Renault’s Logan Car: Managing Customs Duties for a Global Product

-Manas Ranjan Tripathy

MBA IB

500035420

Case Background

• Renault- French Automobile Company

• According to Exhibit 1, 4% decrease in Worldwide Unit Sales

• Decrease in Operating Margin and Net Income (Exhibit 3)

• 44% Share in Nissan

• Carlos Ghosn becomes CEO of Renault after successful term with Nissan

• Ghosn introduces Strategie Renault- Contract 2009

• X90 Platform introduced to achieve sales target

• Logan 1st vehicle on platform

• Affordable Car for Global Sales sold under Renault and Dacia brands

Case Scenario

• Logan had to be launched globally

• In order to keep cost of vehicle low, custom duties for importing cars or parts had to be kept minimum

• Renault’s Customs Consulting Group was responsible for Global Planning and Operations

• Use of Trade Beam Software

• Import options available:CBU- Completely Built-up UnitCKD- Completely Knocked Down UnitIPO- Identify Parts Order

Country-wise Analysis:Romania

• Main Plant built in Pitesti, Romania

• Produce Logan for domestic as well as international markets

• CKD parts to Russia, Morocco, Columbia, Brazil, India, Iran

• CBU for European Union, Croatia, Turkey as Free Trade Agreements and Customs Union existed

• Before 2007: Romania had to supply to both Western and Eastern Europe

• After 2007: Morocco could supply CBUs to Western Europe

Russia• Factory in Moscow

• Before Sept 06: CKD Duty at 5 to 15%

• After Sept 06: Preferential Duty Rate (0% for 90% imported parts) under Russia’s Decree 166 against some FDI inflow and gradual decrease in imported parts by 30% in 54 months

• Domestic demand and demand for Ukraine (FTA between Ukraine and Russia)

Morocco

• Assembly Plant in Casablanca (Agreement between Moroccon Govt and Renault)

• CKD parts imported duty free from Romania• CBU exports to MAGREB nations (Algeria,

Morocco, Tunisia, Libya, Mauritania) with zero duty

• After Feb 04: Agadir Agreement with Jordon, Tunisia and Egypt could be utilized

• Pan-Euromed Protocol would benefit diagonal cumulation between EU, Morocco, Turkey, Tunisia, Jordan and Egypt

• FTA with US(2004), Turkey(2006)• After 2007: CBU Export to Europe duty free

Columbia• Assembly Plant at Envigado with CKD parts from Romania

• CBU export to Venezuela, Equador (Andean Pact- Bolivia, Ecuador, Peru, Columbia, Venezuela*)

• Zero Percent Duty achieved by meeting Regional Contents Obligation

• Associate Member to Mercosur (Argentina, Brazil, Paraguay, Uruguay, Venezuela)

South Africa• Nissan Plant in Roselyn

• Renault was considering investment in South Africa

• South Africa had no FTA with Argentina, Brazil, India

• Motor Industry Development Programme introduced to promote Automobile Industry

• 25% Duty on CBU and 20% Duty on CKD

• Duty Free Allowance allowed 27% of wholesale to be imported duty free

• Value of Exports Performance used to calculate amount of CKD or CBU parts to be imported duty free

• Productive Asset Allowance allowed return of 20% of investment as duty free certificate over 5 yrs

Questions for Discussion

• Should South Africa form a strategic location for Renault?

• Should Renault invest in production capacity in Morocco?

• Should Morocco remain regional exporter?

• Could Morocco serve other markets?

• If Morocco could import CBUs duty free, should production be moved elsewhere?