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Renault CEO lays out plan to slowly improve profitability

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Renault set conservative goals to gradually return to pre-pandemic levels of profitability, reflecting the challenges Chief Executive Officer Luca de Meo will have turning around the struggling French carmaker.

The company is targeting an operating margin of more than 3% by 2023 and at least 5% by mid-decade, according to a statement Thursday. This compares with a 4.8% return in 2019, before the manufacturer racked up record losses in the midst of the health crisis.

De Meo, 53, faces the difficult task of rationalizing a bloated cost structure and excess production capacity while pacifying the French state, Renault's largest shareholder. The CEO said the expense reductions the company laid out just before he joined from Volkswagen in July will be achieved ahead of schedule and set fresh objectives for four years from now while avoiding any new job cuts.

The plans "may seem to lack ambition" but are "rock-solid" and can be achieved even in the worst conditions, de Meo told analysts. Renault shares erased initial declines and were little changed as of 12:20 p.m. in Paris.

"We see the 2025 financial targets as conservative," Jose Asumendi, a JPMorgan Chase analyst who rates Renault the equivalent of a buy, said in an email. He estimates the objectives could be achieved by 2022.

Renault's margins will be constrained by high levels of depreciation, Deputy CEO Clotilde Delbos told analysts on a conference call. While the company was an early mover with regard to electrification, the bulk of its industrial assets are tied to internal combustion engine-powered vehicles.

Of the 24 models Renault plans to launch by mid-decade, half will be in larger-vehicle segments that tend to be more lucrative and at least 10 will be fully electric. Its CEO turned around Volkswagen's Spanish brand Seat before taking the top job at Renault following its ouster of Thierry Bollore, a protege of long-time chief Carlos Ghosn.

While de Meo has coveted the turnaround achieved by Renault's French peer PSA Group, his targets for profitability fall short of the levels his company's archrival achieved before covid-19 ravaged the industry. The maker of Peugeot and Citroen cars is now on the cusp of merging with Fiat Chrysler Automobiles after the French government scuttled the Italian-American company's attempt to combine with Renault.

De Meo's strategic plan is the first Renault has delivered since the departure of Ghosn, whose arrest in Japan in 2018 triggered an unprecedented crisis within the French company and its partner Nissan Motor Co. The more than two decade-long alliance nearly unraveled after factions within Nissan waged a campaign to unseat the chairman and cooperated with prosecutors in Japan.

In a bid to demonstrate cohesion within the alliance, the heads of Nissan and Mitsubishi spoke at Renault's presentation about backing the turnaround plan and closer ties between the companies.

Nissan and Renault made plans last year to each cut more than 14,000 jobs worldwide, though de Meo and Chairman Dominique Senard have had to tread carefully. They've come under considerable pressure from the state after Renault took out a 5 billion-euro government-backed loan to weather the Covid-19 crisis.

Published : January 14, 2021

By : Syndication The Washington Post, Bloomberg · Tara Patel