Restructuring of Samsung Renault
It has been found that Renault Samsung Motors has been losing its importance in the Renault Group for years. According to Financial Supervisory Service data made available on December 17, Renault Samsung Motors dismissed 1,169, or over 20%, of its employees last year.
The company spent 48.1 billion won (US$45.8 million) in severance pay for the employees dismissed in 2012, which increased by 53% when compared to the previous year. Meanwhile, it increased the wages and welfare expenses of the 30 or so employees dispatched from the Renault Nissan Group from 5 billion won (US$4.8 million) to 7.3 billion won (US$6.9 million) during the same period. This means that the employees at headquarters took more money at the cost of their Korean counterparts.
In addition, the sales earned through Renault Samsung’s commissioned research projects and sale of vehicles and auto parts to Renault Nissan decreased 17.8%, from 2.5116 trillion won (US$2.3910 billion) to 2.0644 trillion won (US$1.9632 billion) between the two years.
The more serious problem is the cut in R&D expenditures. Renault Samsung’s R&D costs were reduced for three consecutive years until last year, from 4.8 billion won (US$4.6 million) to 2.6 billion won (US$2.5 million), and then to 1.08 billion won (US$1.03 million). Its research expenses were almost halved as well, to 1.08 billion won in 2012.
As a result, Renault Samsung Motors failed to release a new model in Korea for approximately two years after the second-generation SM7, and brought in the small-sized SUV Captur under the name of QM3 only earlier this month. The company recorded a local market share of 4.4% in October and November this year, the lowest among the five automakers in Korea. It is expecting that the QM3 will be its savior.
Still, industry insiders are pretty pessimistic about its sales growth forecast, as only 1,000 units of the model are scheduled to be sold within this year. Any others who intend to purchase the car can expect to sign their contracts from March next year.
In the meantime, Renault Samsung Motors’ Busan plant is not benefiting at all from the release of the new model, because the QM3 is manufactured in the Renault Group’s facilities in Spain. According to the Xinhua News Agency, the Renault Group is planning to create 1,300 new jobs in Spain for three years to come, by manufacturing the QM3 there.
“The most important role of the Busan plant is to meet domestic demand in Korea, but we cannot fully run the facilities given the current sales performance,” said Gilles Normand, chairman of Renault Group’s Asia-pacific operations. Nonetheless, the company is not selling the Nissan Rogue, manufactured on consignment basis by the Busan plant, nor producing the QM3 in Korea.
This is why Renault Samsung CEO Francois Provost’s recent remark is considered questionable. He has recently said that Renault Samsung will have to take up at least 10% of the local market if it is to expand the production of the Busan plant. “Renault Samsung Motors is likely to increasingly lose its ground in the group, as the gap between production and sales is widening,” said an industry expert.