Why was the espace such a success in the 90s?
Commercial success. Espace was a milestone vehicle. Not only it created a new segment, but a new cathegory: the MPVs as we know it today. It pioneered the multipurpose vehicle segment.
Espace is a revolution in the car industry by its design and practical using and it was able to satisfied the demand for modular, comfortable, compact enough cars. It breaks away from the image of the boring, one-box, utilitarian vehicle evolving towards comfort, safety and conviviality car, with an untraditional shape and interior layout, and plastic body.
Designed to carry up to seven passengers while having the same size chassis as an average sedan car, the Espace created and filled an enormous gap in the market between estate cars and van (Ford Transits). By removing the passenger seats, its load-space is similar to commercial vehicles’, while still being as easy to drive as any normal car. The tall nature of the Espace also creates good visibility for driving which, pre 1985, had been reserved for 4×4 vehicles.
The popularity of this family car has paralleled the influence of women in the purchase of new vehicles. Women loved this car (and indeed the percentage of women using espace was well above the average) for the driver position and the possibility to carry the whole family and a lot of luggage
In the words of Mr Guedon “Espace was a superb answer to a question noone asked.” Matra was succesfull because it was able to create a new need and exploit a new segment, being for 10 years virtually without any competitors. More than half million Espace were sold between 1984 and 1997.
Epsace was an extraordinary industrial success for Renault. This company was able to capitalize this experience, developing their style and R&D department thet eventually lead to new product such as scenic. But was Espace an industrial success for Matra too? The answer is yes in the short term, not really in the long term. As a Renault executive pointed out “with the Espace they hit the jackpot, but it was an accident” (this “accident” was due mainly to the creativity and ideas of a single man).
Espace was the last successful vehicle for Matra.. during more than ten years of huge profit and increasing cash flow, the company was not able to expand its offer to at least to products: the limited production capacity was indeed completely fulfilled by Espace (over)production and when the alliance with Renault came to an end and the only substitute was not as successful as expected, the company didn’t had a second chance.
How did the profitability of the Espace evolved over time, both for Renault and Matra?
Espace has been defined a cash cow vehicle, with a profitability up to 10% of sales, one of the highest in automotive industry (see exbiths).
Cost Due to Matra specific technology, fixed cost were reasonably limited, with an entry ticket about one tenth of the average in automobile industry (100m instead of 1b as industry average). Furthermore the absence of competitors for a decade allowed to keep prices reasonably high. As a consequence profit were strongly related to sales. Back in the ’80 Renault decided to reposition this car at top of the range article; in the mid ’90, when competitor entered the market, Espace was still sold at 26k euro, again top of the range price; in 2000, despite similar products of other competitors the average retail price was still 30k.
In early months sales and profit were under expectation, but from 1985 both rose drammatically: sales increased from 2k in 1984 to 64k in 1994. In the late ’90, with new competitors in this segment but in an expanding market, sales were quite steady about 60k a year.
Profitability of Espace dropped over the period 1993-2001 from 13% to 6% (exibith 1). By 2001, market of monospace minivan in Europe saturated with several players competing in this market. As a consequence, both the market share and profitability of Espace were eroded (exibith 2)
Why did Renault decided to renew the Matra alliances for the Espace II and Espace III, before breaking it for the Espace IV
Different and specific circumstances lead to alliance for Espace II and III, but the general idea is that Renault never considered Matra as a strategic partner. Renault wanted to build up its own competences in this market and from mid ’80 it established a team in competition with Matra in Espace II alliance. External circumstances (the sell of Renault American subsidiary, the decision not to enter the American market and the treat of competitors) lead to reneval of Matra alliances, as it was considered cheaper, quicker and less risky in relation to expected sales)
For Espace III the two companies competed (Renault having the ultimate decision) in different aspects of the project:: style (Renault was considered better), architecture (the 2 teams more or less equivalent), economic aspect (Renault wanted to introduce a new technology but again external circumstance, mainly the failure of Renault Volvo merger with lost of potential market and the launch of Scenic project, lead to the Matra choice). In each case the winner team was decided by Renault, that would have collaborate with Matra in key aspects of the project
When it came to renegotiate the agreement for Espace IV the European market was very competitive and Matra technology was no longer feasible, It was not possible to delay the decision further and Renault had to go on its own. Although the market for minivans was not saturated and it continues to grow, the room for Matra was quite limited at 1994. The forecasted daily sales for Espace was 350 and it was the upper limit of SMC production. Moreover, more competitors including Renault’s one division (“Scenic project”) entered the market with significant investment.
The total production capacity of major players (Renault, the Peugeot-Fiat alliance, the Ford-Volkswagen alliance Bentz, Chrysler and so on) seems to easily exceed the demand. The further more growth of the market will not benefit Matra. Matra’s competitive advantages in production seem to be drained soon.
As a general consideration at industry level, Matra had expertise and was suitable for “niche” market (Espace I and II, whose agreement were both negotiated in early ’80, were niche models): Matra advantage were innovative designed, the ability to develop a new model in short time (24 month) and low cost, low but craftsman production, and capability in painting plastic body part (SMC production technology smaller investment than traditional sheet metal stamping technique used for larger volumes).
The advantages they had were generally the weaknesses of the counter part – Renault – that was ill-equipped to manufacture a low volume vehicle. They could focus on the alliance to introduce the new product and make it popular, because they have no other easy alternatives. This characteristic were no more interesting when the market become a mass market, in mid 90. Eventually in the first stage Renault could take advantage from the desperate situation of Matra and impose very favourable terms and conditions in the agreement. In the mid ’90 Matra had a stronger financial position and was no more in despetate need of a partner.
What strategy would you recommend to Matra for the future? Even if Matra has created a certain reputation for innovative and top vehicle. Matra success in the automotive field remains the “Espace Project”. This dependence on one product underlines the fragility of Matra Auto product line. Moreover how could Matra Auto answer to a mass demand whereas the main competitive advantages of the firm focus on low volume of production and innovative design?
A possible strategy could be to use the profit and cash generated by the Espace success to develop a production with two different models, primarily in order to reduce risk. Both models should be based on Matra competitive advantage that is to say a combination of its designing ability (differentiation advantage) and the low volume production at competitive cost, through SMC technology (cost advantage in economy of experience and economy of learning).
One model could be a little more “niche” product and the other one a bit “mass” product (but anyway innovative) notably in early stage of development. For one or both models an alliance (maybe with different partners) is necessary, as weak points remains commercial network and the lack of after sale service.
As an example, as Matra has an historical background in sport car production, its strategy could be to launch a “premium” sport car (“Star Product”) having in parallels another project (as it was the case with the “Espace” project) than can be sold in larger quantities through an alliance with a large automotive supplier (As Renault).
The goal is the build a new “cash-cow” product. A new agreement can also be negotiate with Renault (or another large car firm, even if the previous association of Renault and Matra has been successful) for example, another car concept can be developed with Renault keeping Matra’s process of production and Renault knowledge in cars selling.
Eventually the specialized knowledge acquired in using the SMC technology could be use to produce products to sell to automotive competitors or to different industry.