"Renault is operating in a tough marketplace and with few real hits in its current product portfolio, apart from the Dacia range, and it looks increasingly as if Renault will have to rely on the Romanian arm to prop up 2008 financials as economic headwinds look set to take effect," Global Insight analyst Paul Newton wrote in a research note.

Renault said in its earnings statement that the launch of new models and continued cost discipline over the rest of the year would allow it to weather tough market conditions in Europe.

Renault also confirmed the cost of the Dacia strike in its first-quarter income statement. The average salary increase was 28% (excluding bonus) and the overall cost of the strike EUR13m. On the manufacturing side, lost production at the Pitesti plant in February equated to 19,500 units in the 15-day strike, but thanks to the constitution of stocks from January to March 2008, production loss is measured at only 7,800 vehicles and Renault is instituting an action plan to recover this production loss by cancelling days off in April.

Renault also said that it has attained a production commitment from Pitesti of 320 000 units. The company said it would not delay the launch of the Sandero.

"Renault will indeed require all of its management's aforementioned determination to attain its full-year guidance for 2008, despite the runaway success of Dacia. Europe's car market is set for a tough year, and those sales that are made are likely to shift towards the smaller, environmentally friendly segments which naturally attract lower margins, placing pressure on revenues and profits," Newton wrote.

"Renault has a reasonably aggressive model launch strategy in 2008, and most of its existing models are relatively young; these factors weigh in its favour. Nevertheless, the intense competition and some rather less than inspirational designs from Renault of late, will see the brand have to fight it out in its key European marketplace, with costly incentives likely to be the order of the day, placing further pressure on margins.

"Renault looks to have turned the corner in design terms though, with the upcoming Laguna coup¨¦ and M¨¦gane concept regaining some of Renault's lost ground. Bringing the M¨¦gane to market and retaining the essence of the concept will not be easy though.

"Looking further ahead, Dacia's expanding model range and remarkable growth rates are a continued high point and have not peaked yet. Indeed, Dacia could well be Renault's saviour this year, although the costly wage settlement in Romania places further pressure on costs, and is another indicator of eastern European wage inflation undermining the cost base.

"Looking still further ahead, Renault's alliance with AvtoVAZ, in its formative stages, should gain access to the high growth market of Russia and give the alliance a combination of manufacturing scale, Renault's proven low-cost technology from Dacia and an extensive dealer network that combined has the potential to be an all-round winner for Renault in the next few years.

"That said, the AvtoVAZ deal is still very much untested waters and fraught with issues, and is unlikely to ease the fears of currently nervous investors in the short term," Newton said.

From: just-auto.com editorial team