Renault CEO outlines ambitious revival plan

Italian-born Luca de Meo found success at Fiat Chrysler Automobiles, where he helped launch the reborn Fiat 500, and then at Volkswagen Group, where he led Spanish brand Seat to record sales and launched the Cupra performance subbrand. He faces a much bigger challenge as CEO of Renault Group, which has struggled since 2018 with declining sales and profits amid a contentious relationship with its Japanese partner Nissan. De Meo spoke with Automotive News Europe Associate Publisher and Editor Luca Ciferri and News Editor Peter Sigal about his strategy to revive Renault. 

You have described your plan to relaunch Renault -- "Renaulution" -- as a sort of symphony in three acts. You have a resurrection, a renovation and then a revolution. How will this work?
I should clarify. We need to start all three phases right now. But the degree of intensity, density or granularity of the project will increase. We will take a little bit more time on a revolution project than on a resurrection project, for example. For the resurrection, I need to ensure that the cash is there, that we are immediately increasing our margins. On the other hand, if I invest in mobility services, I assume that the money, hopefully, will come one day, but I still need to invest now in platforms, in organization, in software, etc. It's like I have a water pump in one hand to fight the fire, and on the other hand I have a pencil to draw a beautiful future.

What is the time frame for resurrection?
I would say by early 2023.

And then comes the renovation?
That will come with the arrival of new products. One of the things that we did, in my first six weeks, was reshuffle the whole product plan. We decided to kill maybe six or seven or eight projects, and to reinvent five or six, but centered in the segments and markets where I believe there are profits. The overall philosophy is to make more differentiation between Dacia and Renault. 

Could you elaborate?
I would like to move Renault up a little bit [in market position], basically following what has taken place at PSA in the last five years. They have been much stronger in the C-segment [compact], where you have volume and margins at the same time. When you look at the profit pool worldwide, the C-segment is three times the B-segment [small]. On the other side, we want to allow Dacia to flourish as a full-fledged brand rather than a subbrand of Renault, because the brand has a lot of potential, and it's making a lot of money. It is relatively easy to sell because it has a very clear brand proposition: entry pricing in each segment.

Could you tell us which models you decided to discontinue and what was reinvented during those crucial six weeks?
We reinvented the next generation of our electric cars and added C-segment products on body styles that are, let’s say, naturally more inclined to call for a premium price, such as SUVs or crossovers. We killed attempts to create unnecessary proliferation of small cars in poor-margin markets around the globe. 

Why did you reorganize Renault Group around brands instead of regions?
I have experienced the Volkswagen Group, and I know the benefit of putting a shirt with a certain color on people. Of course, you have to manage conflict between brands, but it creates a sense of belonging, and it orients all of the team to the outside, to competition, and to the market. The organization of Renault was very complex, with a lot of dimensions and matrixes. It was focused on functions, but people don’t buy functions, they buy brands. 

What is the role of the overall Renault Group if you are now organized by brand?
I am trying to push the power in the brands. But I also want to have full end-to-end responsibility for some of the key functions. Before, some of this governance was intruded by the fact that you had the region in the middle. Now it’s organized so brands are responsible for the margins and the return on investment. The product planning division will tell them how many products they can have and in which segments. 

So, product planning will tell Renault you will have, let's say, seven products, and you should have them in that segment or this segment, and you have your envelope of costs. On the other side, the brands face engineering, which is responsible for the content of the car based on the envelope of cost that is allocated by the brand for product, and the timing, which is very important. So the dialogue, or confrontation, happens between the people who are close to the market, the brands, and the engineers without anybody in the middle. The functions (on the group level), whether it’s quality, production, product direction, finance, etc. are all there to support this kind of dialogue. It will also bring the company much closer to the market and make everyone accountable.

And then comes revolution. What does that mean to you?
Revolution, for me, is the moment where we will start seeing new value chains activated and bringing some money. You will see a lot of new ideas popping up, or energies and initiatives that were kind of spread around in the organization coming together. One example is the plant in Flins [outside Paris]. In the announcement of the [2 billion euro cost-cutting) plan, we told to some of the stakeholders that we would use Flins as a place to do, basically, refurbishment of used cars. So, I went there with Jean-Dominique [Senard, Renault’s chairman], and we talked to the people. We came back and gave the team the task to make Flins the best example of industrial reconversion in France, if not in Europe, and to bet on the idea that this place could become the center of excellence in the circular economy.

How will you do that?
We will announce the details soon, but I'm confident that we will be able to match our commitment in terms of employment protection and on top of that, we will do something that probably will make more money than simply assembling cars, as we are doing today. For example, there is a lot of value on the second life or third life of [an EV] battery. You can put them into a rack and then make a deal with energy companies to use them to stock renewable energy. You could have a process to manage the third life, by dismantling the battery, taking out the cobalt and the magnesium and putting it new batteries. That changes the business case of an electric car. I'm not talking about hundreds of euros per battery, I'm talking about thousands of euros per battery in this life cycle.

When is your plan expected to finish?
We shouldn't be looking for a date. The French Revolution still has consequences on our life today, and it took place in 1789. We have seen margins in the traditional [automotive] value chain erode every year. So, we need to look at opportunities outside it. We will not do yogurts or perfumes, but we can reintegrate some of the businesses that are adjacent to us. We can tap into new profit pools in these new businesses.

One of Carlos Tavares's successes in turning around PSA Group was to set benchmark brands to measure the progress of Citroen, DS and Peugeot in terms of pricing, quality, things like that. What are your benchmarks?
For Renault, it’s Peugeot. For Dacia, it’s Citroen.

You joined Renault from VW Group, which has a number of brands that compete for resources within the organizations. If you look at PSA, they have Peugeot, Opel, Citroen all competing for the attention of the organization. Does Renault have enough brands?
I think I have enough work to do in the next two or three years to fix my perimeter, which is Renault, Dacia and Alpine. I know that Dacia is a very, very clear proposition. I know that Alpine has potential, maybe not to compete with the German premium brands but it’s a business opportunity. You could argue that Alpine is a relatively unknown brand, but it certainly has the pedigree and the heritage. I would give them the target of developing a lineup of products, and I would give them the target to reach break even and to pay for racing and all the activities within the Alpine world.

The big issue is obviously Renault. It shares the same problem as all mainstream brands -- it’s a little bit in the middle between premium and budget. It’s like this in all sectors. So I think we need to reinvent Renault and make it a modern brand that has a more distinctive proposition to the market. 

In China, Renault has effectively exited the passenger car segment, transferring shares in Dongfeng Renault. Can Renault compete without a presence in that market?
In principle, a company that sees itself as global needs to have a presence in China. It’s true that Nissan is pretty strong in China, but I think that Renault needs to ask itself when and how to one day go back to China. But it can’t be in the traditional way. Right now, I’m trying to make sure to protect the things we have there, a commercial vehicle joint venture [with Brilliance Jinbei] and companies doing electric cars, which are pretty interesting.

You are trying to make Renault's positioning consistent all over the world. But in many non-European markets most of the Renaults are rebadged Dacias. Does that mean you will offer Dacia outside Europe?
It makes sense to introduce Dacia in some of the markets where there is space below Renault. So, if we are able to move Renault more into the C-segment, we have space for Dacia.

Are the new Dacia Sandero and Logan, which are using more modern platforms and technology, a good base for Dacia? Or is this going to mean that your strategy with Dacia to benchmark Citroen will have to wait one more product cycle?
The new generation of those cars is very, very good. You would be surprised by the advantage we have, in terms of cost, with a low-spec [Dacia] and high-spec [Renault] on the B-segment platform. We can attack a lot of markets with the low-spec. For the next generation [of Dacia], we need a modular approach where you start from the low spec and you are able to move up to a higher spec.

With the Zoe, Renault was ahead of the times with a mass-market EV, maybe even too early. Does Renault still have a competitive advantage in electric vehicles?
There were two things that were really a surprise to me when I came to Renault. One was the E-Tech, which is potentially the best hybrid solution for European driving conditions. And the other thing is the whole story of electric. I agree that Renault was maybe a little bit too early [with the Zoe], and was not very consistent afterward -- but the good thing is, as we have 10 years in the game, we have a lot of experience. Our dealers know how to sell an electric car. They know how to repair an electric car. They know how to install a charging point at the house of the customer. Our batteries are returning, so we know their performance, how much value they have, how to recycle them. Of course, our competitors can catch up, but it’s not going to take two weeks.

Was the idea to move Renault in the premium space with Initiale Paris an overreach?
I have never seen Initiale as the final weapon for Renault to attack the premium market. It’s a flavor, it’s classic elegance. My experience is that equipment levels that have a more dynamic, sporty look are more popular in the market. Therefore, I think we need to go in that direction. An Alpine line could be a way for us to increase our mix on higher equipment levels, where you make money. A Renault model range could look like a Y or an upside down Eiffel Tower -- with a strong volume base, an entry version for fleets, then a sporty version on one branch of the Y and a classic, elegant version on the other.

So the "Y" would mean a standard Clio, with Clio Initiale Paris on one side and a Clio Alpine on the other side?
Yes.

Is there a place for a volume automaker such as Renault in the midsize segment right now, or in the near future?
No, I think we can go up to C-plus. We will probably concentrate on crossover-ish SUVs, this kind of stuff rather than get into sedans, etc. The history of Renault is punctuated by unsuccessful attempts to conquer the [premium segment]. I won’t do that.

To be clear, what is the difference between a C-plus and a midsize car?
It's a question of brand positioning, in the end. I think that the D-segment [midsize] is dominated by the German brands, with classic body styles -- sedans, liftbacks, station wagons and some SUVs. I’m not going to burn money on that. I would rather do the things where we are credible. I think that Renault can be credible in the C-segment. We did that in the ’90s, when Renault invented the Megane family. One platform, six or seven body styles. We have to reinvent that kind of thing. 

How do you get people, especially in France, to pay more for a Renault?
In France, clients are ready to pay the price for the right content, especially in segments where we are good. The problem is that we are not performing very well in the C-segment. And then you have the way you manage the pricing -- channels, discounts, and things like that. That's work that we need to be doing, but the company was totally steered through volumes. I understand why that was -- when you are selling cars that structurally make half of the margin in absolute terms as some of our competitors, you have to sell two cars to make the same money.

What is the biggest change you are going to make to ensure that price and margin prevail over volume?
It's the consistency of the approach throughout the chain, from the KPIs [key performance indicators] we are giving internally here to the one that you are giving to the dealer body. You can't imagine the level of damage that can be caused when you are not clear that your only KPI is to make money. I'm trying to build a new story at Renault, but I don't want to be inconsistent with the history and the tradition and the culture of Renault. And I think it works, because the whole story of "Renaulution" -- people got it in a minute. We will also change the organization and the reward system. So it's not only making a new strategy or making new numbers. It's a different way of playing with almost all the same players.