Losing Growth Momentum
Renault Samsung Motors will release no new automobile models this year. Experts are saying that its goal to regain 10 percent local market share may be a tall order due to this absence. The automaker’s local market share topped 10% back in 2010, but has dropped since then, despite the efforts of Renault Samsung and the Renault Group in France to recoup the mark.
At present, its manufacturing plant in Busan City is subsisting upon consignment production for the Renault Group. Capacity utilization has dropped significantly, and the employees are lamenting that they are working for a subcontractor. Still, Renault Samsung has come up with no plan for a new car, which is the most fundamental solution to the adverse situation as of late.
Renault Samsung released the SM7, its latest fully changed model, 10 full years ago, although it has face-lifted the SM3, SM5, and SM7 since then. The QM3, 1,000 units of which were sold out in just seven minutes of a pre-sale in December, is a new entry to its lineup, but is actually an imported car which has already been on the European market. The absence of momentum and the rapid growth of non-Korean carmakers in Korea have severely affected its market year after year. The percentage reached 10.6 in 2010, but went down to 7.6 in 2011, 4.2 the next year, and slightly over 4 in 2013.
Its factory utilization rate has been on a downward spiral, too. The Busan plant of Renault Samsung is capable of manufacturing 200,000 vehicles each year on a double shift basis, but it produced just 130,000 units in total last year. The company is planning to supply 70,000 to 80,000 units of the Nissan Rogue from there, though, to minimize its idle facilities from the second half of this year. In addition, it will manufacture mid-size sedans jointly developed by Renault Nissan and Mitsubishi starting next year. All of the Rogues produced there are supplied to overseas markets, and the Mitsubishi sedan is not sold in Korea, which means the ratio of its production for the local market will continue to fall.
“The consignment production evidences our advanced technological strength, in that there are a lot of production sites available at lower labor costs such as China,” said a high-ranking executive at Renault Samsung, adding, “The consignment production is also helpful for those partner firms located in Korea, because the domestic development rate will reach approximately 80% by 2016 for the auto parts it uses.” According to the company, local component manufacturers can record annual sales of about 600 billion won (US$564 million) when the supply volume of the Rogue, 70% of the parts of which are domestically developed, is at around 80,000 units.
The company is anticipating that the QM3 will have a breakthrough amid the absence of new cars. Nevertheless, industry insiders are pretty skeptical about the impact of the QM3, because what matters more than the sales volume is to ensure the long-term capabilities for the continuation of self-development and R&D.
“We are working on the diesel version of the SM5 to release it in the latter half of this year, and will unveil a new mid-size sedan and a new SUV model in 2016,” a company representative explained, continuing, “Our sales volume increased each month last year, and we are expecting that the momentum will be sustained in 2014, too.”