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Renault Sales Impress Investors, Boosted By Captur, Dacia

But Underlying Profitability May Be Undermined By Sales Methods.

Renault has been impressing investors lately, helped by sales of its new Captur compact SUV and its Dacia subsidiary, while news it will build a plant in Mexico with its partner Nissan and Daimler grabbed the headlines too.

In the first five months of 2014 Renault raised its market share in Western Europe to 9.1 per cent from 8.2 per cent in the same period of 2013. Sales rose 17.2 per cent to 477,172 according to the European Car Manufacturers Association. The Renault brand only accounted for 344,360 of that improved total while the Dacia notional third world subsidiary contributed a mighty 132,812, up from just under 100,000 in the same period last year.

Bernstein Research analyst Max Warburton wondered if Renault’s favourable position can be maintained, not least because its perceived strength in third world markets like Russia, Brazil and Turkey is being hit be economic uncertainty and currency problems.

Warburton said Renault has been on the slide in Western Europe for years thanks to poor products and the relentless market share growth of Volkswagen and its subsidiaries. Does Renault’s recent revival in Europe point to long term success? It doesn’t look like it.

Renault has apparently been using forcing its dealers to take more cars than they want, and counting these as sales.

“We’re convinced this (Renault European success) has been driven partly by a ‘push’ model, with excessively high dealer inventories, so may not help Renault’s revenue line or working capital as these units were actually built and recognised as revenue in later 2013. But it’s a success nevertheless,” Warburton said.

Small profit
Warburton expects Renault’s auto division will make a small profit in the first half of 2014, but sees a small risk to the downside in the second half.

“While some investors believe Renault is undergoing a “transformation” and are excited about a product cycle story in 2015-2016 – new Espace, new C crossover, new Megane, new Laguna – we’re just not excited about the stock at all. We believe its earnings will remain stalled as the gains in the West are offset almost equally by The Rest.”

(Warburton headed his report “Renault: The West And The Rest – Can Renault Meet Guidance in 2014?”)

In late June Renault, its Nissan partner and Mercedes announced a huge joint venture to spend €1 billion to build a plant in Mexico to make 300,000 small cars a year. The first cars would be for Nissan’s Infiniti subsidiary in 2017, a year later for Mercedes. Renault-Nissan and Mercedes are already making small cars together and this year will launch a new Smart, and a version of the Twingo for Renault.

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