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Before taking charge at Renault, Louis Schweitzer had helped the Company prepare the Skoda bid. This was ultimately unsuccessful, with the Czech government opting for VW, Renault’s German competitor, in December 1992. What Schweitzer learnt from this experience was the usefulness of having a “second brand” positioned lower than Renault itself, giving the original brand an opportunity to pursue its goal of improved quality and image without losing out on commercial opportunities emanating from the emerging markets, with their focus on increasingly affordable products. Another peculiarity of the conception process was a decisive step of the "design to cost" program, introduced by Renault in 1992.
Hence Schweitzer’s decision, announced to his team in 1995, that Renault would internationalise its production and sales henceforth, starting with its investments in Brazil.
Renault had just spent long months working through its merger with Volvo and before this operation fell apart, company executives were all more or less fixated on the idea of a top-of-the-range brand. “One audience member suggested that it would be useful for Renault to acquire a second brand. He was thinking about Delage, a top-of-the-range product. The scars we carried from the Volvo era were still very present. I think I answered that I wasn’t opposed to the idea of a second brand but if we had one, it should be below Renault, meaning that we would be developing something at the entry level.”
So it was a surprise when Schweitzer asked them to do a serious analysis of his potential scenario and help him to structure it. The executive team initially ignored this request but Schweitzer persisted, never abandoning his vision of something akin to the VW-Skoda model and seeking ways of materialising this. It was in trying to understand how Renault might take advantage of growing automobile use in Russia and Eastern Europe that Schweitzer had his eureka moment.
The strategy was presented to the upper management of the firm by the CEO Schweitzer in an autumn 1995 strategic meeting, during which the long-term plan for 2015 was presented and discussed. The global target was to make a significant growth step outside of the traditional European market on an unprecedented scale. The originality of the strategy was to deploy this internationalization through a product in a low price range product.
Internal presentations highlight the following strategic thinking:
- For Renault, profitable growth meant significant overseas expansion;
- In markets that were economically more constrained than Western Europe;
- Although half of the volumes involved Renault products, for the other half the Group needed a specific range of cheap adapted products;
- In bottom-of-the-range segments characterised by a range of prices and products.
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Even before Schweitzer, Renault had already developed in the early 1990s under the tutelage of Raymond Lévy, a similar project called the W75. The habit at the time was to deal with emerging markets by “downgrading” and marginally modifying models that were part of the existing product range. W75 started with premise that a better way of dealing with the emerging markets’ cost and performance requirements would be to build a specific model integrating local market and production conditions from the outset. The model underlying this effort was supposed to be the R19, with Bursa in Turkey supposed to be Renault’s anchor site.
The project never materialised, however, due to the fact that Western Europe was still Renault’s priority in the early 1990s. This was an era when the Company was still very dependent on the French market and only help significant market share in a very few countries outside of Europe. Before “intercontinentalising”, Renault’s strategic objective has been to “Europeanise” and advance in commercial terms, notably in Germany.
Yet something had to be done for those emerging markets where Renault had already started selling cars. Because of the need for “true hatchback sedans” offering “maximum size” for minimal cost, the decision was made to add a boot onto the Renault Clio 1, which was Europe’s leading car in the early 1990s, alongside the Volkswagen Golf. This pre-project was launched in 1995 with project itself coming online in 1996. One manufacturing contract signed in June 1997 applied to Bursa in Turkey, with another applying to Curitiba in Brazil. The actual launch occurred year-end 1999 with cars sold under the name of the Symbol in Turkey and the Sedan in Brazil. A little later, Nissan would use the same model to replace its Tsuru in Mexico (90,000 annual sales), subsequently manufacturing its Platina in the country’s Aguascalientes plant. A little later, the Thalia went on offer in both Eastern Europe and France’s overseas territories.
This product had a modicum of success with annual sales of around 110,000, half of which were car badged as Nissans. Yet this “European product adapted for constrained markets” was also considered quite elitist in many markets. This is because despite certain “decontenting” and “re-engineering” efforts, manufacturer return costs were at best 30% lower than rival products in the same markets. In a sense, the numbers didn’t add up due to the fact that the product no longer qualified as entry-level. This explains why Renault’s international presence remained so marginal, with products that had no hope of featuring at the core of its target emerging economy markets. It was the need to address this problem that would later become the Logan’s key objective.
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Unlike W75, which can be analysed ex post facto as having failed because of a lack of clarity about Renault’s international commitment (and because of its vague objectives), the people responsible for the Logan project - called the L90 at the time - relied on the fact that Schweitzer had already said in 1995 that he wanted Renault to grow outside of Europe and set sales (hence manufacturing return) costs as clear and quantifiable objectives. The L90 corresponded more specifically to the notchback version. The project included this model as well as an estate, pickup and hatchback version, with people at Renault referring to the whole range as the X90 project. Following the planning stage i.e. once the first model was launched and the others planned, the project became a full-blown “programme” set on an equal footing with other Renault programmes and the ranges associated with them (Twingo, Clio, Mégane).
The year 1996 focused on more urgent issues, and the strategic vision would only go a step further in the fall of 1997, when the CEO visited Russia on an official mission with the French President and visited the Russian Lada retailers that sold cars at that time for about US$6000 (about 5000€). Louis Schweitzer “came back with the notion that this was a good price level for a ’modern, robust and affordable car. The trick is to be modern while remaining affordable. There is no point in building a $15,000 car that will struggle to sell. This then became the three specifications that I established for our project.”
In short, the commercial intent with emerging markets was never to offer the cheapest car possible but to create a product that would be positioned at the heart of its market. Schweitzer later said that it was during a trip he took in autumn 1997 accompanying President Chirac to Russia that he started thinking about the W75 again, returning to “the need for a car with the same sales tag as the Lada but reliable and modern.
By so doing, he was confirming two principal considerations. The Logan was first and foremost a commercial innovation that consisted of inventing - in the range of local low-cost products and “imported” cars - a vehicle and category of vehicles enabling buyers in these markets to access a “modern” alternative with the same retail price or a lower one. Implicitly, Schweitzer was also offering an alternative to the used cars that were households’ natural way of offsetting carmakers’ inadequate product offer. In emerging markets characterised by a relatively limited stock of automobiles, used cars were often imports, intimating that Schweitzer’s intuition was all the more relevant in countries where used car imports were prohibited or limited. Initially, the innovation corresponded to a commercial “window of opportunity” that was quite narrow due to its focus on Russia.
However, at the time, this vision was less than shared within the firm. This will be a major challenge, given the longstanding presence of certain very inexpensive vehicles (Dacia, Maruti, Lada) and total absence anywhere in the world of cars retailing at $6,000. Some scenarios are elaborated but they are squeezed in a dilemma of ongoing products, which were too costly to meet the required margin for a 5000€ sale or new redesign, which required major investments, and also inacceptable to meet the profitability target.
Because the new product needed to prove its profitability, almost all the top executives at Renault (excluding the CEO) were skeptical or overtly hostile to the vision. The initial sales forecasts issued from strategic planning reflected this scepticism. Until the year 2003 (i.e., one year before launching), the first official forecasts for the L90 project was 60,000 vehicles a year at peak sales. As the CEO said to managers: “I remember receiving (in 2004) 2005 global sales forecasts of 80,000 Logans and getting really angry, saying that I would accept nothing below six figures, and that it was silly of them to provoke me like this. 80,000 would have meant a failure. It was in mid-2004 that our Director for International Operations sent me photos of the moment when we first began showing the Logan in Romania. There were long lines in front of the dealerships. No one on the Executive Committee had expected that.”
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With such skepticism, it took more than one year to convert the initial brief to an official project, the X90 project. A project director was nominated in March 1999, with a target that seemed impossible: designing a profitable car with a production cost 50% lower than the existing internationalized Renault product (already produced in Turkey), a global development investment cost 35% lower than the most economic project ever done at Renault and an industrial investment 44% lower than this same reference.
The next step to implementation was the takeover of the Romanian Dacia firm after a long and difficult negotiation in the fall of 1999. This move gave Renault a low-cost production plant in Eastern Europe, the first targeted emerging market; however, the plant was far from meeting western standards in term of productivity and quality. Impressive changes had to be implemented to turn this “brown field” factory into a suitable opportunity for the Schweitzer vision.
The project team then had a dual agenda: Designing and engineering the “5000€ car” with the Renault deparments in France, and setting up an efficient industrial unit as local supplier procurements on the Pitesti site in Romania.
Figure 1 illustrates the main breakthroughs, explaining the success in meeting the variable production cost challenge.
Four items seem paramount in achieving a systematic design to the cost-effective approach: local integration, product specification, carry-over, and productivity gains. All in all, manufacturing costs were one half of what they had been on the benchmark vehicle (Clio).
On the design and industrial investment side, the achievements were also impressive, as demonstrated in Figure 2.
The key investment-killing factors were on the engineering side: the systematization of carryover of low-cost solutions, a tight design partnership with suppliers, and the implementation of numerical validations, which minimized the costly full-size prototyping.
Logan was a pilot program for the use of the new numerical technologies in the conception of the product, the tools and the manufacturing process. It was developed as a part of the project X90 in which digital simulation technology was used to design and engineer the vehicle and manufacturing tools in order to decide the production process. Calculating vibrations and testing acoustics on digital models helped designers to predict noise levels in the vehicle without using a physical model. The advantage of the digital method, especially in defining and developing the body structure, is that costly prototypes of vehicles and tooling do not have to be built so many physical stages in the design process are eliminated. The total cost saving in this stage is estimated at about euro 20 million.
The use of the same elements for several vehicles of the same car manufacturer is a guarantee of reliability and savings for the customers. This logic was present all the way in the development of Logan. So, Logan resume takes over the engines, the front axle, the steering, and rear brakes from the Clio model. The central unit of the interior space, which groups together the electronic functions, is derived from the one, which equips the Clio model. Another key factor in reaching the cost targets set for Logan was the choice of a front suspension similar to that used by Clio, with no anti-roll bar, and rear suspension taken from the Renault-Nissan Alliance's B platform. At the beginning the officials from Renault decided to use for Logan, its three engines, 1.4 liter petrol engine, 1.5 liter diesel engine and 1.6 liter petrol engine from the exiting models like Clio, Renault Modus and Nissan Micra.
On the industrial side, a systematic but unusual choice of a fully manual manufacturing process had dramatic effects on minimizing the investment costs in the new plant. To make this manual process choice efficient, a major renewal program was performed in the Pitesti plant to bridge the gap between a decrepit socialist conglomerate and an efficient plant in line with international standards in terms of productivity and quality. To achieve this renewal, Renault relied on two new Dacia vehicle launches, the SupeRNova in 2000 and, above all, the Solenza in 2003 as training projects in preparing the new Logan model.
The Dacia Plants are going to use manufacturing methods resembling to the Renault Manufacturing System. Initiated in 1998 this program allows industrial units of the Group to reach the best performance level in the world. It gathers all actors of the industrial system – buyers/providers, logisticians, engineers and manufacturers – around common objectives and action rules. The Suppliers’ Industrial Area has been created within the plant. This presence has ensured an important technical competence contribution and a significant productivity gain. This was made in order to cut the production and logistic costs. The Project Logan provides 42 first rank suppliers from different countries: Romania, Turkey, Eastern and Western Europe and a supplier assistance program with the objective of improving the development, the organization, the technical capabilities and the cost management.
Figure 3 sums up the evolution of efficiency ratios achieved by the Pitesti renewal program.
On the marketing side, the planned targeted market for the Logan was Central and Eastern Europe, where experts forecasted a significant development of the automobile market. In fact, the commercial launch of Logan in 2004 was a great success in Romania, as it appeared as a national rebirth and was heavily supported by the authorities. However, the original promise of the global Central European market did not materialize. The reason, which was ill anticipated, was that infrequent new car buyers were being recruited in the upper middle classes, whose expectations were more aligned with Western European consumers. For less affluent households, used cars offered an alternative widely preferred to brands such as the Dacia, which suffered from the double disadvantage of the region’s communist past and the fact that it was associated with Renault, a French, not a German company, known primarily for the Thalia, which also seemed to come from another era.
This unwelcomed and unfortunate surprise called for a quick search for other geographical deployments. The Logan was then launched in Turkey, Algeria, Morocco, and Colombia in 2005 and those markets appeared promising.
The question of whether the product would be launched in Western Europe, Renault’s core market, was a hot topic for a long time in the company. The marketing staff feared damaging Renault’s brand image and creating fierce competition between Renault and Dacia products. Finally, Louis Schweitzer announced the launching in the French market in the fall of 2004.
One month after France, the Logan was launched in Russia. Following Schweitzer’s initial intuition, this became a very important project stage. The product was very well positioned on the market but here too, the initial plans had to be adjusted: Logan was sold under the Renault brand in Russia. “That was something that I had originally opposed since I only wanted to sell the Logan as a Dacia product. But I soon realised this wouldn’t work. The Russians didn’t want it and we couldn’t force them.” With this important change in marketing strategy, the Logan appeared to be a spectacular success in Russia, rapidly growing from 49,000 Logan in sales in 2006 to 60,000 in 2007.
The initial Logan project was without doubt a success. This success paved the way for an expansion strategy that was spectacular: geographically, through a global marketing approach; and, in terms of product range terms, by designing a family of differentiated vehicles derived from the Logan platform.
Figures 4 and 5 illustrate the magnitude of this expansion.
In fact, peak sales of Logan sedan approached 450, 000 vehicles in 2008 and global sales of the entry line product (derivated from the Logan sedan) approached one million vehicles in 2011, and the global sales of the entry product line derived from the Logan sedan were more than 15 times the original goal. It remains that the most spectacular and unexpected success of this vehicle programme – which the public is familiar with because of its exceptionally low prices – cannot be attributed to rising sales but to the fact that it has been extremely profitable for the Renault group, something that has been especially precious since a crisis broke out in the late 2000s.
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With such an expansion, the project evolved from a marginal project to become one of the company’s main programs. The key question during this phase was how to shape this mutation and maintain the principles driving the initial project’s success while adapting to new contexts. The program did not stop with its first success. Even as it exploited markets successfully, it still tried to build new ones, as reflected by the program director's comment that he never had any time to lose. The goal here was to constantly explore potential new countries, even when they were not initial target markets for the program.
With the variant’s specific unique selling points coming on top of the platform's generic competitive advantages; then by guiding new product design in a way that creates value only in these target areas; and continuing to cut costs on other features that should be the “bare minimum.”
Clearly, there was a direct relationship at this level between the sums invested in the vehicle and the arguments that sales staff (or the advertising campaign) could use. All costs invested to add new features to this model created value for the customer. On the contrary, a “normal” car generally included a lot of costly functionalities the customer never asked for.
Systematic pooling of technical learning, procurement, and so forth in the permanent and systematic design to create cost effort for all program products and factories, to maintain standardization effects and simplicity. The result was a permanent reengineering of the different products in the range, to adapt to the new expanded context: systematization of “design to logistics” for coping with the extended geographical production system; “carry across” and “retrofitting” to prevent the destandardization from new generation of products; and a “designing to variety” approach to limit the cost of the diversification of the range.
Figure 6 shows how the program maintained the tight cost through the period of expansion.
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The Logan's epic journey demonstrated to what extent expansion is characterized by initiatives falling short of their goals, and by strategic reversals taking advantage of unforeseen opportunities. For instance, a vehicle designed for Russia sold like hotcakes in Europe and generated substantial margins there. In this ambiguous context, the success of the X90 project appears to be a confirmation of the importance of heavyweight project management in implementing disruptive strategies in established firms.
Such a structure was developed in the Renault group in the early 1990s. Autonomy was a key capacity to transgressing the firm’s best practices when those were not in line with the specific target of the project; this autonomy was based on various decisions.
First, the team with people clearly sharing the project challenge. The initial chief development engineer staffed on the project had to be replaced after six months, because he could not perform such a necessary transgression of the existing general design rules.
Second, as the project director said to us: “Building a compact and unified project team, with everyone working together at the St Quentin office, thus outside of the Technocentre. Our office hosted all of the different business areas as well as the project management teams and engineering subcontractors. This was a golden age for the X90’s project management.”
Third, the project team decided to outsource an important part of development to an external engineering firm, a Fiat subsidiary, which gave the project great autonomy from the inside engineering division. “Break the rules” rapidly appeared as the motto of the Logan team, which created a very efficient but conflictual context with the permanent department, especially the development engineering division.
