PARIS — Even as Renault SA reported a 37 per cent increase in first-half profit Thursday, the French car maker said it plans to cut jobs and scale back production to adjust for lower-than-expected sales volumes and slowing economic growth.
Renault said it now expects to sell more than 3 million vehicles under its Renault, Dacia and Renault Samsung brands this year compared with the 3.3 million goal first expected as part of its four-year turnaround plan launched in 2006.
The car maker blamed “the deterioration in the macroeconomic environment,” which “has far exceeded the worst-case scenarios” envisaged when chief executive officer Carlos Ghosn unveiled the plan two year ago.
Anticipating a fall in car sales in Europe, Renault said it is talking to unions about a voluntary redundancy plan to reduce overhead costs by 10 per cent. Chief financial officer Thierry Moulonguet said that could translate into job cuts of around 5,000 by 2010.
The car maker is also considering cutting back to just one shift at its Sandouville plant in Northern France, where the Laguna upscale sedan is produced. The factory currently has two shifts.
Mr. Moulonguet said Laguna sales have fallen short of expectations as environmental concerns are pushing customers toward vehicles with smaller engines or diesel engines.
Renault is also planning to raise prices where it can, cut research spending, and halt or postpone non-priority projects. Mr. Ghosn said the car maker will wait to revamp its Renault Espace people carrier until it fully understands how rising oil prices are changing consumption habits.
And that's not all.
“Other adjustments may follow if the situation continues to deteriorate,” the car maker said.
Net income for the six months to June rose to €1.46-billion ($2.2-billion U.S.) from €1.07-billion a year earlier, Renault said in a statement. The results reflect cost cuts and exclude the second-quarter contribution from its 44 per cent stake in Japanese auto maker Nissan Motor Co., which reports Aug. 1.
Revenue increased 2.3 per cent to €20.94-billion over the period.
The results track with those of other mass-market auto makers that reported earnings Wednesday: French rival Peugeot SA, Germany's Volkswagen AG and Italy's Fiat SpA, which all staved off the impact of higher gas prices and skyrocketing raw materials costs to post increased profits.
Peugeot managed a 49 per cent increase in first-half net profit, Volkswagen's second-quarter profit jumped 35 per cent while Fiat's rose just under 2 per cent for the first half. Meanwhile, luxury auto maker Daimler AG on Thursday reported a 25 per cent drop in net profit.
Explaining Renault's cautious outlook, Mr. Ghosn told journalists that “we are trying to be as realistic as possible.”
“It's up to you to judge in six months who was optimistic and who was alarmist,” he said. “I know that my colleagues in the industry are more optimistic. I hope they are right.”
While cost-cuts, increased sales in developing countries and lineups of smaller, more fuel-efficient cars have helped against a tough market, some analysts are pessimistic about the future, with no sign that surging fuel and raw materials prices will abate.
Mr. Ghosn defended his track record, saying profit margin levels have increased.
Renault said it is still on track to achieve its target of a 4.5 per cent operating margin in 2008 and 6 per cent in 2009, although the worsening economic climate makes this more “difficult to attain.”
Renault's turnaround plan rests on the launch of new models — 26 over the four years. Mr. Ghosn said Renault is “very confident” about the launch of the revamped version of its Megane compact in October.
