Renault boss Carlos Ghosn today joined forces with French president Nicholas Sarkozy in rejecting charges that a €4.4bn (£3.9bn) bail-out for the struggling carmaker was protectionist, insisting other EU countries would follow suit.
His comments came as Renault underlined the depth of the European car industry's crisis by reporting an operating loss of €275m in 2008, scrapped its dividend and bonuses for all staff – including directors – and slashed its capital spending and research and development budgets by 20%.
Its car division lost €873m in the second half of last year as sales collapsed in the final three months when it cut production by 45%. The division's full-year operating loss was €275m after earning €598m in the first half.
Ghosn, chief executive, said market conditions would worsen and forecast further drastic measures to cut costs. This week he demanded an immediate cash injection of €15bn for the EU's ailing auto industry amid a slump in global car sales from 70m to 50m.
"A financial and economic crisis of massive proportions hit the global economy in 2008," Ghosn said. The group is shedding 9,000 jobs this year, including 4,000 in France, is planning further cuts in output and forecasting a slump of between 15% and 20% in European sales. It is abandoning plans to build several new large cars in favour of small, fuel-efficient models.
The French carmaker, 15% state owned and which also controls Japan's Nissan, has just been bailed out by the state with a €3bn loan on top of a €1bn loan guarantee for its financing arm. It expects a European Investment Bank loan of €400m to "green" its technology and has access to a European Central Bank commercial paper facility of €2.5bn.
But Ghosn justified the scale of the bail-out, saying it was not protectionist. "I think this will happen everywhere. This is essentially in the form of loans on which we pay a premium of up to 9% if profits improve. France has opened the door, it won't be the last one to do and it appears to me to be normal."
He told journalists: "To think that other countries would so lose interest in their car industry is not realistic; it's impossible. You'll see an intensification of these aids and I don't believe this will lead to a protectionist reaction. The principle issue is employment, especially in this time of crisis."
Thierry Moulonguet, chief financial officer, told the Guardian the government loans, spread over five years, carried an initial premium of 6% against an average of 3.4% interest Renault paid on capital markets in 2007-08.
He insisted that companies such as Renault were precluded from the bonds market. "Issuing bonds now is not a piece of cake, as you would say, because of firms' ratings," he added. "This government loan simply gives us the financial flexibility we need."
He said that, even with the cuts in investment and R&D, Renault would be spending up to €3.7bn as it plans for what Ghosn indicated would be a permanent shift in consumer behaviour towards owning smaller, increasingly electric, cars. Moulonguet said it would build cars jointly with Nissan, saving up to an extra €750m this year.
Net debt soared €5.9bn to €7.9bn as business collapsed and the surging yen took a heavy toll. Profits from its overseas businesses, including Nissan, plunged from €1.7bn in 2007 to €437m last year. With cash haemorrhaging, Ghosn said the priority this year was to restore free cashflow as he tore up his five-year growth plan from 2005. "It is redundant," he said.
