Renault faced uphill battle in China

PARIS — Renault sought to make a splash on the Chinese market in the middle of the 2010s with a SUV-focused lineup, a new factory with Dongfeng Motor as joint venture partner, and a goal of selling 550,000 vehicles a year by 2022. 

The automaker effectively left China this week, a victim of poor sales and an already weakening market that has been crippled since February by the coronavirus outbreak. Renault’s overall 2019 sales were just 179,494 units — and only 18,607 were Renault branded passenger cars. The rest were aging SUVs and passenger vans from another joint venture, with Brilliance Jinbei.

Renault Group is dissolving the Dongfeng partnership but says it will remain in China through electric vehicles, including a version of the Kwid mini-SUV sold under a number of Chinese brand names and future models developed with Jiangxi Jiangling Group; and light-commercial vehicles with Brilliance Jinbei. And it will continue to work on powertrains and components with alliance partner Nissan and Dongfeng.

But the gleaming factory in Wuhan built to produce Renault SUVs — the Captur, the Kadjar and the Koleos — will revert to Dongfeng. Most of the plant’s planned annual capacity of 150,000 vehicles was never used. 

“We will concentrate on electric vehicles and light commercial vehicles, the two main drivers for future clean mobility and more efficiently leverage our relationship with Nissan,” said Francois Provost, the chairman of Renault Group’s China region.

To be sure, Renault brand’s early exit from China was given a push by the Renault-Nissan alliance’s shaky finances and the need to find more synergies with Nissan. The automakers are expected to roll out a turnaround plan next month that will most likely include plant closures and a retreat from unprofitable markets, such as China. And early this year the alliance announced a “leader-follower” strategy that cedes regions such as China to one automaker, in this case Nissan.

The venture with Dongfeng, known as DRAC, reported an operating loss of more than 1.5 billion yuan ($212 million) in 2019.

But the brand faced an uphill struggle from the beginning, analysts say. As a late entrant to China — the DRAC plant started producing cars only in 2016 -- Renault was competing with not only established foreign players such as Volkswagen and General Motors but also a rapidly growing domestic auto industry.

“In 2017, Renault brand’s best year in the [personal vehicle] market with more than 70,000 units sold, we had 284 nameplates on the SUV market, while in 2018 and 2019 that was increased to 333 and 366 respectively,” said Abby Chun Tu, a Shanghai-based analyst at IHS Markit. 

Mass-market competitors such as Volkswagen have quickly expanded lineups to compete with domestic brands (Volkswagen has even spun off the Jetta nameplate as a lower-tier brand), but Renault was not able to keep up the pace, she said. 

“Top players have shown greater willingness to adjust to the fast pace of the market and channel resources to bring localized products for consumers here,” Chun Tu said. 

With just three vehicles in its main lineup, Renault was not able to break through against so many competitors, she said. Many Chinese consider just three different brands when buying a car, she said, and “there is just not much room for smaller brands to attract mass-market consumers.”

To be sure, other foreign brands are struggling in China, where light-vehicle sales have now fallen for 21 months in a row. Passenger car deliveries fell by 9.6 percent in 2019 to 21.4 million. 

Ford’s sales fell 26 percent to 567,854 in 2019, following a 37 percent decline in 2018 and a 6 percent drop in 2017. GM sales fell 15 percent in 2019 to 3.05 million. PSA Group volumes shrank to just 117,084 in 2019, down 55 percent, and a small fraction of 2014’s 734,000 sales.

Suzuki was the last major brand to leave China, departing in 2018 to focus on its successful Indian operations.

Other brands could follow Renault’s exit, with margins under pressure from the coronavirus pandemic. PSA is dissolving a joint venture with Chongqing Changan Automobile, but said it will stick it out in China, banking on synergies from a planned merger with Fiat Chrysler Automobiles — whose Jeep brand sales in China fell by 41 percent in 2019 to fewer than 75,000 vehicles after a 38 percent drop in 2018.

French brands face their own challenges in China, where consumers associate the country with personal luxury goods from designer labels rather than cars.

Michael Dunne, CEO of consultancy ZoZo Go and a former GM and J.D. Power executive in Asia, said Chinese buyers perceived Japanese brands as having good value for the money, American brands as marketing driven and German brands as serious, but French brands as not being serious. 

“Renault arrived late, ambled along in Nissan's shadow and never really connected with Chinese buyers,” he said.