I would imagine most car company boards could do without the attention of the world’s automotive analysts. The latter spend their (long) working days combing over company accounts and offering advice to the people who buy and sell shares.
Brit Max Warburton, senior analyst at Sandford C Bernstein, has often been rated as the number one auto analyst in Europe and stands out from the investment crowd. And that’s because he’s a bloke who not only knows cars and knows the history of the car industry, but also has a seriously good grasp of engineering and production. But perhaps his unique pitch is an impressive ability to take a ‘helicopter view’ of a company and then offer often punchy advice.
So willing is Warburton to get stuck in where he sees a strategy to criticise, that he’s well known for his face-to-face clashes of opinion with Fiat Chrysler Automobiles boss Sergio Marchionne. Last April the two locked horns in public. Investor relations meetings are usually much more subdued affairs.
Warburton’s opening assessment of PSA’s recent resurrection was impressive, to say the least: "PSA has stormed back into contention in the last 18 months and is now Europe's most profitable mass-market OEM. We believe profitability can remain solid through 2016 and 2017 and we still believe the stock is undervalued. However, with PSA now back on its feet, the discussion needs to turn to sustainability and long-term strategy."
However, he was in no doubt about the financial advisability of PSA’s strategy to build a premium brand around the DS badge. Quite simply, Warburton insisted that the PSA management should kill off the DS brand before it spends any more money on the venture.
"One of the key tenets of PSA's long-term strategy is to develop 'DS' as a third brand and as a 'premium' offering. The company is pumping billions into this project. We believe this is misguided. 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," he stated.
Warburton’s report goes into surprising detail about the success and advisability of trying to brand-build. The 25-page report was unusual in not just running hard numbers and graphs; it also had pictures of cars including the Pontiac Aztec and Citroen C4 Cactus and even a page of images of current SUVs that was intended to show just how difficult it is becoming to stand out from the automotive crowd.
Many of Warburton’s arguments in the report will be familiar to Autocar readers, especially the point about how long - and how much investment it took - to make Audi into a true premium brand.
"If we look at the average record of efforts to build premium brands, the evidence suggests that they will disappoint. We don't believe even the richest OEMs [original equipment manufacturers] can afford it. Very few can demonstrate that they have been able to generate shareholder value by launching a new premium brand, or even building one up," states the report.
We’re all pretty familiar with the logic. Look at the billions invested in Saab, Lancia and Rover, all well-known brands with a history of technical innovations. But two of them are dead and Lancia is hanging on by a single-model thread.
According to the figures in this report, Audi has invested a massive £25bn in research and development since 1995, the year when it arguably became a true premium brand.
Of course, PSA’s own strategists have sound reasons for trying to elbow into the premium car market, not least because most of the profits that are made in the global car industry are made by the premium car brands.
Being able to command even a £2000 clear margin on a car completely transforms the business of car making and the ability to reinvest in the next generation of product.
But extracting this extra cash on each sale requires a good deal of brand equity. And if you don’t have the brand equity, only really show-stopping styling and cutting-edge technology will build it. This means a lot of time and a lot of money.
That said, there are new theories in the car industry that all that time and expense can be bypassed by using the approach of the fashion world. Simply build a brand through celebrity association and recommendation, an approach made infinitely easier by the arrival of social media.
The new theories also insist that women have an influence over 75% of new car purchases, making the social media and fashionista approach even more tempting.
Indeed, this time last year I attended a fascinating ‘DS Night’ in Paris that was divided into two parts: an exhibition of the history and design of the original DS and a catwalk presentation of the current DS models.
I suspect PSA won’t be taking Warburton’s advice, but it will be fascinating to see if the DS brand can shortcut the established brand-building route of technical excellence by adopting the techniques of France’s globally dominant ultra-luxury brands.