Nissan Alliance Has Plenty Of Profit Leverage Left
Renault Makes Big Progress In Cutting Labour Costs
“provided European and French markets are not significantly worse than expected”
Renault, alone amongst the non-German car manufacturers, still gets a warm reception from investment bankers who expect profits this year, unless Europe goes from bad to worse.
As Peugeot-Citroen, Fiat, Ford and GM Europe racked up massive losses in 2012 with repeat performances likely in 2013, Renault managed a small profit last year.
Philip Watkins, analyst with Citi Research, said Renault shares are the only European manufacturer which he recommends as a “buy”. Watkins expects higher sales this year than last, and sees a positive automotive operating margin, although he doesn’t say how much, but with this warning – .
“……..provided European and French markets are not significantly worse than expected,” he said.
Positive factors for Renault include the opportunities from the alliance with Nissan as the Japanese company benefits from yen weakness, and Europe’s dwindling ratio of sales as third world markets in general and Russia in particular gain. Cost savings from deals with the unions in France, and joint small car ventures with Daimler and bigger ones with Nissan also look attractive, Watkins said.
Morgan Stanley’s Laura Lembke also likes Renault.
“Renault is not only on the right track, but that significant savings and growth potential has so far remained untapped,” she said.
Much scope to cut costs
Lembke was impressed by Renault’s recent deal with the unions which she said cut 7,500 jobs in France, about 14 per cent of the total, the wage freeze in 2013 and increase in working hours. There was much scope for cost cutting with Nissan.
“In light of only 12 per cent parts commonality with Nissan, only seven percent share components with Renault and no common platform yet, we believe untapped savings potential is bigger than at any other manufacturer,” Lembke said.
In a separate report, Morgan Stanley said Hyundai of Korea was the world leader in labour costs, at €12 per hour, but a surprise second was Renault at €16.
“Clear proof that extensive efforts to shift production (by Renault) to low-cost countries are paying off,” Morgan Stanley said.
This report said Renault was better placed than its peers to withstand European weakness, while its Dacia third-world operation was working well.
Renault’s recent news also went down well with investors. Part of the deal with the unions included a pledge to build more vehicles for Daimler and Nissan which could reach up to 80,000 a year. Renault-Nissan CEO Carlos Ghosn didn’t reveal any details, but French press reports said this might involve production of Mercedes A and B class cars. Renault also decided not to pursue a venture with Mercedes to build a big car like the ill-fated Vel Satis on a E class platform.
Morgan Stanley ended up its report with some cautionary thoughts, musing that it’s positive position might change if Renault raised its investment in battery-only electric vehicles.
This has already been set at €4 billion.
“We are sceptical on short-term EV profitability and fear higher than expected start-up losses,” Morgan Stanley said.
Neil Winton – April 2, 2013