Stations Hope GM's Bad News Won't Stall Ad Sales
Some say sluggish car market could mean even more advertising
By Kevin Downey -- Broadcasting & Cable, 3/27/2005 7:00:00 PM
Earlier this month, General Motors, the second-largest advertiser after Procter & Gamble, put its $2.8 billion media account up for review. The annoucnement came as the carmaker and much of the rest of the automotive industry face sluggish sales, waning profits and no immediate signs of relief on the horizon..
The GM announcement also was not news television advertising executives want to hear, particularly not at local stations where, typically, auto advertisers are the biggest clients.
GM's woes raise fears among ad execs that GM is getting ready to slash its advertising budget—and that other carmakers will follow the leader.
But automotive analysts say local station ad execs and managers, in New York this week for TVB's annual conference held in conjunction with the New York auto show, should relax for now. GM is using the account review to uncover more cost-efficient strategies to tout its models to consumers, they say, and its ad budget isn't likely to come crashing down. In fact, it might actually increase at the local level.
“Carmakers don't know how advertising works, but they know it works,” says Tom Healey, a partner at J. D. Power & Associates in Westlake Village, Calif. “Anybody would be afraid to touch that. Advertising is still a very inexpensive way to get a message to a lot of people.”
Chris Rohrs, president of the Television Bureau of Advertising, observes, “We've come through an amazingly long period of very strong car sales without a burp along the way. One would think somewhere along the way there needs to be a pause. And [high] gasoline prices may make people hesitate a little bit in making a decision. I don't think it will take sales away in the long term, but I think people are waiting to see if gas prices come down or if we're at a permanent new level.”
Struggle to regain footing
The automotive industry last year spent more than $20 billion on advertising, which was a year-to-year increase of 10.2%, according to ad-tracking firm TNS Media Intelligence. Slightly more than half of those dollars came from manufacturers, while just over $6 billion was spent by dealers and nearly $3.2 billion was spent by dealer associations.
But that was last year.
This month, GM cut in half its annual forecast for profits. It has plans to cut as many as 10,000 white-collar employees and is looking for ways to trim health-insurance costs.
As GM struggles to regain its footing, it is likely that, for two good reasons, those hefty rebates and incentives will be gone. For one, they have been a costly come-on for GM and other carmakers. And, perhaps just as significantly, so many consumers took advantage that rebates have lost their allure.
Healey predicts the advertising message from domestic carmakers will change. The Big Three will re-emphasize branding messages in which a car's attributes, not its 0% financing, take center stage.
The good news for local stations is that when car sales are weak, the manufacturers tend to drum up sales by shifting ad dollars from national campaigns to dealership associations, which benefits local media outlets.
But, most analysts say, even if that is somewhat true, there will not be any dramatic shifts in the types of media used as a result of the return to brand messages or, for that matter, as the result of GM's account review. About half the $10.9 billion manufacturers spent on advertising in 2004 was evenly split between network TV and spot TV, according to TNS. Another 19% of expenditures were placed in magazines, while 10% went to cable TV and 7% went to newspapers. Online advertising accounted for 2% of expenditures. The share for each media type was virtually unchanged from 2003.
Weak sales and high costs
Meanwhile, 70% of dealer ad dollars were placed in newspapers, while 16% went to spot TV. Dealer associations put 46% of spending into spot TV— a modest increase from 44% a year earlier—and 35% went to newspapers, which the previous year accounted for 38% of expenditures.
GM's troubles stem from weak sales coupled with high operating costs. They aren't alone. Sales for the Big Three domestic automakers are down 5.9% on a year-to-year basis for the first two months of 2005, according to automotive research firm Morgan & Co.
At the same time, GM and other domestics are saddled with costs that have significantly less impact on imports and American-made Asian brands. Among the expenses dragging down profits for the domestics are so-called “legacy” expenses like retiree benefits, which J. D. Power's Healey estimates amount to nearly $2,000 per car for GM.
Likewise, those incentives started after 9/11 and led to record car sales during this decade's recession—but at a cost. In January this year, the average incentive was valued at $2,408, which was up about 2% from a year earlier and nearly 71%, or $1,000, from Jan. 2002, according to Edmunds Information Solutions.
But now incentives don't bring customers through the doors, says analyst John Wolkonowicz of research firm Global Insight's North American automotive group.
“General Motors has announced that with new model introductions, rather than use incentives, they will lower the price [on cars] to come closer to the transaction price,” he says. “They'd like to wean themselves off of rebates. They seem to have stopped working.”
Mark Cornelius, president of Morgan & Co., says domestic car companies have to scale back incentives in order to raise profits. He says it will be a challenge for GM and other carmakers to get away from incentives, but notes they have done it before.
“They've been doing this for three-and-a-half years, so it will be interesting to see how they get out of this,” he says. “But back in the 1970s, there was a big rebate war going on to keep car sales going, and they got out of it.”
Analysts are forecasting flat to slightly lower sales in 2005 from last year's 16.9 million vehicles, due in part to rising interest rates and the fact that millions of consumers who wanted new vehicles have already bought them. Most car-watchers project modest but steady sales increases each year into next decade. For example, Global Insight expects car sales to reach 17.8 million vehicles by 2010.
There is evidence that technology has changed the way consumers enter the car-buying process. TNS does not release online expenditures for dealerships, but the National Automobile Dealers Association estimates the share of dollars going to the Internet grew from zero in 1993 to 5.3% in 2003.
John Thomas, an industry analyst with NADA, says online ad dollars are not growing at the expense of other media types. In fact, he says dealers are simply spending significantly more money on all media types than in the past—NADA estimates expenditures doubled between 1993 and 2003, to more than $8 billion—with the incremental dollars going to the Internet.
“Everybody is trying to be heard in the marketplace, so they are spending a lot more money for exposure,” he says. “The primary driver for the increase in [online] advertising is because people do their research on the Internet before going into dealerships.”
Moreover, analysts and dealers say spending in all types of media will continue going up, particularly in traditional media like TV and newspapers. One reason for that: The auto industry is getting far more competitive as hundreds of new models roll into dealerships. The consultancy firm AutoPacific, for instance, estimates there will be 307 nameplates by 2010, up from 241 last year.
Dealerships will aggressively compete for market share by beefing up their advertising, too, says Marc Cannon, VP of corporate communications at AutoNation, the country's biggest car dealer.
“We will still use local TV a great deal and local newspapers because our sales are driven at the local level,” he says. Next month, AutoNation, which operates 12 dealerships that go by different names in Phoenix, will rename all of them “Power” (as in “Power Ford,” “Power Chevrolet” etc.). To kick off the name change, Cannon says AutoNation is “going to have a tremendous presence on local TV, local radio and in newspapers. We'll have a buyer's guide in newspapers and probably 4,000-plus commercials in seven weeks. On top of that, we will have some Internet promotions.”
That's great for Phoenix media, but AutoNation's aggressive stance may be more the norm than the exception. “It could well be a sluggish year for car sales, but that's not necessarily a bad thing for advertising,” TVB's Rohr says. “The importance of marketing and advertising has never been greater. Supply exceeds demand in the car industry, which is sort of a permanent condition. That means you have to have very aggressive marketing to keep moving these cars.”
|Automotive's Top Spenders: 2004 vs. 2003|
|Parent Co.||2004 (000)||Overall 2003 (000)||Chng.||Share||2004 (000)||Spot 2003 (000)||Chng.||2004 (000)||Unit Sales 2003 (000)||Chng.||2004||2003||Market Share Chng.||Chng.|
|*Figure does not include Spanish-language TV or magazines, B-to-B magazines, local radio or local magazines. With those included the total is $20 billion.
Overall spending in 11 measured media: magazines, Sunday magazines, newspapers, national newspapers, outdoor, network TV, spot TV, syndicated TV, cable networks, network radio and national spot radio.
Figures are a combined total of manufacturer, dealer-association and local dealer spending.
SOURCES:Automotive News 1/6/05; TNS Media Intelligence/CMR, 11/30/04
|Total Big Three||9,723,246.1||8,631,864.1||12.6||27.5||2,673,993.7||2,523,937.9||5.9||10,402,684||10,538,389||-1.3||62.60||64.26||-1.66||-2.6|
|Total all other||7,091,262.5||6,496,872.6||9.1||30.5||2,163,067.1||1,818,863.6||18.9||6,214,621||5,860,873||6.0||37.40||35.74||1.66||4.6|
|Where auto spending goes|
|Media shares, 2004 vs. 2003|
|Overall spending in 11 measured media: magazines, Sunday magazines, newspapers, national newspapers, outdoor, network TV, spot TV, syndicated TV, cable networks, network radio and national spot radio.
Figures are a combined total of manufacturer, dealer-association and local dealer spending.
SOURCES: TNS Media Intelligence, 03/03/05
|Parent Co.||Magazines||Sunday Magazines||Newspapers||National Newspapers||Outdoor||Network TV||Spot TV||Synd TV||Cable TV||Network Radio||Spot Radio|
|Total Big 3||12.4||0.2||28.8||2.0||1.6||18.1||27.5||0.6||6.1||0.7||1.9|
|Total all other||12.6||0.2||23.5||2.3||1.4||20.0||30.5||1.2||6.7||0.2||1.5|
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