I'm still trying to figure out how the Peugeot 308 won the car of the year title instead of the Nissan Qashqai, BMW i3 or Mercedes S class. News that the firm plans to develop the DS brand as a premium brand leave me further scratching my head in disbelief. For that's exactly what the new PSA Peugeot Citroen boss Carlos Tavares is planning to do.

To be fair to Tavares, he has some good ideas in his new "Back in the Race" plan, notably in hacking away at the hugely overblown product portfolio and boosting expansion in the Asian growth markets. The plan aims to achieve a 2% operating margin in the operating division by 2018 and 5% beyond that.

PSA group's product line-up seems to lack any sort of strategic direction. It will be culled in an overdue effort to cut costs and focus investment in new product development that can offer maximum bang per buck. That means halving the number of overlapping and competing models to around 25, in an effort to boost margins.

Alongside this will be a much greater effort at internationalisation - especially via its new Chinese partner Dongfeng. That makes sense.

And yes the DS brand will supposedly be launched as a fully-fledged premium brand as part of a platform sharing strategy across three brands, notably Peugeot, Citroën and DS, with a clearer line up in each case and - better "price positioning" (code for an attempt to charge more for the DS brand).

Citroen, of course, has added the DS badge to its bog-standard cars to echo the role of the classic DS back in the 1950 and 1960s. Then the DS was styled by Italian sculptor and industrial designer Flaminio Bertoni and the French engineer Andre Lefebvre, and the DS was renowned for aerodynamic design and innovative technology, including its remarkable self-levelling suspension.

But simply slapping a DS badge on fairly hum-drum cars today simply opens up the criticism that PSA is trying to use an iconic brand to drum up some sales for cars that don't compete very well either against the budget brands moving up market (think Hyundai and Kia) or the premium brands encroaching on the mass market (think BMW 1 series or Merc A-Class).

Indeed, the effort to move up-market with the DS brand makes little sense. Dabbling with the premium sector is usually a sure-fire way to lose large dollops of cash. Think of the Ford Edsel back in the 1950s, or more recently the Vel Satis fiasco for Renault - a supposedly premium car widely regarded as the most expensive car Renault ever made. It flopped.

Or think of the VW Phateon. This was a well-engineered but incredibly dull attempt at a premium model to compete with Mercedes which lost billions. The saving grace of the latter was only that components could go in Bentley models and so some revenues could be recouped. Phateon sales fell way short of expectations. In 2002, VW said that its 'transparent' Dresden plant could knock out 20,000 a year. By late 2006 just 25,000 had been made with annual production running at just 6,000.

Other manufacturers think they can do it as well, of course. Last year, at the Frankfurt Car Show Ford of Europe unveiled its Vignale concept and Renault the Initiale Paris, both stating ambitions to compete in the premium sector.

The Vignale will essentially be a jazzed up Mondeo with larger wheels, lots of chrome and leather, snazzy paint and parking aids. Sadly that doesn't mean that it will be able to compete with the likes of the BMW 3 Series, Mercedes C class, Audi A4 or soon to-be-launched Jaguar XE.

One argument is that maybe in emerging market customers might not be so snooty about efforts to go upmarket. But don't bet on it. The Chinese are very aware of what is premium and what isn't.

Another argument is that the emerging lower middle-class is set for rapid growth in China and PSA want to get into position for this growth. That is a stronger argument but I'd argue that even this needs a quality premium car which is shifted downwards (think of VW/Audi technology which underpins a Seat or Skoda) and not the other way around.

And if this is the strategy it doesn't mean the DS becoming a genuine premium brand, but rather a 'fun' brand in the way that MG was in the 1960s. But that in turn doesn't suggest that PSA can earn big premiums on such cars.

It's remarkable how many car company chiefs delude themselves by thinking that souping a car up and chucking in a few extras and lots of chrome means they have created a premium brand. It doesn't.

Premium brands have long pedigrees - think of Mercedes, Audi and Jaguar's long traditions. Even BMW, which was a newcomer to the premium market forty years ago had to stick at it for a long time to establish the brand. All attempts by mass producers to break into the segment have failed - with the exception of Toyota's foray with Lexus (and that cost a small fortune).

Rather, PSA should concentrate on cutting excess capacity and costs, and doing a better job to compete with the likes of Kia and Hyundai. That means making stylish fun cars that can sell on their own terms and which come with decent warranties and support.

Trying to compete with the established premium players needs a twenty or thirty year effort - witness what Audi did - and it's not at all clear that PSA have the resources or patience to stick to such a plan.

Trying to shift up market usually means spilling lots of red-ink.

* Professor David Bailey works at the  Aston Business School in Birmingham.