Peugeot will focus on state-of-the-art chassis design to improve its share of the mid-luxury car market.
The segment is now dominated by the Mercedes-Benz E class and BMW 5 series. Peugeot's aging 605 sells under 10,000 units a year - less than one-twentieth the annual volume of the Mercedes.
'Sales of the 605 are not satisfactory,' said Christian Priser, product planning executive for large cars at Peugeot. 'The 605 has suffered as a result of the Renault Safrane's facelift.'
Future Peugeot models in the sector must offer an alternative to the E class, but at a volume manufacturer's price, said Priser. Peugeot regards its core expertise in chassis design as the best way to challenge the Germans.
'The Peugeot value that needs to be emphasized is chassis refinement,' said Priser. 'It needs to be at the very top of what we can do.'
The 406 chassis characteristics have been widely praised by competitors. As proof of what Peugeot can do, Priser invites comparison of the new 406 coupe chassis with that of the BMW 328i coupe.
'We can do this in the luxury sector, too,' he said. 'BMW is probably a reference point for us in dynamics, but we will also consider the comfort aspect, too. The result will be somewhere between BMW and Mercedes, but also distinctly Peugeot.'
Priser concedes the problems of all volume manufacturers in selling luxury cars.
'Strong competition among the premium makers since the 1980s has driven up standards and kept prices down,' he said.
'The generalist manufacturers have responded by creating alternatives within their own ranges in the shape of minivans and high-specification mid-luxury models. All the volume makers have lost out, with the possible exception of Opel with its Omega.'
Priser said Peugeot must start by achieving base values of quality, reliability and durability. But he said Peugeot must offer value on top of these.
'Clearly, a French manufacturer has to have its own touches,' he said. 'But what we will definitely not do is a grown-up 406.
'The expectations of customers in this category are not to be seen driving a beefed-up upper-medium car.'
Many 605 critics say that it was hampered in the marketplace by looking very similar to the smaller and cheaper 405.
Independently, Renault's designers have concluded that the best chance of success for a French luxury car is through extreme sophistication in style inside and out.
Designers at both Peugeot and its Italian coachbuilding partner Pininfarina have been working on the 605 replacement.
The successor is still, according to Priser, 'some years away.'