Factories, dealers battle over ad spending, content
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The first punch - Tier 1 advertising, in industry parlance - comes from the automaker in the form of national advertising. That's reinforced by Tier 2 advertising by regional dealer advertising associations. Finally, there is Tier 3 local advertising by individual dealers.
While dealers and automakers cooperate on advertising strategies, car companies generally want ads that emphasize brand and corporate images and product attributes. Dealers want to address local market conditions and to sell the deal.
"The system works fine," says George Murphy, the Chrysler group's senior vice president of global brand marketing. "It is when one side takes a hard line, or the other does, that you have friction.
"The dealers and the DAAs are focused on selling vehicles every day. We recognize that. But we like to build brands and do more from an emotional point of view. There can be conflict over spending."
Not surprisingly, automakers prefer harmony. They seek a single ad message across all three tiers. Murphy warns against confusing the consumer with three different messages.
Adds Marty Collins, executive director of Ford, Lincoln and Mercury marketing: "Having consistency across Tier 1, Tier 2 and Tier 3 is incredibly important."
A "unified voice" is especially important in a competitive market bombarded by lots of ad messages, Collins says.
Dealer voice
But some retailers and ad agency executives say dealers need a stronger say about Tier 2 advertising. Automakers and dealers jointly pay for that level of advertising. Funding formulas vary by brand and region.
"The biggest downfall today in the system, the one thing that isn't working, is the relationship between national and regional" advertising, says Duncan Scarry, president of Moore and Scarry, an automotive ad agency in Fort Myers, Fla.
"The auto manufacturers need to let the dealers have more input and more control of the Tier 2 advertising. That would produce the biggest impact in retail sales."
Dealers understand local market conditions and media better than car companies do, Scarry argues.
Former dealer Lee Galles has written 12 books on auto marketing. He started the Competitive Edge ad agency in 1973 in Albuquerque, N.M. In 1980, Galles says, he started working to localize the use of factory advertising money.
"We are not a homogenous nation," Galles says. "Portland, Maine, is different than Dallas, Texas. The ideal is when the factory will take their funds and let the dealers run their own advertising to sell cars. If they would give the money to the dealer, he knows how to run his business."
2004: $10.83 billion
2005: $10.60 billion
% change: -2.2
And so did ad spending by the average U.S. new-vehicle dealership.
2004: $383,876
2005: $360,225
% change: -6.0
Source: TNS Media Intelligence, National Automobile Dealers Association
Dealers can respond more quickly and effectively than automakers to competition and changes in local markets, says Bill Jacobs, president of the Chevrolet Chicagoland Local Marketing Group. Jacobs has served on dealer advertising boards for BMW and Land Rover.
Car companies and dealers "are not getting 100 percent value of the money we spend" on Tier 2 advertising, says Jacobs, whose dealership group operates eight stores and 10 franchises in the Chicago area. "It is arguably 50 to 60 percent. If (dealers) did it ourselves, maybe it would be 80 or 90 percent.
"We probably can get better deals and placement locally than" media buyers for automakers, he says. "And if an incentive is announced, we could have it on the air the next day," he says. "Now it is two to three days later."
Jim Mudd Sr., founder of The Mudd Group ad agency in Cedar Falls, Iowa, says regional and local advertising "helps the dealer communicate with his constituency."
"And the better the relationship between the dealer and the buyer," Mudd says, "the better off the manufacturer will be."
Follow the money
Typically, domestic and import-brand dealerships earmark 1 to 2 percent of each vehicle invoice price for dealer association advertising, Jacobs says.
Domestic automakers similarly kick in a percentage of the invoice price for regional advertising. Import manufacturers pay an advertising fee that generally ranges from $200 to $300 per vehicle, Jacobs says.
In Chicago, General Motors dealers pay 1 percent of invoice, and GM matches that amount, he says.
John Schenden, who owns Pro Chrysler-Jeep in Denver, says he contributes 2 percent of the invoice price for advertising. The Chrysler group contributes 45 percent of regional media buying costs, he says.
"We control the money," Schenden says. "Chrysler recommends things, and generally we mutually agree."
The Chrysler group has eight regional business centers that work with dealer ad associations, says marketing executive Murphy.
"I don't want to muck around with that," he says. "National mandates to Tier 2 don't make sense. We put the authority and accountability into the field."
Watch what you say
Factory oversight of retail advertising is increasing, dealers and ad agency executives say. Import automakers such as Toyota and Honda use advertising covenants to spell out what their dealers can say in ads. Violators face penalties, including the loss of per-vehicle factory allowances.
Many automaker rules simply mirror state and federal laws on deceptive advertising. Other company guidelines detail permissible and objectionable ad content.
Toyota dealers cannot guarantee the "lowest" price in town. Nissan dealers cannot promote a vehicle when only one unit is in inventory. Honda dealers cannot use the word "clearance" in January, ad man Scarry says.
Honda gives violators of its ad covenant two warnings. After that, Scarry says, an infraction can lead to the loss of as much as $150 per vehicle in factory allowances.
More automakers are enacting restrictions and checking the content of dealer ads, Scarry says.
"They do help the overall image of the brand, by preventing dealers from getting out of line and making claims that are unsubstantiated," he says.
Dealer Schenden says the Chrysler group employs a monitoring agency to review ads in major markets.
"They send you a copy of your ad with suggestions," Schenden says. "Most of it has to do with layout and use of the logo. Chrysler is protecting their brand logos, which they have every right to do."
Thomas Hensey, president of Rhino Marketing in Houston, says that in the past year several automakers have required dealers and ad agencies to submit ad scripts for approval.
"Not every manufacturer requires that," Hensey says. "But Toyota, Nissan and Infiniti do. Lexus does not, but we do it. Toyota was the first on the block. They said, 'Here are sample scripts and best-practice guidelines.' "
Uniform ad guidelines protect brand values and level the playing field, Hensey argues.
"I don't have to worry about opening up the paper and seeing a dealer with an outrageous ad," he says. "The manufacturer is saying there are some dealers out there who could be hurting our industry with distress sales and fire sales. There are standards we want them to adhere to."
Ford's Collins concedes that his company's dealership ad standards are very controversial.
"Some dealers are for them, and some dealers are against them," said Collins says. "But every dealer would agree that adherence to some guidelines is important. It is a very few dealers who disrupt the market in a way that sometimes causes one dealer to ask the manufacturer to step in and implement advertising standards."
Imports tougher
Import-brand automakers typically impose more stringent ad guidelines than domestic companies, says dealer Ron Tonkin. His Portland, Ore., dealership group operates 18 domestic and import franchises in 16 stores.
"With success comes more strict rulings from the automakers," Tonkin says.
"They don't need to force everything down the dealers' throats and can accomplish their objectives with a more accommodating style. They could accomplish and maybe even exceed their objectives by being less dictatorial and more willing to work things out together with their dealer body."
When he was president of the National Automobile Dealers Association in 1989, Tonkin called for the elimination of mandatory dealer participation in advertising associations.
The practice, he said, worked against dealers who wanted to advertise their own stores, and it drove up local ad rates.
In a letter endorsed by NADA's board of directors, Tonkin said at that time, "We throw millions of dollars into this vast abyss for a 'share of voice' that no one is listening to or cares about."
Today, Tonkin calls for more factory dealer cooperation. Domestic automakers are not as demanding as importers because "they realize dealers are having as difficult a time as they are," he says.
"We can work more effectively in a nonthreatening atmosphere," Tonkin says.
Rocks, trees and Celine
At times, dealers have exerted influence on automakers' national advertising.
Nissan launched its luxury Infiniti brand in the United States in 1989 with an ad campaign that critics derisively called "rocks and trees." A series of TV commercials portrayed natural scenes, such as leaves floating on a pond.
But the ads failed to showcase an Infiniti vehicle or discuss product features. Dealers successfully petitioned Nissan to redo the ads to promote the Q45 sedan.
More recently, dealer objections caused the Chrysler group to retreat from a $14 million ad campaign featuring singer Celine Dion that launched in 2003. The brand reverted to touting product features in its ads.
Despite periodic friction and tension between factories and dealers, the three-punch advertising combination remains the industry standard.
"The three-tier system is still effective," says dealer Schenden. "If it wasn't a good system, you wouldn't have all the manufacturers and dealers and associations following the same format. No one has found a better mousetrap yet."
You may e-mail Mary Connelly at mconnelly@crain.com
