10 Sep 18

Russia: Renault’s cash machine and number 1 market

Now that the Russian crisis seems to be over, French OEM Renault believes the country can become a major market for them. By 2022, it should even kick France from the highest step of the sales podium. During the presentation of the car maker’s medium-term plans, CEO Carlos Ghosn even called Russia a “cash machine”, leveraging higher than average profitability, reports AutoActu.

This increased profitability is the result of a severe restructuring of Avtovaz, the Russian car maker owned by Renault. Last year, the builder of the iconic Lada cars posted a positive operational margin last year – one year sooner than expected. From – 8.8 percent in 2016, it increased to + 0.7 percent in 2017. The first half year of 2018 confirms the upward trend, with an impressive 5.4 percent.

Rationalisation and localisation

A major contributor to Avtovaz’ success is the strict rationalisation at the production side. Lada engines are used wherever possible and old models have been replaced by more attractive ones.  These have enhanced the brand image considerably and can be sold at higher prices, yielding better margins.

Another factor is the high degree of localisation, which limits the exposure to currency fluctuation. The entire Lada portfolio reaches an 86-percent localisation degree, which is clearly higher than what Renault and Nissan achieve. The group localisation degree stands at 75 percent, including Lada, a number that should rise to 80 percent in the coming years. At the same time, the OEM focuses on local suppliers, which should become at least as important (50/50) as international ones.

Russia bigger than France

The improvement of Avtovaz' profitability will also be achieved through the development of exports mainly in Russia's zone of influence. The manufacturer has reactivated its presence in Kazakhstan and Belarus. Today, Russia is Renault's second largest market (448,000 units in 2017) after France, where 674,000 cars were sold last year. It is expected to become its largest market by 2022 if the situation evolves as expected.

If the market reaches 2.7 million units in 2022, as optimistically projected by the group, and if the brands can get hold of a combined market share of 30 percent (10 percent for Renault, 20 percent for Lada), the group will reach 810,000 vehicles. With such volumes and higher than average margins, Russia could indeed become Renault’s cash machine.

Picture: Lada XRay, a successful compact crossover (copyright: Lada, 2018)


Authored by: Dieter Quartier