Dealers cut, shift their ad spending

Internet grabs bigger share of media budget

TV spots featuring a Barack Obama impersonator helped boost sales at Texas dealer Paul Fotopoulos' three Kia dealerships as much as 15 percent in April and May.
Auto dealerships are slicing their advertising budgets to cope with depressed profits. But because new-vehicle sales have plummeted so abruptly this year, the cost of advertising per new car or truck sold — a standard metric of auto retailing — has increased to a record level.

Some dealers say they need to advertise as much, if not more, in a down market to generate showroom traffic. Others say they are targeting their limited resources by shifting ad dollars from newspapers to the Internet.

In the first four months of 2008, the National Automobile Dealers Association reports, dealership ad spending fell 4.1 percent from the year-ago period, to about $2.35 billion. The spending figures do not include ad subsidies from automakers.

At the same time, NADA chief economist Paul Taylor says, the average dealer spent $626 on advertising for every new vehicle he or she sold from January through April — a 5.5 percent increase from the same period of 2007.

This year, dealerships "are looking to save money any way they can," Taylor told Automotive News. "The risk of not advertising is to be overlooked by the consumer. But given the difficulties to cash flow, it requires a major effort."

Paul Fotopoulos says new-vehicle sales at his two Dallas-area Ford dealerships have dropped from roughly 300 cars and trucks a month to about 230 units in recent months. As a result, he says, he has trimmed the dealerships' monthly ad budgets 30 percent. He declined to provide a dollar figure.

"Our sales did not support the amount of money we were spending in advertising," Fotopoulos says.

Other dealers say they hope robust ad spending will create more business.

"We don't think that spending less in advertising is going to help us," says Scott Wade, general manager of a Ford-Lincoln-Mercury dealership and a Nissan dealership in suburban San Francisco.

The dealerships spend $100,000 to $130,000 a month to advertise, he says.

"We are trying to get better at spending smarter rather than cutting back our budgets," Wade adds.

Flight from print

As dealers seek to focus their ad spending on likely buyers, they continue to move from print to the Web. A decade ago, newspapers captured 52 percent of dealership ad spending, NADA says. Today, it's less than 27 percent.

By contrast, dealerships now spend one of every six ad dollars on the Web, NADA says. In 1997, online ads weren't a separate category.

Dealerships can make their advertising more effective even as they cut spending, says Steve Wilhite, president of Jumpstart Automotive Media, a digital auto marketing firm in San Francisco.

That requires a "rebalancing" of media budgets to reach in-market shoppers on relevant Web sites, says Wilhite, a former top marketing executive with Hyundai, Nissan and Volkswagen.

Paul Broome, a Cadillac dealer in Independence, Mo., says online advertising accounts for one-fourth of his dealership's $25,000 a month in ad spending.

"People are using the Web for information gathering," Broome says. "Our chore is to reach as many of them as we can and get them into the dealership."

By contrast, in the tech-savvy Bay Area, Wade says the two dealerships he manages devote as much as 40 percent of their ad budgets to newspapers and just 10 percent to the Internet.

"I know it goes against the grain," Wade says. "But I found a niche that allows me to be very affordable in the paper."

NADA says dealers typically spend about one-third of their ad budgets on TV and radio. That proportion has not changed greatly over the past decade. But a distinctive TV commercial still can attract plenty of attention.

'Yes, We Can'

This spring, Dallas dealer Fotopoulos hired a Barack Obama look- and sound-alike to appear in spots for his three Kia dealerships. The commercial satirized the Democratic presidential candidate's slogan, "Yes, We Can."

Politically oriented TV shows such as "The Daily Show," "Hardball" and "The O'Reilly Factor" gave the commercial national exposure.

More important, Fotopoulos says, the spot helped boost sales at his Kia dealerships as much as 15 percent in April and May.

Typically, he says, the dealerships sell about 600 new vehicles a month. He says he has not trimmed ad spending at the Kia stores.

Joe Pollaro, owner of the RadioVision ad agency in Denison, Texas, created the commercial. Pollaro, who works with dealerships in Texas, California and Pennsylvania, warns dealers that cutting back on advertising can be a false economy.

"The approach is to capture as much as possible of a smaller market," he says, "and not sit on your hands and wait."

Incentives to spend

Last year, NADA says, franchised dealerships spent $7.86 billion on advertising. The average dealership spent 3.4 percent more to advertise than in 2006. Ad costs represented 1.13 percent of the typical dealership's sales in 2007.

For the rest of this year, NADA's Taylor predicts the decline in dealership ad spending will moderate. For all of 2008, he forecasts that spending will fall about 2 percent from 2007.

Initiatives such as Chrysler LLC's $2.99-a-gallon gasoline promotion and new 0 percent financing on many General Motors models are giving dealers renewed reason to talk to consumers, Taylor says.

"With the return of strong incentives," he says, "we should see additional advertising." c

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