Analytical Wealth

Speaking of the hapless U.S. car industry, here is an article from the WSJ discussing how GM is about to dip below (the largely symbolic level) of less than 20% market share in the U.S. As I’ve mentioned in the past the market share discussion is pointless because the only thing that matters is PROFITS, what good is 30% market share when a competitor that has 1/3 of that earns more money than you? GM and Ford combined couldn’t out earn Honda a few years ago despite having 4X as much market share, obviously efficiency and profit per car are much more important metrics.

Graphics courtesy of the WSJ

If you want to gauge the health of the U.S. car industry ignore the nonsense around market share, and focus on profits and (most importantly profit) per car sold. If Detroit could make ½ (even ¼) as much per car as its Japanese competitors do, they would be wildly profitable and we wouldn’t be having these discussions on whether or not the American car industry is going to survive.

It’s not the Auto industry the same goes for any business: market share isn’t worth much if your competitors generate more profit, efficiency and a focus on profit per item sold are always more important metrics to watch. Market share makes for a great sound bite and “bragging point” about your company, but it’s a worthless metric if your competitors can generate a multiple of your net profit with a fraction of your market share.