Emerging Strategy

7 June 2004



Renault Targets Emerging Markets with Logan

While the American love affair with SUVs and other gas guzzlers seems able to survive gas at $2.50 per gallon, there are other parts of the world where $50,000 for a Lincoln Navigator seems a touch steep. French automaker Renault has targeted the emerging markets with the Logan, which it plans to sell for just €5,000, or US$6,100 new.

What does one get for the money? Renault claims that the vehicle is a Renault through and through. Yet it will be built at the Pitesti factory in Romania which Renault acquired in 1999 when it bought Romanian automaker Dacia. Romanians work for less than Frenchmen, so that is how the price tag comes in so low. Otherwise, the car is French with either the 1.4 litre or 1.6 litre engine that Renault has had in its other models.

Romanians aren't the only ones who will get jobs thanks to the Logan. Renault will build factories in Russia, Morocco, Colombia and Iran to turn the car out. Those who are rabidly opposed to outsourcing in any form have a hard time with the concept. Were it not for the lower wages in these countries, the car itself would not be made. These are not jobs lost by Frenchmen. Renault is following in the footsteps of Henry Ford who wanted a car that his own workers could afford (that car was the Model-T).

Detractors see the Logan as a 21st century Lada -- the Soviet joke-mobile. There is a risk that the Romanian product will have defects owing to a workforce that may not be up to Western European standards, but the Lada suffered from poor design and substandard material. It was built broken. The parts for the Logan will be as good as anything else Renault makes (car buffs may argue the value of that).

For American car makers, the question is whether to continue to rely on the high margins of SUVs and luxury cars or whether to focus more attention on the emerging markets by making cars that people there can afford. Given the shrinking marketshare of the Big 3 (or is it 2 1/2?), an American answer to the Logan may be in order. At very least, shareholders in Detroit companies deserve an explanation of why the US car makers think Renault is making a mistake.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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