These were the first words of Luca de Meo when he arrived at the head of Renault: “It is imperative to regain a foothold in the compact segment”. For the former Seat, the diagnosis of Renault’s illness was quickly established: the diamond brand was suffering from its withdrawal from the most profitable segment in Europe.
A disappointing range
His diagnosis was all the more serious as the current projects were mainly focused on the category of city cars (Clio, Captur, etc.). In hollow, Luca de Meo officially recognized that the current range had not been up to par (Kadjar, Scenic, Mégane).
“This segment is a third of the volumes in Europe but three quarters of the profits”he relentlessly recalled during the presentation of his Renaulution strategic plan in January 2021. Not to mention the upper segment flops (Talisman, Space).
Without waiting for the presentation of the strategic plan, Luca de Meo sounds from the summer of 2020 the general mobilization of the group to overhaul the range. At the start of the school year, he poached Gilles Vidal, the star designer of Peugeot, to give a breath of fresh air to the Renault teams. Problem: it takes at least four years to design a model.
Arkana, an unexpected success
Luckily, a model was already available because already marketed in South Korea: the Arkana. This coupé SUV is right at the time when the European consumer is looking for a new silhouette than the classic SUV whose models are offered “all look alike”, we say more and more. The Arkana is a success that goes so far as to surprise the management. It should sell 100,000 units this year, mostly equipped with the E-Tech system. It is this success, among other things, which enabled Renault to post good half-year results (doubled operating margin, generation of cash close to one billion euros, reduced debt, etc.).
The other opportunity for Luca was to invest in the compact electric segment with the new Mégane, which is also almost ready, even if the new management has readjusted several parameters. Again, sales exceeded expectations.
But the best is yet to come promises Renault with the successor to the Kadjar. Presented at the beginning of the year, the Austral will land in concession at the end of the year. Better finished than its predecessor, and above all more premium, this launch should announce the return of the diamond brand to compact SUVs. To mark the spirits, Renault even revives the four directional wheels, which had formerly equipped the Laguna, and which remains an important premium attribute.
A more competitive SUV
During the half-yearly results, Luca de Meo indicated that Austral would significantly improve unit profitability compared to Kadjar, with an average transaction price 25% higher. “Austral will have the best hybrid engine in the world with an efficiency of 44%, and will emit 15 grams less CO2 than the best product in the segment”he also assured, making this model a particularly competitive weapon.
Renault Austral will however have to face the arrival in 2023 of a new generation of the Peugeot 3008, which had largely imposed itself on the market since its launch in 2016. The lion brand had redefined the characteristics of the compact general SUV by mounting it in range, rivaling the Volkswagen Tiguan to titillate German premiums. Peugeot has sold two to three times as many Kadjars (it exceeded one million units last November), at a significantly higher average price. Renault had not even planned a high-end finish on its SUV. In short, to win, the Austral will necessarily have to win over 3008 customers.
Strategic Culture Change
But to set off to reconquer the compact segment, Luca de Meo had to change the software of the Renault teams, which had long been bottled up in the culture of volume. The Italian has worked to shift the entire company to a value strategy, even if it means giving up certain volumes. This strategy was also criticized by his predecessor Carlos Ghosn who, from his exile in Lebanon, never hesitated to shoot arrows against Luca de Meo. But for the latter, the race for volumes has largely contributed to damaging the value of the brand, pulling resale prices down. This has fed a vicious cycle that keeps buyers away, especially on the higher finishes.
This strategy has already produced its first results: sales to individuals (the most profitable) increased by 13 points in the first half (53% of the total), sales in the C segment grew by 9 points and represent now a third of sales.
For Luca de Meo, the success of Austral is not an option. It must validate its recovery strategy, subject to caution with the markets. The episode of the Russian withdrawal, its second world market, still weighs on the title on the stock market. Austral must also contribute to bringing in cash for a company that desperately needs it, even if the finances have largely improved. Finally, it must relaunch a brand dynamic which must serve as a launching pad for the following launches…