When Detroit Sneezes Media Usually Catches A Cold But You Just Can’t Call Ford’s $8.7 Billion Q2 Loss A Sneeze

Philip Stone July 30, 2008

Ford and General Motors together spend around $5.5 billion annually on advertising but take a look at their advertising spend trend over the past three years and it’s down each year. And when Ford released its record $8.7 Q2 loss it also announced it had cut its marketing budget by 50% for the quarter.

In 2005 the two giant US automakers spent $6.7 billion on US advertising, according to Advertising Age. By last year that figure was down to $5.5 billion – that’s an 18% drop, more than a $1 billion hole, and everything points to that hole getting bigger.

GM, without giving specific details, has already said it is again cutting its sales and marketing budgets, but there are already reports it is cutting back on its motor sports advertising and sponsorship with USA Today saying the expected loss to NASCAR could be some$120 million to $140 million a year.

In the past when GM cuts back on traditional media it is usually newspapers that get hardest hit. GM’s newspaper ad spending dropped 32% from 2006 to 2007, according to TNS Media Intelligence, but TV got nailed, too, by 11%.

And TV is beginning to feel that bite. Belo Corp, for instance, owns 20 TV stations in 15 markets and it announced last week that its auto advertising revenue for the quarter was down 10%. That’s really a big deal because auto advertising on average comprises about 20 – 30% of a TV station’s revenue.

GM says it intends to spend more on digital projects. According to Ad Age in the past three years GM has shifted a full quarter of its ad spend to digital. The naysayers will point out that not everyone has access to a digital product, and about one-third of new car buyers still are said not to use the Internet in making their purchasing decision. Of course, that could be put another way – two-thirds do!

Both Ford and GM spend about 40% of their budgets on TV, but according to BIGresearch, an online market intelligence marketing research company,that may not be money necessarily well spent.  Its research said that in 2007 for GM only 17.5% of respondents said that TV influenced their auto purchase, and with Ford ads it was only slightly higher at 18%. 

But although both companies spend far less on their newspaper ads, about the same percentage of people say those ads influenced their auto buying – for GM that spends 6.7% of its budget on newspapers some 17% said those ads influenced their buying decision and with Ford, that spent 5.9% of its budget on newspapers 16.5% said those ads influenced their buying decisions.

And what, according to that research, gave the biggest bang for the buck?  Outdoors! GM spent just 1.2% of its budget on that medium yet 10.2% of respondents says those ads influenced their buying decisions, and at Ford  which spend 0.8% of its budget on outdoors, 11.9% said those ads influenced their decisions.

Having said all that, there seems little doubt that automakers are continuing to  steamroll into digital, forming their own video channels, user-generated videos,  even using music downloads to encourage  the young to their sites.

And then, of course there is Hollywood product placement with most major car companies doing whatever they have to get their car on screen. And don’t think it is pure coincidence what cars are used to chauffeur the stars to the movie premieres.  

And it’s not just the automakers that are cutting back on traditional media. AutoNation the largest US auto retailer announced last week it was looking to save $100 million by firing 5% of its workforce and reducing its advertising.

Even Primedia, which calls itself the leading US print and online publisher and distributor of advertising-supported consumer guides has gotten out of the Auto Guide business. It has sold its South Florida and Wisconsin Auto Guide publications as well as the auto guide website and it closed its Atlanta Auto Guide.

What the US automakers are trying to do via smaller, more fuel efficient  cars is to stem  the 10.1% drop in US car sales for the first six months of the year compared to the same period last year  and the 23% drop-off in pickup truck sales.  But there is no question now that the emphasis is moving to small cars whereas a year ago for every dollar spent on truck advertising, 80 cents got spent on passenger cars; now the ratio is about 1-1.  Automakers know that small cars sell for about double in Europe than would the same model in the US and they are hoping that shortage of supply in the US will boost pricing accordingly.

Of course, with gasoline now dropping below $4 a gallon in many states, will Americans now be so eager to give up their big cars and go small, or will they have learned their lesson? In the past two oil bubbles they swore off big cars and the moment gas prices went down US buyers were back buying big cars. Which with Detroit now retooling to produce the small car, is not exactly what the car makers want to hear.