Market Share: Critical Brand Performance Metric for Automakers

The 2016 North American International Auto Show is about to kick off. The show will mark the sixth event since the industry climbed out of the financial crisis doldrums, and looks to be one of the best ever.

With over 40 new or redesigned models to be introduced to the press and public, we will hear proclamations about improved everything for the current lot, and projections about self-driving vehicles and flying cars. Then speakers switch to the fantasy portion of the speeches talking about alternative-energy vehicles and improved sales and market-share performances.

Auto show speeches are much like the political variety. They put the gospel out about new-vehicle sales results and hope nobody really will fact-check the results.

You can’t say that it’s carnival barking, but close to it. Heck, it’s a sales pitch. No matter the boasting, consumers do benefit from the feature improvements offered. But how about the companies spending all that money to bring those products to market?

There is a tremendous amount of cash spent every year to get improved vehicles into consumers’ hands. Henry Ford once said, “Money is like an arm or a leg – use it or lose it.”

It appears as if this policy became a commandment for automotive engineers (and marketing folk) when determining how much cash needs to be thrown at new sheet metal. No problem. This spending should lead to sales improvements for the company, right?

Trouble is everybody is spending significant amounts of money, so a company’s net sales results may not be as great as auto show proclamations. Additionally, when the overall market is increasing everybody wins on volume (almost). Yet, this rising tide tends to hide a company’s portfolio dogs and bad investment decisions.

Market-share performance eliminates the industry effect and measures how good or bad companies are doing relative to their peers. Market share is one of the key measures of brand equity and portfolio performance. It also is an important efficiency measure of investment spending.

New program introductions, resulting from significant investment spending, dominated headlines in the last four years. Reviewing how individual brands leveraged this spending since 2010 reveals a number of significant share surprises.

Brand Performance 2010-2015: Stand-Alone Truck Divisions Rule

There are six mainstream brands that have significantly increased their overall light-vehicle share since the start of the recent market expansion. Three of them are unique truck divisions, and one, Subaru, has revamped its portfolio, leveraged its 4-wheel-drive heritage and arguably displaced Volvo as the perceived safety champ.

The winning brands with cars in their portfolio improved their performance within the car sector as well; in essence, a double-dip victory given the significant car-to-truck mix shift over the past five years.

Overall winner: Jeep, where Renegade and Cherokee continue to demonstrate how new entries can avoid cannibalizing the rest of the portfolio. A close second is Subaru, with a product portfolio strategy that transformed the company in the U.S. Look for more from Subaru in 2016.

Top Four Brands Trailed Market’s Pace

Honda and Chevrolet lost market share in both the light truck and car segments. Ford, still the number one USA brand, showed a share boost in the car sector, but lost in light trucks. Overall loser: Chevrolet, with a portfolio that is overloaded with insignificant models (Caprice, SS, Spark, Volt). They need more winners like Trax and Colorado. Close second: Toyota, with the portfolio power to achieve second place in the brand race; but the Scion brand dilutes its effort.

Market share performance among the premium brands was a little different.

The sector’s market leaders keep on getting bigger, with a distinct buyer preference for European makes. Lexus is in third place, but actually lost a fraction of market share over the window.

Cadillac and Lincoln, the top two premium brand losers, experienced share deterioration in both light truck and passenger car sectors. Lincoln passenger cars actually lost volume relative to 2010; Cadillac gained a miniscule 1,500 units. Whoa! That’s quite a bit of program spending for declining volume, let alone share.

Overall Loser: Lincoln, with a minuscule portfolio relative to the big three premium makes. Maserati almost gained as much overall volume as Lincoln over the evaluation window.

Improved quality, fuel economy and features are surely in the offering from the class of 2016.

This year’s batch of consumers will rush to the show to examine firsthand all that glitters. Alfred P. Sloan, former chairman of General Motors and its first turnaround guru, captured the essence of what tweaks customer interest every year when he stated, “We replace the old for something that will serve us better.”

During this auto show season suppliers should take good notes when auto companies proclaim, “We are not going to buy market share.” That is wrong; everybody spends money to buy market share, either engineering and development money or marketing funds.

They also should pay attention when they hear, “We’re not going to chase the fleet business,” followed by “We were short of capacity in key segments.” All of those are good arguments in a growing market, but not so much when the market has peaked and may be heading for a soft patch.

Over the next four years, there will be brands that improve share and those that will continue to lose. Those that have recently gained share, and continue to gain in the future, will be better prepared to hold on to profits when the market starts to soften.

Warren Browne is an adjunct professor of economics and trade at Lawrence Technological University.