By on March 27, 2014

Check out Part One of this Special Report on French manufacturers here *

This is Part 2 of my special feature on the future of French manufacturers. You can see Part 1 here.

After evaluating both PSA and Renault through their European sales, overseas sales, international alliances and low cost models, we continue on this study of what lies ahead for French carmakers by going through 3 additional elements of comparison.

DS5 LS China 2014DS5 LS. The DS brand is separate from Citroen in China.

5. Luxury segment

This is one of the 10 things I (cheekily) don’t understand in the automobile world today. After a golden age when Delage, Delahaye and other Panhard were the pinnacle of refinement, nowadays French manufacturers have all but given up on luxury – partly because of decades of incentives to build small cars by a French government bent on heavily taxing larger, more powerful vehicles. Heck even French prestige boutique manufacturer Bugatti is now owned by Volkswagen along with Porsche, Lamborghini and Bentley…

The thing is, when managed well, the luxury segment is extremely profitable and a luxury brand can do wonders to help a mass manufacturer survive and thrive. In almost any other luxury category, the French are masters of the universe. Chanel perfume, Louis Vuitton bags, Moët & Chandon champagne, Hermès scarves and Louboutin heels continue to rack up stratospheric sales and churn billions of dollars,In the automotive world, French luxury has gone missing.

1938 Delahaye 1351938 Delahaye 135

Both Renault (Vel Satis anyone?) and Peugeot have given up, leaving to Citroen the task of getting back into luxury with its DS sub-brand, launched as a separate brand in China last year. Sales of DS models are plateauing in Europe at 110,554 units in 2013, down 6% on 2012 (but still in league with Land Rover). Audi, BMW & Mercedes all outsell DS bya ratio of 6 to 1 and more importantly, are either stable or improving in a deflated market. The DS3 is the only DS model to gain ground in 2013 at +2% thanks to the launch of a convertible version, while the DS4 is down 14% and the DS5 down 17%. With no new launch planned until 2016, it’s hard to see DS models enjoying a second wind soon.

DS WILD RUBYDS Wild Rubis

If not in Europe, where can DS be successful? In China of course! PSA hopes the DS brand will improve its profitability there and has kicked off the local production of the DS5 last October through a new joint-venture with ChangAn. But really, what the Chinese want is a souped up luxury SUV like the DS Wild Rubis Concept. A ‘civilian’ version of this concept will be presented at the Beijing Auto Show in April. I think it will sell like hot cakes in China and the whole of Asia.

6. Perceived quality

Renault has come a long way to now manufacture cars considered reliable by the general public, however its recent models (Mégane, Laguna, Latitude and Koleos) are often perceived by consumers as dull, sad and charmless in spite of their robust diesel engines and handling qualities. The new Clio IV and Captur have won over many hearts, mainly due to their daring design, however worldwide car magazines often criticise the poor quality of the materials, blatantly showing cost reduction at play.

Renault Clio IV. Picture courtesy of hamms.ruRenault Clio IV

PSA is in a different place at the moment, with its recently launched Peugeot 208, 2008, 308, 508, Citroen C4 Picasso and C-Cactus hitting the mark in both the design and driving pleasure aspects. The 308 even won the coveted title of 2014 European Car of the Year earlier this month. The DS line, albeit a little controversial with car experts, also helps with the perceived quality of the PSA Group. All of this is good and well, but the large majority of the models mentioned above are very little known outside of Europe where the large bulk of sales are happening with either the low-cost range for Renault or older models like the first generations C4 and 308 (in China) or 206+ (in South America) for Peugeot. So PSA needs to bring these new models in fast if they want their perceived quality to not be stuck in the nineties in emerging markets.

Audi A5Can PSA pull an Audi with the DS brand?

7. Brand differentiation

Having worked in advertising in my previous life, this is my pet peeve. As car manufacturing groups, PSA and Renault must have a clear and differentiated positioning for each of their brands in order to be as profitable as possible. Case in point is the Volkswagen Group, to me one of the best examples of very effective brand differentiation. In their stable of brands, perhaps only Seat is still finding its bearings, but Volkswagen, Audi, Skoda, Porsche, Bentley, Lamborghini and Bugatti all have a crystal clear positioning and rarely compete with each other, avoiding cannibalization. This enables the group to progressively increase the average price of each model and pull each brand up, while reducing production costs by using the same platform for dozens of models, resulting in exponential profitability. One could argue that there is now room below Skoda to introduce a low-cost brand that would undercut Renault’s Dacia.

It seems simple when it’s well done, but this is a bloody hard task.

Dacia Logan 2004The first generation 2004 Dacia Logan…

Let’s look at Renault first. I have to admit I wasn’t a fan of selling Dacias in the same showroom as Renaults, as I couldn’t for the life of me understand how someone could leave the shop with a Renault Kangoo for the price of two Dacia Dokkers – basically the same car, for far less money. However careful observation and many dialogues with consumers and dealers have made me realise that Renault has actually managed to differentiate Dacia completely from its main brand, while still helping its success by ‘guaranteeing’ it (“Dacia by Renault”). It’s simple: Renault competes with other mass brands and Dacia competes with used cars, not with Renault. When it becomes tricky is where Renault sells Dacia models under the Renault brand, for example in Russia and South America.

Renault Logan Brazil. Picture courtesy of Quatrorodas.com.br…and the current Brazilian Renault Logan

Here too my opinion has changed, having traveled to both these areas of the world where a new car is still very aspirational. To better understand how Renault was right to not launch the Dacia brand in emerging markets, you have to give up your Westernised mind and understand that a Renault Logan is actually not a low cost car there. It competes at the core of the market, alongside antediluvian Chevrolets that have been in production for 20 years (Brazil) or against cheaper Chinese cars (Russia). Launching a new brand would have been way too risky and expensive. Now this is where I disagree with most car websites and analysts: selling the Logan, Sandero and Duster DOES NOT hurt the Renault brand in emerging markets, in fact it cements an image of honest, robust cars that don’t trick you with fluffy accessories, are easy to maintain and that you can rely on. A good car in the purest sense of the term.

Renault has managed to pull the trick of launching a low-cost range in both sophisticated and emerging markets, while increasing that range’s profitability and not letting anything spill over to the main brand. No other manufacturer in the world has been able to do this yet, so well done.

Citroen C4 CactusCitroen is now positioned as ‘practical’ and the C4 Cactus is the emblem of this new philosophy.

Now onto PSA. Since the eighties, Peugeot and Citroen have basically been selling the same models with a (sometime not so) different look. Recently, PSA announced a new positioning for their brands: Citroen will do ‘practical’ cars with its C range, and the C4 Cactus is the emblem of this new philosophy, Peugeot will go a little up-market to be ‘semi premium’ and compete with Volkswagen and the DS range, which could (should) become a brand on its own in Europe, is premium. We saw in Part 1 of this Report that a new low-cost brand, Dongfeng’s Fengshan, could well insert itself at the bottom of this ladder.

Yes I know this makes years of Citroen World Rally Car investments redundant, but whether you currently agree with this positioning choice or not is besides the point. What will make or break this strategy is decades (yes, decades) of consistently acting it. Whether it be Citroen’s new positioning or DS’ one, but it will be harder for DS. Look at Audi: in the early seventies it was Volkswagen’s poor parent. It took almost 40 years to the VAG Group to get Audi to where it is right now. PSA should not expect the DS brand to achieve the same success in less time. It will take a long, long time and a lot of money to establish a new premium brand in the automotive world, but it is possible. Carlos Tavares agrees and said “remaking the Citroen DS sub-brand into a full-fledged marque that can compete with the likes of Audi and other luxury automakers may take two decades.”

Renault 2013 Financial results

PSA 2013 Financial resultsRenault and PSA 2013 Financial results (Click to enlarge)

Conclusion

But are French manufacturers currently making money? Renault made a €1.2 billion profit in 2013 mainly thanks to Nissan, (see its full 2013 Financial results here) and PSA made a €560 million loss (Full 2013 Financial results here). Which makes PSA’s €3 billion capital increase to Dongfeng and the French state announced last month all the more welcome. Had I written this article a couple of years ago, I would have had not much hope of survival for either manufacturer. But both Renault and PSA, albeit in very different situations regarding their alliances with other manufacturers and with very different strategies, seem to have faced the inevitable and acted upon it, gearing themselves up for battle in the coming 5 years.

To me Renault is still better equipped for the future because it is supported by an alliance, while PSA is still doing it (almost) alone. But I don’t see any of them disappearing in the near future. The two Carlos (Ghosn and Tavares) are unbelievably smart chief officers that know how to steer the behemoths that are Renault and PSA in the right direction.

Dongfeng Joyear X5 2014Dongfeng Joyear X5. Dongfeng is one of the keys to PSA’s success in China.

 Both French carmakers are putting money into China and this is where their future survival and profitability lies. Will the DS brand succeed? Will Renault get to the same level as Nissan in a decade? Can Dongfeng help Peugeot expand and get to the next level? Is Fengshan the new Dacia? So many exciting questions, such exciting times.

Matt Gasnier is based in Sydney and runs a website called BestSellingCarsBlog, dedicated to counting cars around the globe.

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22 Comments on “Best Selling Cars Around The Globe: What Future For French Manufacturers? (Part 2)...”


  • avatar

    I noticed in the link to the last article that the French makers do best either at home or in BRIC nations. Did they simply miss the boat elsewhere (they did for sure in the US) and have been playing catchup as of late?

    Also, do you feel a chinese takeover of PSA to be in the cards in the mid-long term?

    • 0 avatar

      Hi u mad,

      Renault is doing ok at home and in BRIC nations except China, PSA is doing ok at home and in BRIC nations except Brazil, Russia and India… Everywhere else they haven’t deemed it necessary to have a strong presence, which has turned into a huge issue for them and they are both trying to curb their strategy as a result now.

      I believe a Chinese takeover of PSA in the mid-long term may be what could enable PSA to survive, however I don’t see it happening because the French government will have a say against it. A takeover by the French government may be more likely – and unwise.

      • 0 avatar

        Hey Matt, U mad scientist!

        Renault has Nissan, so it’s covered. PSA doesn’t have an Asian brand or presence as the Chinese associate is unknown out of China. So, Renault-Nissan is in a great position to keep on growing and prospering and PSA will go on missing a North American and Asian presence out of China (Thailand, Indonesia, Philippines and other larger markets as Japan and Korea are virtually impenetrable).

        In large parts of South America, Peugeot, Citroën and Renault are “home” brands. Colombia with Renault comes to mind as does Argentina, Uruguay and Chile with all of them. Brazil has adopted Renault and still distrusts PSA. There’s good news in that area though. I have learned than in São Paulo state and city PSA almost doubles its market penetration. That shows to me that they still have a problem of capillarity. In other parts of the country, PSA doesn’t have many dealers and mechanics are wary of them. Renault meanwhile seems to have a more widespread presence and has undertaken in the last couple of years a campaign to bring their aftermarket services and maintenance costs down to the same levels of the traditional makers here.

        Finally, from what I hear, Renault has opened its eyes and ears to Brazilian input. There are more Brazilians in key spots, they have a design center working in Brazil. At PSA the story seems to be slightly different. More French executives who came and go without apparent rhyme or reason, and much less disposition to listen to Brazilian input. That also helps explains the current state of affairs in Brazil.

  • avatar
    Big Al from Oz

    Believe it or not I do see some parallels between the French and US auto industry. These parallels are polarizing.

    France has designed many cars that are aesthetically unpleasing, too many. But that was the French being very French. I’m not saying ALL French cars were fugly. But they weren’t attractive to many global markets.

    The French like the US has had great involvement/interference by their respective government dictating and influencing many areas of their auto industries.

    The French like the US missed the boat after the Oil Crisis in the early 70s like many Japanese and German manufacturers have done by building successful global products. The Americans remained too American and the French to French.

    The French government pushed for small vehicles vs the US made it appear they were pushing for small vehicles.

    The French has massive government subsidized canola cultivation vs the US with it’s heavily protected (Brazilian ethanol taxed at 54%) and subsidized corn/ethanol agri industry.

    How well did the French do during the GFC vs the US/Detroit?

    As you can see the French and the US are very similar in some significant polarizing respects in what controls the direction of their motor vehicles.

    I supposed arrogance will get the better of you sooner or later.

    • 0 avatar

      Disagree as to the fugly designs Big Al! I like Frech car design. Yes, sometimes they exaggerate, but they’re not going to gain ground in other countries by doing more of the same.

      In terms of design, Renault now has Van der Acker (?) as the design chief. He is much more conservative than Le Quément who was very radical and influenced their design for many years. Keeping their design French, albeit a bit toned down, is key for future expansion.

      They also have the fact that French buyers buy French. THough that has changed in recent years, particularly high end car where it’s not gauche anymore to drive German. It could be that France is not enough for PSA and Renault, but it sure is for one of them.

  • avatar
    OldandSlow

    Matt – To me, many of the French autos from the late 1960′s had a certain “je ne sais quoi” – that made them definitely French.

    From what I see today French automakers have definitely conformed to the standard FWD packaging everyone else is using that truthfully is getting a bit boring.

    Both the Citroen Ami or Renault 16 of an earlier era exhibited a definite French approach to creating a feeling spaciousness inside what essentially was small car. Both were unmistakeably French.

    Forty plus years later it is the Honda Fit / Jazz that fits that bill with a lot more spit and polish to the engine and drive train.

    • 0 avatar
      schmitt trigger

      Before we got married, my wife drove a Renault R12, while I drove a VW Rabbit.
      When I first borrowed the car from her, I must first admit that I initially had a WTF moment with the vehicle. But after driving it many times later, I started to appreciate and like its French-ness.

      To me, it helped me understand a classic virtue of French design: it has some subtle qualities which are slowly revealed, some quirks that are nevertheless charming, that eventually make you love it.

      Having said that, the car broke more often my Rabbit. On a visit to the mechanic, he showed me side to side the clutch plates of the R12 and the Rabbit: the latter’s was at least 50% larger.

  • avatar
    CRConrad

    “The DS line, albeit a little controversial with car experts, also helps with the perceived quality of the Renault Group.”

    Huh? The perceived quality of the _PSA_ Group, you mean?

    • 0 avatar

      Hello CR Conrad,

      Not quite sure where you picked that sentence, because the article reads:
      “The DS line, albeit a little controversial with car experts, also helps with the perceived quality of the PSA Group”
      Cheers,
      Matt

      • 0 avatar
        CRConrad

        Copied and pasted from the article. Where else?

        But, sure, I replied quite a while after I’d opened the page, so apparently you (or some other editor) had corrected it in between.

  • avatar

    Hey Matt, great article as always. I truly enjoyed it.

    The European Union is funny. They impose some standardization across the line and fight national protection of industry, yet they allow some things to happen. For example, they don’t combat the different taxation on cars. Why? Is it because it benefits the Germans? I say this because key for DS to fight the Germans would be bigger engines. I think one of the reasons the Germans have gained, specially the luxury trio, is that they offer bigger engines. I’m a French man with money to spare. Why would I buy a Citroën C6 when it’s limited to a 2.0 engine? In the past buyers were more nationalistic, but first the Italians and later the French, especially the richer ones, gave up this attitude.

    As to Renault-Dacia, this debates rages, at least in enthusiast circles in Brazil. Recently, a respected Brazilian car blog had a comparo between a Logan, VW Voyage and Toyota Etios sedan. The Logan won by a healthy margin, as it should, as it’s bigger, offers more for less and doesn’t owe the other 2 anything in terms of ride. Suffice to say there were 320 comments and counting as of yesterday. The naysayers love to drag out Dacia when hitting on the Logan (as those who like to hit hit on Chevrolet drag out Daewoo). It makes no sense.

    Got to go now, but later I’ll be back to elaborate on this point and also point out some inconsistency as to your comments on Chevrolet, Matt.

    • 0 avatar

      On these debates on Brazilian sites, I always point out Dacia is Renault, Renault is Dacia. With the ever increasing synergies and co-development going on between Renault and Nissa, it’s also true that Dacia has some Nissan in it. Unlike Autovaz (Lada0, it seems that when Renault took over Dacia, the Romanian company was much less capable than Lada to do its own thing. Renault took Dacia under its wing and the Logan family was the result.

      This is similar to Chevrolet here. THe new Chevy products in Brazil are not Opel anymore. They’re Daewoo. That turned out to be a good thing. The Opel cars were so old, that I could not see anything in them (not that I ever did). The ergonomics were off, the design was boring and repetitive, the interior were sad. Now the interiors look much more modern, the dynamics are good, the styling is controversial (to me it’s that “attractive-modern-ugly” thing going on). If only they changed the old as the hills engine. So, to summarize, you still have the Celta and Classic and Agile based on a dumbed down late 80s, early 90s Corsa. And you also have Cobalt, Spin, Prisma, Onyx, Sonic (all sitting on the Sonic platform) and Cruze, which though Daewoo through and through still increased sales over the Opel Vectra. Hummm!

      All this to show that enthusiasts know little of the market. The Renault-Dacias have improved sales in brazil and over much of the developing world as they truly offer more for less (not to mention the very closely related Nissan products, March, Versa, Tiida, Note, Livina). The Daewoo-Chevies are doing the same for Chevy. As an opposite the Fiesta, though doing pretty well (for now), sells to a more restricted group. It’s smaller, more refined, and appeals to a smaller group of people. So much so that Ford is developing the new Ka which will be bigger than the Fiesta for the developing world!

      So, Renault found a gold mine and now others want in. It’ll be tougher to forge ahead. What Renault must do is keep it modern and fresh. The BO architecture is modern and fresh and has many years ahead of it. The engines meanwhile are getting out classed, Renault better do something.

      It’s important to strike a balance between world products, but never forgetting local realities. Developing markets, especially ones like Brazil that are a little further ahead, can detect good driving characteristics, good design. We may tolerate some inferior interior materials, but we ant more for less. So give us our Renaults, just keep them fresh with the best from more developed markets from time to time.

      Peugeot, where’s the 301? You think it’ll still be fresh when it gets here in 2015 or 16?Let me tell you something, it won’t. The cars that made the most success in Brazil (outside of local products like Gol and Palio), came here pretty soon after the European launch. Chevette, Monza, Vectra, Uno, Logan all come to mind.

      AS to Peugeot my simple question is: Where’s the 301? Where’s the 1.0 engine?

    • 0 avatar
      jim brewer

      I don’t know how true it is now, but during the fifties and at least into the sixties, France was the victim of its own bad tax policies. France taxed cars on horsepower. Most other European countries taxed based on displacement. That’s why there’s no nostalgia for the power of French cars of that era.

      • 0 avatar

        Hey Jim! Bad is debatable. By taxing gasoline they were able to get a much more fuel efficient power grid and develop their nuclear technology. If petroleum finished tomorrow, France would be able to keep the lights on.

        The scheme did affect the car companies. While in the 50s and 60s all Euro cars were relatively slow, when the template for a luxury car was a 2.0, Alfa, Fiat, Renault, Peugeot, Citroen were all able to build motors that totally outclassed the Germans.

        As time went on, Germany, if not France and Italy, chose to flexibilize this policy. This was not as a direct favor to the industry but rather an unintended consequence of German realpolitik as regards Russia, elbowing their way in (in the process knocking the French and Italians out) by, among many other things, financing and buying most of Russian oil and gas infrastructure and production.

        Suddenly it became feasible in the 80s and 90s to increase their engines and ride the wave of European prosperity in the 80s and 90s. Also the Euro Union worked in their favor as firstly the Italians and later, to a lesser degree, the French became less nationalistic in their car buying (the Germans never did).

        Now things may be changing due to the green regulations. The German trio is being forced to downsize and the smaller engines of the major Euro makes are becoming pretty crazy. So much so that top of the line Fusions/Mondeos and others are again challenging the lesser Germans. So much so that Mercedes is partnering with Renault and BMW with Peugeot largely to have access to the very good small engines the French now produce (if I were the French companies, I’d be wary here).

        The French had many reasons to tax displacement. It worked against them for a long while. This may be changing to a degree.

        • 0 avatar
          jim brewer

          You misunderstand. France taxed horsepower, not displacement, thereby removing an incentive to produce small powerful engines. Its not a coincidence that so many engines were just under two liters. That was the tax cut off. Even Ferrari made a lot of two liter engines.

          • 0 avatar

            Well, I don’t really know. What I thought they did, at least the Italians did, was tax displacement. You are correct though, taxing horsepower is the worst thing to do. In Brazil we taxed hp until 15 yrs ago and that was a guarantee that engines stayed frozen in time. After we changed to taxing displacement, all engine, within their displacement tax bracket improved exponentially.

  • avatar
    RogerB34

    The key question is not whether French automakers will survive but will France survive?

  • avatar
    jim brewer

    “The interesting thing about the French nation, I think because they are essentially peasants and communists, is that they are quite good at the fairly small and fairly simple car.”

    —James May

  • avatar
    schmitt trigger

    That is the reason I like the British-produced Top Gear better than any of its clones. Their irreverent, non-politically correct quips, which are nevertheless very funny, make the show a blast.


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