Renault In Russia: A Winning Strategy For Growth

PARIS – October 27, 2008: Renault is positioned to benefit from the potential of growth of the Russian market, with a subsidiary and a new industrial partnership:

Avtoframos sells a complete range of imported Renault cars and produces Logan, the best-selling foreign sedan in its segment

AvtoVAZ (of which Renault owns 25%), is the leading carmaker with 23% of the Russian market

Russian car market trends
The Russian car market has seen phenomenal growth: 2.7 million vehicles in 2007 with a forecast for 3.2 million in 2008 and 4 million vehicles expected by 2014. Russia, despite present economic difficulties, is poised to become the largest car market in Europe.

In 2008, foreign vehicle manufacturers account for an estimated 75% of new car sales in Russia, a percentage that has been increasing steadily over the past 8 years.

In light of these trends, Renault’s strategy in Russia is three-fold:
1. Local production in its Moscow plant and distribution
As a foreign vehicle manufacturer producing Logan in Russia, Renault benefits from the economic advantages of local production. Due to the huge success of Logan (over 200,000 units have been built), this capacity is currently being doubled, to 160,000, by the end of 2009. At that time, the plant will begin producing Sandero, the hatchback built on the Logan platform. Renault’s Russian sales network (currently 74 dealerships and 94 sales outlets) is expanding in order to build on the strong growth of the Renault brand in Russia, with the goal of being present in every city of at least 100,000 people.

2. Sales of Renault imported cars
As a foreign car manufacturer importing the Renault range into Russia since 1998, Renault has benefited from the increasing demand for foreign cars as disposable incomes rose. Renault sells a complete range of vehicles imported into Russia, including the recently launched Laguna, Laguna Sport Tourer, Koleos, and starting in November, New Renault Symbol.

3. Partnership with AvtoVAZ
This partnership is part of the Russian government’s project to make the automotive industry a global player. As the strategic partner of AvtoVAZ, the dominant Russian carmaker, Renault will help to renew the Lada product range, leading to increased volumes and market share. The partnership between AvtoVAZ and Renault, launched in February 2008, was designed with a win-win strategy.

AvtoVAZ will use Renault’s vehicle platforms and power trains to provide its products with the technology needed to improve the Lada brand image.

AvtoVAZ will benefit from synergies with the Renault Nissan Purchasing Organisation in order to obtain higher quality from its suppliers.

Several Renault executives were placed in key positions to help the Russian brand to improve its product plan, engineering processes and quality.

For Renault, the goal of this partnership is creation of value:

AvtoVAZ is a profitable company with a 4.7% operating margin (end of 2007)

With much of its production equipment already amortised, and potential to increase capacity to 1.5 million vehicles by 2015 if necessary, this investment will capitalise upon existing resources for optimal returns.

The first two licenses were sold to AvtoVAZ for 220 million euros. Future licenses may also be sold to AvtoVAZ, increasing Renault’s cash flow in the short term and economies of scale in the mid-term.

As AvtoVAZ strengthens its position and its financial situation, Renault will benefit in terms of sales consolidation and increased value of the 25% of AvtoVAZ shares that were purchased for 1 billion USD.

Renault’s talent for developing successful international relationships has been clearly demonstrated through:

the Renault-Nissan Alliance (turnaround of Nissan in 1998), with complete respect for each other’s brand identity.

the revitalisation of Dacia (Romania) in 1999, with 100% implementation of Renault standards, leading to an international base for the Logan program.

the creation of Renault Samsung Motors (Korea) in 2000.

From these three very different experiences, Renault acquired a unique competency in terms of strategic partnerships. The keys to success have been the respect of the partner’s identity, the understanding of local customers and markets, standardisation of production systems according to best practices for quality assurance, and development of purchasing and engineering synergies in or