Peugeot-Citroen Recovery Said Jeopardised By “DS” Project.
“The company is pumping billions into this project. We believe this is misguided”
Report Tata May Produce Some Cars For Peugeot.
Peugeot-Citroen has made impressive progress moving out of the red and into profit but Bernstein Research wants it to dump its “DS” premium project which it says is doomed to fail.
“One of the key tenets of PSA’s long-term strategy is to develop “DS” as a third brand and as a “premium” offer. The company is pumping billions into this project. We believe this is misguided,” said Bernstein Research analyst Max Warburton.
Fitch Ratings recently applauded Peugeot-Citroen for breaking even in 2014 after losing heavily in 2013, and predicted a three per cent profit margin this year.
Warburton said “DS” will jeopardise this progress.
“PSA already has two brands. It doesn’t need and can’t afford a third. DS is ill-defined, has low consumer recognition and is highly unlikely to generate shareholder returns,” Warburton said.
He wants the company to “quietly kill the DS plan” and commit the savings to developing what he called “underperforming” Peugeot and Citroen brands.
Peugeot-Citroen was asked to comment by AID, but hadn’t replied by the time we went to press.
Warburton said Peugeot-Citroen’s recovery has been remarkable and a classic story of new management, new ideas and fortunate timing. New CEO Carlos Tavares arrived just as the European car market began to recover. But the company is not able to afford indulgences.
“PSA has limited pricing power – but it needs to improve its core brands, not invent a new one,” Warburton said.
Fitch Ratings, in its report, said Peugeot-Citroen could also use an alliance to help it combat its lack of scale compared with the competition.
Later, BFM Business, a French TV station, reported that Peugeot-Citroen may be about to form an alliance with Tata of India, which also owns Jaguar Land Rover. The deal would not involve any equity swap, but would allow Tata to build the 208 or 308 in India, BFM Business said, without revealing the source of the information, adding this would help Peugeot-Citroen because it is too dependent on Europe and China.
BFM Business said Peugeot-Citroen currently needs to produce three million vehicles a year to make money and this reported deal would reduce this to 2.5 million.
Investment researcher Evercore ISI said it reckons Peugeot-Citroen will make 2.95 million vehicles this year, but said the Tata news, if confirmed, would not change its view that it is amongst the most challenged medium scale mass market vehicle manufacturers.
Bernstein Research’s Warburton said almost all efforts to launch new premium brands have failed. In the last 25 years he could find only one, Lexus.
“That has taken 25 years and the deep pockets of Toyota and has been founded on genuinely class-leading technology with the refined LS400 and then hybrids. Other efforts to start from scratch have been failures – Infiniti, and Acura – and even efforts to resuscitate old brands have a patchy record of success – Maserati, Alfa, Jaguar, Volvo, Cadillac, Lincoln, Maybach etc,” Warburton said.
“Building a brand from scratch is something for a new nation, or a megalomaniac,” he said.