Renault slashes sales target

Tag : Steel Shutter
Renault slashes sales target July 25, 2008 - 5:00AM
Renault, France's second-largest carmaker, slashed its 2009unit-sales target and pledged as many as 6000 job cuts to meetprofit goals, amid soaring raw material prices and flaggingEuropean auto markets.

Renault reduced the target by 10% to 3 million vehicles, whilekeeping its operating-margin goals of 4.5% in 2008 and 6% nextyear. First-half revenue rose 2.3% to 20.9 billion euros ($US32.8billion) and operating profit jumped 20% to 865 million euros.

The reiterated profit objectives ''will leave investorsskeptical,'' said Stuart Pearson, an analyst with Credit Suisse inLondon, who has an ''outperform'' rating on the stock. ''The riskof an earnings miss may weigh on the stock for the foreseeablefuture.''

Chief executive Carlos Ghosn outlined plans to scrap some vehicleprograms, trim European production and cut non-production costs by10% in an effort to offset dwindling sales growth. He also scaledback Renault's ambitions in upscale vehicles by shelvingdevelopment of a range of successors to the aging Espace minivan.

Renault shares fell 1.94 euros, or 3.4%, to 55.90 euros in Paris.The stock has tumbled 42% this year, more than twice the declineposted by the Bloomberg Europe Auto Manufacturers Index.

'Difficult Challenge'

The operating profit figure, which beat the 840 million- euromedian of nine analyst estimates in a Bloomberg News survey,amounted to a 4.1% margin for the first half, compared with 3.5% ayear earlier.

''Renault would need to attain second-half margins in excess of 5%to achieve the 4.5% full-year target - an extremely difficultchallenge in our view,'' said Adam Jonas, a London-based MorganStanley analyst with an ''underweight'' rating on the stock, in areport to investors.

Renault will not publish first-half net income until its 44%-ownedJapanese affiliate Nissan reports earnings on August 1. ExcludingNissan's contribution, estimated net income rose 37% to 1.47billion euros, it said.

The French carmaker announced a hiring freeze in Europe and said itis considering a program of voluntary departures among the region's47,000-strong white-collar workforce to secure the 10% cut to itscorporate overhead costs.

'Fight in Europe'

The plan could yield about 5000 job cuts and savings of 350 millioneuros next year, rising to 500 million euros in 2010, ChiefFinancial Officer Thierry Moulonguet said during a briefing forreporters.

''A strong increase in our raw-material costs'' wiped 76 millioneuros off Renault's first-half operating profit, which excludesone-time gains and losses, Moulonguet said.

Oil prices are up 30% and steel has risen about 60% since the startof the year. While Renault ''remains on track'' for the 2008 margintarget, its statement cautioned that ''worsening economicconditions would make this milestone more difficult to attain.''

European car deliveries sank 7.9% in June compared with a yearearlier as consumer confidence fell to a three-year low and fuelprices soared, according to data from the Brussels- basedAssociation of European Carmakers.

''We are in a fight in Europe,'' Ghosn said during a presentationto analysts, adding that deeper cuts may follow. ''If the marketshead south we're going to have to restructure our manufacturingcapacities.''

Production Cuts

Besides the European market slump, a series of misjudged ormistimed model introductions has hurt Renault's performance. Eventhe no-frills Logan sedan, which has boosted its business inemerging markets, missed targets for its Indian debut because itwas priced too high for local consumers, sales chief Patrick Blainsaid earlier this month.

The company said today it will consult workers over plans to cutone of two remaining shifts at its Laguna plant in Sandouville,northern France, after the new flagship hatchback clocked fewerthan 60,000 sales against its 190,000 goal for the first year.About 1000 workers are employed on each shift.

Renault eliminated one of the three original shifts earlier in theyear and last week announced a seven-day stoppage at the plant. Italso told unions this week that it will shutter its plant in Douai,France, for 24 days before December, because sales of the Meganecompact and its Scenic minivan versions have slumped ahead of themodel's renewal later this year.

Unit Sales

Renault said production at Flins, the plant near Paris thatassembles the Clio subcompact, may also be hit by future cuts. Itpledged to cut back or drop some vehicle programs as it trimsresearch and development spending to 10% of sales by 2010, from11.4% last year. The abandoned Espace replacements incurred a 101million-euro first-half charge.

Next year's expected sales shortfall is partly caused by supplierproblems in Iran that forced Renault to halve its original250,000-vehicle goal for local production of the Logan.

The original promise of 3.33 million global vehicle sales was oneof three in Ghosn's so-called ''Commitment 2009'' plan. Unveiled in2006, it also set out the 6% margin goal and a quality benchmarkfor the Laguna.

Renault said July 9 its full-year unit sales may achieve just halfthe 10% growth previously forecast, after first-half deliveriesadvanced 4.3% to 1.33 million vehicles.
Bloomberg