Profitability in the car industry: new measures for estimating taergets and target directions

Van Der Heijden, Hans and Garn, Wolfgang (2013) Profitability in the car industry: new measures for estimating taergets and target directions. European Journal of Operational Research, 225 (3). pp. 420-428. ISSN 0377-2217

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Abstract

In this paper we study the profitability of car manufacturers in relation to industry-wide profitability targets such as industry averages. Specifically we are interested in whether firms adjust their profitability in the direction of these targets, whether it is possible to detect any such change, and, if so, what the precise nature is of these changes.

This paper introduces several novel methods to assess the trajectory of profitability over time. In doing so we make two contributions to the current body of knowledge regarding the dynamics of profitability. First, we develop a method to identify multiple profitability targets. We define these targets in addition to the commonly used industry average target. Second, we develop new methods to express movements in the profitability space from t to t + j, and define a notion of agreement between one movement and another.

We use empirical data from the car industry to study the extent to which actual movements are in alignment with these targets. Here we calculate the three targets that we have previously identified, and contrast them with the actual profitability movements using our new agreement measure. We find that firms tend to move more towards to the new targets we have identified than to the common industry average.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences
Depositing User: Janet Snow
Date Deposited: 31 Mar 2014 07:40
Last Modified: 31 Mar 2014 07:40
URI: http://sro.sussex.ac.uk/id/eprint/48092
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