IMI Magazine

IMI Magazine

News Analysis

How real is Ghosn’s ‘commitment’ goal?

Renault’s achievements range from winning the 2005 F1 Constructors’ Championship to being Europe’s top selling light vehicles brand for the past eight years. But the world’s most admired car company?   That’s the challenge which president and CEO Carlos Ghosn has set himself  under a three-year strategic plan  – Renault Commitment 2009. The key target of making and sustaining the company as Europe’s most profitable volume car manufacturer is hardly modest and envisages, among other things, the launch of 26 new products, an operating profit margin of 6% and an extra 800,000 vehicle sales by 2009.

To achieve this will require radical changes to the company’s culture and a ruthless attack on spending. There’s to be a 14% cut in purchasing costs, implying more pain for the components sector, along with sizeable reductions in manufacturing and logistics expenses.

 Ghosn’s strategy, though, is noticeably reticent over job prospects at Renault’s domestic plants. It’s hard to believe that financial targets can be met without job losses, the more so since much of the sales increase will come from developing markets.

So much spin and hype is uttered by motor industry bosses that the temptation is to treat Ghosn’s targets as so much French dressing. But remember this is a man who achieved iconic status for the turn-round at Nissan.

The big question now is whether the French political establishment will ‘allow’ a restructuring of Renault to become a global force if it imperils domestic interests. It should not be forgotten that France is a country whose economy is ruled by controls and policies which sit uncomfortably with 21st century capitalism.  Ghosn’s battle plan for the survival of Renault is a microcosm for the survival of France.

Cash-in time for Nationwide’s owners

The sale of Nationwide Autocentres to Phoenix Equity Partners is the latest in a series of moves by private equity groups to acquire motor industry assets. However, this deal differs from other high profile transactions – like Halfords and Kwik-Fit – insofar as the vendors are another private equity group along with the original management buy-in team who now see a good opportunity to cash in their investment, rather than a company selling a non-core operation.

Another difference is that the Nationwide team are selling from a position of strength, having built the group into the country’s leading independent servicing operation with 213 outlets. 

Private equity groups, in their hunt for undervalued and neglected assets, are poised to increase their presence throughout the motor sector. US-based WL Ross, for example, has established International Auto Components with the aim of becoming a leading contender in the global components industry by acquiring manufacturing assets from distressed companies. Already it has bought the European operations of Collins & Aikman, giving it a key role in the automotive interiors sector, and is circling the struggling Delphi on the lookout for juicy parts.

Meanwhile the Nationwide, Halfords and Kwik-Fit episodes have three diverse, yet crucial, messages. First, private equity groups view the motor industry as a promising sector and will continue to hunt for ‘gems’ with the potential for recovery and/or development. Secondly, the independent aftermarket is attracting funds from some of the shrewdest investors around, so there must be something in its favour. And thirdly, private equity groups don’t mess around if something needs fixing.

There’s no stopping Toyota

Toyota’s remorseless rise continues. Operating profits rose by 14% in the latest quarter and the company is embarking on ambitious capital spending programmes for bigger and better global plants which will stretch its competitive advantage over rivals even further. This year it is poised to overtake Chrysler as the third largest supplier to the American market and it seems only a matter of time before it topples GM as the world’s highest volume vehicle producer.

Success stems from its restlessness and spirit of innovation. In particular, an emphasis on technology and a willingness to invest heavily in projects which will achieve a payback only many years ahead have provided the foundations for the future. This is evident from Toyota’s position at the forefront of hybrid vehicle development.

The company envisages Prius sales topping 1m a year by 2010 and a progressive roll-out of hybrids and other alternative power forms into other models is a central strategic feature. With even President Bush speaking of America’s need to lessen its addiction to oil, and with high demand from China and India adding to oil supply pressures, it is clear that technology holds the key to the motor industry’s winners and losers.

As Toyota continues to notch up stellar financial results to bankroll projects which will define the content and performance of tomorrow’s vehicles, what are the implications for the motor industry’s wounded giants and middle rankers who are simply struggling to survive?

Limited prospects for Infiniti

How worried should existing suppliers to Europe’s already crowded luxury car market be with the news that Nissan intends to launch its Infiniti marque in the region? The plan is for sales to begin in selected markets in the east of the continent towards the end of next year, migrating westwards to reach the UK around 2009.

Like Toyota’s Lexus and Honda’s Acura, Infiniti represents Nissan’s attempt to establish an upmarket marque capable of competing with the Europeans in America, the world’s largest luxury car market. Success has been reasonable rather than spectacular with US sales of around 136,000 last year, less than half Lexus’s total and well behind Acura, BMW and Mercedes-Benz.

With Europeans devoted to their Audis, BMWs, Mercedes-Benzs and other locally produced luxury brands, Infiniti’s passage will not be easy. Even the might of  Toyota has failed to shoot the lights out with Lexus, whose European sales are barely a tenth of North America’s.

Halewood and the X factor

On its own, the recent launch of Jaguar’s latest XK model will be insufficient to restore the marque’s battered fortunes. As a guide to the future, though, there are some encouraging pointers that Jaguar is returning to its traditional values as an exclusive luxury brand that produces gorgeously-styled cars with a distinct ethos. The pursuit of volume, together with the embrace of retro design, is being consigned to the waste bin.

There is still a long way to go, though, before recovery is in the bag. In a market segment where image is all and international competition intense, the new model development programme assumes a critical importance. The next generation S-Type has to be a humdinger, while the eventual XJ replacement needs to look radically different from the current model.

Meanwhile there are hopeful signs that Land Rover is beginning a brighter chapter. The marque recorded its best ever January with sales an impressive 22% higher than the opening month of last year – and 33% higher in the crucial North American market where so much marketing effort is being made.

Moreover, the move of Freelander output to Halewood (where Jaguar’s faltering X-Type is assembled) will have the twin advantage of boosting Land Rover’s ability to meet rising demand and reducing Jaguar’s manufacturing overheads. What are the odds that Jaguar will not replace its X-Type and that Halewood becomes exclusively an assembly facility for Land Rover?

News digest

LDV has received orders worth £3.6m from National Car Rental and Bellhire for Maxus panel vans.

Pendragon, which seems set to have won the takeover battle against Lookers for Reg Vardy, achieved pre-tax profits of £59.3m in the year to 31 December - up by just over £6m compared to the previous year - on turnover of £3.3bn (£3.2bn in 2004).

BMW contributed £1bn directly to the UK's gross domestic product in 2004, according to an economic impact study carried out by Oxford Economic Forecasting. The brand and its dealers directly employed almost 20,000 people and it purchased raw materials, components, capital equipment and business services amounting to £1bn from UK suppliers. Exports worth £1.7bn accounted for 0.9 per cent of the total UK goods exported that year.

Saab GB has relocated its head office from Marlow to Luton as part of an intregration move with its GM parent.

Lloyds TSB Insurance is to pay £1m to secure title sponsorship of this year's British International Motor Show.

The Bentley Drivers' Club is building a £700,000 national office and museum in Wroxton, Oxfordshire.

The RMIF is reporting an increase in enquiries from prospective members in the motorcycle sector following its exhibit at the recent Motorcycle Trade Expo in Coventry. 

Arriva has sold its vehicle rental division for £129m to Northgate plc to focus on its passenger services markets.

West Yorkshire Trading Standards has issued plaques to dealerships in Huddersfield for achieving  a year free of customer complaints. The dealers - Perrys Mazda, Perrys Jaguar and Lightcliffe  Skoda - are all members of West Yorkshire Trading Standards motor trade partnership.William Jacks has approved the takeover bid by Sytner.

Volumes in the used car sector fell 5.5 per cent year-on-year in 2005, reflecting the slowdown in de-fleeting from the corporate sector and reduced retail activity on dealer forecourts. According to the latest market report from Manheim Auctions, while volumes fell, residuals on older vehicles from the dealer and fleet sectors remained constant. However, the average value of younger vehicles supplied by the manufacturer sector fell 4.3 per cent on 2004 levels.

The Honda Civic 1.4 IMA Executive is the greenest car on Britain's roads for the second year running, according to the Environmental Transport Association's Car Buyers' Guide 2006. Fiat Auto is back in the black: In the fourth quarter the company reported a net profit of e21m after 17 consecutive quarters of losses. Chevrolet UK is the latest company to introduce fixed-price servicing.