Renault's CEO Bucks Cuts, Goes for Growth

13 February 2006

Eschewing the Freddie Kruger instincts of General Motors and Ford Motor Company, the Brazilian-born ceo of French carmaking giant Renault Carlos Ghosn has unveiled a converse strategy.

"What Renault needs today is not restructuring," Ghosn proclaims. "Renault needs growth, Renault needs products, Renault needs a brand image. And Renault needs management that commits itself to a very precise timescale."

Ghosn, a Brazilian-born executive of Lebanese descent, is famed for his near miraculous turnround of Japan's Nissan (in which Renault has a 44% stake).

However, investors were not impressed by the colours nailed to Renault's mast, preferring the US model of job-slashing and shuttering production facilities. Shares on the Paris bourse fell 2% following Ghosn's announcement.

His four-year plan, titled Commitment 2009, undertakes to increase auto sales from 800,000 to 3.3m within three years, at the same time upping operating margins from last year's 3.2% to 6%. The plan also promises improved vehicle quality and an increase in shareholder dividends from €1.80 per share last year to €4.50 in 2009.

Although the plan aims to cut component, manufacturing and administration costs, Ghosn vows there will be no factory closures or job losses ... as long as the plan succeeds.

Entrail-rakers grudgingly greeted the plan as "conventional but credible". Complained JP Morgan motor analyst Philippe Houchois: "There is no big announcement and that is why the stock is down."

Counters Ghosn: "Renault is not in crisis but Renault remains fragile." He concedes: "Without a strong response to make it more robust its fragility could lead to a dangerous situation."

Nor is he upbeat about current year prospects, predicting . operating profit margins more than 2.5% down on last year, with sales sufferings from lack of major new model launches.

Thereafter, however, five new luxury vehicles are planned and Ghosn expected to double the number of cars sold at over €27,000 ($32.2k; £18.4k).

Data sourced from Financial Times Online; additional content by WARC staff