materials purchasing, manufacturing, and sales. The alliance was intended to cut costs further by sharing vehicle technology while maintaining separate looks and feels for their different product lines. In 2002, Renault paid $1.6 billion to raise its share of Nissan to 44 percent, and Nissan purchased a 15 percent stake in Renault.

The streamlining of dealer networks begun at Nissan was extended to Renault's enterprise as well. The companies consolidated dealerships and distribution networks around the globe. The French company cut its number of European dealers from 2,500 in 1995 down to 2,000 in 2000, eventually reducing the number to 800. The cuts were intended to save $777 million in sales and service operations by 2003. In 2002, Renault began marketing new and used Renaults through a Web site in the United Kingdom. The site's success was such that the company expanded the program with Web sites in Spain, France, Brazil, and Germany in 2004.

In February 2005, the alliance widely predicted to fail reported that it sold 5,785,231 vehicles in 2004, an 8 percent increase over 2003. With 9.6 percent of the global market, Renault-Nissan was the fourth-largest automaker in the world. The company also announced that its chief executive officer of 13 years, Louis Schweitzer, was handing over the CEO job to Nissan President Carlos Ghosn. Schweitzer's departure came on the heels of a record year. Operating profits in 2004 totaled $1.74 billion more than those of 2003, which was also a record year. In 2004, the company entered into a joint venture with China's Dong Feng Motor Corp. to operate a production facility, building on a 50–50 2003 venture between Nissan and Dong Feng to assemble low-cost parts for the subcompact Sunny at a plant in Guangdong Province, China. In 2005, Renault and Nissan were singularly positioned to serve the fast-growing Asian market, and the company did so well worldwide that it was able to raise shareholder dividends 29 percent.

Principal Divisions

Automotive; Financing.

Principal Competitors

General Motors Corporation; Peugeot S.A.; Volkswagen AG.

Further Reading

Barnard, Bruce, "Renault's Renaissance," Europe , July 2000, p. R.

——, "Renault," Europe , April 2002, p. S4.

Choy, Jon, "Renault's Bid for Nissan Spotlights Japanese Accounting Practices," JEI Report 1999 , March 26, 1999.

Debontride, Xavier, "Bresil, Turquie, Russe: Renault reve son avenir a long terme," Echoes , September 30, 1998, p. 54.

Farhi, Stephane, "Volvo, Renault Create Truck Giant," Automotive News , May 1, 2004, p. 4.

"Golding's Analysis: Renault," just-auto.com , February 8, 2005.

Ihlwan, Moon, and Chester Dawson, "A French Recipe to Savor," Business Week , October 7, 2002, p. 28.

Laux, James M., In First Gear: The French Automobile Industry to 1914 , Liverpool, U.K.: Liverpool University Press, 1976.

Mader, Ian, "Renault Reveals New Investment for South Korean Affiliate," America's Intelligence Wire , November 30, 2004.

McLintock, J. Dewar, Renault: The Cars and the Charisma , Cambridge: Stevens, 1983.

"Nissan, Renault to Set Up Joint Firm," Yomiuri Shimbun/Daily Yomiuri , October 17, 2001, item YOSH19343887.

"Nissan-Renault Ranks 4th in Terms of Global Sales," Knight-Ridder/ Tribune Business News , February 2, 2005, item 05033032.

"Nissan to Aid Renault's Profits More than Expected," The New York Times , November 22, 2000, p. C4.

Reeve, Steve, "Renault to Drive European Sales via Online Expansion," Precision Marketing , September 6, 2002, p. 9.

"Renault, China's Dongfeng to Set Up Joint Auto Production Firm," Japan Transportation Scan , July 6, 2004.

"Renault to Back Dealers Online," Marketing , August 4, 2004, p. 9.

"Renault to Invest $5B in Nissan Merger," United Press International , March 29, 1999, item 1008086u0713.

Routier, Airy, "Le dieteticien de Renault," Challenges , April 1998,p. 78.

Saint-Seine, Sylviane, "Renault Hopes to Save through Dealer Network Restructuring," Automotive News Europe , October 8, 2001,p. 23.

——, "Agriculture Deal Marks End of Renault Sell-Offs," Automotive News Europe , March 24, 2003, p. 17.

Souffrant, Rebecca, "Mack Trucks Included in Volvo Plan to Buy Renault," Commercial Carrier Journal , February 2001, p. 12.

Truett, Richard, "Renault Designers Think 'Frenchness,' Not Retro," Automotive News , January 21, 2002, p. 56.

"Two Blind Mice," Delaney Report , March 22, 1999, p. 2.

—updates: M.L. Cohen; Jennifer Gariepy