DECEMBER 21, 2005
The decision facing Carlos Ghosn
Carlos Ghosn has a big job on his hands. The new chief executive officer of Renault is faced with a situation in which the company he runs is losing market share in Europe. An attempt to break into the luxury car market with the Vel Satis failed to reach even half of the targets set by the company and the company depends heavily on sales of the Megane in France.
"Over 50% of Renault's profit today is generated from one model, in one country," said Ghosn recently. "It's too vulnerable."
Ghosn's aim is to drive Renault into profitability using the same strategy that he used while running Nissan, by selling more expensive cars. The smaller cars such as the Logan and the Megane are selling well but the smaller the car, the smaller the profit margin. Renault sales have been much the same for the last eight years, with the increase in that time being a modest 16%. The goal for the company is to increase its sales to four million cars a year by 2010, which is 1.5m more than are being sold at the moment, an increase of 60%.
Given the intense competition in Europe that is not going to be easy and will mean major expansion in Asia, notably Korea and China and in Brazil. There are currently no plans to go back to the US market. In order to make Renault more efficient Ghosn is planning a new three-year plan which he will reveal in February. This is expected to include considerable restructuring and cost-cutting. And this is where the F1 programme is vulnerable because right now there are no signs that the F1 success is being translated into sales. Renault sales in Spain between January and November fell by 3.5% compared to the previous year and that is not a great message given the success and popularity of Fernando Alonso.
Formula 1 is an expensive game for Renault with the engine programme at Viry-Chatillon believed to be soaking up around $120m a year. The race team in England makes a profit but it iss not clear how much of the $170m budget is paid for by Renault and what comes from the team's big sponsors: Japan Tobacco (Mild Seven), Hanjin, Elf, Telefonica and NTT DoCoMo (iMode). Some Renault executives believe that cuts must be made in racing expenditure.
Kimio Kase, a professor at the Barcelona business school IESE, who has co-written a book about Ghosn's leadership of Nissan, recently told the Bloomberg newagency that Ghosn will not lose sleep over F1.
"He'll be logical, look to see if there is synergy between Formula 1 and Renault - which I don't think there is," he said.
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