Automobile

Renault says it will avoid incentives despite inflation

Key new launches include the Arkana, a South Korea-made coupe-style crossover; the Dacia Jogger crossover; the Megane E-Tech full-electric hatchback; and the Renault Austral, a compact SUV that will replace the Kadjar.

“We expect Austral transaction prices to be 25 percent higher and multiple times profit per unit than the Kadjar,” Pieton said.

And within the compact segment, increased sales of electrified (hybrid, plug-in hybrid and full electric) models are also driving transaction prices. For example, 60 percent of Arkana buyers are choosing the more-expensive full-hybrid version, he said.

Electrified models now account for 38 percent of Renault brand sales in Europe, up from just 4.5 percent in 2019 and 31 percent in 2021. Of that, 18 percent of sales are full-electric vehicles.

Under de Meo, Renault is also reducing its exposure to “toxic” low-margin retail channels such as self-registrations and short-term rentals. Renault brand sales in the retail channel – the most profitable – are up 7 percentage points to 56 percent, Pieton said.

The automaker posted a record 12.8 percent net pricing increase in the third quarter year-over-year. Revenue increased 21 percent, even though global sales fell by 2.4 percent. Pricing was the single largest contributor, at 940 million euros, to that revenue growth. 

Renault is not the only automaker to enjoy surging revenue profits, as the chip shortage has kept production well below demand, especially as consumers emerged from coronavirus lockdowns ready to spend. As a result, automakers prioritized production of high-margin and electrified models (for compliance reasons).

Key questions is whether consumers will continue to pay higher prices in the face of inflation and a potential recession, and whether automakers will return to incentives and price wars to keep market share and volume.

Pieton said Renault was well-placed to weather such a situation, at least through the beginning of 2023, because demand continued to outstrip supply, and order backlog was at four months. He expects a similar positive pricing effect in the fourth quarter.

“We’re not going to go backward” on pricing and incentives and to a strategy of volume over value, he told analysts. Pricing will remain “a massive lever of our profitability” through 2024, he said.

Renault has removed 1 million units of capacity from its production network, Pieton said, and if demand falls it can adapt production capacity in about three months’ time by altering shifts.

“Our goal is always to be at the level of demand minus one car, so we don’t have the incentive to go after the least-profitable channels,” he said.

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