Smaller, Local Newspapers Are Now Also Feeling Real Pain From Near $4 Gas

Philip M. Stone May 28, 2008

Small, local newspapers have until now been the exception to the newspaper doom and gloom story as larger newspapers saw sinking classified revenues and advertisers turning their spend increasingly to the Internet, with bottom lines consequently ravaged. Small local newspapers, however, relying on very local display advertising had managed to weather the storm. Until now. Near $4 a gallon gas is now taking its toll even there.

Small retailers are not big Internet advertisers so the switch of dollars from print to the Internet alone didn’t have that much effect on the smaller newspapers. And local newspapers depend more on local display advertising than they do classifieds, so  that helped insulate them from the ills of the larger metropolitan newspapers.  But no one escapes an economy where high gas prices and high food prices are making Americans reconsider their financial priorities. And that is hurting the small retailer and consequently that small retailer’s spend with the local newspaper.

Larry Grimes, president of W.B Grimes & Company, a newspaper brokerage business dealing primarily with smaller, local newspapers, says that based on his discussions with numerous newspaper owners there is no doubt that $3 a gallon gas started hitting spending habits and now it is near $4 “the situation has gotten much worse.”

Grimes says that high gas prices combined with high food prices – he sees corn being diverted to Ethanol as the villain there – “has basically taken the consumer out of the retail market.” He says consumers “have cut way back on retail purchases, aren’t buying cars or big ticket items, are putting off home improvements and maintenance and if consumers aren’t frequenting the retailers, the retailers are naturally cutting back on their advertising, which obviously has a ripple effect back to the newspapers, both big and small.”

He still believes that when the economy improves real estate and autos will come back to newspapers, but “employment has probably migrated for good to the Internet.”

The elephant in the room is whether gas prices will go even higher. Goldman Sachs says it expects to see $200 a barrel within two years which means anywhere from $6 to $7 at the pump and what happens then?

So, if the retailers are backing off their advertising spend, what do manufacturers do in this kind of market to get people to open their wallets. Well, if gas is so expensive, then why not offer free or discounted gas? That’s exactly what Chrysler and American Suzuki are doing, giving away or discounting limited amounts of gasoline.

Chrysler seems to be getting good results, having extended the promotion from expiring in early June to running it though the whole month. The Chrysler plan locks consumers into paying just $2.99 a gallon for three years or 36,000 miles. “Boy, have we gotten a great response,” said Jim Press, vice chairman and president.

But there’s always someone to spoil the fun and in this case it is Consumer Reports Magazine. It worked out the savings over the three years of the gas subsidy and also savings if the cars were owned for six years and it said if one bought a comparable Toyota, Honda and Nissan model, depending on the time one held onto the car, they would be a better financial deal than the gas-guzzling Chrysler models with gas subsidy..

Indeed an environmental group also laid into Chrysler calling its promotion “a cynical deal” in trying to get consumers to overlook that Chrysler cars are not rated high for fuel economy and environmental performance. Suzuki is offering a stored-value Visa debit card worth up to $470 depending on how big a gas guzzler one buys.

But America being America, a Missouri car dealer has found something better than free gas – a free handgun, pending approved background check, with every car sold. Mark Muller, the owner of Max Motors says he gave buyers a choice of the gun or $250 worth of gasoline, but only two went for the free gasoline.  The dealer’s website says it knows there is a gasoline problem and there is a crime problem in America and it wants to do its part in trying to make things better. Result: sales have quadrupled!

During these hard times the auto manufacturers will want to ensure they are getting  value for money on their ad spend, but according to a consumer research company  auto advertisers are spending too much money on TV and not enough on newspapers,  radio, the Internet and Outdoor billboards.

BIGResearch says that 17 - 18% of consumers are influenced by TV marketing, but automakers are spending around 40% of their media on TV (Ford, for instance, is at 41%), while it says that 16.5% of Ford’s customers are influenced by newspapers, but its newspaper spend is only 5.9%.  It says that Ford gives only 3.9% of its spend to the Internet whereas 8.4% of its customers are swayed by the Web and radio has a 6.7% influence but it gets only 1% of Ford’s budget. Magazine influence is put at 17% whereas the Ford spend is at around 13%.

“Automakers are making advances in a consumer-centric media world by integrating new media into their advertising strategy,” said BIGResearch President Gary Drenik, “However, when you look at which media their customers say influences them to purchase a car, they are over allocating ad dollars on TV and under-spending on Internet, outdoor, radio, and print.”

But the final grim words go to newspaper broker Grimes who, while welcoming the tax rebate checks that Americans have started to receive, doesn’t believe those checks will cause retailers to pick up their advertising spend. “Maybe a short pick-up of say 30 days, but that is about it.”