When Renault's (RNSDF) former Chairman Louis Schweitzer bought 44% of ailing Nissan (NSANY) and sent Carlos Ghosn to Japan in 1999 to turn around the near-bankrupt giant, most auto industry experts thought the mission a hopeless cause. But Ghosn engineered a stunning comeback (see BW Online, 2/10/06 "Ghosn Puts the Pedal to the Metal").
Since April, 2004, Ghosn has been back at Renault, succeeding Schweitzer as the chairman and CEO. Known for his relentless attention to speed and targets, Ghosn has come out with a new three-year plan to turbo-charge Renault's profits and overall competitiveness while extending its global reach.
So will he be able to work the same magic at Renault that he was able to pull off at Nissan? He clearly thinks so. By 2009, the 51-year-old executive aims to sell 800,000 additional cars, boost operating margins from 3.2% to 6% and introduce 12 completely new cars to Renault's lineup. To help explain how he's going to get there, Ghosn met with foreign journalists on Nov. 9, including BusinessWeek Senior Correspondent Gail Edmondson, at Renault's Paris headquarters.
You said Renault is fragile, but not in crisis. So where's the urgency for change? I hope we never wait until we are in a crisis to change. It's true Renault just reported the best net profit after tax it's ever achieved. And we have practically no debt. Even our operating margin of 3.2% is not far from the global industry average of 3.6%. But I consider one is doing a good job in this industry when you are earning a 6% operating margin. I wanted to target 6% because it forces you to grow. I want to be in this camp, of over 6%, which includes companies turning in a great performance -- Toyota (TM), BMW, Honda (HMC), and Nissan. That's the only way to make sure you are going to be here in the future.
Peugeot has also fixed a target of 6% operating margin? When? If I say 6% in 2009 and another auto maker says 6% with no date, it's not the same thing.
You are looking to expand sales outside Europe by 550,000 by 2009. Won't Renault compete with Nissan for sales outside Europe? If Nissan goes to India and Renault goes to India, it doesn't mean they necessarily compete for the same customers. The sales effort can be complementary. Nissan may look for SUV customers, while Renault sells small cars. We always work on a complementary basis to make sure we are not after the same customers in the same segment in the same market.
What's the status of sharing common parts with Nissan? Little by little we are bringing engines and transmissions. The program is going forward as planned. It's a growing trend to use more interchangeable parts. Common purchasing now covers about 70% of total parts.
You said you can fix Renault's problems in the large car and luxury segment without buying a premium brand like Jaguar. And you aim to double sales of Renault's luxury cars. Who are you really aiming to compete with and how many cars do you plan to sell? When you say double sales, we are now at a very small level. We sell 100,000 luxury cars. For us, doubling is big deal, but it is not the kind of expansion that is going to threaten existing brands. We are trying to reconquer customers lost in the past. It's the first phase. We will do so by bringing out new product at the lower end and working up.
Will the Laguna become a luxury car? Some of the top-end Lagunas do cost over $32,000. So yes, we will start with that car. It's no risk for us. If we are successful, we will go up from there.
Aren't there enough examples in the industry of brands that overstretched and suffered the consequences? Isn't that a big risk you are taking? You have to start at the bottom and work up. You can't start at the top of the market. It's feasible. Look at Nissan in Europe and where they are profitable. It's with the Murano and the Pathfinder. Those are not cheap cars. We have to ask ourselves why they sell well.
Renault's shares fell today in response to your three-year plan. Why? Don't judge the plan on a one-hour market reaction. When I presented the plan at Nissan, everyone applauded and the stock fell 35%. Don't expect the market to have memory or vision. You have to evaluate a plan like this over the long term.
Does your experience in the Japanese market help you compete against the Japanese in Europe? I hope to think so. It helps to understand the advantages and logic of being on one side or another. There is no doubt the Asians will play a bigger role in Europe in the years to come. And the three Japanese players are in much better shape than anyone in Europe. So yes, it does give us an edge. We are an alliance with two faces: Japanese and European. That helps in understanding the market.
Are you too late to market with an SUV? It's never too late. It's better to be late than not there at all. And I believe the SUV market is still a promising market in Europe. It will continue to grow. The question is not whether you are late. It's what is the product you have to offer.
Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau
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