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Business

Renault Goes Down-market

French auto maker Renault 's latest car is geared toward a special customer segment: Drivers in emerging markets. It lacks power steering or air conditioning, but comes with extra ground clearance to cope with potholes.

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The Logan isn't meant for U.S. and Western European markets.

Other car makers have tried it and failed, now it is Renault's turn. With its new "Logan", the company hopes to take pole position in emerging markets where the car sector is growing fastest. Renault is betting that by 2010, some 700,000 customers will be opting for new Logans every year, mainly in Eastern and Central Europe, Russia, the Middle East, Latin America and North Africa. Prices for the no-frills sedan start at 5,000 Euro (US$6,100).

"Potential buyers belong to a gradually emerging middle-class that will be the automobile market's chief source of future growth," the company said in a statement. Production of the Logan has already begun in Romania, where it goes on sale in September. Later, it will also be built in Russia, Morocco, Colombia and Iran. In North Africa and central Europe, the Logan will be sold under the Dacia brand, the Romanian state-owned car company in which Renault acquired a controlling stake for €40 million in 1999. In countries like Russia, where the Logan will be priced in the €8,000-10,000 bracket, the car will be sold under Renault's own name and insignia.

New Logan or second-hand Golf

By introducing itself to fast-growing markets as the maker of the Logan, said Gaetan Toulemonde of Deutsche Bank Securities, Renault could be harming its prospects further down the line when the same consumers get wealthier. "If you get a reputation for making cars that are reliable but a bit cheap, it may be difficult to sell more upscale vehicles later on," Toulemonde said. He added: "The big question is whether people will prefer to buy a brand new Logan or a second-hand (Renault) Megane or Volkswagen Golf." Many observers also voiced skepticism about the five percent operating margin Renault is widely reported to be seeking from its cheapest car - which retails at about half the price of a similar bottom-end model in western Europe.

But the company stresses that cheaper labor and reduced component costs, the Logan is built mainly from parts designed for older Renault models, will help deliver the profitability it is looking for. In addition, the planned introduction of the Logan into new markets like China, would make a "significant contribution" to the project Renault chairman Louis Schweitzer said Wednesday. He added that Renault planned to market the Logan under its own brand in China, but said the strategy had yet to win the approval of the Chinese government. Although Renault said it currently has no plans to market the Logan in Western Europe or the United States, Schweitzer added he could not rule out its eventual introduction in developed countries.

Geared for potholes and dirt roads

For all its simplicity, however, even the most basic Logan boasts a 1.4-liter Renault engine, five full-sized seats, a large trunk and the same five-speed gearbox as the much pricier Megane II and Laguna II models. The car has been designed with a critical two centimeters of extra ground clearance to cope with potholed roads and dirt tracks. Specifications for each target country have not been finalized, but Renault said power steering, air conditioning and stereos will not be included with the cheapest models.

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