Merged Renault-Volvo to keep divided product line CEO acts to allay quality concerns

September 11, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Fear not, Volvo fans, your solid car will not be replaced with a rattly Renault any time soon.

That, at least, was the message brought to America by Pehr G. Gyllenhammar, Volvo's longtime chief executive and head of the committee that oversees the new Renault-Volvo car company.

Mr. Gyllenhammar, on the last leg of a two-continent trip to convince analysts and consumers that the two companies' merger was a good idea, said Renault-Volvo RVA would keep a divided product line.

Up to $5 billion would be saved by the end of the decade on joint purchasing and development of basic technology, he said, but the company would produce two distinctly different lines of cars.

"We are going to preserve some of the strong traditions. There will not be a car developed by one side with the other's label on it," Mr. Gyllenhammar said.

The merger is expected to be completed by Jan. 1, creating the sixth-largest car company in the world, with annual sales of $45 billion. Headquarters would remain divided between Paris and Gothenburg, Sweden, with the two cars continuing to be sold in separate showrooms.

Since the merger was announced Monday, Volvo's share price has dropped 10 percent as investors worried that Volvo would be giving up too much in exchange for its combination with the bigger French automaker. It closed yesterday at $56.25, down 25 cents.

Volvo would have only 17 percent direct ownership in the new automaker and another 18 percent stake through a holding company. By contrast, the French government, which owns Renault, would have a 47 percent direct stake in the company, and another 18 percent share through the holding company.

Privately, however, Volvo officials pointed out that once the French government privatized its stake in the new company, which is expected within 18 months, Volvo's 35 percent total stake would make it the largest single shareholder.

The French government's stake would be sold off to an array of institutional investors.

Mr. Gyllenhammar conceded that when Volvo announced an alliance with Renault three years ago, he staunchly maintained that the Swedish company would remain independent. But given what he characterized as a "slaughterhouse" economic situation, the company had little choice, he said.

"We've developed a new line of cars and trucks, which are doing quite well. Could we do it again? It depends. The conditions now are so tough," Mr. Gyllenhammar said.

The Swedish carmaker, which made 500,000 vehicles last year, lost $469 million in 1992 and sales were off 8 percent at $11.7 billion. Renault, with 2 million vehicles produced, made a profit of $1 billion on sales of $34 billion. Neither manufacturer has announced layoffs, but analysts predict that the European car industry will shed 200,000 jobs during the next three years.

Volvo markets its top-line luxury models in the United States, but Renault pulled out of the U.S. market seven years ago after suffering huge losses. Its cars were criticized for being low quality and expensive.

Since then, however, the French manufacturer has boosted quality, cut costs by adopting leaner production methods and increased market share in the competitive German car market.

But, Mr. Gyllenhammar said, he doubted Renault was ready to make use of Volvo's distribution chain and re-enter the U.S. market "in the foreseeable future."

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