Dacia and Ford, two engines that work differently

Newsroom 04/03/2008 | 17:37

Dacia by Renault
In 1998 the car factory from Mioveni produced its 2 millionth unit, at a time when the company was preparing for privatization. On July 2, 1999, Dacia officially became a Renault Group brand, having as its main mission to support the group's development in emerging markets. The French company decided to invest USD 220 million over five years to acquire a majority stake in the company and upgrade its production facilities. The project included training Dacia staff, renewing the product range and restructuring the distribution network. 2000 saw the launch of the Dacia SuperNova model, the first tangible result of the French-Romanian cooperation, a vehicle fitted with a Renault engine and gearbox, while a range of commercial vehicles equipped with Diesel Renault engines was launched in November 2002. The next year the Dacia Solenza was launched, followed in 2004 by the flagship Dacia Logan.
2005 brought the inauguration of the CKD Export Center (ILN). Thanks to the Logan, in 2005 Dacia surpassed all previous production (172,000 units) and sales records (164,000 units). And the records do not stop here. The next year the company launched the Logan New Collection, its high-version Logan Prestige and the Logan MCV. Last year, Dacia launched the Logan Van model, after ending in 2007 the manufacturing of the Dacia Pick-Up model. In September last year, the firm produced its 3 millionth car, almost a decade since it was bought by the French carmaker.
Renault is targeting global sales of 4 million Logan units by 2010, with production in Russia, Morocco, Colombia, China and Iran from 2005.
In October last year, Renault announced that it would begin manufacturing the Logan Sandero saloon this year. The new model is said to be “more sophisticated” than the Logan, and therefore will be priced above the Logan but below the Megane. The Sandero will also be launched in Brazil and Argentina under the Renault badge by the end of the year. Renault's plans to increase capacity from 235,000 vehicles a year to 350,000 by this year required a total investment of EUR 100 million. The name is strongly linked to the local automotive industry, and the carmaker will invest EUR 500 million in a design and development centre in Romania.

Oltcit via Daewoo via Ford
Dacia's connection with the model produced for many years, the Renault 12, is echoed in Daewoo's link with the Oltcit, a model identified with the Craiova factory. Daewoo Automobile Romania was founded in 1994 as a joint venture between Automobile Craiova (49 percent) and the South Korean manufacturer (51 percent). Like many Daewoo plants in Eastern Europe, the Romanian subsidiary was not included in GM's buy-up of Daewoo's assets after the South Korean firm went bankrupt. For several years the Romanian authorities tried to buy back the share package in the local company from the Asian investor, finally achieving it a few years ago.
In September 2006, the government completed the purchase of Daewoo's stake, paying EUR 35 million and taking on EUR 7 million of debt from past loans. In 2006, the plant made 24,000 vehicles and 116,000 engines, representing just 11 percent of Romania's automotive output, and well below its current capacity of 200,000 cars a year and 350,000 engines and gearboxes.
Most of the cars were sold on the domestic market. The carmaker reported a EUR 210 million turnover in 2006. Car sales accounted for 50 percent, with spare parts and engines comprising the rest. The engines and gearboxes are exported to GM Daewoo in South Korea, Ukraine, Uzbekistan and Egypt, according to a Daewoo Automobile official. In 2006 the number of engines delivered increased by 150 percent y-o-y, while sales of gearboxes rose by 60 percent y-o-y, to reach 190,000 units.
A year later, Ford signed an agreement with the Romanian government to acquire a controlling 72.4 percent stake in Automobile Craiova for EUR 57 million, having secured guarantees that it would not be required to take on the plant's debts. The remaining 27.6 percent is held by a variety of employee pension schemes. The landmark deal will secure the plant's future, with Ford planning to start building a small car at the plant by the end of this year. Ford has stressed that it will not seek to compete with Dacia's Logan. Around 90 percent of output will be destined for export, which means that it is unlikely to challenge Dacia on the domestic market.
Ford is pledging EUR 675 million in investment to revive the plant, aiming for annual production of 300,000 vehicles and 300,000 engine units. Ford's plans would increase vehicle production capacity by 50 percent and raise employment from 7,000 to 9,000 workers. By 2012, investment will rise to EUR 1 billion a year, according to Ford's statement. The acquisition of the Craiova plant would have far-reaching implications for Romania's automotive industry. Low labor costs, high skills and EU accession have all counted in Romania's favor. Ford's plans would raise Romania's annual production capacity to 650,000 units by the end of the decade.
However, the European Commission has opened an in-depth investigation into possible illegal aid granted by the government, including a minimum production level and the maintenance of all former employees. A Commission statement said that it has “to verify whether these conditions resulted in a lower sale price than if the privatization had been unconditional. If this is the case, the privatization could involve elements of state aid,” thereby breaching EU rules. The Commission said it was also investigating a special law passed for the privatization which allegedly provides for a write-off of debts of Automobile Craiova and a guarantee concerning the payment of debts towards other former Daewoo subsidiaries. Ford insists that it has been open and transparent in negotiating the deal. The EC response came: Romania has to recover EUR 27 million from Ford, money given as state aid.

By Dana Ciuraru

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