Enlarge imageBy Rebecca Harrison
MIOVENI, Romania (Reuters) - A new car for 5,000 euros (3,330 pounds) -- too good to be true?
Definitely not, says France’s Renault, which is poised to launch a cheap no-frills Logan sedan for poorer countries this year as it chases new markets in a bid to swell annual sales to four million vehicles by 2010.
Analysts are more sceptical, and some argue that despite rock-bottom labour costs at its revamped factory in Romania, Europe’s fourth biggest car maker will make little money on the bargain-basement model.
"I will salute Renault if it manages to do it," said Stephen Cheetham, autos analyst at Sanford C Bernstein. "But it seems like growth at the expense of profit."
In contrast to Renault’s push four years ago into South Korea, where it bought up a new Samsung factory and began producing cars almost immediately, its Romanian venture has been a slow, arduous process.
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Renault has spent some 1.2 billion euros on developing the Logan and transforming its once-decrepit Communist-era Mioveni plant in southern Romania into a modern factory about to break even.
It inherited the factory -- now just a year behind its French factories in terms of efficiency -- when it took control of the loss-making Romanian brand Dacia in 1999 with a view to turning it into the standard bearer for the Logan.
This year Renault will phase out production of the boxy Dacia 1310, launched over three decades ago, and start making the Logan for sale at home and for export to eastern Europe and the Middle East.
CHEAP LABOUR
Executives transferred to Mioveni from Renault plants in France and Spain in 1999 describe a crumbling building, rusting machinery, and a bloated workforce making sub-standard vehicles and taking spine-chilling safety risks for bonus pay.
"People said it would take us 10 years, not five, to get here," said Jean-Michel Aime, who arrived from Renault France as executive director, quality in 1999. "We might not be Renault’s top plant but at least we’ve arrived in the industrial age."
Despite revamped stamping lines, a new assembly workshop and the arrival of on-site suppliers like France’s Valeo and U.S.-based Johnson Controls, there is one thing that takes visitors to the factory back in time -- the number of workers.
Renault has axed half its staff but the factory still produces fewer cars per employee than any of its other plants, with lines of men and women lifting sheet metal onto the stamping machines by hand -- a job done by robots in France.
While Dacia concedes it must do better to meet internal targets, it also notes that with wages at just 150 euros a month -- roughly the national average but less than a tenth of what a typical Frenchman earns -- there is not much incentive to modernise.
"This is nothing like Renault’s ultra-modern factories in France in terms of automation," Simon Valin, Dacia executive director, manufacturing told Reuters. "Why would we install expensive robots when labour is so cheap?"
BACK TO BASICS
If Renault is going back to basics with its manufacturing methods, it shows in the product -- the Logan is unashamedly basic, even if Renault insists it meets all the same quality and safety standards as a new Megane or Clio.
The car is a departure from trends in western Europe, where car makers have been inventing ever-new niche segments and packing cars with gadgets and freebies to grab market share in a crowded, cut-throat market.
Expansion is crucial for Renault, which has no presence in the United States or Japan and, like other European mass carmakers, is struggling to boost margins faced with increased competition from Asian manufacturers and flat demand closer to home.
Renault hopes the Logan, which starts at 5,000 euros and will be sold in eastern Europe, Turkey, the Middle East, Latin America, Russia, China and possibly India, will account for around a fifth of the company’s sales by 2010.
Chairman Louis Schweitzer said a "conservative target" would be to sell 700,000 vehicles a year by 2010, with production starting in Russia, Morocco, Colombia next year and Iran and probably China after that.
Analysts laud Schweitzer’s vision in buying Dacia and revamping it on schedule. They concede that unlike other attempts by carmakers to design a "world car", the Logan is well geared to its markets.
But given the cost of raw materials and the risk of wage inflation as manufacturers flock east, it is unclear if it will actually make Renault any more money. There is also a risk over whether it will sell.
Schweitzer has said margins on the car should be around five percent -- roughly in line with the firm’s average -- but he has not said by when.
Executives in Romania declined to comment on the Logan’s margin, but Valin told Reuters he expected Dacia to boost its barely positive operating margin to 4.5 percent next year -- a figure analysts said was encouraging.
"There’s no doubt there are enough people out there who would like a car but can’t afford one at 10,000 euros, so the concept of a world car is fairly credible," said Robert Ashton, autos analyst at Commerzbank. "Now we just need to see whether they can get enough people to fork out 5,000 euros."
