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Car Crash?

Auto industry analysts predict gloom, but tv finds some bright spots in car advertising 3/28/2008 08:00:00 PM Eastern

Anemic automotive advertising has rattled TV media for several years, and 2008 is off to an unpromising start.

In recent days, auto industry analysts have lowered U. S. car industry unit sales forecasts several percentage points to around 15 million light vehicles (passenger cars and small trucks). That compares to more than 16 million sold vehicles last year and a recent high-water mark of 17.3 million units in 2000. The much-discussed economic slowdown, falling home values and rising commodity prices, particularly for gasoline, aren't helping.

TV Auto Ads Decline
Media 2004 2005 2006 2007
In Millions; Internet figures are for Internet display advertising only. Source: TNS Media Intelligence
Network $3.1 $3.0 $2.9 $2.8
Spot TV 4.2 3.9 4.1 3.7
Cable TV 1.3 1.4 1.3 1.2
US Internet 0.3 0.4 0.6 0.8
Total $8.9 $8.6 $8.9 $8.4

That doesn't bode well for the nation's TV networks. Automotive is crucial as the largest category in U.S. advertising, accounting for 10.2% of total U.S. advertising in 2007, according to TNS Media Intelligence, while second-place financial services weighs in at 6.1%. Automotive's impact is often understated because it is typically reported in two parts—import makes and domestics (TNS ranks them separately as fourth- and seventh-ranked categories, making financial services No. 1).

It certainly doesn't feel like good times for TV media when it simply holds share in a shrinking automotive ad spending pie. Automakers spent about half of their advertising on network TV, spot TV and cable TV in 2007, more than the national average for advertisers. According to TNS, in 2007 U.S. automotive spending on network, spot and cable fell 8.3% to $7.62 billion. Since 2004, spending in those three TV categories declined 11%, or nearly $1 billion, according to TNS, so 2007 alone was particularly sharp.

And while expectations are low for automotive—a category whose fortunes ride a roller coaster—there are some bright spots emerging. For starters, TV is expected to keep its share of automotive ad spending despite carmakers' infatuation with the Web. “There is little evidence that advertisers are shifting budgets away from television,” says a recent report about U.S. online automotive advertising from consultant JupiterResearch. While forecasting that automotive new-media spending will soar from $1.1 billion in 2007 to $3.4 billion by 2012 (both display and search), JupiterResearch notes consumers still watch plenty of TV.

“Research shows that TV advertising drives a lot of Web usage, so I think TV will remain important for automakers,” adds Charlie Rutman, CEO of MPG North America, the media buying agency that places $3 billion in North America ad buys annually. “I think the places you going to see a decline are in magazines and radio,” as well as declines in out-of-home, such as conventional billboards and transit ads.

REVVING THEIR IMAGE

Even if car sales are down as forecast, the automakers still have to move what their factories produce and keep their brands prominent with consumers. Some car brands clearly need national TV exposure for their marketing plans. General Motors, which has achieved a small resurgence, is trying to reclaim lost market share on the West and East coasts, where TV ads are ideal to try to repair its image.

Kia and Hyundai—two separate South Korean makes with common ownership that spent a hefty $951.4 million in all media in 2007—still need to introduce their makes in the U.S. with TV-based brand-building.

Audi, which is part of the Volkswagen Group and just placed its first Super Bowl commercial in 20 years, is hoping to compete more with BMW and Mercedes. And Toyota and Nissan recently launched full-size pickup trucks and SUVs, entering new product categories.

All eyes are on General Motors, which is the biggest automotive advertiser with an estimated $2.1 billion in 2007 ad spending, TNS says. Its U.S. spending has been down in recent years—off a sharp 7.7% in 2008, according to TNS. But in another anecdote suggesting a mixed outlook, TNS added that “aggressive model re-launches from [GM's] Chevrolet and Cadillac divisions contributed to a fourth-quarter spending surge of 24.5%.”

GM is also a leading proponent of the march to Web advertising, but its annual 10K regulatory filing with the SEC is more of a comfort to traditional media; the filing says GM's marketing will emphasize image, which is a hallmark of TV, and some targeted regional spending, which should mean more national spot TV and cable TV ads.

“Our promotion strategy has emphasized our brands and vehicles, rather than price incentives,” GM's 10K states. “In addition, we have begun increasing advertising in support of new products and specific marketing initiatives, including price incentives, to improve our sales performance in key under-developed states.”

Indeed, auto TV advertising seems to be holding ground even as automotive Internet spending alone rose 20% in 2007 to $750 million, according to TNS (whose figures exclude search advertising). Since 2004, automotive ad spending on the Internet more than doubled. While a bellwether for decades, automotive is of less importance today because other categories have emerged as TV advertising titans, including pharmaceuticals, telecom, financial services and video games.

Automotive is a category where the interactive capability of the Web is a particular allure to advertisers. Websites provide information that consumers can use to compare models and dealer prices for what is a big-ticket purchase in a category where product changes ever year. The role of TV is to convince consumers to consider advertised brands and widely promote price cuts.

Yet the current re-alignment of ad spending shows toward new media no signs of abating. “I think they are moving around the pieces to find out what media mix is the most productive for them,” says Sean Cunningham, CEO of the Cable Advertising Bureau.

Making the case for not getting too radical, traditional media executives point out that the biggest advocates of charging into new media in the automotive sector are the domestic carmakers whose sales are lackluster. Says Chris Rohrs, president of the Television Bureau of Advertising, which hosted its annual conference at the New York International Auto Show March 27, “I've said to [Detroit] executives when I call on them, 'You are aggressive in moving your dollars to digital. So is there any evidence that this is working to your favor?' I'm not trying to be a smart aleck but it's an important question.”

TV stations have made impressive gains in local Web advertising, which provides the opportunity to integrate traditional TV with Web ads in a single buy. Borrell Associates estimates that TV station Websites took 9.5% of 2007 local online spending, up sharply from a 1.9% slice in 2004.

On the local level, dealers have grown the portion of ad spending allocated to TV to 17%, up nearly two percentage points in a decade, according to the National Automobile Dealers Association (NADA). That gain comes as Internet went from zero to 16.6% over the same 10-year span (the big loser was newspapers). Factory advertising tilts the category more heavily to TV, which overall gets more than half the total automotive ad spend.

Indeed, Hearst-Argyle Television described automotive as a case of it's-getting-less-bad during a recent investors' conference call announcing 2007 earnings. “Automotive in Q4 was down 1%—weak, but better than the double-digit declines we experienced earlier in 2007,” said CEO David Barrett.

A consolidation in car dealers could also benefit local TV ad spending because bigger outlets spend a higher percentage of their advertising on TV. According to NADA, while the average TV spend for local car dealers is around 17% of total advertising budget, the largest class of dealers allocates 21% to TV. NADA defines this group as dealers selling 750 or more new vehicles a year, and the class is growing fast.

NOT ALL BAD NEWS

While bad news has piled up recently, some economic developments are positive. Unemployment remains low and parts of the economy are strong, such as technology and export manufacturing (helped by the weak dollar). And besides the election-year boost, TV media will benefit from the Summer Olympics, which typically flushes out additional spending.

Overall, TNS calculates total U.S. ad spending in all media rose a meager 0.2% in 2007 to $149 billion. Internet growth aside (Web display climbed 15.9%), most other categories were flat to down, including network TV (down 2%), TV syndication (down 1.5%) and spot TV (off 10.2% in a non-election year). Cable TV, surging in the second half of the year, logged a 6.5% full-year gain, and Spanish-language TV rose 1.3%.

In its overall advertising outlook for local stations, TVB's assessment in 2008 is growth of 8%, based solely on gains from election-year spending. “Right now it would be hard to say the core business would be up even slightly,” said TVB's Rohrs. “We have a caveat that we hope the second half of the year is more stable.”

“I'm not ready yet to throw in the towel on 2008,” says Paul Taylor, NADA's chief economist. He notes that for every bit of bad economic news, there seems to be an offset of some good news, such as the federal stimulus program that will put billions of dollars in consumer hands by mid-year.

 

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