French giant automaker Renault said on Thursday it will cut about 5,000 jobs in Europe among measures to reduce costs by 10 percent as it prepares for a sharp and possibly rocky downturn.
“We can see in the second half of this year and going into 2009 a sharper slowdown on the European markets,” Renault chairman Carlos Ghosn said as the company announced strong first-half figures and the loss of 5,000 jobs in Europe.
“Renault must be prepared for a period ahead which risks being turbulent,” he said.
Ghosn said the company, which controls Japan's Nissan, now expected 2009 global sales of three million vehicles, down sharply on the previous estimate of 3.3 million.
Sales growth this year was revised down to five percent from 10 percent.
Renault will also raise the prices of its vehicles, as already announced, to match a rise in raw material costs. Non-essential projects would be frozen or delayed and recruitment in Europe would be frozen.
Union officials decried the job cuts, which they said would in practice amount to at least 6,000 and possibly 7,000. Renault employs 47,000 in Europe.
Renault put net profit for the six months to June — excluding the Nissan operations — at 1.47 billion euros (2.3 billion dollars), up sharply from the year-earlier 1.07 billion euros.
Sales rose 2.3 percent to 20.94 billion euros, with the operating margins increasing to 4.1 percent from 2.8 percent.
The market initially welcomed the figures with a sharp rise in the share price but as news of the cost cutting and Ghosn's downbeat guidance came through, the stock fell back to show a loss.
In early deals, Renault shares jumped 6.85 percent but were later down 1.97 percent to 56.70 euros as the overall market lost 0.58 percent.
The job cuts and cost reductions “are anticipatory measures … It is better to take them now when we feel the wind changing rather than to wait for the full force of the storm to hit us,” said Ghosn.
“If we wait until then, we will be forced to take much more drastic action,” he added.
The chairman noted that in France, “Renault was very sensitive” to the level of sales which had been supported recently by new environmental regulations favouring purchases of smaller, greener cars.
In June, sales in France were down, however, while the Spanish and Italian markets had already tumbled by 30 and 20 percent, respectively, he said.
Finance Director Thierry Moulonguet said the measures being taken by Renault should bring savings of 350 million euros in 2009 and 500 million euros annually when fully implemented.
They will “preserve competitiveness and profitability,” he said, adding that the economic environment had deteriorated much more than anticipated under the company's Renault Contract 2009 plan.
On Wednesday, Volkswagen, Europe's biggest carmaker, alongside Peugeot Citroen PSA of France and Italy's Fiat reported a robust performance as they benefited from strong overseas sales but they all cautioned about a less certain outlook.
Analysts have been warning that European auto companies could be badly hit by the slowdown in their home markets, making them much more dependent on sales overseas, especially in China.
Even then that might not escape, with growing concerns that the global economy is slowing sharply, led down as the United States struggles in the fallout from the US subprime home loan collapse and resulting credit squeeze.
At Natixis bank, analyst Jean-Christophe Caffet, commenting on gloomy French industrial confidence data, said that although French auto output had firmed in July after a slump in June, orders from abroad in the auto sector had “collapsed” to a 12-year low point.
