PARIS (Reuters) – Renault <RENA.PA> may have to cut more costs than initially planned to get out of the red zone and its cash-flow projections are alarming, the French carmaker’s new chief executive said in an internal memo seen by Reuters.
Luca de Meo, a former Volkswagen <VOWG_p.DE> executive who took over as CEO in July, wrote in the memo to unions and staff that generating cash and restoring profitability was an immediate priority.
“The aim is to get back on the right track and to resolve our most pressing problems as quickly as possible: treasury and costs. This means we will perhaps need to go further than planned with our cost-cutting efforts,” he said.
Renault acknowledged in May that its global ambitions had been unrealistic and announced plans to cut about 15,000 jobs, shrink production and restructure French plants in a bid to save 2 billion euros ($2.4 billion).
De Meo did not give a figure in his memo for how much more money the company may need to save.
Asked to comment on the memo, a Renault spokesman said De Meo was working on a plan to transform the company by focusing more on profitability than sales volumes.
Renault, like its Japanese alliance partner Nissan <7201.T>, is rowing back on an aggressive expansion plan pursued by Carlos Ghosn, its former boss-turned-fugitive.
The pair were among the weakest global automakers going into the COVID-19 crisis, lacking a clear plan for using their alliance to emerge from the slump and share the burden of investing in electric vehicles and other technology.
De Meo said Renault was in a “red zone” as the COVID-19 pandemic had exacerbated existing problems, including a downward trajectory in earnings since 2018, its ability to generate cash, falling sales and new models that were not profitable enough.
“Our cash-flow projections are alarming. More than ever, we must redouble our efforts to reach sustainable profitability, and generate cash flow,” he said.
De Meo said that Renault should model itself on the turnaround path followed by French rival PSA <PEUP.PA>, the maker of Peugeot cars, which has focused on trimming costs and producing more profitable vehicle ranges in recent years.
“In the next five years, we are going to do what PSA has done in the past five years,” he said.
De Meo also said Renault’s brand had been diluted so it would need to cut back on the number of products within different ranges by about 30% and could also raise prices for its small passenger cars, or C-segment, by 25% to 30%.
The CEO called on staff to get behind his turnaround plan. Renault union members already staged sporadic strikes when the earlier round of cost-cutting was announced in May.
“We will need to take decisions that are sometimes difficult, but are necessary and positive for the company. I would describe it as a revolution,” he wrote in the memo.
“This revolution, which must be pushed forward by all the men and women of the company, I’m calling it a ‘Renaulution’.”
(Reporting by Gilles Gillaume; Writing by Sarah White and Christian Lowe; Editing by David Clarke)