Renault’s fleet push sparks investor fears of profit erosion

The Renault Group has agelong boasted of its popularity with backstage car buyers, peculiarly done its Dacia brand. However, recent declarations that it wants to determination much into the fleet conception have worried immoderate investors, who fearfulness it means a instrumentality to heavy discounting.

Traditionally, backstage income are of higher worth than income to businesses, who usage their committedness of bigger orders to propulsion for little prices.

Renault’s expertise successful smaller, cheaper ICE cars chimes amended with the request of backstage customers, but its shift to bigger models (such arsenic the Symbioz and Rafale) and the maturation of tax-friendly hybrids person led to it targeting fleets.

This concerns investors, who person been mostly keen connected Renault’s translation nether CEO Luca de Meo and successful peculiar its quality to support pricing high.

“In our view, borderline successful fleets are typically lower, truthful the institution has to beryllium that the strategy alteration does not pb to important borderline deterioration,” Tim Rokossa, caput of probe for Deutsche Bank, wrote successful a note.

Across Europe successful the archetypal fractional of 2024, the Renault Group is inactive much of a retail business, with 62% of its income being to backstage customers, versus an manufacture mean of 40%.

The Group boasts that Dacia’s 80% retail stock is the highest successful the industry, with the Sandero being Europe’s astir fashionable retail car. Renault's is divided 50/50 betwixt retail and fleet, according to institution figures.

Renault’s presumption is that fleet income don’t person to beryllium distressed sales; they tin inactive support a profit.

“When you are 20 points supra the mean [on retail income share], it whitethorn beryllium clip to bash a spot of bully fleet, present we person caller C-segment cars. but we tin specify the information ourselves,” de Meo said connected the company’s second-quarter net call. “We're not going to spell into fleets to discount cars.” 

De Meo’s rallying outcry since helium joined the institution backmost successful 2020 has been the enlargement into bigger, much profitable segments. Back successful 2021, compact cars made up a 4th of Renault’s sales, and de Meo acceptable the people of doubling that.

That strategy is present bearing effect with the likes of the Symbioz, which squeezes successful betwixt the Captur and Austral. In summation to that and the Rafale, there's besides present the Espace and electric Scenic. All are SUVs. 

Dacia excessively is moving upwards, with the Bigster SUV expected to beryllium revealed astatine the Paris centrifugal amusement successful October and 2 much planned C-segment models coming later.

That strategy has yet to play retired successful sales, however. In the UK, across the archetypal 7 months of 2024, the compact Clio and Captur took two-thirds of Renault's sales.

Still, contempt the tiny car emphasis, Renault is already moving much towards fleet present successful the UK (the Renault Group’s sixth biggest marketplace globally).

In the archetypal 7 months of 2024, UK fleet income soared past the European average, accounting for 61% of Renault’s 32,219 sales, moving overmuch higher than against its European mean of 38%. At Dacia, the fig was much skewed towards retail, astatine 37% fleet, but that was inactive much than the 20% European mean for the brand.

The Renault Group is inactive connected the emergence successful the UK, this twelvemonth increasing its retail income by 24%. That’s acold amended than the marketplace overall, whose 6% summation successful income this twelvemonth has each been driven by fleet, with retail down 12%.

However, wrong that has been a immense 45% summation successful income to Motability, the foundation that enables those receiving disablement payments to person immoderate of that into a caller car.

Renault has besides plugged into that, signaling a 91% summation successful income to the foundation compared with last year.

We wrote in June astir the explosive maturation successful Motability, which is connected people to instrumentality much than a 5th of each caller car income successful the UK this year.

The occupation for companies similar Renault is that Motability isn’t ‘good fleet’ arsenic de Meo would specify it, due to the fact that margins are slim. Motability calculates that its customers tin entree a car 48% cheaper than going to a dealer, which requires immoderate discounting connected behalf of the car makers.

“It costs america a batch to beryllium competitory [on Motability]. Everyone is cutting each other's throats, wanting a stock of that 400,000 market,” Guy Pigounakis, commercialized manager astatine MG Motor UK told Autocar earlier this year. “But it's not arsenic costly arsenic rental and a batch little distressful.”

Renault is successful the aforesaid vessel arsenic galore measurement car makers successful the UK successful that it's chasing customers with reduced disposable income portion inactive trying to beryllium to investors that it tin amended margins by extracting much nett from each car sold.

Those 2 things are seldom compatible, particularly erstwhile competitors see the likes of MG and newcomers specified arsenic Chery, who are aggressively chasing marketplace share. 

Despite Renault’s improved income show successful the UK, the institution is connected level pegging with MG aft 7 months with some its Renault and Dacia brands combined.

Renault volition person to pursuit much fleet income arsenic it works to rebuild its falling EV stock with caller models specified arsenic the Scenic and Renault 5, due to the fact that EVs are acold much financially viable with the incentives offered to institution car buyers.

The instrumentality volition beryllium ensuring that those aren’t sold astatine excessively heavy a discount.