Honda turns on ad cash for dealers

Honda Division is reinvigorating its dealer advertising in major metropolitan markets with lavish new funding from the factory.

In the Cleveland area, for instance, Honda dealers are planning to spend $5 million annually on regional, or Tier 2, advertising, up from $600,000 now.

In the New York area, Honda dealers say they expect to receive up to $50 million in the next 12 months from Honda for the advertising. The dealers just formed a regional group to spend the money, so they were spending nothing on Tier 2 advertising.

Honda dealers say they have trailed competitors for years in regional advertising, in which dealerships buy commercials collectively in major markets. Hyundai and Kia have been particularly good at filling the vacuum, one dealer said.

The new program will boost ad spending just as the redesigned Honda Accord mid-sized sedan and other refreshed vehicles are coming to market, said Rob Sabbagh, vice president of Bay Ridge Honda in New York and president of the newly formed Tri Honda ad group.

"It's really a big step for Honda," Sabbagh said.

Honda spokesman Chris Martin said the Tier 2 money amounts to 1 percent of the invoice price of each car sold at wholesale to participating dealers. Honda did not have a funding mechanism, as many automakers do, to channel money to regional dealer associations. Honda dealers have been voluntarily chipping in money to Tier 2 advertising efforts.

"This is extra funding to allow dealers to really do it right," Martin said. He declined to say how much the program will channel to Honda dealer associations nationally.

To participate, Honda's nearly 1,100 dealerships must join a regional advertising association, Martin said. Honda's contribution per vehicle sold will go directly to each association, he said.

Participation in the dealer associations is free, but dealerships must adhere to a handful of Honda advertising requirements -- among them that they not advertise any prices below MSRP.

The new Honda program is prompting major association organizing drives in several urban markets, dealers said.

In the Cleveland area, for example, Jay Honda General Manager Mark Lyon has struggled for years to keep alive the Northern Ohio Honda Dealers.

The group had just six dealerships, buying about $600,000 annually in cable TV advertising, Lyon said.

But the new Honda program has caused 14 other dealerships to join, Lyon said. Next year's budget, which will likely include TV, radio and digital advertising, is pegged at about $5 million, he said.

Lyon said 1 percent of invoice on Honda vehicles in the Cleveland area averages about $246. Honda Division should easily sell more than 1 million vehicles in the United States next year given that it sold 950,685 vehicles through September.

Thus Honda stands to spend in the neighborhood of $250 million a year on Tier 2 advertising if the Cleveland figures reflect the national picture. Not all dealerships are participating, which will reduce total potential spending.

The 60 Honda dealers in the New York area who came together recently to create the Tri Honda ad group expect that their group will receive $40 million to $50 million from the program over the next 12 months, Sabbagh said.

Before Honda pledged the support, the Honda dealers in the tri-state area that includes metropolitan New York City and parts of New Jersey and Connecticut had allowed their ad association to disappear, he said.

"That $40 to $50 million gives us a major voice," Sabbagh said.

The new Tier 2 money will complement the major ad spending that Honda does in metropolitan New York, especially around seasonal events such as "Happy Honda Days" at Christmastime, he said.

Mark Lyon, general manager at Jay Honda in the Cleveland area, said the ad money is revitalizing his local advertising group.

Choosing agencies

One of the attractions of the new money, in addition to the amount, is that the dealers can pick their own agencies to create ads and decide the mix of where the money is placed between traditional and digital media, Sabbagh said.

Traditional media are TV, print and radio, while digital forums include such things as online shopping Web sites such as autotrader.com and shopautoweek.com and search engines such as Google and Yahoo.

Dealers say the new Honda program is a way for Honda to return to dealers the 1 percent price increase on invoice instituted earlier this year. But Honda's Martin said the invoice price increase and new Tier 2 funding are not linked. He declined to confirm that invoice price rose 1 percent.

Lyon said Cleveland Honda dealers will now have the advertising muscle to match stronger competing dealer associations in their market, particularly Hyundai and Kia, which have advertised heavily in Cleveland and grabbed share with new products.

With just six Honda dealers previously contributing about $75 per vehicle, the Northern Ohio Honda Dealers bought exclusively cable TV commercials that targeted the communities where the participating dealers were strong, Lyon said.

"We've struggled with participation in our ad groups for years," he said.

Lyon said the first check from Honda for $150,000 is expected to arrive Oct. 12.

Hyundai: Nimble competitor

Hyundai Motor America has 80 dealer associations across the country that advise the factory on national ad campaigns and are free to pick their own creative agencies to handle campaigns in their local markets for most of the year, said Steve Shannon, Hyundai vice president of marketing.

Only during major campaigns in the spring and summer and during the Christmas holidays do the local dealer ad groups use factory creative exclusively, he said. Hyundai deems that autonomy and flexibility keys to the effectiveness of its dealers' Tier 2 advertising, Shannon said.

Cleveland's Honda dealers have selected Tier10marketing.com of Key Biscayne, Fla., as their creative agency, dealer Lyon said.

Tier10marketing.com President Sean Wolfington said the agency plans to build a Web site for the association, make videos of the new Accord beyond those of the factory and prospect heavily through Google and Facebook.

Lyon said: "We'll be competing with other manufacturers now instead of fighting each other."