Renault Agrees To Build China Plant With Dongfeng Motor

Renault SA (RNO), France’s second-largest automaker, will build sport utility vehicles at its joint venture factory with Dongfeng Motor Group Co. (489) as it targets to sell locally made vehicles in China by 2016.

The two companies will work closely with Nissan Motor Co. (7201), which also produces cars with Dongfeng, as part of a “golden triangle” to gain synergies in costs and technology, according to Carlos Ghosn, chief executive officer of both Renault and Nissan. Renault and Dongfeng signed the 7.76 billion yuan ($1.28 billion) partnership agreement today in Wuhan, China.

By the time the first China-made Renault is available for sale in the first half of 2016, the French automaker would have lagged further behind Volkswagen AG (VOW), General Motors Co. and Toyota Motor Corp. All of them have more than a decade’s head start over the French automaker in producing in the world’s largest auto market.

“If you look at the market, who needs Renault in China, to be blunt,” said Philippe Houchois, a London-based auto analyst with UBS AG, who recommends holding the stock. “At the same time, I can understand, strategically it’s very hard for anyone to ignore a third of the global market.”

French automakers have the weakest presence in China, accounting for 3.1 percent of the passenger-vehicle market share in the first eleven months of this year, trailing Chinese, German, Japanese, American and South Korean brands, according to the state-backed China Association of Automobiles Manufacturers.

“Arriving late or soon is not the issue,” Ghosn told reporters today. “Are you ready? That’s the issue.”

China Sales

For Renault, the decision to start manufacturing in China forms part of the automaker’s plans to cut reliance on Europe, which accounts for half its vehicle sales, and where car demand is at a two-decade low. Producing cars in China will help Renault save on the 25 percent import duty, allowing the company to sell its vehicles at more competitive prices.

The Renault-Dongfeng partnership can gain a competitive edge despite being a latecomer by harnessing the experience of Nissan, from dealerships to marketing to technology, Dongfeng President Xu Ping said today at a briefing. The venture currently only has a license to produce SUVs and the target is to be able to produce the full range of passenger vehicles in the future, he said.

Even with its alliance with Nissan, Renault will probably start their entry into China at a disadvantage, said Sascha Gommel, a Frankfurt-based analyst at Commerzbank AG.

“It will be tough to gain market share because you have now a market where almost every manufacturer is active,” said Gommel. “You have growth rates that are much lower than in the past and consumers that don’t know your brand. So there are a lot of obstacles.”

Source : bloomberg