Profitability in the car industry: New measures for estimating targets and target directions

5 In this paper we study the profitability of car manufacturers in relation to industry-wide prof6 itability targets such as industry averages. Specifically we are interested in whether firms adjust 7 their profitability in the direction of these targets, whether it is possible to detect any such change, 8 and, if so, what the precise nature is of these changes. 9 This paper introduces several novel methods to assess the trajectory of profitability over time. 10 In doing so we make two contributions to the current body of knowledge regarding the dynamics 11 of profitability. First, we develop a method to identify multiple profitability targets. We define 12 these targets in addition to the commonly used industry average target. Second, we develop new 13 methods to express movements in the profitability space from t to t + j, and define a notion of 14 agreement between one movement and another. 15 We use empirical data from the car industry to study the extent to which actual movements 16 are in alignment with these targets. Here we calculate the three targets that we have previously 17 identified, and contrast them with the actual profitability movements using our new agreement 18 measure. We find that firms tend to move more towards to the new targets we have identified than 19 to the common industry average. 20