Automotive Advertising Is Slowing Down
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Automotive Advertising Is Slowing Down
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Automotive advertising, which has been at the forefront of the recovery in ad spending, has slowed sharply during the second quarter. After a 20 percent jump in category spending for 2010 and a 23 percent increase during Q1 2011, growth rates are now pacing at one-fourth to one-half these prior levels according to preliminary data from April-May.
While that is still strong performance, auto’s importance to the media advertising economy – the category accounted for more than 11 percent of all measured ad spending in Q1 – means that any significant change in rate of spending has far reaching impact on media sellers.
TV typically accounts for 50-60% of auto category spending. Although TV expenditure information is not yet available for May, we do have full data on the volume of ad time aired by auto marketers. This metric also points to a slowing pace:
This advertising slowdown is partially explained by the March earthquake and tsunami that struck Japan. It led to U.S. inventory shortages for major Japanese automakers – most notably Toyota – because of reduced manufacturing capacity at damaged plants and disrupted supply chains. With a dwindling number of vehicles on dealer’s lots, April media spending for Toyota was cut across all tiers – factory, dealer associations and local dealerships:
TV marketing support for Toyota began to recover in May. The volume of Spot TV commercial time across all divisions and tiers was up 2.4 percent from a year ago. Air time on national TV outlets was off 1.8 percent. These growth rates lagged behind main competitors.
Compared to the Toyota parent company, ad campaigns for other Japanese auto bands suffered less disruption and have not disproportionately contributed to the overall Q2 slowdown.
In the immediate aftermath of the Japanese earthquake, non-Asian automakers with significant exposure to Japanese parts suppliers also had to assess the impact on their own vehicle production. It seems probable that these manufacturers scaled back advertising budgets until they had a handle on production capacity and maintaining deliveries to their dealers. The ad expenditures stats for April give credence to this hypothesis. Tier 1 (factory) industry spending was up just 0.9 percent versus last year as compared to 24.2 percent growth in Q1. By contrast, Tier 3 spending from local dealers – who are focused on building customer store traffic - surged 25.9 percent in April, a pace similar to Q1.
It is also possible that the reduced advertising presence of Toyota post-earthquake has allowed competitors to spend at a lower rate while still meeting share of voice goals.
While the Japanese earthquake provides plausible explanations for the Q2 pullback in auto ad budgets, the recency factor makes it a more compelling argument for what happened in April as opposed to May when the disaster was further in the past. The available data from May shows auto advertising tracking closer to the relaxed pace of April rather than returning to the vigorous levels of Q1.
Advertising aside, May was also notable for a sudden drop in the rate of new vehicle sales:
The sales decline is consistent with:
- Fragile consumer confidence in the face of continued economic uncertainty
- Less generous incentive programs at odds with consumer expectations for a good deal
- Fewer customers in the market after previous incentive programs pulled sales forward into Q1
As much as anything else, the current pace of auto advertising may be a reflection that the sales climate is a bit cooler right now and ad budgets are being scaled back to reflect near-term sales potential.
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