Crisis caused by coronavirus is a severe shock to the global automotive industry. For Renault, it falls at the worst time. Investors have expressed it in their own way, plunging the share price in recent weeks, with a decline of 64% since the start of the year, including -23% last week. At midday on Tuesday, the group, despite its 3.7 million cars sold last year, was worth barely 4.5 billion euros, despite the 43.4% it owns in Nissan and the 1.6% stake in Daimler…
The diamond group will have to face in the short term a collapse of the world car market (it reacted by announcing the temporary closure of its factories in Europe ), and in the medium term a recession in the European economy. All while showing precarious health, as bluntly shown in the 2019 results, loss-making for the first time in ten years (-141 million euros).
Indicators at half mast
Sales down (they continued to fall by 13.4% in France in the first two months of 2020), decline in operating profitability… All or almost all indicators are worrying. But it is the group’s operational free cash flow that worries most. Admittedly, it was finally positive in 2019 (+153 million euros), which did not seem to be taken for granted.
“But if we look at the accounts, this was obtained thanks to an increase from 150 to 500 million in the dividend paid by RCI (the financial subsidiary, Editor’s note), and to an increase of 40,000 cars in the stock carried by the network, advises a connoisseur of the sector. In reality, cash flow problems had existed since the second half of 2018, but they were hidden. ”
The damage of the race for volumes
In fact, the difficulties are not new. During his memorable press conference in Beirut in early January, Carlos Ghosn had breastplate, saying that it was his imprisonment that had caused the decline of Renault and Nissan. In reality, the two companies are now paying the will for several years of the former big boss to race for volumes, which has ballasted them with an oversized production tool.
Clotilde Delbos, the acting director general, bluntly put the problem on the table during the presentation of the 2019 results. She announced for the month of May “a plan to save structures by at least 2 billion out of three years ”, specifying in passing that management would have“ no taboos ”, especially on the possible closure of factories in France .
Chinese market likely to exit
The announcement jumped the unions and tense the Minister of the Economy, Bruno Le Maire. The Flins site, which is idling, seems to be one of the most threatened. No decision would be taken at this stage. Management seems to be moving more towards an at least partial exit from the Chinese market, where the group has accumulated disappointments in recent years.
A reduction in engineering expenses also seems to be on the agenda. “R & D expenditure reached 10.7% of turnover, while the objective is to contain it at 9%”, points out an internal source. This could lead to the outsourcing of certain tasks outside of France. Charge Gilles Le Borgne, arrived from PSA, to deal with the problem urgently.
Decisions on the range reported
Conversely, an insistent rumor lent management the will to ax with the catalog, by removing all the high end from the Megane and Scenic models. If this option has been worked on, no decision will be made before the arrival of Luca de Meo, the future general manager, recruited from Seat, and who will take up his post in July.
There is still good news looming in the medium term. After months of mistrust and inertia, relations with Nissan, erected by President Jean-Dominique Senard as an absolute priority, appear to be significantly improving . The principle of a “leader – follower” strategy, which would give one or the other company more power depending on the regions of the world, was adopted.
This could increase synergies, and in Europe, increase the load rates of Renault’s French factories. Still, the ongoing discussions on the concrete versions of this strategy must succeed.
New models, reasons to hope
Another source of optimism is “the arrival of new products in 2020 in segments which are the brand’s strong points: a new range of commercial vehicles, and the renewal of the“ Global access ”range (the low cost offer , Editor’s note), with the real second generation of the Logan and the Sandero “from Dacia which will also launch in Europe a small electric SUV, points Denis Schemoul, analyst at IHS.
The latter also recalls the announcement new hybrid powertrains . “Their“ e-tech ”technology was developed in-house and offers a cheaper solution than most of the competitors. This should give them a real price advantage over certain models. “
The severe judgment of rating announcements
But the effect of the renewal of the range on sales will not be felt until 2021. By then, Renault must bite the bullet, and face the skepticism of observers . In the wake of the 2019 results, the Moody’s agency lowered the manufacturer’s rating to Baa1, the first level in the speculative category. Fitch did the same, believing that industrial free cash flow would remain negative at least until 2021.
Management, for its part, ensures that it was not afraid of the liquidity crisis, with reserves (including available credit lines) announced at 15.8 billion at the end of 2019. But that was before the coronavirus put the automotive market and the economy at a standstill.
Tuesday morning, Bruno Le Maire said he was ready to use “all means” to “protect” French companies. “This can go through capitalization or an equity investment. I can even use the term nationalization if necessary, ”he said.