Renault warns on currencies

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The Independent Online

Business Editor

Louis Schweitzer, chairman of Renault, warned yesterday that currency instability was disrupting the European Union and damaging the car industry.

In London to brief investors ahead of the pounds 2.5bn privatisation of his company expected this autumn, Mr Schweitzer said that Renault had cut sales to Italy because some cars were being re-exported to France and Germany at 20-30 per cent below list price. This was a result of a weak lira.

If the exchange rate instability continued over a long period it would cause disruptions that could, if not break up the union, "bring some of its aspects into question", Mr Schweitzer said.

Renault's sales in southern Europe, where currencies are weak, were declining because "we don't want to push cars that might come back to France and Germany".

If Renault increased its prices in Italy, it would not sell one car. "But if we talk to our beloved competitors to increase our prices simultaneously we would go to prison."

As well as cutting exports to Italy, Renault has given aid to French dealers whose businesses have been damaged by re-exported cars and has stopped selling to rental firms in Spain, because these cars were finding their way back to France at low prices.

The solution, Mr Schweitzer said, was for the lira to rise or for Italy to have a bout of inflation that would diminish the price gap. "If you have a situation where there are no barriers [to trade] and price differences of more than 20 per cent in durables it cannot work for a long period."

A single currency would not solve the problem, he said, because he expected it would only include countries that already had strong currencies. Mr Schweitzer said: "The problem is the lira, the peseta and to some extent the British pound. They will not go within a single currency before the end of the century."

Mr Schweitzer urged an early move on the sale of the state's remaining 53 per cent stake in Renault - "the sooner the better". Although the privatisation law has been passed the French government has not yet formally fixed a date.

But with net profits tripling to Fr3.64bn (pounds 470m) last year and successful new models such as the Laguna, prospects for the share sale are looking considerably improved.