Renault Owes Survival to State-Backed Covid Loan, French Auditor Says

(Bloomberg) -- Renault SA faced a severe liquidity crunch during the worst of the pandemic and relied on a state-backed loan to survive, according to the French government’s auditor. 

A report by the Cour des Comptes published Monday detailed just how strained the automaker’s balance sheet became during the first half of 2020, when factories and showrooms were shut by Covid-19 lockdowns. 

At the time, Renault Chairman Jean-Dominique Senard and interim CEO Clotilde Delbos described the state-backed loan of as much as 5 billion euros as important for the company as a safety net that was obtained “to be on the safe side.”

In the end, the 4 billion euros drawn down by the automaker by the end of 2020 proved “essential to maintaining the activity of the group,” the auditor wrote. The company reported a record loss that year.

Renault, like the rest of the automotive industry, was hit hard by plummeting vehicle sales. Yet the French company suffered more than rivals such as Volkswagen AG and Stellantis NV because it was emerging from management turmoil following the 2018 arrest of former leader Carlos Ghosn and a period of over-expansion.

Strained Finances

As Covid-19 took hold in Europe and France went into a hard lockdown, Renault’s finances became increasingly strained and the company was forced to turn to an existing credit line and ask for a state-backed loan, the auditor wrote.

A cost reduction plan that would have been deeper than the 2 billion euros already announced was blocked because of its unacceptable labor implications, according to the report. 

While the loan allowed Renault’s balance sheet to remain net positive, it “hasn’t resolved the more structural problem of profitability,” the auditor concluded. 

In response to the findings, Renault said the loan enabled the company to have cash and reassure investors. “It wasn’t exactly its survival that was at stake but a sufficient level of liquidity,” it said.

The company reimbursed 1 billion euros last year and expects to pay back the same amount this year, Delbos said last month.

The Cour des Comptes’s findings on Renault were part of a broader report about management of French government’s holdings in companies. It concludes that changes are needed.

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