RPT-Low-cost coming of age spooks auto incumbents
By Laurence Frost and Gilles Guillaume
PARIS, Sept 26 (Reuters) - Renault's boxy Logan sedan had rear-view mirrors as an optional extra - or so the joke went after its 2005 launch under the low-cost Dacia brand.
Its similarly cheap replacement, unveiled at the Paris auto show, has chrome dashboard finish and other stylistic flourishes worthy of a mid-market rival. Touch-screen GPS and parking radar feature in all but the simplest versions.
In a brutal auto sales slump, "crisis cars" are coming of age in Europe, narrowing the gap with mainstream brands in everything from aesthetics to fuel economy.
Low-cost autos are a rare growth area in a depressed industry, posing a challenge to mid-range marques - including their own stablemates as well as competitors.
"The differences are becoming more subtle," said Renault saleswoman Chloe Gomez as she showed off Dacia's Lodgy minivan at a Paris showroom near Place de la Republique.
"We're getting customers who have plenty of money," she said. "They might have owned a (Renault) Scenic, but now they're looking for simplicity, and to save some cash for other things."
Dacia's success echoes a recent survey by Britain's AA motoring association, which found that a sizeable majority of drivers would prefer to do without such extras as heated seats, electric parking brakes and rain-sensing wipers.
The back-to-basics trend has lifted other cut-price brands, including Volkswagen's Skoda, General Motors' Chevrolet, Hyundai and affiliate Kia.
It has also put the squeeze on Fiat, Ford, PSA Peugeot Citroen and GM's Opel at a time when their compact cars are being challenged by a wave of new rivals from luxury makers.
Renault's so-called Entry models were an initial flop in target markets such as India and an accidental hit back home. They have since become the French automaker's biggest earner, with profit margins above 6 percent and heading for 9 percent soon, some analysts say.
Wage costs at their assembly plants are 5 euros an hour in Romania and 3 euros in Morocco compared with 30 in France. The factories also use hand-me-down tooling from other Renault plants to save on investment.
"There may have been an element of luck in the success of the Entry strategy," Barclays analyst Kristina Church wrote in a recent note. "But management certainly hasn't been slow to capitalise on it."
Badged as Dacia in Europe and Renault elsewhere, the Logan family has spawned variants including the Lodgy and bestselling Duster 4x4, drawing ripostes from GM, Peugeot and Volkswagen.
Among budget-conscious cars on show in Paris are Chevrolet's Trax compact SUV and refreshed Spark mini, alongside a Peugeot 301 and Citroen C-Elysee - new spartan models from France's larger mass automaker.
Pending a promised low-cost range from VW, the Skoda division is wheeling out its own answer to the Logan: the Rapid sedan, aimed squarely at demand for functional four-doors in Central and Eastern Europe and around the Mediterranean.
Skoda has returned to its frugal Czech roots after a period in which it threatened to eclipse some pricier VW models - with the Superb beating the Passat in an Auto Bild road test - that hastened brand chief Reinhard Jung's 2010 exit.
Renault boss Carlos Ghosn could soon have similar tensions to resolve.
In France, where Renault employs about 50,000 workers, the core brand's car sales fell 21 percent in January-August, cutting market share by 1.8 points to 18.4 percent. Imported Dacias claimed 4.4 percent of the market, up half a point.
Global Entry range deliveries are set to rise almost a quarter this year to top 1 million vehicles, or 37 percent of the group total, compared with 15 percent five years ago.
By 2014, French-built models will dwindle to 20 percent with Renault's "silent metamorphosis into a low-cost automaker", Morgan Stanley analyst Stuart Pearson predicts.
The original Logan did, in fact, include mirrors - but no power steering or electric windows.
Its engines and fuel-economy were a generation behind, and the Soviet-hangover styling imposed a hard, drab interior and black plastic bumpers of the kind last seen more than a decade earlier on mainstream models.
By contrast, the updated Logan and Sandero compact - which debuted in 2008 - share the muscular curves and efficient engines of new Renault models such as the Clio IV. Bumpers wrap harmoniously around matching bodywork, lights and grille.
Pricing, not yet disclosed, will be close to the existing models, which begin at 7,700 euros for the Logan and 9,000 for the Sandero in France.
That compares with 19,800 euros for a Renault Megane and 13,950 for a Clio. The Lodgy starts at 10,000 euros, less than half the Scenic's entry ticket.
While Ford won't be creating a low-cost marque in Dacia's image, it is considering a stripped-down global compact based on the Fiesta, CEO Alan Mulally said earlier this month.
VW's luxury Audi division, BMW and Daimler's Mercedes-Benz are also developing compact sedans priced below current models, but still above mass-market rivals.
"Even for brands considered premium, the trend is towards greater volume rather than elitism," said Denis Schemoul of consulting firm IHS Automotive.
Automakers rolling out no-frills products can expect their core brands to suffer "a degree of cannibalization", he said.
Peugeot is taking a more prudent approach. The 301 and C-Elysee will be pitched for emerging markets and sold in Spain - where they are assembled - but not France or other Western European countries.
Rather than design to cost, "Peugeot has basically dumbed down western products and taken out content," UBS analyst Philippe Houchois said.
The cars, which share a simpler version of the new Peugeot 208's architecture, fall well short of their Renault rivals' earnings potential, Houchois said.
"A lot of people have talked about low-cost, but nobody's done it like Renault," he added. "It's far better to cannibalize yourself than to let someone else do it."