Renault's Strategy

Topic: BusinessMarketing
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Last updated: May 27, 2019

To what extent has the Renault “Espace” been a successful product? What contributed to its success – what was its competitive advantage? Renault was the first automobile firm to enter the minivan niche through its Renault “Espace” model in 1984. From shy starting, the sales of this vehicle went on to gain in importance far beyond expectations. The major points that contributed to the success of the line resided in the following: Original idea and cost structure. The original idea resides in the fact that Renault soon discovered the needs of European population in family-friendly monobody vehicles which could carry up to seven passengers.The period coincided with baby boomers (1943 – 1959) becoming parents. But, the main point of the competitive advantage of Renault was unquestionably the cost structure involving exclusive subcontractor Matra. Matra used SMC (Sheet Molding Compound) as an alternative to stamped steel used in the automobile industry.

It resulted in low production costs. For example, in 1985 Matra sale price to Renault for the “Espace” was about 12,109 euros (sales amount of 170 M euros for 14,039 units). This transfer price allowed Renault to have a comfortable margin.In 1994, the transfer price to Renault was 13,980 euros and the Minivan was delivered to the final customer at an average retail price of 26,000 euros (tax and dealer margin included).

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Although, the advantage of Renault decreased once the Peugeot-FIAT alliance started. Only two years after their launching, Peugeot-FIAT minivans outpaced Renault “Espace” in annual registrations. From 64000 units sold in 1994, the “Espace” registrations fall to 35 000 units in two years. This 1996 year was the worst in sales and saw the break by Renault of their collaboration with Matra.In 2006, the “Espace” appears to be left behind on the minivans market. Ford, Peugeot-FIAT and imported vehicles like Chrysler Voyager are well seated ahead of Renault leaving the lozenge’s brand with a merely 15% of market share.

In conclusion, we can say that from promising first decade, the Renault’s strategy is now becoming breathless in a Minivan market where almost the firms preferred joint-venture’s approach. 2. How profitable was the “Espace”? In 1994, one Renault “Espace II” was delivered at a transfer price of 13,980 euros from Matra to Renault.Launched in 1991, the “Espace II” required 230 M euros in investments. It was sold over 5 years for about 280,000 units. With purchased parts of 60% of the production cost (8,334 euros), we have the total production cost of one “Espace II” of 8334 + 823 = 9,157 euros. The margin for Matra is therefore 4,732 euros.

On the other hand, in the 26,000 euros of final price, the dealer margin being 15% of and the VAT tax is (20%), we derive : 1,15*1,2*Price (from Renault) = 26,000 euros. The dealer has 2826 euros, the VAT of 4333 euros.The price charged by Renault to dealers is 18,840 euros. So we have 4860 euros of margin per vehicle for Renault. From these figures we notice that the the profit was equally shared between Renault and Matra in 1994. In 2000, the Renault’s price to car dealers is 21,740 euros (30,000/1. 15*1. 2) with expenses for marketing and price discounts of respectively 2,390 euros and 1,087 euros per vehicle.

The transfer price from Matra can be assessed to 18,500 euros (1,183 M euros/63,951 units). Renault suffered a 237 euros (21,740 – 18,500 – (2,390 + 1, 087)) loss per minivan.Matra still continued to have a positive margin in the deal.

3. Why did Peugeot-Citroen and Fiat on the one hand, and Ford and VW on the other hand, choose to form coalitions to compete against Renault? The main reason resided in scale economies and technology share. By coalescing, the company could efficiently reduce the cost linked to the stamped steel technology they used in comparison to the SMC used by Matra for the account of Renault. Even though the market of minivan was really attractive, entering this niche required huge investments that can be shared in a joint-venture approach.It would be really difficult and even worthless for a firm to bear this investment alone, at least for their first steps in the market. Renault had already a decade of presence in the market with almost mature learning effect that could be viewed as sustainable advantage other the new entrants.

Coalition was the recipe that gave a chance to Peugeot-Citroen and Fiat on the one hand, and Ford and VW on the other hand, wih more or less success to address the problematic. All this contributed to the minivan reaching almost 20% of the European passenger car annual registrations by 2006.


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