Auto Industry Drives More Of Its Advertising Billions Away From Traditional Media And Steers Them To The Internet

Philip Stone March 21, 2008

The subprime and credit crisis has ripped into newspaper real estate and auto advertising with double-digit percentage revenue declines, and while real estate may come back somewhat this year if the Fed’s actions take hold the same cannot be said for auto advertising – everything points to more and more of that spend being aimed at the Internet.

Forecasts for 2008 automobile sales are being continually lowered and surveys are indicating that auto manufacturers and auto dealers are increasingly turning away from traditional media, television and print,  and directing more of their spend at the Internet.

A Kelsey Group survey in February indicated 62% of auto dealers surveyed are going to increase their Internet spend during the next 12 months. Only 17% said they would increase their traditional media spend, but 46% said they are going to reduce their traditional media spend. The big attraction of the Internet? Video.

And the automakers themselves are thinking the same way. GM, the largest of the auto advertisers, reduced its newspaper ad spend by 32% in 2007 to $149.3 million, according to TNS Media Intelligence, which itself is only about 10% of what the auto maker spends on TV. And its TV ad spend went down 11.4% last year to $1.2 billion with the spending on network TV said to have declined some 15%.

Various organizations that measure Internet spend put GM’s 2007 online display ad spend anywhere from $193 million to $208 million, and whichever figure is right one thing is very obvious – GM is already spending more online than it is with newspapers!  And it’s going to spend even more online in 2008.

GM says that its three-year target is to spend fully one-half of its $3 billion annual advertising budget on the Internet. And since there is not going to be additional advertising money then obviously if the Internet spend grows then traditional media spend will suffer.

Automakers take the general view now that TV and print ads give their products branding. But they also recognize that more and more people are going online first to do their research, and sometimes their buying decisions are made entirely from what they see on the Internet. You know it’s getting dangerous for traditional media when the likes of Joel Ewanick, Marketing VP for Hyundai Motor America, says, “Online is getting to the point where it may be more important than the 30-second spot.” He is doubling his online ad spend this year.

Maybe that’s why NBC Universal is taking a “If you can’t beat them, join them” approach. It has announced it’s going to pay $6 million for a 35% stake in DriverTV – the price being paid is roughly three times annual revenue. The web site and video-on-demand channel contains three minute videos that the automakers pay the site to make and the site makes money from the automaker every time someone clicks on the video. The car makers also buy display ads and one revenue growth area, according to DriverTV, is to encourage advertisers related to the auto industry to run display ads, too.

NBC’s involvement will also help with the making of the videos and their distribution further on the web. “There is growing need for the automotive industry to find engaging ways to reach potential buyers with information, and the DriverTV model has been very successful in bringing together car companies and those in the market for new vehicles.,” said George Kliavkov, chief digital officer for NBC Universal. Hmmm, almost sounds like he doesn’t think the 30-second TV commercial does it!

And if such web sites aren’t bad enough for traditional media, the Direct Marketing  Association (DMA)  claims that the $7.3 billion that auto retailers spent on direct marketing campaigns in 2007 drove in $248.1 billion in sales, the return on investment (ROI)  being $33.81 for every such dollar spent. Overall, it said auto manufacturers spent $8 billion on direct marketing bringing in $77.8 billion in sales – a $9.68 ROI.

So obviously the direct marketing folks are telling the auto industry that they had better increase their direct marketing spend because numbers like those don’t grow on trees. “Direct marketing plays a key role in the economic vitality of the automotive industry,” gushed Anne Frankel, DMA senior research manager.

So the auto industry – manufacturers and retailers – and being pulled every which way by everyone stating they have the best means to get cars sold. The one thing the auto industry can agree on is it really needs to get cars sold. It had figured to sell 15.5 million vehicles in the US market this year, but last week JD Powers reduced the estimate to 14.95 million and there many analysts who believe if the credit woes continue and $4 a gallon gas hits then sales could drop to 14.5 million.

Making things even harder for the industry is that those who loan money to those wanting to buy cars have been scared off somewhat by the subprime mortgage disaster. If people are having trouble paying their mortgages, then maybe they’ll have problems paying off the car loans, too, so car loan standards are tightening with increasing numbers of applications being turned down.

And then there are people who like in the mortgage crisis are waiting for home prices to hit rock bottom before putting in a bid except these people are waiting for the automakers to release big incentive programs.

Cutting through it all, what seems to be the trend is for automakers to use print and TV to launch new products to raise awareness, but once that has been achieved then it’s over to the web or direct marketing. That means traditional media still benefits when new product is introduced, but once the word is out sufficiently then the spend goes almost exclusively elsewhere.

Not what the traditional media doctor ordered.