Models from Citroen’s upscale DS subbrand, such as the DS3, which competes with the Mini, sell for up to 40 percent more than Citroen’s equivalent non-DS variants.

Ford and Renault are joining Citroen in launching upscale badges in Europe to reverse losses and boost profitability — but the strategy brings as many risks as potential rewards.

“If successful they can generate greater operating margins than they would do with their typical mass-market fare,” said Ian Fletcher, a senior analyst at IHS Automotive. Typically, premium brands deliver double-digit operating margins while mass-market brands earn single-digit profits on their volume models — that is, if they even make a profit, which most have not during the European downturn.

The problem is that not everyone will find success in the crowded sector. “You’re going to have a lot of brands vying for the same space, so there is inevitably going to be some losers,” Fletcher said.

Both Renault and Ford plan their upscale assault with luxury trim versions of existing cars – Ford with Vignale and Renault with Initiale Paris. For the moment neither plans to create stand-alone models, which Citroen has done successfully with its DS subbrand.

Ford and Renault have said the benefits that customers will get will go beyond the luxurious interior to also include an upgraded dealership experience. “It needs to be as much about what happens around the car as what happens in it,” Renault design boss Laurens van den Acker told Automotive News Europe. The need to move upscale has been heightened by increased pressure in what analysts describe as the “squeezed middle” of the European car market. The downward pressure comes from BMW, Mercedes-Benz and Audi. The German premium brands have increased their shares of the European market in the first eight months of this year with the help of models such as the Mercedes A class compact and the Audi A1 subcompact.

Pushing upward are Korean sister brands Hyundai and Kia, as well as budget brand Dacia. Those three automakers also gained share in Europe during the first eight months.

By contrast, Ford, Citroen, Peugeot, Renault all lost European market share during the period. Only Opel/Vauxhall maintained its position in a market, which as a whole was down 5 percent through August, according to figures from European auto industry group ACEA. Overall, the top eight volume brands lost a combined 1.5 points of European market share in the period, that’s equivalent to about 120,000 sales.

“Although the overall market continues to decline, it is clear consumers are still prepared to pay for premium brands,” Gareth Hession, vice president of research at market analysts JATO Dynamics, said in a recent statement. Worse, those premium brands are pushing into the territory previously occupied by the likes of Ford. “The luxury carmakers have invaded the compact and small-car segments, and many customers are willing to pay a little more to buy a luxury car,” said Peter Fuss, a partner at consultant Ernst & Young in Frankfurt.