The hottest car in Europe this year is not a BMW, a Benz or a Bentley. It is Renault’s low-cost brand, Dacia, born in Romania. In data released Tuesday on European auto sales, Dacia showed the greatest gains of any brand, with sales this year through November surging 21.1 percent compared with the same period a year ago. That’s well above second-place finishers Mazda and Jaguar, each with 15.6 percent increases according to the data.
Though Dacia captures less than 3 percent of the market in Europe, its performance has been remarkable for a brand that only reappeared in 2004.
With unemployment in the euro zone above 12 percent and economic uncertainty high, Dacia has found a foothold with prices as low as 7,700 euros, or about $10,600, taxes included, for its no-frills Logan sedan.
For someone used to driving a Mercedes or a BMW, a Dacia would be “awful,” Jens Schattner, an analyst with Macquarie in Frankfurt, said. “But if you just need to get from Point A to Point B, it’s simple, reliable technology, and you get a three-year warranty. It’s all you need.”
Dacia is one of the bright spots in the European market, which has undergone a wrenching contraction since the financial crisis. Auto sales are headed for another year of declines in Europe, according to auto registration data released on Tuesday by the European Automobile Manufacturers’ Association, though they rose slightly in November for the third straight month. Sales were down 2.7 percent for the first 11 months of the year in the European Union compared with the same period in 2012.
Dacia’s market share improved to 2.6 percent, selling about 260,000 vehicles through November, according to the data. Volkswagen dominates with a 13.4 percent market share and more than 1.4 million units registered, though sales of the brand were down 5.4 percent through November.
Dacia’s success, and the continuing strength of the luxury segment, reflect a bifurcated sector in which the extremes are doing well while much of the market in the middle stagnates. The brand has also been a boost to Renault’s bottom line as competitors have struggled with the downturn in Europe.
Renault bought Dacia in 1999, a rusting artifact of the Communist regime of Nicolae Ceausescu, who had started the Romanian car company in the 1960s with a stripped-down old Renault 12 design that the dictator declared was “good enough for the idiots.”
Louis Schweitzer, Renault’s former chairman and chief executive, recognized that mass-market cars made for the developed world could not be sold profitably in Europe’s emerging markets, so he sought to make Dacia a place to build a new car platform, called the M-zero (or M0), that would be economical, reliable and cost just €5,000.
While he did not meet his price target, his gamble paid off when Dacia successfully debuted in 2004, targeting buyers in Eastern Europe and Turkey. To the industry’s surprise, it also caught on in Western Europe, especially after the financial crisis hit: Dacia’s European sales nearly doubled in 2009 from 2008 to more than 214,000 cars. Today it boasts a full range of pickup trucks, SUVs, and station wagons. Its newest model, the Dacia Duster crossover, starts at €11,900.
“Anyone can say we took advantage of the crisis,” said Arnaud Deboeuf, the Renault executive who oversees the company’s entry-level segment around the world. “But there’s been a change in buying attitudes in Europe; people don’t want to spend so much money on a car now.”
Mr. Deboeuf said the experience gained by developing a low-cost car from scratch had been hugely beneficial. “You can’t offer a car to your customers at an aggressive price if you don’t put pressure on your engineers, on sales, marketing, to control and reduce costs,” he said. Dacia spends little on marketing, and distribution costs are relatively small, because the cars are sold through existing Renault dealers. And there is no discounting.
A big part of keeping costs down is the fact that none of the Dacia models that are sold in Western Europe are made there. Renault’s investment in the decrepit business transformed the company and created thousands of new jobs in Romania. But even Romania may be getting too expensive for Renault to hold the line. In April, the company warned the 10,000 workers at its factory in Pitesti, about 70 miles northwest of Bucharest, that it would move some jobs to Morocco if they did not moderate their wage demands.
Carlos da Silva, an analyst at IHS Automotive, said that a key reason for Dacia’s success in Western Europe was that it had created a new class of customers, people who would previously “have bought a five-year-old car, but now they can get a new car for the same price.”
Renault has been careful to keep the brands separate in Europe, he noted, as Dacia’s image is not as prestigious as the parent company’s. The danger now, he said, is that Dacia sales could eventually begin to cannibalize sales of Renault’s own lower-end vehicles, eating into profit margins. “It’s a tricky equation,” he said.
While Dacia has been a boon for Renault in Europe, the M-zero platform on which it is based has been even bigger in non-European markets including Brazil and India, where the cars are sold under the Renault brand. That helped Renault last year to record more than half of its car sales outside of Europe for the first time. Mr. Deboeuf said that there were no plans to enter the United States and Chinese markets, but that Renault is aiming to introduce Renault-brand M-zero cars next in Indonesia.
Mr. Schattner said Dacia now “has a monopoly” on the entry-level market in Europe, and will likely hold it for at least three to five years, because its rivals have not decided how to respond.
Though the Dacia brand’s reliability ratings are mixed, it performs modestly well in safety tests carried out by the European New Car Assessment Program, a consortium of governments and consumer groups.
Mr. Schattner estimated that Renault’s margin on profit before interest and taxes, a key metric of profitability, was around 8 percent across the M-zero cars worldwide. In terms of profitability, he said, that puts them “in good company, on a par with the German premium carmakers.”
That has not escaped the attention of rivals. Executives of Volkswagen, Europe’s biggest carmaker, have said that plans for a low-cost VW brand would be revealed within the next year, assuming such a car could be produced profitably and to the company’s standards.
Dave Wright, who lives in Preston, about 30 miles north of Manchester, England, said that he bought a Dacia Duster for 12,995 pounds, or about $21,200, plus £495 for the metallic paint option, earlier this year because he was attracted by its “tried and trusted technology with no frills or superfluous gadgets.”
The first one he ordered had a steering problem and, after some frustrating encounters with customer service, was replaced by the dealer. “All is good after three months,” he said.
“So long as this vehicle remains reliable,” Mr. Wright said, “I look forward to future Dacia models. I like the Dacia ethos, it fits in with my own mind-set. It’s simple no-nonsense value for money. A niche the big manufactures have failed to fill.”