A Drop in Auto Advertising Is Really Beginning To Hurt US Traditional Media, But It Is Nothing Compared To What Will Happen If GM’s Delphi Unit Goes on Strike In May And Shuts The Company Down.

That GM is in trouble is no secret nor that it is cutting costs like crazy to stay out of bankruptcy. That is not good news for media from a company that spent $2.8 billion in advertising last year.

But what has slipped a bit under the radar is that GM’s principal parts supplier, Delphi – a company that GM spun off seven years ago – is already in bankruptcy and has requested permission to not only reject unprofitable deals it has with GM but also to void all labor contracts. The United Auto Workers has responded by saying if those $27-an-hour union contracts are voided then there will be a strike.

When that last happened in 1998, about 95% of GMs North American operations were shut down for nearly two months and if the same happens this year the cost of shutting down is put at around $1 billion weekly. And that means GM will also seek bankruptcy protection.

ftm background

The Good News For Newspapers Is that More People Than Ever Before Are Reading Their Online News Sites. The Bad News Is that One of Their Major Advertising Sectors – Automotive – Is Moving Much Of Its Spend to The Web, Too, But Not Necessarily To Newspaper Sites
US newspaper web sites continued to attract web crowds in record numbers during Q4, 2005 as some 35% of all active US web users spent time on a newspaper site. But that is about the only thing newspapers can find to celebrate, and with print circulations still in decline, and revenues basically flat there is now the added dose of bad news that newspaper classified automobile advertising has taken a nosedive, and all the signs are things will get worse, not better.

Can Newspapers Maintain Their 20% Plus margins in 2006 On Print Ad Revenue That Could Actually Decline By 1.5%? The Answer May Rest On The Advertising Opportunities Their Own Web Sites Provide.
If a publisher takes as a basic premise that the trends of past years will continue in 2006 – that print advertising growth will be less than 5% -- the bears say it will actually drop 1.5% and fear that is too optimistic -- and that Internet advertising will grow from 20-30%, is there any way to continue the usual 20% plus margins?

Whole New World for Radio Ads: Google
It could be good news for radio advertising. It could be great for commercial broadcasters. It could go nowhere. Or, it could be transformative. Google will now sell radio ads.

Where Is Newspaper and Television Advertising Going? It’s Transferring Slowly But Surely From “In Your Face” to Encouraging the Oldest , Most Successful Advertising Forum of All – Word of Mouth
A recent survey from Intelliseek said that 88% of consumers trust “word of mouth” and 65% of consumers trust friends for product recommendations. Compare that to 56% who trust newspaper advertising and the 47% who trust radio and television advertising and it’s not too difficult to figure out why some advertising spend is shifting to word of mouth.

Does it Cross the Editorial Line in the Sand If an Automobile Manufacturer Pays for Its Car to be in a News Photo, Or a Brand Named Ketchup Pays To Be Mentioned in a Cooking Recipe?
Product placement is worth in the billions of dollars to movies and television but what may not be so well known is that it is worth in the hundreds of millions to newspapers and magazines. And some advertisers want to see that grow, even crossing that boundary that has traditionally separated advertising from editorial.

Merrill Lynch says that during the last strike GM cut back on its advertising only by 5% and once the strike was over it started spending more to catch up. But circumstances are different this time. “We believe the near term impact to traditional media (TV and newspapers) would clearly be negative if shifts are made to online or across the board reductions are made,” according to the Merrill Lynch report.

In 2005 GM spent 55% ($1.44 billion) of its advertising on television, 20% on newspapers ($560 million) And 17% on magazines ($476 million). The company is thought to have spent about 4% on the Internet ($112 million) and the thinking is that any strike will cause the Internet spend to go up at the expense of traditional media.

Overall auto makers actually increased their newspaper spend in 2005 by $108 million – much of it to advertise special deals towards the end of the year to move inventory. But where newspapers really suffered was from the auto dealers – the ones actually selling the cars – and their spend on newspapers dropped dramatically by $438 million. If they don’t have product to sell because of a strike their spend goes down even more.

Auto dealers are increasingly saying they get far more precise marketing and more value for their advertising via the Internet, including their own sites. If ever there was a sector that needed to be approached with a cross-platform advertising package it is the auto dealer!

Magazines are feeling severely the pinch from auto companies investing more of their spend on the Internet – the 2005 magazine auto spend dropping close to $100 million over the year before.

Last year began strong but with each progressive month the situation grew worse. And any hopes of a 2006 recovery look unlikely with Advertising Age reporting that January’s auto magazine spend dropped 22.7%. February perked up a bit – 4% higher than a year previous -- but the proverbial writing is on the wall that magazines are losing auto spend to the Internet. Any GM strike will simply solidify what is already happening.

According to Advertising Age, Ford reduced its magazine advertising to 21% in 2005 compared to 23.5% the year before, but its Internet spend went up to 3.5% from 3%; Daimler-Chrysler dropped its magazine spend to 18.6% from 19.1% and also reduced the Internet spend from 2.2% to 2%; and General Motors dropped its magazine spend from 17.1% to 15.8% but increased its Internet spend to 3.5 – 4% from the previous 2.4%

Given those numbers and the fact that Time Magazine usually gets about one-third of the total US magazine auto spend and the magazine experienced a 14% in auto revenue from the year before, it all becomes clear why Time went through its job cull at the end of last year with more than 100 departures, some at senior levels.

The looming GM problem is just one example of the major problems that traditional media has to face up to from its traditional media advertisers. Four of the top 10 US advertisers underwent mergers in 2005, and following those mergers their spend was reduced. Another bad sign – ad sales by the top 20 US advertisers declined 1.2% in 2005, to $5.66 billion, according to TNS Media Intelligence. How important is that top 20? They provide 20% of a newspaper’s ad revenue.

The one positive was that overall US newspaper ad spending actually increased by 1.5% in 2005 – no where near the double-digit percentage increases for the Internet but at least an increase – and that means that as the big guys fall off a bit there are replacements.

The biggest newspaper advertiser, Federated Department Stories, merged with May Department Stores in May, and their combined newspaper advertising took a nosedive. By the time the year ended the combined company spent $766 million for its 2005 advertising whereas the combined spend for three years earlier had been $972 million.

And then even more bleak news. Newspapers have been trying for years to get Wal-Mart to advertise, and the company has always said newspapers were not good value – not exactly the type of language newspapers want other advertisers to hear.

But last Christmas Wal Mart experimented by placing a full-page color ad for electronics in 336 smaller newspapers in Missouri and Oklahoma, but according to President H. Lee Scott, Jr. the results from the one ad did not come close to giving a return. The company said there would be no more trials while the industry complains that one ad alone should not be used to judge an entire advertising medium.

But there is one advertising bit of good news for newspapers – the biggest print advertising gain in the last quarter of 2005 came from classified – long feared to be killed off by the likes of Craigslist and others. It was up 3%. That’s nowhere near Internet ad increases, but at least its something.

A Drop in Auto Advertising Is Really Beginning To Hurt US Traditional Media, But It Is Nothing Compared To What Will Happen If GM’s Delphi Unit Goes on Strike In May And Shuts The Company Down.

This ad worked in 1938