Global Insight Perspective | |
Significance | The Renault-Nissan alliance is investing 1 billion rand in its South African manufacturing operations to build a new pick-up and the Renault Sandero, based on the Dacia Logan platform. However, in India Renault is looking to revise its strategy for the Logan model as it has proved less successful than expected. |
Implications | The announcement comes at a time when the South African vehicle market is beset by a number of troubles attributed to the current economic situation. However, the Renault Sandero should undercut many of its competitors in the B segment, while there may also be the opportunity to export vehicles to other right-hand-drive markets, such as the United Kingdom. |
Outlook | In India, Logan sales have been hit as customers look to buy small vehicles, exacerbated by the changes to duty laws. Although changes could be made to the Sandero that could help it fall within the lower tax band, Renault may instead focus its efforts on the products to be built at its Tamil Nadu facility and the new ultra-low-cost vehicle developed with Bajaj Auto. |
The Renault-Nissan alliance has announced that it will invest around 1 billion rand (US$132.4 million) in its South African manufacturing operations at Rosslyn to build two new vehicles. Under the plan, Nissan will build the Pickup NP200, which will replace the automaker’s ageing but popular 1400 Bakkie, while Renault will build the Sandero 5-door hatchback, both of which are based on the Renault Group's Dacia Logan sedan. The investment will lift annual production at the facility from 40,000 to 68,000 units per annum (upa) by 2009, with the products initially sold on the local market. The expansion of the plant will require the addition of an extra 300 staff.
Renault "May Need To Revise" Logan Sales Strategy in India
While Renault looks to strengthen its grip on the low-cost vehicle market with its new South African project, progress in India with the Logan has been disappointing and the carmaker is now looking at changing its strategy for the model in the country. Patrick Blain, executive vice-president of sales and marketing at the French automaker, has told Automotive News that he does not expect sales of the sedan to achieve the 50,000-unit target that has been set for 2008, having sold only 12,700 units during the first half of the year. Although Renault has met its goal of placing the model within the top three cars in the country's small sedan segment, Blain also said that, "The segment has turned out to be smaller than we thought"; the carmaker has subsequently downgraded its 2008 sales target to between 25,000 and 30,000 units. Blain added that because it is now fighting for a share of a smaller market than anticipated, Renault "may need to revise the product strategy for the Indian market".
Outlook and Implications
Renault-Nissan’s decision to invest in its South African operations comes during a difficult time for the vehicle market in the country, which has fallen rapidly since the start of the year as consumers grapple with interest-rate rises, soaring fuel costs, high personal indebtedness, inflationary pressures, and the general economic slowdown in the country. Global Insight does not expect sales in the market to achieve the peak set in 2006 again until 2011. However, the Renault Sandero hatchback, which was developed in Brazil, will benefit from being in the B segment, where almost 40% of vehicles in the country were sold last year. It will compete against the Toyota Yaris, Volkswagen (VW) Polo, and VW Citi Golf, based on the architecture of the first-generation Golf and still going strong. The Sandero could well undercut many of the vehicles sold in the segment in terms of price, and it may even eat into sales of the Citi Golf as it offers newer technology at a low cost to the consumer. Although the malaise in the South African market looks set to continue, Renault may look at the possibility of shipping the Sandero to other right-hand-drive (RHD) markets, most notably the United Kingdom. Over the years, automakers with facilities in the country have used it as a base to supply RHD vehicles to the U.K. market, including Mercedes, BMW, and VW.
However, the South African unit will be hoping that it does not suffer the same problems affecting the business in India, where Renault is now anticipating sales this year to be half the original target. One of the biggest reasons for this weaker-than-expected performance is the dominance of the A segment and the smaller models in the B segment in the country. This has become even more apparent now that the government has reduced tax on passenger cars shorter than 4 metres and with a gasoline (petrol) engine of 1200cc or a diesel engine of 1500cc, from 16% to 12%, which has further hurt Logan sales. The automaker may chose to build the Sandero in the country given that it could be altered slightly to fall within these new tax levels. However, the relationship between Renault and its partner in India that builds the Logan, Mahindra & Mahindra (M&M), has deteriorated dramatically since the latter's decision to pull out of Renault-Nissan's new Tamil Nadu production plant (see India: 25 February 2008: Renault-Nissan Signs MoU for New Production Facility in India), and so the automaker will probably spend more time focusing on the A- and B-segment models to be built in the country and the ultra-low-cost (ULC) project that it has with Bajaj Auto, which should respond better to consumers’ demands in the country.