Renault’s fleet push sparks investor fears of profit erosion

The Renault Group has long boasted of its popularity with private car buyers, particularly through its Dacia brand. However, recent declarations that it wants to move more into the fleet segment have worried some investors, who fear it means a return to deep discounting.

Traditionally, private sales are of higher value than sales to businesses, who use their promise of bigger orders to push for lower prices.

Renault’s expertise in smaller, cheaper ICE cars chimes better with the need of private customers, but its shift to bigger models (such as the Symbioz and Rafale) and the growth of tax-friendly hybrids have led to it targeting fleets.

This concerns investors, who have been generally keen on Renault’s transformation under CEO Luca de Meo and in particular its ability to keep pricing high.

“In our view, margin in fleets are typically lower, so the company has to prove that the strategy change does not lead to significant margin deterioration,” Tim Rokossa, head of research for Deutsche Bank, wrote in a note.

Across Europe in the first half of 2024, the Renault Group is still more of a retail business, with 62% of its sales being to private customers, versus an industry average of 40%.

The Group boasts that Dacia’s 80% retail share is the highest in the industry, with the Sandero being Europe’s most popular retail car. Renault's is split 50/50 between retail and fleet, according to company figures.

Renault’s view is that fleet sales don’t have to be distressed sales; they can still maintain a profit.

“When you are 20 points above the average [on retail sales share], it may be time to do a bit of good fleet, now we have new C-segment cars. but we can define the condition ourselves,” de Meo said on the company’s second-quarter earnings call. “We're not going to go into fleets to discount cars.” 

De Meo’s rallying cry since he joined the company back in 2020 has been the expansion into bigger, more profitable segments. Back in 2021, compact cars made up a quarter of Renault’s sales, and de Meo set the target of doubling that.

That strategy is now bearing fruit with the likes of the Symbioz, which squeezes in between the Captur and Austral. In addition to that and the Rafale, there's also now the Espace and electric Scenic. All are SUVs. 

Dacia too is moving upwards, with the Bigster SUV expected to be revealed at the Paris motor show in October and two more planned C-segment models coming later.

That strategy has yet to play out in sales, however. In the UK, across the first seven months of 2024, the compact Clio and Captur took two-thirds of Renault's sales.

Still, despite the small car emphasis, Renault is already moving more towards fleet here in the UK (the Renault Group’s sixth biggest market globally).

In the first seven months of 2024, UK fleet sales soared past the European average, accounting for 61% of Renault’s 32,219 sales, running much higher than against its European average of 38%. At Dacia, the figure was more skewed towards retail, at 37% fleet, but that was still more than the 20% European average for the brand.

The Renault Group is still on the rise in the UK, this year growing its retail sales by 24%. That’s far better than the market overall, whose 6% increase in sales this year has all been driven by fleet, with retail down 12%.

However, within that has been a huge 45% increase in sales to Motability, the charity that enables those receiving disability payments to convert some of that into a new car.

Renault has also plugged into that, recording a 91% increase in sales to the charity compared with last year.

We wrote in June about the explosive growth in Motability, which is on course to take more than a fifth of all new car sales in the UK this year.

The problem for companies like Renault is that Motability isn’t ‘good fleet’ as de Meo would define it, because margins are slim. Motability calculates that its customers can access a car 48% cheaper than going to a dealer, which requires some discounting on behalf of the car makers.

“It costs us a lot to be competitive [on Motability]. Everyone is cutting each other's throats, wanting a share of that 400,000 market,” Guy Pigounakis, commercial director at MG Motor UK told Autocar earlier this year. “But it's not as expensive as rental and a lot less distressful.”

Renault is in the same boat as many volume car makers in the UK in that it's chasing customers with reduced disposable income while still trying to prove to investors that it can improve margins by extracting more profit from each car sold.

Those two things are rarely compatible, especially when competitors include the likes of MG and newcomers such as Chery, who are aggressively chasing market share. 

Despite Renault’s improved sales performance in the UK, the company is on level pegging with MG after seven months with both its Renault and Dacia brands combined.

Renault will have to chase more fleet sales as it works to rebuild its falling EV share with new models such as the Scenic and Renault 5, because EVs are far more financially viable with the incentives offered to company car buyers.

The trick will be ensuring that those aren’t sold at too deep a discount.