Car Ads Should Hold Steady
But some automakers are increasing marketing to woo wary consumers
By John M. Higgins -- Broadcasting & Cable, 4/13/2003 8:00:00 PM
The automobile industry may be slumping, but that doesn't mean car companies and dealers are pulling back on advertising. And industry executives believe sales would have to drop dramatically before ad spending would be reduced significantly.
|Top Auto Advertisers|
|Local Broadcast TV, January-December|
|What the major car manufacturers and dealer organizations have been spending|
|Rank||Company||2002 (Million)||2001 (Million)||Change|
|Includes both local and national spot activity
Source: Television Bureau of Advertising/CMR MediaWatch in the top 75 markets
|3||Ford Motor Dealer Assn.||$402.8||$347.6||16%|
|4||Ford Motor Co.||$328.0||$250.9||31%|
|5||Honda Motor Co.||$297.1||$277.1||7%|
|6||General Motors Corp. Dealer Assn.||$277.5||$104.4||166%|
|7||Nissan Motor Co.||$236.7||$172.6||37%|
|8||Toyota Motor Corp. Dealer Assn.||$220.0||$163.9||34%|
|9||Toyota Motor Corp.||$212.0||$202.3||5%|
|22||DaimlerChrysler AG Dealer Assn.||$85.2||$81.6||4%|
|24||Hyundai Corp. Dealer Assn.||$84.0||$69.9||20%|
The recession has forecasters predicting car and light-truck sales will dip to 16 million-16.5 million units this year, off from 16.8 million in 2002 (and the magical 17.4 million units moved in 2000, back when stock market and economy were still booming). As TV and advertising executives meet to discuss the ad climate at the Television Bureau of Advertising's annual marketing conference at the New York International Auto Show this week, they're frightfully aware that a continued sluggish economy could mean a $20 billion-$30 billion reduction in retail sales volume from last year's $378 billion.
But there's a few bits of good news for TV stations and networks. The war—which seems at this point to be a rather short one—has not battered car sales as much as many executives feared. Honda and Toyota, for example, have posted gains amidst the war drums.
Up to a point, bloating inventories can prompt car companies to increase advertising to drive sales. Some automakers have launched new rounds of financing incentives and rebates that they need to tout.
General Motors has relaunched its five-year/0%-financing plan, a move that juiced sales immediately after 9/11. Ford and DaimlerChrysler are offering a similar deal on a more limited selection of vehicles, including Chrysler's PT Cruiser. But the automaker has boosted cash rebates on some cars and SUVs to as much $4,000.
Ford is offering four-year leases touted as "$5-a-day" on its Mustang Coupe and Ranger Edge pickup.
"Any time you have something to communicate, you get a bump in ad spending," said Paul Taylor, chief economist for the National Automobile Dealers Association. "I'd certainly look at it as the bright spot in what is otherwise a soft retail market." He added that "our dealers increased advertising every year, even as sales have come off the peak."
Others agree, to a point. "I still think these guys aren't in a position to pull away from ad spending," said Bear Stearns & Co. auto analyst Domenic D. Martilotti. "They can't afford to pull back unless it gets real ugly." To him, "real ugly" means 2003 sales of 15 million units, rather than the 16.4 million he currently forecasts.
Toyota's not pulling back. Corporate Manager of Marketing Communications Deborah Meyer said that, when the war started three weeks ago, the car company pulled one spot off the air briefly. "We've been back on everything other than news coverage. We think it's important to keep getting our message out." March sales were stronger than most other manufacturers', and the company has introduction of four cars and trucks set for this year.
One adaptation to the conflict in the Mideast is that Toyota is emphasizing the relative fuel-efficiency of its cars.
Here's the big downside. The car business has some significant fundamental problems. Some analysts expect demand to drop to as low as 15.7 million units by 2005. Worse, pricing could suffer further because of substantial overcapacity in car factories around the world.
Sanford Bernstein & Co.'s Scott Hill says manufacturers could shut down every factory on a single continent and still produce enough cars to satisfy consumers.
In the U.S., sales of high-priced truck-like SUVs are waning in favor of lighter "crossover" SUVs built on a smaller car chassis. The truck-like vehicles not only are less profitable but open the Big Three manufacturers up to greater competition from Asian manufacturers. The home markets of the likes of Toyota and Hyundai have little appetite for big trucks, so the absence of international economies of scale have made them smaller players in U.S. SUV game.
But American buyers' appetite for smaller utility vehicles means that Toyota can readily play by using, say, a Toyota Camry chassis for a Lexus RX 330 saleable in multiple markets.
The bottom line is that brisk ad spending won't last if the auto business weakens substantially.
Kathy Crawford, executive vice president and director of local broadcast for Initiative Media, said that TV stations in particular have to worry. "Auto ad spending is up, but what does it really mean in the end? What are stations going to do when the business that generates 25%-30% of their sales has big trouble?"
Nielsen Monitor-Plus estimates that car manufacturers and dealers spent $11 billion on advertising last year. About $4.4 billion of that, or 40%, went to TV stations; $2.7 billion, or 24%, to broadcast-TV networks. Just $1.1 billion, or 10% went to cable systems. Newspapers got about $900 million. (Nielsen's ad-tracking numbers differ somewhat from estimates by Competitive Media Reports.)
Deutsche Bank estimates that the ad spending by the Big Three U.S. automakers comes to $429 per vehicle sold, while Japanese manufacturers spend about $476. That's about 2% of the total manufacturing cost of the car.
Ad-sales folks should also be able to count on an increase in model introductions. Different analysts count 75-85 model launches and major "refreshes" during 2003. That's a year-round cycle, not the September rush of the past. GM, for example has 20 product launches this year but only 12-14 next year.
Each launch carries a fairly significant ad budget. Hill said that manufacturers can't really control the timing of launches, which take three to five years to plan. "They have to spend to support the engineering spending they've done."
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