Renault bets reputation on new Laguna model

SANKT-WOLFGANG, Austria, Aug 29 (Reuters) French car maker Renault is staking its reputation on the launch of its Laguna III model, due to hit the market in October, as the first element of its ambitious profit recovery plan.

''Laguna is a very important model for Renault. We cannot afford it to become a failure,'' Chief Executive Carlos Ghosn told reporters on Wednesday at a lakeside hotel where reporters are test driving the hatchback version of the car, of which an estate, a coupe and a four-wheel drive version are also planned.

''We are putting our reputation at stake, yes,'' he said.

Renault has invested 1.05 billion euros in the new car, in development costs and the tooling of the Sandouville factory near Le Havre in west France.

A similar amount was invested in the previous version of the Laguna, and some Renault officials present at the tests said the costs could have been lower, but for the group's determination to get the quality absolutely right.

The previous Laguna was plagued by electrical failures in its first two years of production and at the end of its life was ''seriously unprofitable'', Ghosn said, adding the new Laguna would have an operating margin far exceeding the 6 percent target by 2009 he has set for the entire group.

Analyst Gaetan Toulemonde at Deutsche Bank said Laguna 2 was losing an estimated 200 million euros, and a 6 to 7 percent margin would swing the new Laguna to a profit of 200 million.

Renault officials declined to give sales targets for Laguna, but analysts talked about a target of 180,000-200,000 a year by 2009, and Huon said it would need to sell more than 900,000 before getting a decent return on the investment.

Ghosn said the final profitability depended on the sales mix of the types of cars and the country mix.

HIGH INVESTMENT Yann Vincent, director of quality, said the cost had been high, but many of the design, construction and production improvements would also be implemented on other vehicles.

Renault also drew heavily on the manufacturing experience of its alliance partner Nissan, in which it has a 44 percent stake, and uses engines and a gearbox developed by the alliance. The Laguna platform is not being used by Nissan.

The Sandouville plant will produce 600 Lagunas a day for 216 working days a year, or about 130,000 cars a year, though that can easily be raised or reduced, depending on circumstances.

When Ghosn presented his Commitment 2009 programme in February 2006, he said annual car sales should be 800,000 more than in 2005, with an operating margin of 6 percent, with Laguna in the top three in quality terms against its rivals.

Sales declined by 4 percent to 2.43 million vehicles in 2006 from 2005, and the sales increase needs to come from the launch of 26 new models, of which Laguna will be first put to the test.

As a sign of confidence, Renault has extended the warranty for the Laguna to three years from two years.

The model was first launched in January 1994, and more than 2.3 million of the first two generations have been sold. The third generation marks Renault's return to the luxury segment, though at the low end, with Laguna III launch prices between 21,500 and 35,750 euros. The later coupe, four-wheel drive and V6 diesel and petrol engines are likely to be more expensive.

Renault officials said there would be bigger and more exclusive models, such as a replacement for the Vel Satis, which was remarkable for its design but not a commercial success.

MARKET SEGMENT SAGS Vehicles in the luxury segment, called M2 by analysts, have higher margins but lower volumes than smaller cars and is dominated by German manufacturers. But with new segments such as people carriers and sports utility vehicles, it has fallen to 15 percent of the European private car market from 22 percent in the 1990s, and in 2006 it saw a 3.5 percent drop in volume.

The top rivals for the Laguna are the BMW 3 series, the Audi A4 and the Volkswagen Passat.

Renault aims to sell the car in many geographical regions, but expects west Europe to be the main market, with a large proportion going to corporate fleets.

From the outside, it looks much like its predecessor and is not as daring in its design as the Megane, Scenic or Avantime.

''It is true that Laguna has a modest design, nothing revolutionary, but we have learned from other models that had a stunning or mould-breaking design but were commercial failures,'' Ghosn said.

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