Renault Styling Plays It Safe, But Only Bold Moves Will Ensure the Company's Survival
By Michelle Krebs October 20, 2008By Nick Kurczewski
PARIS - At the recent 2008 Paris Auto Show, Renault unveiled its new C-segment Mégane hatchback and coupe. Sized and priced to compete with Europe's best-selling vehicle, the Volkswagen Golf, the Renault Mégane is vital to the French automaker's financial health that has been in decline in recent months.
As designers pulled back the covers on the new Mégane to reveal its quirky-turned-conservative styling, the world's financial markets were spinning out of control, taking Renault's already downward spiraling fortunes with it.
As Renault plays it safe with the styling of its Mégane and other models, only a bold move -- as speculation has it with Chrysler or Ford -- may bolster its shot at survival.
On Monday night, the Wall Street Journal reported Chrysler may join Nissan-Renault, even though it prefers a purchase by General Motors, discussions of which apparently are still under way.
Chrysler's majority owner, Cerberus Capital Management, is in a rush to get out of the auto business, and Nissan-Renault CEO Carlos Ghosn apparently is discussing having Nissan, and possibly Renault, acquire a minority stake in Chrysler, the Wall Street Journal reported based on comments by sources.
The journal article said it isn't clear whether Chrysler or Cerberus also would be asked to purchase an interest in the Japanese and French auto makers in order to maintain a cross-shareholding relationship as Nissan and Renault have. The article further said Nissan has taken the lead in talks with Cerberus and Chrysler executives, although any partnership would include Renault as well.
Bold Action Required
It's such bold action that may be required for any automaker to survive.
Indeed, the world's financial markets imploded in seemingly less time than it took Renault to pull the covers off the Mégane at the 2008 Paris Auto Show. On Friday, Oct. 10, the day after Renault's new model reveal, the Dow Jones Industrial Average closed its worst week ever, falling more 1,874 points and losing 18 percent of its value. The Paris CAC ended the week down 7.7 percent, bringing Renault's stock 71 percent lower so far this year.
The timing of the financial meltdown could not be worse for Renault to unveil a bread-and-butter vehicle like the Mégane that it desperately needs to survive.
Yet, while its vehicle lineup, including the once polarizing Mégane, is taking a more conservative approach in styling, Renault appears ready to take risks when it comes to board-room maneuvers and potential mergers.
Ghosn has long expressed interest in a merger with an
American auto company. In 2006, the French-Japanese automaker mulled a merger with GM, mostly at the behest of Las Vegas billionaire Kirk Kerkorian, then a major GM shareholder who was highly critical of GM's direction and top executives. Kerkorian, like many industry observers at the time, saw Ghosn as the ideal man to turn GM around.
Ghosn, a 54-year-old Brazilian-born French national who speaks six languages, earned celebrity status with his restructuring of the ailing Nissan Motor Co. in the late 1990s. Ghosn's business maneuverings earned him the nickname "Le Cost Killer" in France. In Japan, a comic book was devoted to him.
Apparently, the enthusiasm for a Renault-GM merger was one sided, however. In an interview with Newsweek magazine in October 2006, GM CEO Rick Wagoner expressed his disappointment in the forced negotiations. "There's a lot of aspects of all of this that haven't been normal," said Wagoner. "It's not the way I would have done it." And in the end, nothing came of the talks.
Renault was then briefly linked to a link with Ford, though the idea fizzled once former Boeing executive Alan Mulally took over as Ford's president and CEO in September 2006. It had appeared as if a Renault-Ford connection could resurface with Kerkorian as a major Ford stockholder.
However, Kerkorian announced Tuesday morning that his Tracinda Corp. will pull out of his Ford investments, a sharp about-face for the film and casino mogul who only last week appeared as if he was upping his ante in Ford and supporting Ford's leadership for the long haul. Kerkorian had led a hostile takeover bid for Chrysler in 1995 and was among the bidders when Daimler put Chrysler on the sales block in 2007.
A Nissan-Renault merger with Chrysler could make sense. Already, Chrysler has linked with Renault's sister Nissan. Chrysler will build full-size pickup trucks based on its Dodge Ram for Nissan as a Titan replacement. Nissan will provide Chrysler with a desperately needed small car based on the Nissan Versa.
And Renault and Chrysler have history, albeit not always under the best of circumstances. In 1983 Renault took a controlling stake in the American Motor Corporation (AMC). Moving AMC's lineup to smaller, front-wheel drive cars ultimately proved to be too little too late. Sales remained poor, and Renault had problems of its own. The Jeep brand was part of the Renault-AMC family tree, and it was this iconic off-roader that was of greatest interest to Chrysler. Chrysler bought the remains of AMC, for Jeep, from Renault in 1987.
Ghosn's Star Fades
Ghosn's celebrity image has noticeably faded in recent months. As Nissan's resurgence began to sputter and Renault's fortunes spiraled downwards, critics suggested that Ghosn had taken on too much responsibility by assuming the role of CEO for both companies back in 2005.
Now comes news that Ghosn will relinquish the day-to-day running of Renault to Patrick
Pelata, the company's executive vice president of product and planning. Pelata will take on the newly created role of chief operating officer. According to an official statement released by Renault, Pelata will head the company's executive committee and will report directly to Ghosn. The move did not come entirely as a surprise as Ghosn had hinted that Renault-Nissan might return to a dual CEO system in May.
Meantime, Ghosn, rather than playing his more comfortable role as cost-killer and tough negotiator, has recently been on the defensive. At the Paris Auto Show, he uncharacteristically shied away from previous highly aggressive growth forecasts.
In fact, during the first day of the Paris show's press preview, Ghosn stated that the goal of meeting an operating margin of 4.5 percent in 2008 and 6 percent in 2009 was now no longer a "question of performance," Bloomberg News reported. With the world's economies crumbling, such targets were now impossible no matter the health of the auto company, he said. Yet even months prior to the Paris show and the current financial meltdown, Renault had already halved its sales growth expectations for 2008 to 5 percent.
Going Conservative with Styling
Meantime, Renault carries on by introducing new models. And if there were any doubt about the importance of the Mégane to Renault, the crowds surrounding it in Paris quickly dispelled it.
As did Renault executives. In an interview with AutoObserver
, Patrick Le Quement, Renault's chief designer and the man who led the design team behind the new and old Mégane, noted matter-of-factly: "In terms of the future of the company's profitability, there is a hell of a lot more importance with the Mégane."
The previous generation Mégane featured bold styling, especially its bizarre gun turret-like
rear window treatment. Loved by some, loathed by others, the 2002-2008 Mégane was always instantly recognizable but never came close to toppling Europe's C-segment class-leader, the VW Golf.
Le Quement concedes that the controversial rear end treatment of the outgoing Mégane remains one of his "favorite designs," yet he admits that Renault took a risk with the car. "We had a fantastic beginning," said Le Quement, in terms of sales and interest generated by the Mégane's radical looks. But once the initial interest faded, the risk "didn't quite work out as well as we'd hoped."
The new Mégane is much more conventional looking. Its lines are clean, stream-lined and far from the polarizing design of its predecessor. Two versions of the new Mégane were unveiled in Paris: a four-door hatchback, along with a handsome coupe. A wide variety of additional models - including station wagons and convertibles - will be added to the range. The Paris show cars featured a 1.4-liter turbocharged four-cylinder engine, though an extensive range of direct-injection gas and turbodiesel motors will be available when the Mégane goes on sale later this year.
Stephen Norman, Renault's senior vice president for global marketing, was unbridled in his enthusiasm for the car when AutoObserver
spoke with him at the Paris show. "What [the new Mégane] brings back to Renault is sex appeal and performance," said Norman, who believes the styling of the previous model was too divisive for a mainstream C-segment vehicle. With the new Mégane, Norman expects sales to increase "immediately," despite the sluggishness of car sales throughout Europe and the rest of the world. 
The Mégane needs to be a hit. New models like the Laguna
family sedan and Twingo
super-mini have failed to meet Renault's expectations. Sales of the Laguna have been particularly disappointing. Renault has scaled back production from its original target of 190,000. Total sales of the Laguna sedan and station wagon will struggle to reach 120,000 units in 2008, according to automotive consulting firm J.D. Power and Associates.
While the Twingo mini has more than doubled its sales in Europe, even this glimmer of good 
news is tempered by cold hard facts. Before being replaced in the summer of 2007, the Twingo was virtually the same car that had gone on sale in Europe in 1993. While popular in France, especially amongst first-time car buyers, the original Twingo never had much sales success in other markets. With better build quality and more robust styling, the new Twingo was always bound to improve on the performance of the first generation model.
Tax programs and cash incentives have also artificially propped up sales of small cars like the Twingo. his is especially true in France, where the government's "bonus-malus" system gives customers cash back when they purchase a low emission vehicle. Every version of the new Twingo emits less than 140g/km of CO2, with the diesel variant emitting only 113g/km of CO2. This makes it eligible for a 700 euro ($1,100) tax break in France.
Even Renault's hugely successful low-cost Logan nameplate, which the company builds and markets via its Romanian-based Dacia brand, could soon find itself struggling. The boxy, no-frills Logan has been a huge hit in Western European markets, as well as the emerging economies that were its original target. Customers have been drawn to the Logan's low price, fuel economy, and rugged simplicity. But as emerging markets in Eastern Europe, India and the Middle East begin to feel the full impact of the global financial crisis, the strong growth of the Logan, which now includes a sedan, station wagon, hatchback and, in certain markets, a pick-up, could be in serious jeopardy.
Photos by Renault
1 - Renault Megane
2 - Carlos Ghosn
3 - Patrick Pelata
4 - Renault Megane
5 - Renault Megane (previous generation)
6 - Renault Laguna
7 - Renault Twingo.
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