When Yahoo’s Shares Are Hammered 12% Because A Drop In Auto Advertising Hurts 3rd Quarter Ad Revenue Forecasts Then You Begin To Understand The Enormity Of The $750 Million Tip Of The Print Auto Iceberg

The financial folks don’t like such surprises. Yahoo lost nearly 12% of its value within hours of the announcement and other major Internet companies across the board got nailed in sympathy, too, with Google, for example, down 4%. Basically Wall Street asked itself – and didn’t wait around for the answer -- “Is this just a Yahoo quirk, or is this the first sign of an advertising downfall in WebLand.”

When the smoke clears what will probably be clear is that the drop in auto advertising this year will savage print, and the Internet’s increase in auto advertising will not be as great as once forecast, but the health of Internet advertising in general will keep on its strong upward path. Auto still is not a major player on the Internet and holds only 2% of all ad impressions, not including specialized promotions, according to Nielsen/NetRatings Ad Relevance.

What would hurt the Internet more is if the decline in financial services advertising at Yahoo was to turn into a sustained decline, for that sector was responsible for 28% of all online ad impressions in August.

And there may actually be some good news ahead on auto advertising. Because of all the major reorganization going on within the industry there were very few new car launches in the second and third quarter, but this is expected to pick-up considerably in the fourth quarter – and new launches are usually accompanied by major ad campaigns.

ftm background

US Automakers See Sales Drop Dramatically And For Newspapers Experiencing a Near 50% Drop in the Auto Spend “It’s A Melting Ice Cube All The Way Around.”
That the US automobile industry is in another crisis is no secret. Headlines blare out about Toyota overtaking Ford in June sales, how Chrysler Group sales fells 37% over a year ago, etc. etc., but for the media watcher the real story is how those automakers and their dealers are desperately trying to lure buyers back to the showroom. They are cutting way back on the newspaper spend, TV is still the biggest spend but recent “folksy” campaigns have flopped, and the Internet and mobile are increasing their popularity.

Read Between the Lines Of Ford’s Announcement Of Its Double Digit Ad Spend Growth This Year And Traditional Media Should Not Cheer Too Much – A Lot of That New Spend Is Going Digital and Elsewhere
Traditional media, hard hit by automobile companies cutting back on their advertising spend because of poor sales and huge financial losses, thought it heard the announcement this week it has waited so long for -- Ford is boosting its advertising spend over the next 12 months. But look closely at how the company is going to spend that additional money and there’s no reason to uncork the champagne.

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.
Metaphorically, when General Motors sneezes, the advertising business catches cold. So with a threatened strike looming within the next couple of months at its Delphi parts offshoot, and analysts saying if it happens it will be a long strike, crippling GM and forcing it into bankruptcy (intensive care) then the advertising prognosis (spend) for America’s leading advertiser on its traditional clients may well leave them feeling faint.

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.

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.

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?

Having said that, auto advertising this year is a real mess and changes in the spend pattern have affected the entire media landscape. Print so far this year is down nearly $750 million in automotive ad spending, according to TNS Media Intelligence.

General Motors, alone, cut back by $231 million – a 40.8% drop in its first half print advertising. Daimler Chrysler dropped its first half print spend to $133 million, a 36.7% drop, and Volkswagen moved most of its spend to television, dropping its print spend from $57 million in the first half down to $13 million – that’s a 76.4% print drop.

In all, according to TNS, for the first half of the year the auto industry magazine spend is down $400 million, and newspapers are down $346 million. But all of that had been pretty well understood already; the real surprise is that the Internet spend went up only by $49 million and while that is a 51.6% increase over the same period last year in dollar terms the spin had indicated it would be much more.

What seems to have happened is that while some of that previous print spend was reallocated to the Internet, much more than had been expected was reallocated to help pay for some of the various incentives (discounts) offered to buyers over the past months.

And that is the major tug-of-war facing the auto advertising business today. The American automakers are in such a dire financial situations that they need to move cars as quickly as possible to release the cash flow. And the feeling in the auto industry right now is that money is better spent of paying for discounting to encourage that car gets sold NOW rather than for paying for advertising to encourage someone to buy that car sometime in the future. Currently the spend is around 2:1 incentive:advertising.

A study by Compete, Inc., a market intelligence company that does much work in the automotive world, says automakers have got it all wrong – they should spend less on discounting incentives and more on advertising, but right now the auto industry doesn’t seem to be listening.

The generalist magazines are print’s hardest hit. Time Magazine, for instance, went through two staff culls earlier this year and the major reason is said to be the reduction in auto advertising revenues. Time was the largest generalist US recipient of automobile magazine advertising. The revenue drop is probably behind Time Inc.’s decision to sell its Parenting Group magazines and most of its Time4Media magazines, as well as for the closure of its Teen People print edition and closing its Office Pirates web site, so that investment plans for major projects can still go forward.

The French Lagardere publishing group that publishes auto magazines such as Car and Driver in the US via its Hachette Filipacchi Media said last week that its print division saw a 19.5% drop in first half operating profits partly due to lower spending at its US auto magazines.

TNS summed up the seriousness of the auto spend drop. “Reductions were widespread among both factories and local dealers, pushing foreign auto advertising down 3.8%to $4.17 billion and domestic auto down 13.3% percent to $3.79 billion. Automotive advertising has declined in four consecutive quarters and the aggregate cutbacks during the past 12 months amount to $1.4 billion, or approximately 1 percent of total annual expenditures for all media.”

Note from that quote that foreign automakers combined now have a higher US advertising spend than do the US automakers!

So faced with such gloom it was only to be expected that the newspaper industry would produce its own survey to yet again tell the auto industry it has its strategy all wrong. If automakers want to sell their cars their money would be better spent on advertising, particularly print, rather than on incentives, according to the Newspaper National Network, a marketing partnership that is 85% owned by the top 23 newspaper companies in America and 15% owned by the Newspaper Association of America.

Its survey, conducted by GfK Automotive, an independent market research company that concentrates on the auto industry, says that 80% of people shopping for a new car want to see more ads for those cars in their newspapers.

The survey claims new car buyers turn to their newspapers far earlier in the sales cycle than previously thought, and later, when they have settled between two or three models they like to see ads for those cars to help make their buying decision. Much of the most recent research until now had said that more and more people were turning to the Internet for those purposes.

But with Ford and General Motors going through huge reorganizations, their emphasis is on getting the sale as soon as possible and therefore incentives are not going away any time soon.

And, like it or not, the drop in the auto advertising spend is going to continue help fund those discounts.

Chrysler To More Than Double First Half Ad Spend - September 29, 2006

Finally some good auto advertising news – Chrylser is planning eight additional new model launches before the end of the year, and they will be accompanied by an ad blitz spend of more than $1 billion. It did not say how it would spread the spend.

TNS Media Intelligence says that Chrysler spend $527 million that could be measured in US media advertising during the year’s first half. Chrysler CEO/President Tom LaSorda has told a meeting in Detroit of the Automotive Press Association that it will more than double that spend in the second half of the year.

The carmaker needs all the advertising help it can get. LaSorda said it would post a $1.5 billion loss for the third-quarter, breaking the line of 12 profitable periods in a row.