Renault COO wants automaker to do more with less to cope with Europe decline
Renault COO Carlos Tavares: "Volatility is the new norm."
Photo credit: Silvia Steinbach
Renault Chief Operating Officer Carlos Tavares wants his employees to view the automaker as a family business because that way they will think twice before spending money foolishly. Since volatility is the new normal, Tavares says that everyone needs to do more with fewer financial and human resources. Tavares discussed these topics and more with Automotive News Europe Editor-in-Chief Luca Ciferri.
Is Europe headed for another shock like we saw in 2008 after the Lehman Brothers collapse?
I don't think so because people are much better prepared. When I left [Renault] for Nissan in 2004, cash was not the priority and even less thought was given to free cash flow. Today, the company understands what cash management is all about. They now know that they need to manage the company with lower inventories.
Do you agree with forecasts that say Europe won't rebound until 2020?
The current problems are something that will last for a few years. There is not going to be a rebound in six to ten months. We need to be happy with less. We need to do more with less, or better with less. You cannot ask for more financial or human resources.
How does a car company become more frugal?
We need to have people inside the company act as if they are spending their own money. There are many things that people would not do with their own money, but they think it's normal to do it in the company. Healthy companies are necessary for society as a whole and for happy families. The company is pivotal to many things in our lives so we need to protect it and we need to consider that the company as our own. We should nurture it and use it in the most efficient way without wasting resources.
How do you cope increasing volatility in all car markets?
Volatility is the new norm.
Do you have a disaster plan in case the euro collapses?
Personally, I don't think it will. That being said, we are organized into five global regions. On average, 80 percent of what we sell in each region is manufactured in that region. We will continue to do this because when you are localized you benefit from the cost competitiveness of local suppliers. When it comes to parts that come from Europe, a collapse of the euro could affect the competitiveness of those exports. At the same time, a collapse of the euro would mean that profits from emerging markets would be bigger.
If the euro collapses, French cars would probably become cheaper in Germany, but cars built in Italy and Spain would be less expensive in France, right?
That's the reason why I don't think it will happen. There is too much at stake.
Will Renault Group's sales increase this year?
Due to international growth, new product launches in the second half and the rollout of the Dacia Duster in additional markets, we target unit sales above last year. This could change if the situation in Europe gets worse.
How do Renault and Nissan operate as an alliance?
The companies are two different legal entities with different executive committees and shareholders, but they have a cross-shareholding. Renault owns 43 percent of Nissan while Nissan has 15 percent of Renault. Thus, Renault benefits from Nissan's profit and vice versa. Most functions are separate but we align our product planning strategy so that we don't step on each other's toes. Everything related to engineering, technology, product planning is discussed together. We have a joint purchasing organization, which creates a huge volume-scale effect, because - with Russia's AvtoVAZ - we sold a combined 8 million cars in 2011.
Renault builds the Mercedes-Benz Citan van for Daimler. How is the partnership progressing?
Very well. The Citan is a win-win situation where we demonstrated at our Maubeuge, France, factory that we can be cost competitive and quality competitive. Mercedes has been very demanding on fit and finish, which I really appreciate. Our people are progressing faster than they would have without that pressure. I think Mercedes is happy with the costs we are achieving. Mercedes has put our diesel engines in their cars. They are happy, we are happy. Our Cleon and Valladolid engine plants – in France and Spain respectively – are running at full capacity.
How is joint development of the Renault Twingo and Smart replacements progressing?
Again, we appreciated that Mercedes is very demanding because that is accelerating the progress being made by us in some domains. I mentioned fit and finish, but I also see that their culture of brand management, of rigorous implementation, is something that is helping us to progress faster.
When Chrysler was a Daimler subsidiary, it was only given old Mercedes technology. Will that happen with Renault?
We are still in the preliminary stages of the relationship, but we will not take something unless is represents the biggest possible value for our customers. We may also have some carryover from one generation to the next generation. For me, that's not a precondition for success. We know the qualities of today's Mercedes cars and they are capable of doing what we need. Hopefully by this year or early next year, we'll be able to decide whether to proceed with the program. The Edison project [for the Twingo and Smart) enables Daimler to benefit from Renault's expertise in small cars. There is no doubt that Daimler's expertise would help us with an E-segment vehicle [large sedan].
Are Renault and Daimler discussing sharing a platform for a large sedan?
Yes, but for Renault the first priority is to renew the D-segment [mid-sized] car, the next-generation Laguna, which is not going to be a European car, but a global car.
Will Renault Samsung, which builds the Latitude, build a global Laguna successor for Europe?
No, when I say global I mean that this car will be for markets other than just Europe, such as Russia and China. It's important for us to be thought of as more than just an entry-car manufacturer in emerging markets. We also want to be a more upscale carmaker.
Renault is mulling elevating the Initiale Paris subbrand to a stand-alone premium brand. Renault's last bid to move upscale with the Vel Satis and the Avantime failed.
The Avantime was a success in terms of concept and design, the problem was its quality. The Vel Satis was great in terms of driving, just its design was wrong.
So what will be different this time?
You need to do two very different things. The first is to free our designers to let them express all the talent they have. While you do this, you also need to be very, very demanding on how you go through the different gates and then use market research. Even if you think the car is great, if your clinic results are not good forget it because the customers disagree with you. So, perhaps what we have now that we didn't have at that time is more sophisticated market research.
Who has the final word on a new model's design, you or customer clinics?
I may like a car, but if the clinics tell me the customers don't like it, then I'm wrong.
How do you plan to deploy Initiale Paris?
Initiale Paris already exists as a label for higher-spec versions of some of Renault volume models, but is not widely known. Even some Renault employees have not heard of it. In addition, models currently sold as part of Initiale Paris are well executed but not always very consistent. The first thing we need to do is clarify what kind of modern luxury we want to express through Initiale Paris. Then, we need to align all the new models and versions in that direction and create strong, specific cars for Initiale Paris.
How long will it take to develop Initiale Paris into a separate brand?
Nissan needed 25 years to take Infiniti where it is today. Initiale Paris is not something that could be completed in the next two years. Therefore, we plan to start with something that will be similar to Citroen's DS series that will eventually become something like Infiniti.
We are putting the bullets in the gun for the D segment and the E segment for Initiale Paris. Five years down the road, we will look at the five or six Initiale Paris versions and we'll try to answer these questions: Are these cars premium? Are they all aligned with the same flavor of premiumness? Can we imagine that one day these cars will be called Initiale Paris and not Renaults? If the answer is yes, then perhaps one day we will have our own Infiniti-like brand within Renault group.
Carlos Ghosn wants Renault Group to reach a 6 percent operating margin. Only Dacia is already there. Why?
Dacia is already significantly above 6 percent, so it is really a cash cow for the company. Dacia is very well done because it is well designed to cost, it's well sourced and there are few cash incentives offered because the price is so competitive. And the surprising thing is that people don't ask for incentives because buying a car and bargaining is painful. That's something that we learned in the United States. People are fed up that they have to fight with the dealer to get a lower price. So if customers see a car with the right features at appropriate price, they don't even ask for discounts.
But isn't it true that Dacia dealers do not offer discounts because their margin is razor-thin, about 5 percent?
Because most Dacia dealers utilize corners of existing Renault dealers, they don't have to invest much to create a showroom. Since their investment is limited, they don't need a big dealer margin. But because the margin is not very big, they cannot give it away. The business model is frugal and well positioned.
Why is demand in Europe for electric vehicles below expectations?
On EVs, we are not in a 100-meter race but in a marathon. Since Renault and Nissan decided to invest massively in EVs four years ago, the environment is more favorable. Geopolitical tensions on oil are greater than ever and people are more sensitive to environmental issues. Our choice to invest is more valid than ever. Renault is delivering on its commitment, bringing four different EVs to market by the end of the year: the Fluence, Kangoo, Twizy and soon the Zoe. One thing that is sure, we will not discount our cars to chase volumes.
Are you happy with your EV sales?
We are currently the only automaker to propose an extensive range at an affordable price. Renault is the leader in EVs in Europe with a 54 percent market share. This is just a beginning: Kangoo ZE has won several for significant volume orders, such as one from the French Post Office; the Fluence is growing with Better Place in Israel; the Twizy is becoming an iconic object; and the Zoe will be the first affordable mass production EV, perfectly designed for commuters.
How will Renault catch up with other Western automakers in China?
We have positioned the Renault brand as 'casual luxury' in China. We have a network of 80 dealers and plan more than 30,000 sales this year. We have a strong local partner, Dongfeng, which also has a successful partnership with Nissan. We plan to build a plant in China and benefit from strong local sourcing with a bundling effect with Nissan's volumes. Last but not least, we have EV technology and electrification is a key for the Chinese government.
You can reach Luca Ciferri at firstname.lastname@example.org.