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Renault first half net profit down 36 per cent

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PARIS (AP) _ Renault SA's chairman said the French automaker, which posted a 36 per cent fall in first-half net profit Thursday, was performing far below its potential.

``I consider 2006 an empty year,'' Carlos Ghosn was quoted as saying in an interview published Friday in the French financial daily, Les Echos.

``Frankly, we are very, very far from Renault's potential,'' he said, adding that the company had been hit by slow demand and a deteriorating product mix.

The news comes as Renault, in alliance with Japan's Nissan Motor Co., is in talks about a possible alliance with the world's largest automaker, General Motors Corp., which has woes of its own.

Renault said net profit in the six months to the end of June was 1.63 billion euros (US$2.06 billion), down from a profit of 2.17 billion euros ($2.74 billion) in the same period the year before.

The company's operating margin for the six-month period came in at 2.7 per cent, above analysts' expectations of 2.5 per cent, but well down from 4.4 per cent in the first half of 2005. It also compared to a margin of 2.4 per cent for local rival Peugeot-Citroen SA. Renault kept its full year 2006 margin guidance at 2.5 per cent.

Renault also gave guidance on its profitability through 2008, saying the operating margin is likely to reach three per cent in 2007 and 4.5 per cent in 2008. Ghosn's four-year plan for straightening the car company calls for operating margin to reach six per cent by 2009 and to continue rising beyond that year. The initial focus will be on cost cutting.

Renault holds a 44 per cent stake in Nissan and Ghosn is the head of both companies.

Speaking at a news conference, Ghosn said there is an Oct. 15 deadline for a decision on the GM alliance. He said he would not enter an alliance at all costs, but if a tie-up did occur it would not affect Renault's goals for 2009.

On Wednesday, GM said it lost $3.2 billion in the second quarter, partly because of employee buyouts that are an element of its massive restructuring program. Without those charges, GM posted a profit that bolstered management's claim that the turnaround is working

Renault's first-half operating profit fell to 592 million euros ($748 million) from 943 million ($1.19 billion) a year earlier. The company's automobile division reported an operating profit of 323 million euros ($408 million), or 1.6 per cent of sales, compared to 677 million euros ($855 million) and 3.3 per cent of sales a year before. GM's European division reported a first-half margin of 1.4 per cent.

The company raised its forecast for the impact of raw material prices, saying they will reduce full-year results by 350 million euros ($442 million) in 2006, compared to a previous forecast of 250 million euros ($316 million). It said it was able to offset a 185 million euro ($234 million) rise in raw material costs in the first half by reducing purchasing costs by 188 million euros ($237 million).

Renault's first-half results were better than those of Peugeot-Citroen, which announced on Wednesday it had missed its first-half profit target and said it will not meet its previous target for an improvement in profitability in the latter half of the year.

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Renault first half net profit down 36 per cent
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