ROK auto unit to get funding boost

An employee polishes a car on the production line at the Renault Samsung Motors plant in South Korea. Renault Samsung Motors via Bloomberg News

The Busan, South Korea-based automaker, whose operating profit margins are more than twice those of its parent, will spend about 400 billion won ($430 million) a year from 2008 to 2010, Chief Executive Officer Jean-Marie Hurtiger said in an interview in Seoul.

"We have new models coming and we're contributing significantly to the projects," Hurtiger said on November 11. "It's a very reasonable number."

Renault Samsung will revamp the SM3, SM5 and SM7 sedan models by the end of 2009 to broaden their appeal outside South Korea and boost the share of exports to 50 percent of sales from the current 30 percent, Hurtiger said. The closely held unit's success would help Renault CEO Carlos Ghosn meet his goal of doubling the Boulogne-Billancourt, France-based carmaker's profit margin by 2009.

"Renault Samsung could become an Asian export base for the parent with the right strategy," said Kevin Lee, an analyst at Goodmorning Shinhan Securities Co in Seoul. "Renault Samsung's main task is to boost exports to leverage its fixed costs."

SUV exports

The carmaker will start exporting Koleos sport utility vehicles in May 2008, the second model sold abroad following the SM3 compact, which is marketed as the Nissan Motor Co New Almera, Hurtiger said. It plans to sell the SUV first in Europe, then in the rest of world excluding the United States, Hurtiger told reporters on November 19.

The company plans total sales of 172,300 vehicles in 2007, including exports of 52,300. That's a 7.4 percent increase from 2006. In the first 10 months of this year, sales rose 7.9 percent to 139,769, with exports growing 36 percent from a year earlier.

"We hope we can make significantly more than 200,000 in 2008," Hurtiger said, adding that the company hasn't yet set next year's plan. The projection is at least 16 percent more than its plan for 2007.

The CEO reiterated the annual production target of 250,000 vehicles by the end of 2009, 55 percent higher than in 2006.

Shares of Renault rose 3.4 percent to 94 euros on Friday in Paris. The stock has gained 3.3 percent this year, compared with a 35 percent increase in the Bloomberg Europe Auto Manufacturers Index. Renault Samsung isn't publicly traded.

Profit margin

The South Korean unit's operating profit, or sales minus the cost of goods sold and administrative expenses, jumped 74 percent to 224.6 billion won, last year, giving it an operating profit margin of 8.7 percent, the highest among five South Korean passenger carmakers and higher than the parent group's target of 6 percent by 2009. Renault's operating margin in the first half was 3.35 percent.

Hyundai Motor Co, South Korea's biggest carmaker, had an operating profit margin of 4.5 percent last year and Kia Motors Corp, the country' second biggest carmaker, was unprofitable. Renault Samsung is the country's fourth-largest carmaker.

"This is a good number and we're proud of it," Hurtiger said. The South Korean subsidiary is benefiting from research and development and other areas from the group, he added. "Our ambition is to be contributing more than average" to Renault's 2009 profit target.

To meet demand for exports, the company plans to almost double hourly production, Hurtiger said. The automaker aims to build 64 vehicles hourly by the end of 2008, its maximum capacity with two shifts, compared with 36 vehicles at the end of 2006, he said.

"If needed, we could consider adding a shift, which is done in Europe," Hurtiger said.

Bloomberg News

(China Daily 11/28/2007 page16)