Renault in Russia: avoiding the worst

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One could summarise Renault's problem with the war in Ukraine today by a formula of the type "impossible to do nothing and difficult not to be accused of doing too little". In fact, given the extent of the exactions perpetrated by a Putin who has been pampered by Renault (as by most French politicians and businessmen) up to now, it seems very complicated to do nothing and wait for a return to better political fortune. However, we should not allow ourselves to be lectured by actors who have nothing to lose in this story and could even have a lot to gain. Without rushing into anything, the politicians and the board of directors of Renault would gain by looking for a narrow path which would allow them to avoid sacrificing assets of crucial - even vital - importance for Renault.

As F. Lagarde underlined on Friday, the communiqué of the Renault board of directors last week says that it is "evaluating the possible options concerning its participation in Avtovaz" but everyone has understood that the option of selling Renault's shares is the one that seems to be favoured. When one has followed the dossier and exchanged with the many Renault people who, at one time or another over the last 25 years, have participated in the chaotic process of developing the group's activities in Russia, one can only be dismayed by what is taking shape in this case. This would not only mean writing off the very heavy investments made in the Renault part (Avtoframos) as well as in Avtovaz, but also turning our backs on very long and rich years of accumulation of work and skills at international level in all the company's professions.

On this subject, it is worth rereading the book which Louis Schweitzer devoted to recounting his 'reign' in 2007 and which Gallimard entitled Mes années Renault. In it, he describes the role that the Russian dossier played, after the fall of the Wall, in his decision to propose to his management team in 1995 to reformulate its strategic axis as "internationalising Renault". At the time, Renault had re-established itself in Europe and after the relative failure in Brazil, the break-up with Volvo and the defeat by VW in the attempt to take over Skoda, Schweitzer perceived that the future of the car industry could no longer be written in the countries of the Triad (Europe, Japan-South Korea and North America) but in the emerging markets.
He writes in Mes années Renault:
"It turns out that, for four-fifths of the world's population, the question that arises is not that of renewal, but of access to the automobile. This reflection led me to the idea of a rational car, which was what the Ford T represented in America in the 1910s or the 4CV and the Beetle in Europe after the war, that is to say, an object allowing people to have access to the car. Another of my ideas was that if Renault wanted to succeed internationally, it had to overcome its handicap, compared to Mercedes, of not having installed prestige, which would allow it to enter from above."

From this intuition, even before the opportunity to take over Dacia arose in 1999, was born a founding conviction which is now in jeopardy: there is no salvation in the automobile industry other than going upmarket and if everyone tries to follow the German manufacturers in this field, in Europe and internationally, then there is little chance that the challengers will succeed in imposing themselves in a game where the rules will remain written by others.

L. Schweitzer then completed his remarks as follows:
"At that stage, I only had an imprecise idea of the cheap car. At that time, in the autumn of 1997, the President of the Republic made an official trip to Russia, which I accompanied as the boss of Renault. I was very keen to set up Renault in Russia, although I didn't really know what to do there. This country is very similar to the United States, both in terms of the organisation of space and because the model of success for the Russians is America. That's when I visited a sort of huge hangar where they were selling Lada cars, which were nothing more than Fiat cars from the mid-1960s. They were three-body cars, consisting of an engine, a passenger cabin and a rear trunk, a very rational form from the economic point of view. These very bad, unreliable cars, which were more than thirty years behind in technology, were sold for an average of six thousand dollars. The Russians were bleeding to buy them, and they were selling like hotcakes. The idea that I brought back from Russia was that we had to make a car at the same selling price as these Lada's, but which was a reliable and modern car. My idea of making a rational car, without all the zakuski that make traditional cars attractive, became a project. Technological progress should not prevent us from making something at the same cost as the cars we knew how to make thirty years ago."

We know the rest of the story, which led the project to move away from Russia to take shape between Guyancourt and Pitesti between 1998 and 2004 and then return - at the same time as it also had a Brazilian chapter - to Russia.
On this subject, it is necessary to remember that this very audacious Schweizerian course taken at the end of the 90s has practically been continuously contested at Renault since then with, amongst other things, two mantras recurrently agitated by the anti's: the question of the cannibalisation of the Renault offer by the Dacia offer and the question of the identity of the Renault brand. We will not go back over the first of these questions for which very consistent answers were given very early on but which never prevented the question from coming up again and again. The second question was asked at the very beginning of the 2000s because of Russia.

Indeed, the Renault teams quickly perceived that the Russian intuition of their boss was right and that Russia could offer Logan and the line of models which was to follow an ideal commercial and industrial space for deployment. The problem was - among others - the Romanian brand Dacia: no one in Russia could even consider buying a vehicle from a brand of a "vassal state". However, L. Schweitzer, in order to calm the "anti" camp, had promised that the vehicle manufactured in Romania would never be offered in Western Europe and that, similarly, the Renault badge would never be affixed to a Dacia. The very subtle and influential Luc-Alexandre Ménard (deceased in 2012) who had managed Germany and Brazil among others and was then the head of international operations convinced Schweitzer to make a U-turn and the Moscow factory was built to produce this Renault product.
This product, the platform which supported it, the know-how structured in Romania in terms of engineering, the upgrading of tools and the skills of personnel and suppliers could then be deployed in Russia and it was almost naturally that Renault was chosen to take over Avtovaz.

Of course, in Romania, Brazil and Argentina, in Colombia, India and Morocco, part of the Schweitzer project of inter-continentalization took shape. The fact remains that - beyond the heavy financial losses which Renault would have to assume at a very bad time - the abandonment of Russia by Renault in the open country would be a real trauma, a disavowal and a heavy loss of skills. Russia has been a school of international and emerging markets for all these years.

Deprived of China by a Yalta that Ghosn had decided almost alone, Renault dealt with the BRICs without a C. They were not the easiest, the most stable and the least risky financially and, partly for this reason, Russia was a very good school for people in trade, production or purchasing. Luca de Meo is not wrong when he points out in 2020 that, between the Algerian dossier, the Brazilian and Argentine dossiers, the Iranian dossier, etc., the virtues of this inter-continentalization are anything but obvious in the medium term.

In a way, in the 'country portfolio', 6, 12 or 18 months ago, one would have said that the Russian part was certainly the least fragile industrially, commercially and politically. At the presentation of the results just over a month ago, Luca de Meo himself was keen to stress the success of the Russian operations. In fact, when one has not left in time for China (where one also exposes oneself to significant geopolitical risks) and when one has not been able, like VW, to buy Skoda and/or, like the German car industry as a whole, to dominate the CEECs, the remaining 'playing fields' oblige one to take risks and/or to make bets. Renault made - with the blessing of the French politicians from 1997 onwards, let us remember - the Russian bet. Renault made the Algerian bet and the Iranian bet as well. In the structuring of its European production, it also took the gamble on Morocco and Turkey...

To say a posteriori that this course taken 25 years ago was a fatal error and that it is necessary to curl up in Europe and/or try to gain a foothold in North America would be to submit to a dictatorship of the moment. At Renault, this would be the victory of the anti camp: the board of directors and its state component would be well advised to take the measure of what is at stake and not to sacrifice on the altar of political propriety what has been built step by step over 25 years at the request and - in any case - with the blessing of politics.

It could be in everyone's economic and political interest to discreetly postpone this decision and to allow Renault to continue tomorrow to support a defensible project for the economic and industrial development of a Russia that needs an economy other than that of oil and gas rents and to do so profitably. Nationalisation would obviously be a disaster for Renault and it is not even certain that the company could survive it. Moreover, the gift made to Putin or the oligarchs would probably be, if not poisoned, at least difficult to make it bear fruit on its own. As everyone understands, and since the Russian side knows it, Chinese or Indian investors would soon seize the opportunity.

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

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