Europe's hottest car: the no-frills Dacia

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Europe's Hottest Car: The No-Frills Dacia. The Hottest Car In Europe This Year Was Renault's Low-Cost Brand, Dacia

The hottest car in Europe this year was not a BMW, a Benz or a Bentley. It was Renault's low-cost brand, Dacia, out of Romania.

Europe's Hottest Car: The No-Frills Dacia
In data released Tuesday, Dacia showed the greatest gains of any car brand in Europe, with sales this year surging 21.1 percent through November. That's well above the second-place finishers, Mazda and Jaguar, each with 15.6 percent increases.
It may be the right car at the right time for Europe. Amid high unemployment and economic uncertainty, Dacia has found a foothold with prices as low as 7,700 euros, or about $10,600, taxes included, for its no-frills Logan sedan.
For someone accustomed to driving a Mercedes or a BMW, a Dacia would be "awful," said Jens Schattner, an analyst with Macquarie in Frankfurt, Germany. "But if you just need to get from Point A to Point B, it's simple, reliable technology, and you get a three-year warranty. It's all you need."
Dacia's success reflects the bifurcated business. While low-end brands and luxury cars are doing well, much of the market in the middle has stagnated. At Renault, Dacia has helped bolster the bottom line as competitors struggle with the downturn.
"Anyone can say we took advantage of the crisis," said Arnaud Deboeuf, the Renault executive who oversees the company's entry-level segment around the world. "But there's been a change in buying attitudes in Europe. People don't want to spend so much money on a car now."
The European market has undergone a wrenching contraction since the financial crisis. Auto sales are headed for another year of declines in Europe, according to the data released Tuesday by the European Automobile Manufacturers' Association, although they rose slightly in November for the third straight month. Sales were down 2.7 percent for the first 11 months of the year in the European Union compared with the same period in 2012.
Dacia, which accounts for less than 3 percent of the European market, sold about 260,000 vehicles through November, according to the data. Volkswagen still dominates with a 13.4 percent market share and more than 1.4 million units registered, although sales of the brand were down 5.4 percent in the same period.
It's an unexpected place for Dacia, a former Soviet-bloc brand that reappeared only in 2004.
Louis Schweitzer, Renault's former chairman and chief executive, recognized that mass-market cars made for the developed world could not be sold profitably in Europe's emerging markets. So he sought to use the Dacia line to build a new car platform, called the M0 (or M-zero), that would be economical, reliable and cost just 5,000 euros.
Although he did not meet his price target, his gamble paid off when the new Dacia had a successful debut, appealing to buyers in Eastern Europe and Turkey.
To the industry's surprise, it also caught on in Western Europe, especially after the financial crisis hit. Dacia's European sales nearly doubled in 2009 from 2008 to more than 214,000 cars. Today it has a full range of pickup trucks, SUVs and station wagons. Its newest model, the Dacia Duster crossover, starts at 11,900 euros.
Deboeuf, the Renault executive, said the experience gained by developing a low-cost vehicle from scratch had been hugely beneficial.
"You can't offer a car to your customers at an aggressive price if you don't put pressure on your engineers, on sales, marketing, to control and reduce costs," he said.
Dacia spends little on marketing, and distribution costs are relatively low because the cars are sold through existing Renault dealers. And there is no discounting.
A big part of keeping costs down is that none of the Dacia models that are sold in Western Europe are made there. Romania, with its low-cost labor, has been the beneficiary. Renault's investment transformed the company and created thousands of jobs in Romania.
But even Romania may be getting too expensive for Renault. In April, the company warned the 10,000 workers at its factory in Pitesti, about 70 miles northwest of Bucharest, that it would move some jobs to Morocco if they did not moderate their wage demands.
Carlos da Silva, an analyst at IHS Automotive, said that a key reason for Dacia's success in Western Europe was that it had created a new class of customers, people who would previously "have bought a 5-year-old car, but now they can get a new car for the same price."
Renault has been careful to keep the brands separate in Europe, he noted, as Dacia's image is not as prestigious as the parent company's. The danger now, he said, is that Dacia sales could eventually begin to cannibalize sales of Renault's own lower-end vehicles, eating into profit margins.
"It's a tricky equation," da Silva said.
While Dacia has been a boon for Renault in Europe, the M0 platform on which it is based has been even bigger in non-European markets including Brazil and India, where the cars are sold under the Renault brand. That helped Renault last year to record more than half of its car sales outside of Europe for the first time.
Deboeuf said that there were no plans to enter the U.S. and Chinese markets but that Renault was aiming to introduce Renault-brand M0 cars next in Indonesia.
Schattner of Macquarie said Dacia had "a monopoly" on the entry-level market in Europe and would most likely hold it for at least three to five years, because its rivals had not decided how to respond.
Although the brand's reliability ratings are mixed, it performs modestly well in safety tests carried out by the European New Car Assessment Program, a consortium of governments and consumer groups.
Schattner estimated that Renault's profit margin before interest and taxes, a key measure of profitability, was around 8 percent across the M0 cars worldwide. In terms of profitability, he said, that puts them "in good company, on a par with the German premium carmakers."
That has not escaped rivals' attention. Executives of Volkswagen, Europe's biggest carmaker, have said that plans for a low-cost VW line would be revealed within the next year, assuming such a car could be produced profitably and to the company's standards.
Dave Wright, who lives in Preston, England, about 30 miles north of Manchester, said he bought a Dacia Duster for 12,995 pounds, or about $21,200, plus 495 pounds for the metallic paint option, this year because he was attracted by its "tried and trusted technology with no frills or superfluous gadgets."
The first one he ordered had a steering problem and, after some frustrating encounters with customer service, was replaced by the dealer.
"All is good after three months," he said.
"So long as this vehicle remains reliable," Wright said, "I look forward to future Dacia models. I like the Dacia ethos. It fits in with my own mindset. It's simple, no-nonsense value for money - a niche the big manufacturers have failed to fill."
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