February 9, 2012 / 4:10 PM / in 6 years

UPDATE 1-Renault targets Europe from low-cost Morocco plant

* Government lawmakers criticize Renault move

* Low-cost minivan to have entry price below 10,000 euros (Adds politician comments, details)

By Gilles Guillaume

TANGIERS, Morocco, Feb 9 (Reuters) - French car maker Renault opened a sprawling low-cost Moroccan factory on Thursday, taking aim at strong European demand for no-frills vehicles in a bid to buck the overall decline in the region’s car market.

With the inauguration of its 3 million square metre (32 million square foot) facility near Tangiers, the partly state-owned automaker risks inflaming a French political debate on domestic jobs, weeks before a presidential election.

“The question of building this factory in Western Europe didn’t even arise,” Renault Chief Executive Carlos Ghosn said in a radio interview ahead of the opening ceremony.

“That would have been incompatible with the concept” of low-cost vehicles, he added.

The plant is about to start production of a spartan minivan, the Lodgy, to be sold at less than half the price of mid-market rivals such as Volkswagen’s Touran people-mover, or Renault’s own French-built Scenic.

A small delivery van, to be launched from Morocco later this year, will also be pitched well below the equivalent Renault Kangoo model assembled in northern France.

“A factory like this can only be a good thing for Renault’s production costs,” Paris-based Societe Generale analyst Philippe Barrier said. “It’s an unbeatable manufacturing base for the group.”

For an initial investment of 600 million euros ($795 million), sweetened by tax breaks, the Moroccan plant will reach an annual production capacity of 400,000 vehicles next year. Workers’ salaries amount to less than a quarter the French minimum wage.

French President Nicolas Sarkozy, trailing Socialist rival Francois Hollande’s ratings ahead of the first election round on April 22, has leaned heavily on industrial companies to keep jobs in the country.

During the last crisis, the government lent 6 billion euros to Renault and PSA Peugeot Citroen on condition that they avoid domestic closures. The French state is Renault’s biggest shareholder with a 15 percent stake.

The factory opening drew immediate criticism from politicians in France, where unemployment is at a 12-year high.

“It’s completely intolerable and even scandalous,” said Christian Estrosi, a lawmaker and former industry minister for Sarkozy’s governing UMP party. “Carlos Ghosn is breaking the promises he made to his main shareholder.”

Senator Gerard Larcher, a former majority leader, said Renault was ducking its “societal responsibility” to French workers and suppliers.

Priced below 10,000 euros for its most basic version, the Lodgy builds on the surprise domestic success of Renault’s low-cost Dacia brand, assembled in Romania.

The original 2004 Logan sedan proved more successful in Europe than in many of the markets for which it was designed, such as India. Dacia’s Duster SUV has since become a runaway hit in France.

“We see this factory as a dangerous development,” said Fabien Gache, a spokesman for the CGT, Renault’s dominant French union.

“These vehicles are basically ‘Loganised’ Scenics and Kangoos,” Gache said. “They’re bound to hit the Renault brand’s market share.”

Renault’s low-cost entry vehicles, sold as Dacias in Europe and Renaults elsewhere, increased their share of group deliveries to one third last year from about a quarter in 2010 - even after the withdrawal of government crisis incentives that favoured cheaper cars.

Western European sales of Renault models dropped 8.5 percent in 2011, outpacing the region’s overall 1.3 percent decline in car registrations, while Dacia increased its market share.

The 10,000 euro entry price for the Lodgy, available in five- or seven-seater versions, compares with list prices starting at around 21,000 euros for a Scenic or Touran in France, excluding special offers. ($1 = 0.7545 euros) (Writing by Laurence Frost; Editing by Helen Massy-Beresford and David Cowell)

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