Renault's third-quarter results

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The presentation of Renault's commercial results reassured observers: well before having rebuilt a C range up to the level of the competition, the very tight management of the trade and the factories already seems to draw a less dark horizon in terms of profitability. From this point of view, if, in Europe, the successful launches seem to make the objective compatible with maintaining volumes and market share, this is not the case in Brazil for example. This raises the question of the management by Renault and its new boss of its inter-continentalisation.
 
The third quarter's brighter outlook for Renault
The presentation of the commercial results and the financial situation of Renault that Denis Le Vot and Clothilde Delbos proposed to the analysts on Friday at dawn was not at all enthusiastic but showed at least that the management teams are there and that the turn announced at the departure of Thierry Bolloré a year ago has been taken.
 
Undeniably supported by rather successful launches in the context we know, the effort to move towards profitable sales is finding measurable results and could - if the second wave were to calm down somewhat and spare us a new general reconfinement in Europe - enable the company to generate a positive free cash flow from operations for the automotive branch in the second half of the year.
 
Thus, as is customary, C. Delbos presented a breakdown of the variation in Renault's turnover (without Avtovaz).
Whereas in 2019, the turnover generated was €9.66 billion, it fell by €714 million to €8.95 billion. This drop is firstly due (for 659 million) to the drop in volumes sold but this would have been almost annihilated by the improvement in the mix and the improvement in prices which, cumulatively, pulled Renault's turnover up by 634 million.
 
634 million. Weary of this, the fall in sales to partners, particularly Nissan, and unfavourable exchange rate effects played in the opposite direction for respectively As Avtovaz and RCI also saw their sales decline (by 128 and 85 million respectively), the decline was 922 million at group level.
 
Despite this, the speed with which Renault has managed to regain some of the "pricing power" dear to Carlos Tavares even before the effort promised by Luca de Meo to renovate segment C could be translated into reality will reassure not only the analysts but also the employees worried about the company's financial situation.
 
The fact that Zoé's sales now stand above 10,000 units per month (11,026 in September), that Clio 5 has taken over from Clio 4 for comparable volumes and that the new Captur does much better in September 2020 (more than 21,000 registrations in Europe) than the old one in September 2019 (17,811) explains most of this movement.
 
The hybrid and rechargeable hybrid variants on offer, which, D. said, "have represented a major step forward in the development of the new Captur. Le Vot, 16% of Clio's orders and 18% of Captur's in September drove prices up. In the C segment, Renault is suffering terribly in Europe this year with, over the first 9 months, a 41% drop in sales of Kadjar and 50% of those of Mégane (Scenic included), against -30% for all the passenger cars. Only the rechargeable hybrid version of Mégane (31% of orders in September) will in the short term be able to breathe new life into it, but the deficiency is now glaring and the comparison with PSA in this respect is cruel.
 
In spite of this, obviously, by possibly letting volumes slip away, the return to profitability by the end of this year no longer seems out of reach. The range and its electrification have a lot to do with it. The efforts made to adjust the activity of the factories to the orders and thus allow a drastic reduction in stocks do the rest: in September 2019, the stock was in September 2019 of more than 600,000 vehicles, it was in September 2020 of 470,000; this corresponds to 65 days of sales, against 75 days a year earlier.
 
Under these conditions, the big sell-off described by C. Delbos described a year ago can indeed cease. This is the case in Europe. It is also the case in the emerging countries and, in particular, in South America. In Brazil in particular, the situation is, once again, very problematic: according to the statistics that Renault provides, the Brazilian private car market is down over the first 9 months of the year by 33% and the drop in Renault's sales is 48%. This means that Renault now prefers to let its market share slip - which in this case goes from 9.04% to 6.98% - to try to save the profitability of its activity by first selecting the right channels and the right products and then trying to compensate for the unfavourable exchange rate effects by price adjustments. 
 
In fact, from year to year, one cannot but be struck, when one observes the famous breakdown of profitability or turnover differences, by the formidable impact of these famous exchange rate variations. They come on top of a very strong instability in emerging markets to make the efforts to inter-continentalise Renault's activity a strategic company with problematic profitability.
 
The Turkish, Indian, Russian, Brazilian or Argentinean markets all pose these two problems and L. de Meo has already underlined this on several occasions. To conclude that, like PSA, we must be satisfied with Europe would be a little short. This is obviously a major issue for Renault. The management of the Brazilian case gives us a few indications, but as in many other domains, we'll probably have to wait for the presentation of the strategic plan in January 2021 to better define where Renault is going.
 
 
 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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