In December, Renault announced a joint venture with Dongfeng Motor to produce 150,000 vehicles a year in the central Chinese city of Wuhan. The initiative gives the French automaker its first major manufacturing plant in the world’s largest car market.
Renault is one of the last major car multinationals to invest in China. The new plant is part of a global strategy to reduce the firm’s dependence on Europe, its core market. The automaker’s target for 2018 is to derive 20 percent of its sales in the Asia Pacific region, including eight percent from China, up from 10 percent now.
It has missed the golden years of the Chinese market that saw annual growth in double digits. Analysts believe the market will expand 7-8 percent a year over the next five to ten years.
Renault looks with envy at the performance of its global rivals in China. Last year, Volkswagen and General Motors both sold more than three million units in the country. Meanwhile, sales of Ford rose 49 percent over the previous year to 935,813 units, a company record.
Despite strong anti-Japanese sentiment, Toyota and Honda both posted record sales in China last year – Toyota’s sales rose 9.2 percent to 917,500 units and Honda’s were up 26 percent at 756,882 units. In contrast, Renault exported just 29,724 vehicles to China in 2012.
For the last 15 years, Renault has been working to reduce its dependence on Europe, which accounted for 89 percent of its total sales in 1999. It is the weakest of the major markets in the world.
By 2010, it had cut the European share to 60 percent and, in the first half of last year almost 50 percent of its 1.3 million vehicles sold worldwide were outside Europe. The group has 7.8 percent of the Russian market, ranking second, and 2.5 percent in India. It has also expanded aggressively into Latin America.
Renault first arrived in China in 1993 with a joint venture with Sanjiang Motors to assemble commercial vehicles in Xiaogan city in Hubei province. The venture involved investment of US$98 million, with the French firm holding 45 percent and Sanjiang the remainder, in a 30-year contract.Output reached 1,000 units in 1998 and the two re-tooled the factory for annual output of 150,000. But bad management and conflicts between the French and Chinese sides meant that it sold only 4,000 vehicles before closing in 2004, leaving heavy debts.
This soured the management against investing here. Later, it began talks with Dongfeng on a new joint venture. Renault wanted the plant in Huadu, Guangzhou, close to the Dongfeng joint venture with Nissan, of which it holds 43 percent.
But Dongfeng insisted that it be in Wuhan; the talks broke off for a period. Then, in the first half of 2012, Dongfeng, Wuhan city and Sanjiang Group signed an agreement under which the city government took over the 1.3 billion yuan debt resulting from the failed venture. Sanjiang sold its share in the Renault joint venture to Dongfeng for one yuan.
Renault yielded and agreed to put the new factory in Wuhan. The deal calls for investment of 7.76 billion yuan, with each side holding 50 percent and contributing four of the eight-member board. Dongfeng will appoint the first chairman and Renault the first president, with rotation every four years. The two will also establish a research and development center in Wuhan.
Full production will begin in 2016, with sport utility vehicles (SUVs) and new-energy and Renault models, as well as models developed by the joint venture.
The success of the new venture is by no means guaranteed. French auto firms have a poor record of working with local partners in China.
For its part, Dongfeng is an increasingly powerful company. It is the country’s second biggest manufacturer and has more joint ventures with foreign partners than any other Chinese maker. It is negotiating a large equity stake in the other big French maker, PSA/Peugeot-Citroen, Europe’s second largest automaker.
Renault’s strength is in SUVs and electric cars, in which it is a global leader. Dongfeng will want the technology on both. Carlos Ghosn, the chief executive of Renault, said his company would sell electric cars in China but had no timetable. “But this does not mean that we have to transfer technology. We are not going to get something in order to give something away.”
Renault would do well to learn from its partner Nissan, the most successful Japanese automaker in China. In the first ten months of 2013, Nissan sold one million units in China, up 7.1 percent over the same period in the previous year. Its managers have achieved this despite relentless anti-Japanese propaganda in the media during the year. Can the Renault managers do as well?