Renault Case

Renault: The Challenge of Restructuring In January 2003, Louis Schweitzer, the Chairman and CEO of Renault, laid back in his chair, gazed out of his office window and smiled. He was thinking of the restructuring program that he started way back in 1998, just prior to the decision of forming an alliance with Nissan. Though the journey was extremely difficult, he could not help but reflect on the profound changes which had occurred at Renault in recent yea rs. "Radical tra nsf ormation" as his commun icat ion head had put it, was clearl y ref lec ted in the organizational chart, made its mark in the new policies, in the creation of an alliance board and a bi-lingual group. But one most imp ortant challenge remained that of organizational restructuring of this huge French group, that he orchestrated. He started writing the answer to the question that the communications director posed to him a few days back: "Re nau lt look s to be in the mi dst of a radi ca l tr ansfo rmati on. Do yo u ag ree ? Absolutely. We are truly opening up to the world. We must conquer new markets, and in the best possible conditions if we are to enjoy long-term success. This calls on resources at every level of the company, and a complete transformation of its mechanisms, systems and habits. In a word, the modernization process that we set in motion before the Alliance has stepped up i ts pace…" Industry Background In 1999, 55 million vehicles were sold worldwide, out of which 32 million were passenger cars. 90% of the demand came from the “triad” of the USA (26%), Europe (40%) and Asia (24%). In the US and in Europe, sales increased by 8.7%, while in Asia the rate of growth was 5.1%. In 2001, the number of vehicles sold wor ldwide was almost the same as compa red to 1999 (se e Exhibit 1). The automobile market was slowly stagnating in mature markets of the US and the Western Europe. Both these markets were also affected by rising oil prices and interest rates in 2001. The shrinking of these main markets was not sufficiently compensated by growth in other markets. Globalization If the challenge facing automobile producers in the 1980s was to change their industrial model, in the 1990s it was intern ati ona l reo rga niz ation. His tor ical ly int ernational trade has acc oun ted for a considerable proportion of the total sales. Internationalization has been one of the industry's characteristics, as Renault, for example, started selling ca rs in foreign markets as early as in 1 922. In the recent times, the context of deregulation, the emergence of new growth poles and new industrial models has destabilized the wage-labor nexus and, in turn, the markets of many mature countries. Companies can no longer rely on traditional markets that are relatively predictable in terms of the level and type of demand. Furthermore, the changes in the underlying technologies of car manufacturing affected the industry’s environment as vehicles incorporated state-of-the-art electronics into their systems. Virtually every aspect of a modern high- end car is controlled by electronics: accele ration , brakin g, seatin g, secur ity, entertainme nt, navigation, driver information, crash protection, steering, etc. This trend is likely to continue, and the automobile industry will grow as a major consumer of electronic components. Manufacturers will therefore have to decide whether to vertically integrate with electronics. In this context, the automobile companies face the following choices: either to organize themselves in such a way that they can remain profitable in an unstable economic environment and/or seek out local and regional economic spaces in which they can recreate conditions of growth.

Renault Case

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