Berstein Research’s Max Warburton recently made some stark observations on brand DS’ prospects which make sober reading for PSA chief, Carlos Tavares. But is he right?
“Ill-defined, low consumer recognition and highly unlikely to generate shareholder returns”. Not my words, but those of the European industry’s current economic sage. But is Max Warburton being fair? Lets look at the evidence. Take DS’ brand identity. Is it a Citroën, a non-Citroën or an anti-Citroën? Nobody seems to be sure. DS has no visibility in the marketplace – few outside the industry or its followers knows what it is, or what it’s for. The cars themselves offer little to distinguish themselves from cheaper Citroën derivatives, merely fussier styling and a thin veneer of luxury. Neither the DS4 or 5 can be accurately positioned within their segments, being neither fish nor fowl; the DS4 in particular a symphony in pointlessness.
Citroën themselves are in the process of reinventing themselves as fun, functional and funky – the C4 Cactus doing a better job of being ‘DStinctive’ than any of the current DS line-up. Citroën are also putting clear water between themselves by placing a renewed emphasis on passenger comfort; soon to introduce a novel damping system aimed a providing the cosseting ride long associated with the marque. As an upmarket brand DS have no such plans, offering the jaw-clenching progress luxury car owners demand nowadays. As an upmarket trim level, a case could be made for DS. As a stand-alone brand, it makes no sense at all.
Hilton Holloway’s report suggests PSA is looking to the high-end fashion business for inspiration, which is of course we all know is bonkers. With the big name couture houses creating entire collections every six months, the pressure on design teams to come up with the goods is immense. This could never work in the motor business, where lead-times run to years rather than weeks. Furthermore, as anyone in the fashion business might observe, looking cheap is not the issue, but feeling cheap most definitely is. Because as anyone who has sat in one can attest, DS’ current range drips cynicism from every sliver of brightwork.
Building an upmarket brand from scratch is mindbendingly difficult, which is why relatively few manufacturers attempt it. Despite this, PSA seem certain they can make DS work on the cheap, yet evidence shows they’re underestimating the intelligence of the market. As FCA’s Sergio Marchionne is discovering to his cost, the gullible and curious might be taken in once, but are unlikely to be fooled again. Meeting customer’s expectations is a core strand to building a viable brand. Buyers need confidence in material quality, durability, customer service and resale value. Because without repeat custom, you’re wasting your time. These qualities cannot be magic-wanded into existence – they cost serious money.
The dilemma for Tavares is twofold. like all volume manufacturers, PSA’s margins are pitiful. Building mass-market cars in Europe simply isn’t profitable. A successful DS therefore could provide margins of up to £2000 per car, which adds up to a lot of revenue to reinvest into the business. But the DS3, their cheapest offering, is currently their best selling. Hardly a short cut to the sort of margins PSA needs to be making in order to make this venture pay. Should he heed the advice of Warburton by axing DS, he faces a massive climbdown and the prospect of finding the growth and profitability he requires elsewhere. By continuing to plough on, the risks are greater still. Both courses entail an embarrassing admission of defeat of course, but only one comes with potentially crippling costs attached.
Two years ago on these pages I asked if Citroen had got a jump on their rivals by creating the DS series, and in some ways they have. Both Renault and Ford for example are only now getting their upmarket offerings off the blocks and it remains to be seen just how they will fare. Nevertheless, PSA have failed to capitalise on their head start in building a sustainable and credible business proposition out of the DS brand. The time and huge costs associated with making this happen are so vast, any sane business mind would baulk at it. Perhaps Tavares is too committed to back down now, but as a new era dawns for his sprawling motor empire, it may be time to think again.