Renault S.A. Business Information, Profile, and History

Company Perspectives:

Renault's strategy is asserted and propagated throughout the company on the basis of the following seven strategic goals: To be the best on the market in terms of quality of products and services; To develop a coherent and open group; To present a young, strong and innovative product range; To expand internationally; To reduce overall costs for an uncertain future; To work better as a team; To be profitable so as to guarantee independence and financial development; These goals, which are regularly reviewed and enlarged, have enabled the Group to achieve its turnaround, and constitute the foundation of Renault's strategy.

History of Renault S.A.

One of the world's pioneering auto makers, Renault S.A. is also one of Europe's largest. Renault's annual sales of more than FFr 207 billion (approximately US$38 billion) and its payroll of more than 147,000 employees in 1997 also make it one of France's flagship corporations. Renault manufactures automobiles, vans, and trucks, farm, industrial, and forestry machinery, machine tools, engines, and other large-scale production components for the automobile and other industries, as well as heavy trucks through the company's Mack Truck (the number three heavy truck maker in the United States) and Renault V.I. subsidiaries. In addition to the company's Automobile and Industrial Vehicle divisions, Renault's Finance division is one of France's largest credit providers, principally toward the purchase of the company's automobiles.

After a rocky period in the mid-1990s, marked by the former government-run company's privatization and capped by stagnating sales and the failed attempt to fuse the company with Sweden's Volvo, Renault has recaptured both its market position and its spirit. Upon setting a new company production record of 2.2 million vehicles in 1998, Renault announced intentions to double that number by the year 2010, while increasing the share of its foreign sales to 50 percent of total sales--compared with just 20 percent in 1997. Under CEO and Chairman Louis Schweitzer, Renault has taken strong steps to meet its goal, including the opening of a FFr 4 billion production facility in Brazil in December 1998.

Automobile Pioneer

The closest parallel in the French automobile industry to Henry Ford was Louis Renault. His youthful interest in mechanical contrivances, especially steam engines and electrical devices, was accepted by his well-to-do family and he was allowed to have his own workshop on the family's property.

Soon after he finished his military service and his father had passed away, Louis convinced his older brothers Fernand and Marcel each to invest FFr 30,000 to build an automobile firm, which would be called Renault Freres. In 1899 Renault Freres received its first down payments for motor cars at FFr 1,000 per vehicle. Primarily an assembly operation in the early years, Renault Freres expanded operations as fast as it could acquire components and erect buildings. Engines, tires, radiators, gears, steel, and electrical equipment all came from other companies. Already by 1899, the industry had generated a considerable range of specialist component firms. Marcel Renault soon joined the active management of the company to lessen some of Louis's workload, since he preferred to work in the shop rather than attend to commercial details. By 1901 the company had become the eighth largest firm in the automobile industry, based on the manufacture of a small, inexpensive, and reliable car. Its success should not be measured only by its sales and profits, however, but by its imitators; Louis Renault's transmission system was eagerly copied by other small car manufacturers.

Perhaps the most important ingredient in the firm's early success was the publicity Renault's cars received as a consequence of their racing prowess. Both Marcel and Louis Renault were expert racing drivers and they were victorious in numerous international events. Unfortunately in 1903, while competing in the Paris-Madrid race, Marcel Renault was killed. Louis immediately withdrew his cars from the racing circuit and his company did not compete again for several years.

After 1905 Renault's taxicab became his largest selling product. Work began on this line late in that year when the company won an order for 250 chassis. The large orders for cabs soon made Renault the most important French automobile producer.

The firm did considerable export business during this period. In 1912, for example, nearly 100 Renault cabs were in service in Mexico City, and Renaults outnumbered all of the other types of taxicabs in Melbourne. By 1914 the company had 31 dealers in foreign countries, from Yalta to Shanghai. Louis Renault himself did not take as much interest in these marketing matters as he did in the technical aspects of his business. He considered himself more of an inventor than anything else and took out in his own name about 700 patents for devices that he had made personally or that had been developed in his factory.

Like several other automobile firms, Renault participated in the development of aviation in France. In 1907 the company began to experiment with aircraft engines, attempting to extract the most power possible from lightweight, air-cooled motors. While somewhat successful technically, this activity brought no profits at the time. Nevertheless, the discoveries and the experience that resulted found their justification in the war that soon followed. During World War I the company became an important manufacturer of all sorts of military equipment, including aviation engines and the light tanks that proved so effective in 1918.

Postwar Technocracy

After the war the Renault factory expanded. Nonetheless, though the firm remained among the top producers in France during the interwar period, Louis Renault was slow to adopt new technical and organizational ideas. This reluctance significantly hindered the company's growth. Then, when Paris was liberated near the end of World War II, Louis Renault was jailed on a charge of Nazi collaboration. He died in prison before his case could be examined and the de Gaulle provisional government nationalized his company. The government installed some inspired technocrats to operate the company along commercial lines, and they made it into a showpiece of French industry. The firm built up its own production of machine tools and its factory was the first in Europe to use automation. In 1948 the company began to manufacture a miniature car called the Quatre Chevaux (4 CV or hp), which had been planned secretly during the war by Renault technicians.

The Quatre Chevaux proved to be a symbol of the social philosophy that has guided Renault ever since, first under Pierre Lefaucheux and then under his successor Pierre Dreyfus. An idealistic kind of technocrat, Dreyfus regarded the car as a social instrument that every family had a right to possess. Therefore, the firm concentrated on a large production of relatively small and inexpensive cars, the models gradually growing in size as French incomes and living standards rose. The other feature of this social philosophy was the idea that a firm owes its workers not only a wage, but also as full and happy a life as possible. With state support Renault led the field in welfare and labor relations.

It is possible to view the introduction of the Quatre Chevaux either as an example of effective business management or as the use of a state firm to provide a lower-cost product. During the 1950s and 1960s the company maintained its record for effective product innovation. The Dauphine was manufactured to fit into the market opening between the inexpensive economy models and the higher-priced models. The new model soon became quite popular and outsold all others for the next five years. A second distinctive aspect of Renault's success has been its emphasis on exports. It was one of the first companies in the automobile industry to make a serious effort to develop a sales organization in the United States.

Because of the interest in Renault cars within the United States, the company was aiming initially to penetrate the market by supplying 1,000 cars per month. But the United States ordered no fewer than 3,000 cars in only one month. Consequently, Renault increased their daily production rate from 300 to approximately 500 units; company production facilities were near capacity for months in advance. Continued expansion into the world automobile markets remained one of the company's main concerns for years, and plans were made, therefore, for the construction of plants abroad. Sales agreements using existing local networks were made in Brazil, Argentina, Algeria, and India.

By the end of 1959 Renault was estimated to be the sixth largest automobile manufacturer in the world. At the beginning of 1960, when the U.S. automobile market began to shrink, sales of the Dauphine dropped by 33 percent in comparison with the previous year. It was a period of stagnation on the U.S. domestic market and, as a result, Renault was faced with the problem of adjusting to the specific requirements of the American motorist.

In France, meanwhile, preparations were underway for new car models, which would be known as the R-4 and the R-8. These were vehicles that had a third side window on a four-door body. Subsequently, an error was made on a project that was to have been a large six-cylinder vehicle. Once the accounts had been completed it was discovered that the price of the car ought to have been 25 percent higher than originally planned. The swift and decisive intervention of Renault's chairman, Pierre Dreyfus, established the parameters of the new car, which was to have four cylinders, a functional styling, and a competitive price. The result was the R-16, which remained in production until the mid-1970s and had features that are still retained on more recent models. As a parallel development to car production, Renault also had begun to manufacture the Estafette, a commercial vehicle for door-to-door deliveries, which was replaced by another model in the beginning of the 1980s.

During the 1970s Renault went through a period of significant expansion. The success of the R-5, a particularly well-designed and highly reliable vehicle, allowed Renault to stay at the top of the European league of manufacturers. At the same time, a widely based program initiated in 1977 enabled the firm to purchase 46.4 percent of the shares in American Motors in 1980. The U.S. company then began production of the Alliance and the Encore, corresponding to European versions of the Renault.

The relationship began in 1979 when the two corporations signed an agreement. American Motors became the exclusive North American importer and distributor of Renault cars, and the French corporation would market American Motors products in France and several other countries. This was followed by the direct purchase of approximately $500 million in American Motors securities. American Motors chairman Gerald Meyers resigned in 1982 and was replaced by Paul Tippett, Jr., who then named Renault's Jose Dedeurwaerder as president and chief operating officer. Other Renault personnel took their places in the corporation and on the board of directors as the first modern trans-Atlantic company was established.

Regrouping in the 1980s and 1990s

By the mid-1980s, however, Renault's small deficit had turned into a US$1.5 billion loss. Georges Besse arrived in 1985 with a mandate to prevent any further losses. Besse, a pragmatic engineer who had rescued the state-owned Pechiney Metals Group, was unable to go much beyond symbolic measures in helping the company. The Socialist government in France had backed away from tough industrial decisions that it feared would hurt the party in national elections. In addition, Besse's timing was unfortunate since powerful French communists had been arguing that Renault should worry more about upgrading French operations and protecting French jobs than spending money abroad on American Motors. The communists claimed that there was an imbalance between investments needed at home and expansion abroad. AMC's losses in 1986 made those arguments more compelling in the view of many Frenchmen. Nonetheless, Besse was able to cut some 20,000 jobs from the payroll, while instilling a new profit-driven culture in the government-owned company.

In November 1986 Besse was assassinated by the French terrorist organization "Direct Action." This unfortunate event, however, was not the only one that had an adverse effect on Renault. The company also was suffering from a series of poor marketing judgments that had reduced its share of the domestic auto market. Once the largest car manufacturer in Europe, Renault had slipped to sixth place. Besse's successor, Raymond Levy, pushed through Besse's restructuring of the company, eliminating an additional 30,000 jobs and leading the company toward its privatization in the 1990s.

In March 1987 Renault announced that it would withdraw from the U.S. market by selling its share in American Motors to the Chrysler Corporation. Under this agreement, which American Motors voted to accept, Renault received upwards of US$200 million for its AMC shares and bonds over a period of five years. The company also received royalties from Chrysler's marketing of AMC's newly launched Premier. In exchange, Renault agreed to export between US$2 billion and US$3 billion worth of automatic components to Chrysler.

In 1990, the former Régie Nationale des Usines Renault converted its status to that of Renault S.A., a first step toward privatization. At the same time, the company entered into agreement with Volvo to merge the two companies' operations--including an exchange of shares that would give the Swedish automotive maker as much as 20 percent of Renault. This ambitious cross-ownership plan fell through spectacularly in 1993 when Volvo's shareholders rejected the plan.

The Volvo failure would prove only the tip of what would become a somber period. Hit by an extended European recession, facing dwindling market share and increasing global competition, Renault would slip into losses by 1996. Yet, under a new CEO and chairman, Renault already had begun to strike back against misfortune. In the early 1990s, despite the poor economic climate, Renault began expanding its international presence, building new operations and cooperation agreements in such countries as Turkey, China, and the Czech Republic, as well as strengthening the company's Latin American operations and entering the Russian market. Whereas Renault had done little to enter the growing Asian countries, the company now began to move toward building a presence in these developing markets.

More importantly, Renault--driven more and more by the need to provide profits, as the French government's position was reduced from 80 percent to just 45 percent by 1995--went back to the drawing board for its new car designs. Indeed, during the 1990s the company would appear to recapture the spirit of innovation that had produced the indomitable R-4 and R-5 with the introduction of the Clio in 1992, which would take the lead as France's bestselling car. In 1993 the company debuted the Twingo, another success. In the larger-sized realm, Renault continued to dazzle auto buyers with the popular Megane (the number two selling car in France), the minivan Espace, and 1997's hit Kangoo.

The company's net loss of FFr 5 billion, chiefly due to rising production costs, in 1996 proved only temporary. A streamlining of the organization and the reduction of production costs by nearly FFr 4,000 per automobile would return the company to profitability in 1997. In 1998 the company could forecast an all-time production record of 2.2 million vehicles. According to CEO Schweitzer, however, by the year 2010 this record would seem ancient history. Continued cost-cutting measures were expected to produce some FFr 20 billion in savings, while the company's strategy called for production to reach more than four million vehicles per year, with foreign sales to account for some 50 percent of the company's total, compared with just 20 percent in the late 1990s. As a primary step toward this goal, Renault prepared to open a new FFr 4 billion production facility in Brazil in December 1998.

Principal Subsidiaries: Renault Vehicles Industriels; Renault Industries Equipements Et Techniques (99.9%); Renault Agriculture; Europcar; Société Nouvelle De Roulements (86%); Chausson (35%); Diffusion Industrielle Et Automobile Par Le Crédit-Diac; Société De Financement Pour L'Extension de L'Industrie-Sofexi; Compagnie Financière Renault; Renault Crédit International; Mack Truck Inc.