The agreement, signed after months of negotiations over tax breaks, requires France's No. 2 carmaker to pay $50 million for a 51 percent stake, about a third of what Romania had been seeking, and invest $219.7 million in the factory over five years.
Paris-based Renault is eager to expand in emerging markets such as Eastern Europe because of their growth prospects. It's vowed to sell half its cars outside Western Europe by 2010, up from 16 percent last year. The carmaker is seeking worldwide unit sales of 4 million units by 2010, nearly twice its 1998 tally.
``Renault's existing plant network doesn't enable it to produce an entry-level car -- something Dacia will allow it to do,'' said Olivier Pouteau, an automobile industry analyst at CPR Finance brokerage in Paris. ``Renault wants to keep the Dacia brand going. That will let it target several emerging markets, not just Eastern Europe.''
The French carmaker has been looking for ways to produce a $6,000 model aimed specifically at emerging markets. For that to happen, Renault -- which built two-thirds of its vehicles in France last year -- cannot rely on its West European plants, whose unit costs are far too high.
IMF Opposition
The extended negotiations between Romania and Renault were complicated by the International Monetary Fund's opposition to tax breaks for the French carmaker.
``I am not hiding it from you that this contract has caused us a series of problems with renowned financial institutions,'' said Romanian Prime Minister Radu Vasile. However, ``on a market as competitive as it is now in this part of the world, Dacia wouldn't have been able to survive without help from a strategic investor.''
Renault's plans for Dacia, unveiled last fall, call for the Romanian company to double annual output to 200,000 vehicles by 2010. Around 80,000 cars would be earmarked for emerging markets.
Before that happens, though, Renault has warned that Dacia's plants will require ``profound'' modernization. If all goes according to plan, the Romanian company would be able to produce a new model -- based on the hatchback version of the Renault 19 family car -- sometime between 2001 and 2003. Another new car, which would sell for less than $6,000, would follow in 2004.
World Symbol
``We want Dacia to symbolize in Romania and the rest of the world in the future a quality, affordable product,'' said Louis Schweitzer, Renault chairman and chief executive. ``For us at Renault today is a very important day. Our company is about 100 years old and so far it has only had one brand. Today we are adding another brand, and that is Dacia.''
Dacia has produced 48,000 cars so far this year and sold 47,500.
Part of the pledged investment, or $68.4 million, is earmarked for a capital increase at Dacia. Renault pledged to invest $35 million in cash in 90 days and another $33.4 million in another 12 months.
The Romanian government granted Renault exemption from value- added tax for three years, from profit tax for five-years and duty-free imports of parts for up to five years.
Renault intends to use its Turkish factory, located in the city of Bursa, as its beachhead into Eastern Europe and the Middle East. Technology transfers from Turkey to Romania are a distinct possibility: Bursa has been making Renault 12 small cars -- which Dacia also builds under license -- since the 1970s.
The sale of Dacia originally was set for April 13 but the government extended the deadline by 60 days while it decided on tax incentives and other breaks.
The new car will also be considered a prototype for Renault. Renault, the sole bidder for the Dacia stake, was keen to gain control over a company that first made Renault cars in the 1960s under license and then adopted a Renault design for its cars.