May 29th 2008
From The Economist print edition
Success on four wheels
Cheap and cheerfulAs the pace of globalisation quickens, the vocabulary of its European critics is failing to keep up. Search the French internet for the Logan, a low-cost car made in Romania that is a surprise hit for Renault, and the word délocalisation crops up a lot. But the ugly word misses an interesting point. True, French sales of the Logan grew by almost 75% last year, despite boxy styling and a minimal marketing budget. But Renault never planned to build or even sell the Logan there. Nor is it an old model of some west European car, given a second life in the east. For the French, it was never local.
Renault's idea was to produce a robust new car with few gadgets from scratch and sell it in emerging markets such as eastern Europe, Turkey and north Africa. The Logan was designed to meet European Union norms because some of the target markets were due to join the EU, but to sell at a much lower price than standard models. Cheap labour was part of the plan. The car “would not make sense paying French or Spanish wages”, says a Renault boss, Gérard Detourbet. But a bigger factor was proximity to customers: cars are expensive to ship over long distances.
Production began in 2004 in Romania, where Renault had bought a local carmaker, Dacia. Low Romanian salaries were only the “cherry on the cake”, says Mr Detourbet, who heads the Logan project. That is just as well, because the firm's salaries in Romania have been rising ever since. Last year they jumped by 20%, to an average of about €450 a month. A three-week strike at the Dacia plant ended in April with a pay award of 28%.
Months after the Logan's launch, Renault learned of unofficial imports into France from Romania, prompted by press coverage of the car, so it rushed to organise distribution in western Europe, beginning with France. Last year nearly 80,000 Logans were sold in western Europe.
Mr Detourbet remembers a time when Western carmakers kept quiet about their factories in the ex-communist east. That changed as Western buyers became less interested in who built their car and more concerned about the brand name and the manufacturer’s guarantee. The Logan brand is even harder to pin down. In the EU and north Africa the car is badged as a Dacia but sold by Renault dealers. Most French buyers know that it is made in Romania (hence the price of €7,600 for the basic model), but “they don't really think it's a Dacia,” says Mr Detourbet: they think it is a Logan, meaning a Renault.
In France the Logan's main competition is secondhand cars. Its buyers range from people without much money to better-off customers who resent spending hefty chunks of their income on a car. In Romania the Dacia name has a positive image and the car is not seen as cheap. In the rest of eastern Europe people remember the brand from communist times, but with a shudder, so Renault has had to reassure buyers that this car is different. The company's profit margin on the Logan is over 6%, double that on the full-price Renault range. Production has now spread to Russia, Morocco, Colombia and Brazil, and to Indian and Iranian joint ventures.
As labour costs converge across new and old Europe, will the Logan remain a European car? Certainly more and more suppliers will leave the EU. There will be more robots and fewer workers in east European car plants in future. But given the cost of hauling cars to customers, production in the EU will not vanish.
For all the talk about délocalisation, perhaps the Logan is distinctively European in a way that harks back to the first years of post-war motoring. A cheap, odd-looking car that takes cobblestones and potholes in its stride: what could be more French than that?
From The Economist print edition
Success on four wheels
Cheap and cheerfulAs the pace of globalisation quickens, the vocabulary of its European critics is failing to keep up. Search the French internet for the Logan, a low-cost car made in Romania that is a surprise hit for Renault, and the word délocalisation crops up a lot. But the ugly word misses an interesting point. True, French sales of the Logan grew by almost 75% last year, despite boxy styling and a minimal marketing budget. But Renault never planned to build or even sell the Logan there. Nor is it an old model of some west European car, given a second life in the east. For the French, it was never local.
Renault's idea was to produce a robust new car with few gadgets from scratch and sell it in emerging markets such as eastern Europe, Turkey and north Africa. The Logan was designed to meet European Union norms because some of the target markets were due to join the EU, but to sell at a much lower price than standard models. Cheap labour was part of the plan. The car “would not make sense paying French or Spanish wages”, says a Renault boss, Gérard Detourbet. But a bigger factor was proximity to customers: cars are expensive to ship over long distances.
Production began in 2004 in Romania, where Renault had bought a local carmaker, Dacia. Low Romanian salaries were only the “cherry on the cake”, says Mr Detourbet, who heads the Logan project. That is just as well, because the firm's salaries in Romania have been rising ever since. Last year they jumped by 20%, to an average of about €450 a month. A three-week strike at the Dacia plant ended in April with a pay award of 28%.
Months after the Logan's launch, Renault learned of unofficial imports into France from Romania, prompted by press coverage of the car, so it rushed to organise distribution in western Europe, beginning with France. Last year nearly 80,000 Logans were sold in western Europe.
Mr Detourbet remembers a time when Western carmakers kept quiet about their factories in the ex-communist east. That changed as Western buyers became less interested in who built their car and more concerned about the brand name and the manufacturer’s guarantee. The Logan brand is even harder to pin down. In the EU and north Africa the car is badged as a Dacia but sold by Renault dealers. Most French buyers know that it is made in Romania (hence the price of €7,600 for the basic model), but “they don't really think it's a Dacia,” says Mr Detourbet: they think it is a Logan, meaning a Renault.
In France the Logan's main competition is secondhand cars. Its buyers range from people without much money to better-off customers who resent spending hefty chunks of their income on a car. In Romania the Dacia name has a positive image and the car is not seen as cheap. In the rest of eastern Europe people remember the brand from communist times, but with a shudder, so Renault has had to reassure buyers that this car is different. The company's profit margin on the Logan is over 6%, double that on the full-price Renault range. Production has now spread to Russia, Morocco, Colombia and Brazil, and to Indian and Iranian joint ventures.
As labour costs converge across new and old Europe, will the Logan remain a European car? Certainly more and more suppliers will leave the EU. There will be more robots and fewer workers in east European car plants in future. But given the cost of hauling cars to customers, production in the EU will not vanish.
For all the talk about délocalisation, perhaps the Logan is distinctively European in a way that harks back to the first years of post-war motoring. A cheap, odd-looking car that takes cobblestones and potholes in its stride: what could be more French than that?
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