LONDON (Dow Jones)--Oops, yet another profit warning from carmaker Renault, and a plea for investor patience until 2007.
FY05 operating margin declined to just 3.5% and is targeted at just 2.5% for FY06, so why on earth has Renault decided to boost the dividend by 33% for 2005 and quadruple it in stages through 2009?
Presumably it's based on Renault's net profits, which actually went up, purely because of the 44% Nissan stake. Even so, doesn't sound like a sensible business decision.
Renault's problems are vast, and upping the payout won't help. CEO Carlos Ghosn says costs will be cut between 8% and 14% over the next four years, but 30% would have been a better target.
In accepting the need for urgent restructuring, but then ruling out a full merger with Nissan which might have given Renault the chance to become Europe's lowest-cost carmaker, Ghosn left so many questions unanswered that it's no wonder analysts ran for cover.
And Ghosn's strategy review looks little better. He says Renault will launch 26 new models over the next four years and, horror of horrors, that Renault will attempt to jump on the premium car bandwagon by revamping the Laguna into a luxury model.
Is this a joke? Are we missing the point? After all, the Laguna was originally launched in 1994 and updated in 2001 - it has had its day.
As by saying it plans to launch all those new models Renault is surely guaranteeing the need to discount sales even more sharply of all those models it plans to replace over the next few years.
Dreaming that Renault could achieve a 6% operating margin in 2009 suggests Ghosn is unrealistically optimistic. There isn't a chance of that - unless Renault slashes more than half of its current production capacity.
But this is a French company, after all, so don't get your hopes up.
All told, this is a flawed forward strategy. By planning to move into segments like luxury, sports cars and SUVs, Renault is going down a road others like Ford and GM took, to their eventual regret.
And what about all that talk of boosting sales by 800,000 units a year to 2.53 million by 2009, and the hope of selling a higher proportion of cars outside Europe?
More pie in the sky. There's just no chance that any European-based carmaker can achieve that sort of growth. More likely is that by then Renault will be struggling even to sell the same number of cars it did in 2005.
What makes Renault's strategy review all the more disappointing is that the plan to achieve profit improvement just doesn't stack up. First, there's the cost of putting the plan into action.
Then there's the cost involved in designing all those new models and the automatic and rather hubristic assumption that they'll all go down well.
Ghosn must remember there are plenty of competitors attempting to do the very same thing. The difference, though, is that most of them have seen the light and decided to cut back on domestic capacity.
Not Renault though - "sail on, o ship of state" is the mentality here. After all, there aren't any competitors out there that can really challenge Renaults supremacy, are there? And Renault can afford to close its eyes to the Japanese, can't it?.
Well, except for Nissan that is - thankfully the engine room of future Renault stability, such as it may be.