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April 2013

April 2013

Wrong way up?

AT the end of its fiscal year in February, PSA (Peugeot/Citroën) CEO Philippe Varin announced the carmaker’s biggest losses ever – $6,7 billion for 2012. For many observers, the loss (though perhaps not the scale of it) was expected. Varin then proceeded to explain a complex turnaround strategy, including the baffling thought of moving Peugeot upmarket … cue stunned silence.

Theoretically, however, there’s merit in the move. In a European market in which there is around 20 per cent overcapacity, one way to make money would be to make fewer cars, but sell them at a larger profit. Varin explained that this was already taking place, with 18 per cent of its sales last year being accounted for by “premium” vehicles. I suspect, however, that it’s mostly related to Citroën’s still relatively new DS line.

The potential success of PSA’s turnaround strategy has been analysed to death by a number of industry experts, and is also dependent on state support, cost cutting and asset disposal. In my opinion, there’s an urgent need to get the product portfolio right, and I’m afraid this is where I disagree strongly with Varin’s “upmarket” ambitions.

The one thing that would give me a great deal of hope for the two PSA brands is the announcement of a third, low-cost brand – perhaps the revival of Talbot – or the positioning of Peugeot as a car for Joe Public.  After all, Peugeot once used to be called the “Lion of Africa”…

Sadly, this appears to be totally absent from Varin’s plans. Now, of course, Peugeot has launched “cheap” vehicles for developing nations. There’s the 408 for China, mostly, as well as the 301 saloon for other markets. But these are not enough, they’re still too expensive and they’re not widely available. Interestingly, a company insider says this is because PSA does not want a cheap car to devalue the Peugeot brand.

In my opinion, Peugeot needs to do a Dacia. Or a Datsun (see the full story on the revival of this brand on page 14). Even Volkswagen and Fiat are looking at creating new low-cost sub-brands. And the premium brands are all marching down the pricing ladder into segments where PSA brands used to be quite strong. But no … Peugeot wants to go up!

The road to profitability does not head upmarket, but into the scary, cut-throat, unglamorous entry level segment. It’s a lesson that premium-obsessed – but not premium-badged – carmakers need to learn very quickly.

Take a closer look at Dacia. Once the laughing stock of the world, and the older members of the CAR team who remember the dreadful pick-ups imported into this country in the ‘90s, Dacia is now Renault’s cash cow. Contrary to the perception that Dacia cars are cheap and therefore low-profit machines, they’re sold worldwide under the Renault badge at attractive margins. Morgan Stanley estimates that Dacia has an operating margin of around nine per cent, as reported by Automotive News Europe recently. Compared with Renault’s own operating margin of around 0,4 per cent in the first six months of 2012, Dacia’s margin is similar to those of premium carmakers. Interested yet, Monsieur Varin?

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