Renault gets flak for import plans

European consumers have shunned Renault's Laguna Coupe (pictured) in favour of General Motors' sedans, such as its Vauxhall Insignia. Photo / Supplied

Renault, struggling to maintain a European foothold in the market for larger cars, plans to bolster its upscale offering with South Korean imports such as the Latitude, which is a rebadged version of the Renault Samsung SM5.

The strategy may be hampered by worker protests and French Government resistance.

The Latitude, to be unveiled next week and assembled at the French company's Korean plant, is expected to be a focus for demonstrations at the Paris motor show in October.

The family car, which features a massaging driver's seat, would be Renault's only luxury model built entirely abroad.

Like Fiat, Renault is under increasing government pressure to build vehicles and source parts at home. Renault's share of the European market for mid-sized cars has slumped by more than half since 2003 as consumers shunned the Laguna model in favour of Volkswagen and General Motors sedans.

"They've basically been chased out of the upper segments," said Max Warburton, a London-based analyst at Sanford C Bernstein, who has an "outperform" rating on Renault.

Introducing the SM5 is "a pragmatic move that allows them to keep something on the road in this vehicle category".

The French Government, which owns 15 per cent of Renault and appoints two members to its board, this year demanded that the carmaker bought more components locally and forced CEO Carlos Ghosn to backtrack on plans to move production of the Clio subcompact to Turkey.

Renault shares have fallen 8.5 per cent this year, the worst performance in the 10-member Bloomberg European Auto Manufacturers Index, which was little changed in the period. The stock fell 0.1 per cent to €33.13 ($59.52) in Paris this week.

The Latitude and SM5 are derived from the French-built Laguna family car. The third-generation Laguna, introduced in the second half of 2007, missed a 190,000 volume target by half for the first six months of 2008.

Sales have dwindled further for vehicle whose selling price starts at about €26,000 in France.

Renault's European share of mid-sized car sales fell to 3.4 per cent last year from 7.5 per cent in 2003, while GM and VW won customers to their Opel/Vauxhall Insignia and Audi A4 sedans, according to consultant J D Power and Associates.

In France, the price for the A4 begins at €26,530, while the Insignia starts at €22,200. Pricing for the Latitude, which will be sold in Europe next year, hasn't been disclosed.

While demand for the Megane compact car and Scenic medium minivan, boosted by government-sponsored scrapping incentives, increased Renault's market share in France in the first half, its share of deliveries in Germany shrank in the period.

Renault already has more excess capacity in western Europe than most rivals. Its factories in the region are running at half their potential output, according to IHS Automotive, compared with utilisation rates of 67 per cent for GM, 68 per cent for Peugeot and 84 per cent for Volkswagen.

Introduced in Korea early this year, the SM5 contributed to a 61 per cent surge in Renault Samsung Motors' first-half unit sales to 87,693 vehicles. The Renault unit accounted for 6.5 per cent of the carmaker's global deliveries.

French Industry Minister Christian Estrosi was "keeping a close watch" on Renault after receiving assurances that the volume of SM5 imports would remain "marginal", spokeswoman Gaelle Gicquel said.

"The Minister wants Renault to keep a maximum of manufacturing in France."

Engines for the Latitude would be made in France, Renault spokeswoman Gita Roux said. The vehicle would not undermine domestic production because only 5 per cent of overall SM5 output from the Renault Samsung plant in Pusan would be destined for western Europe, she said.

"We saw what happened when they considered relocating Clio production," said Marc-Rene Tonn, an analyst at M M Warburg in Hamburg. "It will be interesting to see how this proceeds, and how much influence the Government and unions actually have."

Estrosi is heading a broader "Made in France" initiative to encourage domestic investment as President Nicolas Sarkozy braces for a traditional showdown between the Government and unions, with his approval ratings at a near-record low.

"There's a gap between the Government's rhetoric and actions as Renault's main shareholder," said Fabien Gache, leader of the CGT union at Renault. "We'll be pushing them to prevent imports from harming sales of models made in France."

- BLOOMBERG