Watch out, Here Comes Renault

Nissan's difficulties have begun to reveal themselves to the public at large : repeated deficits, indebtedness, the loss of markets, insufficient use of production capacities, and the conservatism of models have progressively and of late brought about a certain number of questions. On the other hand, Renault seems to have become in 1998, give or take a few units, the number one automobile brand in the European market of individual private vehicles and small trucks, and seems to be on the verge of announcing profits close to 1.7 billion Euros, thus achieving the ranks of the most profitable constructors. And these good results do not just amount to a brush fire. In addition, paradoxically, the chances for Renault of becoming Nissan's ally are not impossible in light of the powerful Daimler-Chrysler group. Indeed, Renault seems to only seek access, for the time being, to Nissan's underemployed production capacities in Mexico and Southeast Asia. It therefore would be a less worrisome ally for Nissan than Daimler-Chrysler, and would allow it improved use of its own means. For its part, Renault could sell its successful models in American and Asian markets in a shorter time and through the immobilization of constantly reversible capital. Nissan, which has often tended to solve its difficulties by ignoring them, could also be tempted by this great leap and take the risk of integrating what could become the number one worldwide automobile group. It is difficult to make predictions, but not to proceed with a certain number of observations.

At first glance, and from what we can gather, Renault's globalization process seems to be a reasonable one. It is on the verge of opening up a plant in Brazil. It has increased its production capacities in Argentina. It is in a favorable position to buy the Romanian firm, Dacia, who would manufacture for Renault an automobile of approximately 4600 Euros for certain emerging countries' markets. If it gains access to Nissan's capacities, this will open up markets it has never been able to penetrate. However, one question (among others) remains. Will innovating models, at the heart of Renault's benefits in Europe, also generate profits in these new markets ?

Renault owes its present good financial health both to efforts in reducing costs (but other constructors also do this), but especially to its innovating models, notably its range of monospace vehicles, from the lower-priced to the luxury models. It has also understood that there is no point in competing with leading constructors of the classical sedan models. Therefore, it is on the verge of launching sedans which differ greatly from those already on the market. In short, Renault has opted for innovation in the product field. Not only has it announced as much, but it has done so over the past ten years. There was a vacant place to take in Europe, that of incarnating the "innovation and flexibility" strategy next to constructors who adopt a Sloanian "volume and diversity" strategy or a "quality and specialization" strategy. Renault is on the right path to occupying this place. Will this be consolidated as it "globalizes" ?

Indeed, one could wonder if, for example, the mid-range monospace (Scenic) will serve as the innovating model that Brazilian, Argentinean, Russian, or Asian middle classes have been waiting for ? As we all know, these groups have been eager to purchase "real" automobiles, in other words those manufactured in Center countries, even if they are often ill adapted to local conditions and practices. These middle classes could very well be attracted to a model which is very successful in Europe. However, apart from the fact that these groups are the first to suffer from brutal and recurrent economic crises in their countries, it is not sure that this type of demand would necessarily develop in the future. Wouldn't it rather be among independent workers, relatively well-protected from these crises, that one may find demand evolve from having a used (expensive) car to a new robust, unpretentious, multi-use and affordable car, even evolving in certain countries from a two to a four-wheel vehicle ? In this perspective, the innovative product would still have to be invented. Would the model envisioned by Dacia, if Renault's offer still stands, be conceived along these lines ?

One may also wonder if, before heading towards globalization, the choice to immediately saturate the demand of highly popular innovative models should have been implemented, before competitors copied them, or once globalization was chosen, if it shouldn't now be rapidly implemented. Indeed, we know that the "innovation and flexibility" strategy is only profitable in the long run if this condition is fulfilled. Reactivity and flexibility require time before being acquired. Indeed, they necessitate a "compromise in firm management" relative to productive organization and employee relations, one that is satisfactory to shareholders, management, and workers, and which takes a long time to construct but is indispensable.

Unlike soccer games, the economic competition which firms are engaged in through their different alliances and strategic choices require several years before we can see the results. Let's wait until the real confrontation begins before drawing any conclusions.