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Goodbye Commitment 2009 Says Renault

Prospects For 2009 Look Bleak And Red.
For Those Willing To Look, There Are Positives.

It has been obvious to investors for more than a year now, but Renault finally and officially ditched its ambitious targets, set by CEO Carlos Ghosn shortly after he took the job.

Ghosn’s “Renault Commitment 2009” included the pledge to become Europe’s most profitable car company by 2009, boost annual car sales by 800,000 vehicles and raise profit margins to 6%.

Far from any of the above being attainable, 2009 numbers look set to be coloured red.

Last month Renault announced that net profit fell to €599 million from €2.7 billion in 2007.

Renault said its priority in 2009 would be slashing bloated stocks of unsold cars.

Investors painted a gruesome financial picture.

“We estimate a sales decline of 10 per cent for the group in 2009. This would lead to a negative operating profit of some €770 million. With a 15 per cent decline in revenues, the operating loss could come to some €1.2 billion – almost €1.5 billion below the 2008 level,” said Commerzbank analyst Gregor Claussen.

But some investors found some positives, even if they might seem to be have been trying very hard.

Morgan Stanley’s Adam Jonas said he expected the U.S. to be the first of the world’s major markets to recover from the recession

“Renault is one of the best ways to play this recovery. Each one million U.S. sales (assuming Nissan captures a 10 per cent share of the incremental volume) translates to €4 of value per Renault share – or around 25 per cent of the current Renault share price,” said Jonas.

Deutsche Bank had also rolled up its sleeves and scoured the rooms for positive evidence. It found two.

“Over the last few weeks, the Yen has dropped by about 10 per cent against both the euro and the dollar. Renault is benefitting twice from this weakness. First, the group carries €4 billion debt in yen. Secondly, every one yen move against the dollar has about a 10 billion yen impact on Nissan operating income. Overall, a 10 per cent yen weakening has a €400 million positive impact on Renault’s net debt and a €250 million positive impact on its net profit from a higher contribution from Nissan,” the bank said.

Happy days are here again, aren’t they?


Neil Winton – March2, 2009

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