Renault tweaks market forecast higher after Q3 sales rise

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Renault tweaks market forecast higher after Q3 sales rise

Carmaker willing to cut prices to keep market share in Europe

Wire Reports October 28, 2010 06:01 CET

Renault SA said third-quarter sales rose 7.6 percent because of growth in emerging markets such as Russia, Brazil and Argentina.

Revenue increased to 8.71 billion euros ($12 billion) from 8.1 billion euros a year earlier, Renault said.

“The European market was better than expected in the third quarter,” Jerome Stoll, Renault's sales chief, said on a call with analysts and reporters on Wednesday.

Third-quarter deliveries increased 5.7 percent to 591,855 vehicles, outpacing the global market's 4.6 percent expansion, Renault said.

In growing markets outside Europe, Renault sales rose 22.8 percent, accounting for 42 percent of third-quarter group sales.

A 41 percent surge in Latin American sales led the gains, followed by a 37 percent jump in the Eurasia region including Russia, where the government is offering sales incentives.

Group sales fell 4 percent in Europe, less than the 11.5 percent drop in the market, Renault said.

Automotive revenue gained 7.9 percent to 8.27 billion euros in the quarter, while the sales-financing division recorded a 1.1 percent increase to 443 million euros, Renault said.

Free cash flow will amount to about 700 million euros in the full year, compared with 1.42 billion euros recorded for the first half alone, the company said, implying negative cash flow of 720 million euros in the last six months.

Price war in Europe

Stoll said pricing was under increasing competitive pressure in Renault's home region.

“The European contest is getting more aggressive and we are defending our market shares,” Stoll said, adding that Renault is ready to cut prices to keep business.

“We don't want to be price leaders but we're following competitors and doing just enough not to lose market share,” he said. “Conquering a new customer costs more than retaining one.”

Stoll said the end of scrapping incentive schemes launched to boost demand for cars in Europe had led to pricing pressure.

"Definitely the market is tougher than it was previously. You have an evolution of the structure of the market because of the end of the scrapping incentives," Stoll said.

The phasing out of scrapping schemes meant fewer sales to individuals and more to businesses "where the price might be a little bit lower," Stoll said, adding that the retail part of the market fell 13 percent in France in the first nine months.

Analysts at Bernstein Research said Renault is the latest company to warn on pricing in Europe.

"Volkswagen referred to tough competitive actions on its Q3 call despite being one of the main sources of such pressure, in our view," Berstein said. "With Renault's product portfolio at peak in 2010, it will not be easy for it to defend price in Europe in 2011."

Ford of Europe CEO Stephen Odell said at the Paris auto show that the carmaker may discount models in Europe to match competitors' pricing.

2010 Europe market not as bad as feared

The company said it would sell 2.5 million vehicles worldwide this year, compared with 2.3 million last year.

Renault said it now expected the European car market to fall 5 percent this year, compared with a previous estimate of a 7 percent dip. The world auto market should rise 9 percent, not 8 percent, the company said.

Carmakers are enjoying strong demand in markets including the BRIC countries of Brazil, Russia, India and China.

Renault is not yet in China -- the world's largest auto market last year -- except through a handful of imported cars and the presence of alliance partner Nissan, but it has a 25 percent stake in Russia's AvtoVAZ.

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