Renault Rising

Monsieur Low Cost

  • Why it matters

    Why it matters

    With its planned expansion into e-mobility, Renault could catch up with Volkswagen as Europe’s leading carmaker.

  • Facts

    Facts

    • Renault, together with its subsidiaries Nissan and Dacia, makes annual profits of €3.5 billion ($3.8 billion).
    • Forty percent of its sales come from low-cost models, including the Kwid, a no-frills car developed specifically for India.
    • Mr. Detourbet, a trained mathematician, is planning a low-cost e-car for the Chinese market.
  • Audio

    Audio

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Detourbet, vice president for Renault’s entry-level programme, sits in front of a goldsmith shop as he poses for a photograph in the southern Indian city of Chennai
Gérard Detourbet, vice president for Renault's entry-level program, in the southern Indian city of Chennai. Source: Reuters

In 1999, the leading global automakers GM, Toyota and Volkswagen, were all banking on premium cars for the future. But a small French brand rebelled.

Bucking the worldwide trend, Renault decided to make low-cost cars, first for Eastern Europe, later for Asia and Latin America.

Eighteen years later, the strategy has paid off. The French carmaker makes 40 percent of its sales with entry models, the fancy term for low-costs cars. A large chunk of its €3.5 billion ($3.8 billion) in profits come from the no-frills segment, too.

While French rival Peugeot-Citroen is trying to grow by buying Opel, Renault is looking to apply its low-cost concept to electric cars in order to capture the Chinese market. The strategy is meant to help Renault catch up with VW and Toyota.

“Our goal is to offer a car for $7,000 to $8,000 in China,” Renault’s chief executive, Carlos Ghosn, said recently in Paris. He’s counting on the Chinese government’s ambitious e-mobility goals. Together with its subsidiary Nissan, Renault is the world leader in e-cars.

The man behind the low-cost e-car for China is Gérard Detourbet, a confidante of Mr. Ghosn. The 70-year-old holds a doctorate in mathematics, led Romanian no-frills subsidiary Dacia to success, and created the Renault Kwid, a cheap car for the Indian market. He is responsible for developing vehicles in Renault’s low-price segment.

His specialty is building the entire car around the price. “Design to cost” is what he calls it.

“Cars aren’t my hobby, but a mode of transportation,” Mr. Detourbet says. “If I had to create high-end cars, that would have been a problem because you have to love them, and I don’t love cars,” he told Handelsblatt.

“While we know the piston engine perfectly, we haven’t perfected the electric control of an e-car yet.”

Gérard Detourbet, vice-president, Renault

Back in 1999 Mr. Detourbet was sent to Romania to head the Dacia car brand. In an era when the industry tends to bank on technology and loses sight of price, his criteria are minimal, affordable, but modern and safe.

Mr. Detourbet says manufacturers have become the puppets of suppliers, “focused on making the latest technology hit the roads before a rival does.” His philosophy, on the other hand, is one of “frugal cars.”

The mathematician says he proceeds the same way each time he develops a new car. “It all starts with a specific customer. If you have identified the customer, you know the maximum retail price, and then you deduce the production cost – pure mathematics,” Mr. Detourbet told Handelsblatt. What follows is a string of decisions on what functionality the car really needs. “You need to know your customer very well.”

When Mr. Detourbet was sent to India in 2012 to develop a low-cost car, he realized Dacia cars were still about twice as expensive as the average mass-market car there. A maximum price of $3,800 to $4,350 wasn’t feasible even with the most no-frills Dacia model.

So Mr. Detourbet decided to develop a new car from scratch, with Indian engineers and Indian suppliers.

When he met resistance from headquarters back in France, he handed in his resignation. But chief executive Mr. Ghosn rejected the resignation, and instead took a leap of faith. He gave Mr. Detourbet, whom many consider authoritarian and quick-tempered, a carte blanche, making him the sole project head.

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Mr. Detourbet made use of his new freedom. “While I was developing the Kwid, external people came in one day from the company developing the brand image, and told me: That’s not a Renault, the logo is not chrome and the mirrors can’t be adjusted automatically,” the manager recalls. He says he kicked them out of the office. “No one in India pays for power mirrors.”

One reason he managed to create a successful low-cost car is that he understood the local market, he says. “You have to know what your customers are willing to pay for or not, otherwise you lose money or don’t deliver the value they expect.”

Mr. Detourbet also revolutionized production in an effort to lower the price. “The Kwid is the world’s first car whose body parts are made in just three pressing cycles. The standard is four to five,” he explains.

Of course many savings came from using Indian suppliers. “We saved a lot of costs there – I’d say more than half of all savings,” the Frenchman says.

His strategy paid off. Renault sells the Kwid for under $4,300 in India. Unlike the world’s cheapest car, the Indian Tata Nano, the Kwid looks like a full-fledged car, and is a bestseller.

The question remains whether Renault can repeat its Kwid stunt in other developing countries. The carmaker is already producing the model in Brazil, and sounding out options in Iran, according to Mr. Detourbet. The price will be higher in those countries, because safety requirements are higher than in India. Regulations make cars more expensive. India, for example, doesn’t require vehicles to have anti-lock braking systems, Brazil does.

The last big challenge of his career will be the low-cost e-car. Pricing works differently for electric vehicles. For a car with a regular combustion engine, the engine and gearbox account for about 25 percent of the final price. For an e-car, the drive unit with battery and control account for 75 percent of costs.

“While we know the piston engine perfectly, we haven’t perfected the electric control of an e-car yet,” Mr. Detourbet says.

But he’s sounding out the market in China. “Where do we want to go with the price, what product do we want,” those are the important questions at the moment, he says.

The Chinese market is different from the Eastern European and Indian ones, he says, “because the government decides almost everything.” That is why Mr. Detourbet is not just talking to dealers and car rental services, but also government officials.

The Frenchman is convinced that once he develops a platform for a cheap electric car, it can be used worldwide. If he succeeds, that could bring Renault much closer to its goal of taking the lead in global carmaking.

 

Thomas Hanke is Handelsblatt’s correspondent in Paris. hanke@handelsblatt.com

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