Renault’s success with Dacia highlights changes underway in European auto markets

Consumer demand

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Dacia Jan16

You never meet a shy and retiring car salesman.  They are always bursting with confidence, about to sell you a tremendous deal.  So we have to expect that the companies are always going to be confident about the future – even when it looks unpromising to everyone else.  2008 is close enough, that we can all remember GM and Chrysler claiming everything was fine, almost until they had to be rescued by the US government.

Similarly today, we have to make our own judgements about the underlying health of the European auto market:

  • Fiat Chrysler’s sales were up 14% in 2015 in Europe, but it made hardly any profit there
  • Ford surprised itself by making a small profit in Europe in 2015, but only after losing money since 2011
  • Ford and GM together have lost $4.6bn in Europe since 2012

VW, of course, is under threat  as the emissions scandal continues to grow.  Europe’s market leader has been a major beneficiary of the cosy collaboration between regulators, governments and companies.  Now the European Commission is proposing that tests be carried out by independent assessors – rather than by laboratories paid by the companies.  And it wants the power to do spot checks on the roadside.

Plus there is the ever-growing threat from new business models, as we discuss in the new 5 Critical Questions Study. Car-sharing models such as Uber and BlaBlaCar, as well as those initiated by companies such as Mercedes and BMW, could well reduce car sales very substantially over time.

Even more certain is that the overall market is in decline due to demographic factors.  Older people drive very much less that when they were younger, and today’s younger people no longer share their parents’ “love affair with the car”. They worry about the environmental impact of auto pollution, and they can now communicate with friends via social media – so they have less need to drive anywhere.

But this doesn’t mean that manufacturers and suppliers to the industry should simply give up.  Instead, they need to develop new business models to replace those that are no longer working.  The chart illustrates one successful route taken by French company, Renault:

  • It launched the low-cost, no-frills Dacia range in 2004, and it is now the fastest growing brand in Europe
  • Sales reached 382k in 2015, up 3-fold since 2008, whilst the overall European market fell 10%

The secret of their success is keeping it simple, as the company’s website says:

“Hello.

“We’re Dacia. We make cars. Cars that favour function over frivolity. We’ve made an enemy of the unnecessary.  Because we believe you should only pay for what you need.

“We make a simple range of cleverly designed, quality vehicles. Our prices are clear and straightforward, whether you buy online or at our nationwide retailers. Our range starts at only £5,995 (€7900, $8600).

“Maybe that’s why we’re the fastest growing car brand in Europe and have been since 2004.”

They are the low-cost model of the auto industry, and its most successful brand.  Their customers just want functionality and the cheapest possible price, which means suppliers have to adjust their business models to compete successfully.  But any company able and willing to supply essential components to Dacia, without frills and special features, is assured of a growing market.

Dacia, like Ryanair and EasyJet in the airline business, and Aldi and Lidl in retail markets, are growing and profitable. Its success with the low-cost business model highlights an important opportunity for others in Europe’s auto industry.

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