The company announced Friday that it will cut fixed costs by more than €2 billion ($2.2 billion) over the next three years. It also plans to reduce the number of cars it makes each year from 4 million to 3.3 million by 2024, and will stop selling Renault-branded vehicles in China. The plan will cost about €1.2 billion ($1.3 billion) to implement, the company said.
Renault (RNLSY) is part of the world's biggest carmaking alliance, alongside Nissan (NSANF) and Mitsubishi (MBFJF). Earlier this week, the companies announced they would make fewer models, share production facilities and focus on the existing geographic and technological strengths of each carmaker as they try to slash costs amid the coronavirus pandemic.
Renault said changes were needed because of the slowdown of the global automotive market, the scale of the economic fallout from the pandemic, as well as stricter emissions standards. The company was in trouble before coronavirus, reporting its worst financial performance in a decade last year, with net profit dropping 99% to just €19 million ($21 million).
"The Covid crisis has only aggravated an existing situation," acting CEO Clotilde Delbos said on a call with analysts on Friday. "This adverse economic environment has shown the limits of our business model, which was betting on unprecedented market growth in emerging markets and therefore on record sales," she added.
Shares in Renault are down nearly 50% for the year and the company is in discussions with the French government, which owns a 15% stake, over the terms of a €5 billion ($5.4 billion) loan. Under former CEO Carlos Ghosn, the carmaker pursued an aggressive expansion strategy, seeking to drive sales volumes through what Delbos described as a "diverse, complex and costly lineup."
"We pay the price of this model today," Delbos said. "Our ever increasing size and structural costs are set for growth that did not take place."
Renault will cut costs across engineering, production, and sales and administration, she said. The company, which employs 180,000 people around the world, said it would consult with unions about restructuring some of its plants in France.
"The planned changes are fundamental to ensure the sustainability of the company and its development over the long term," chairman Jean-Dominique Senard said in a statement.
Carmakers are in the midst of a painful decline globally, with sales falling in each of the past two years following a record 2017. The coronavirus pandemic has deepened the slump, upending an industry grappling with the huge challenge of switching from internal combustion engines to electric vehicles in order to tackle the climate crisis.
On Tuesday, French President Emmanuel Macron announced an $8.8 billion aid package for the country's auto industry. Luca de Meo, who previously served as president of Volkswagen (VLKAF) brand SEAT, starts as Renault's new chief executive on July 1.
The decision to pull the Renault brand out of China is part of the new alliance strategy, which will see each member take the lead in specific geographies while the others follow. Nissan will lead the way in North America, the Middle East and key markets in Asia including China and Japan. Renault will take first position in Europe and South America, while Mitsubishi has been assigned parts of southeast Asia and Oceania.
On Thursday, Nissan announced it is slashing production capacity by 20% and closing a plant in Spain as part of the overhaul.
-- Charles Riley contributed to this report.
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