Renault Argentina S.A. - Company Profile, Information, Business Description, History, Background Information on Renault Argentina S.A.

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History of Renault Argentina S.A.

Of Argentina's ten automakers, almost all are closely held subsidiaries or affiliates of their American, European, or Japanese parent organizations. The exception is Renault Argentina S.A., which is traded on the Buenos Aires stock exchange. Once the nation's largest automobile manufacturer, this company now ranks in the middle of the pack, struggling to sell new Renaults and Nissans in a nation badly mauled by economic crisis. Through subsidiaries, Renault Argentina also is engaged in vehicle financing and insurance.

Kaiser-Frazers, Nash Ramblers, and Renaults: 1955-79

Renault Argentina had its start as Industrias Kaiser Argentina S.A.I.C.P. (IKA), a joint venture of the Kaiser-Frazer Automobile Co. and an Argentine government ministry. Like other U.S.-based independent car companies competing with the Big Three in the wake of World War II, Kaiser-Frazer led a precarious existence. In 1955, shortly before halting all passenger car production in the United States, Kaiser-Frazer invested funds and idle equipment in an Argentine motor assembly plant built in Santa Isabel, on the outskirts of Córdoba. Thousands of Argentines participated in a public offering of shares of stock, which was oversubscribed.

Production began in 1956 and peaked in 1965, when 55,269 vehicles were assembled there, or 28 percent of Argentina's total production. About a third were Kaiser-Frazer automobiles and jeeps; the other two-thirds were Nash Ramblers and (from 1960) Renaults produced under license. With 8,500 employees, IKA was the nation's largest single automobile manufacturer. In early 1967 the company rolled out a new model, the Torino, on the base of the Rambler American 440. Furnished with the first industrial-scale engine designed totally in Argentina, the Torino became a classic.

Later in 1967, French-based Regie Nationale des Usines Renault assumed control of the company by purchasing a large percentage of the shares of stock and changed its name to IKA Renault S.A.I.C.F., which was changed to Renault Argentina S.A. in 1975. IKA Renault held 19 percent of the domestic auto market in fiscal 1971-72 but was struggling to make a profit. It had to refinance its debts to European creditors in 1972, receiving a $64 million infusion. The Renault 12, launched in 1971, became the best-selling model in Argentina during the early 1970s and remained so throughout the decade. Others were the R4 (dating from 1963), and R6 (1970), the Torino, and commercial vehicles. Political instability made the 1970s a difficult decade in Argentina, but the 32,861 vehicles that the company sold in 1978 represented 22 percent of the national total. Under the Renault Argentina banner was also Filiales Industriales, a group of seven companies annually producing the equivalent of $100 million a year worth of cables, forged parts, foundry steel and aluminum, dies, and polyurethane seats.

Renault Argentina in the 1980s

Renault Argentina began the new decade doing even better. In 1980, a boom year in which the auto industry sold 250,000 cars, the company raised its share to almost 24 percent. The Renault 12 still topped all models, and the following year the company presented a new, larger version with a two-liter engine, the Renault 18. Renault Argentina was enjoying what economists call a "virtuous circle": Gains in production efficiency had lowered its costs, allowing it to lower its prices, which raised demand and thus production, yielding still lower costs per unit. Competing against models such as the Ford Taurus 81 and the Peugeot 504, the Renault 18 filled a gap--medium-large autos--in the Renault line and helped the company leap into first place in the first half of 1984, with a third of the domestic market. Other new models were the Coupe Fuego (1982) and the 1.4-liter-engine Renault 11 (1984).

Renault Argentina reached its maximum size in this period. The Santa Isabel plant consisted of five principal areas--mechanics, pressing, assembly, painting, and mounting--occupying 300,000 square meters (about three million square feet) on 237 hectares (585 acres) of land. Three nearby affiliates provided a variety of components, some of them exported abroad. Three others did the same from the city of Buenos Aires, Tandil; Buenos Aires; and Villa Mercedes, San Luis. The seventh produced gearboxes in Los Andes, Chile, a few miles from the Argentine frontier. Some 13 affiliated auto dealers were selling Renault Argentina cars in five provinces. Four insurance companies were associates, as was Asorte, a service company.

Renault Argentina remained the leading automaker in 1985, when it ranked 13th highest in the nation in sales, but it lost money that year. The later part of the decade was even worse. Its finances mismanaged, Argentina was stricken by hyperinflation, and Renault Argentina had difficulty converting the increasingly worthless austral notes of its customers into hard currency. The company lost some $300 million between 1988 and 1991, resulting in a shakeup at the top.

Mixed Results in the 1990s

A new era for Argentine automaking began after Carlos Menem assumed the presidency in 1989. The network of government measures intended to protect the domestic industry came to an end, including a law that required 90 percent of all components to be manufactured within the country. As a result Renault Argentina reduced its high level of vertical integration, selling off most of its subsidiaries, although it retained and even expanded its profitable forging and die-making facilities. Employment fell from 10,000 to 6,000, and the number of models was cut from eight to three.

These cost-cutting measures enabled Renault Argentina to make a healthy profit in 1992, but, since the company had lost nearly $200 million the previous year, the parent firm in Paris had already decided to cut itself loose from Argentina. The beneficiary was an obscure auto parts manufacturer named Manuel Fernando Antelo, who purchased two-thirds of Renault Argentina on remarkably generous terms. According to journalist Luis Majul, Antelo was required to pay parent Renault only if there were profits, and he secured a bank loan for this purpose that accepted the shares he was buying as collateral. Moreover, Paris-based Renault contributed $100 million and took out $75 million in bonds to help the enterprise. Renault Argentina took a new name, that of Compania Interamericana de Automoviles S.A. (Ciadea). According to the terms of the agreement, Antelo was actually buying two-thirds of a new holding company, Compagnie Financiere pour l'Amerique Latine (COFAL), with parent Renault retaining the other third. COFAL held 72.3 percent of Ciadea, with the remainder publicly traded in Buenos Aires.

Antelo cut costs further by reducing the number of managers from 85 to 40 and the number of levels between the top and bottom positions from nine to five. He closed the plant during a dispute with suppliers and also when demand was low. In 1993 and 1994 Ciadea was the most profitable of all Argentine automakers, earning more than $100 million each year. It produced 106,000 units, or 26 percent of the domestic market, in 1994, ranking second to Sevel Argentina S.A., which was assembling Fiat and Peugeot cars. Ciadea was introducing a new model every 18 months, with the most popular ones being the Renault 9, which was the best-selling car in Argentina in 1994. The Renault 12 and 18 were retired that year, with the Renault 19 replacing the latter. Another success was the Trafic, a light truck that became the leader in its category. Also in 1994, Ciadea took a 10 percent interest in GMAC de Argentina S.A., which was engaged in the financing of car loans. A well-tailored man-about-town with a penchant for non-automotive models half his age, Antelo relished his success, was constantly trailed by paparazzi, and opened a pub, Museo Renault, in a mansion located in one of the most elegant neighborhoods of Buenos Aires.

The following year was one of recession. It saw a drop of 35 percent in Argentine autos sold, and Ciadea's production fell by even more, to 64,520, or 25 percent of the total. The company responded by cutting employment by 1,500, to 5,800, reducing its prices by an average of 20 percent, and introducing new models, including the mid-sized Mégane and the subcompact Clio. Ciadea even arranged to pay the interest on auto loans for the first year and a half. These measures kept the company from losing much market share, but its profit fell to only $6 million in 1997. At this point Antelo sold most of his shares back to the parent firm, which restored the Renault Argentina name for its affiliate. Although no longer in charge, he retained the title of chairman of the board.

Downsizing in the New Millennium

Renault Argentina ranked fourth in revenue among automakers in 1997, rose to second in 1998 (with record sales of $1.39 billion), and retained that ranking in 1999 and 2000. But in 2001 it fell to fourth place, and in 2002, to fifth place. The company chose to give priority to its finances and to cut production and staff as the economic downturn in Argentina turned into a crisis culminating in the devaluation of the peso at the end of 2001. That year the parent firm contributed $300 million to assure the survival of its affiliate. Like other companies, Renault Argentina was swamped in red ink, but it received an additional $160 million from parent Renault in January 2003 to allow it to pacify its bank creditors. The company lost another ARS 209.31 million (about $71 million) in 2003 and ended the year with debt of ARS 815.64 million (about $276 million). During the first half of 2004, however, the company made a small profit. Renault Argentina's principal shareholders were COFAL, 61 percent, and Renault Holding AG, 17 percent.

In late 2003 Renault Argentina was operating at only 15 percent of plant capacity--the average for the entire industry--and was turning out only about 100 cars a day. The company had stopped making the Trafic in 2002, was operating just three days a week, and was employing only 950 people. Production came to 15,540 vehicles. Domestic retail sales of Renaults totaled 14,718, or 11 percent of the total. Another 5,435 units were exported. The compact Clio, in a new version, represented about 60 percent of Renault Argentina's sales. The company also introduced new versions of the light truck Master and presented a special edition of the medium-sized Scenic. The rest of the line consisted of the medium-sized Mégane and Laguna and the Kangoo, which appeared as a compact model in 1998, the Express pickup, and a limited-edition Dynamique for young drivers. Renault also became the exclusive distributor of Nissan cars in Argentina after the parent organization bought 37 percent of the Japanese automaker in 2001. A $20 million investment was made for advertising and the development of a network of 26 concessionaires with 43 points of sale. In 2003 Renault sold 1,656 Nissans. The Nissan line in Argentina consisted of the sports utility Pathfinder, X-Terra, and X-Trail, and the pickups PU Frontier 4x2 and 4x4.

By this time Renault Argentina's Santa Isabel plant had grown to about 400,000 square meters. It was divided into several areas, such as stamping and welding, painting, and assembling for manufacturing, industrial logistics, engineering, and quality control for service, and human resources, sales, finance, and commercial for administration. Some 30 industrial robots were in operation. The plant was capable of turning out 640 vehicles per day. More than two million vehicles had been produced since 1956.

Principal Subsidiaries: Centro S.A. (60%); Centro Automotores S.A.; Centro del Norte S.A.C.I. y F. (51%); Centro Posadas S.A.; Cormasa S.A.; Industria de Conjuntos Mecanicos Aconcagua S.A. (Chile; 97%); Metalurgica Tandil S.A. (98%); Plan Rumbo S.A. de Ahorro para Fines Determinados.

Principal Competitors: Ford Argentina S.A.; General Motors de Argentina S.A.; Peugeot Citroen Argentina S.A.; Volkswagen Argentina S.A.


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