The $330 billion North American automotive supplier industry has awakened to smell the coffee. Spurred by industry consolidations, mergers and acquisitions, suppliers are increasingly recognizing a need to boost their ad budgets and get their names in front of the public.
Most Tier 1 auto suppliers confirm that they generally dedicate less than 1 percent of their annual revenues to advertising. GM, by comparison, devoted nearly 3 percent of its $143 billion vehicle sale revenues to advertising in 1998, the last year for which comprehensive totals are available.
But supplier consolidations and mergers nearly doubled from 1997 to 1998, according to a recent survey by PriceWaterhouseCoopers. Add to that the increased design and component building responsibility for suppliers and fierce global competition to differentiate products, and you have a recipe rife for marketing.
A case in point is TI Group Automotive Systems Corp. of Auburn Hills, Mich., a global supplier of brake, fuel and powertrain systems. The $2.2 billion company was formed in July when London-based TI Group acquired Walbro Corp. and combined it with TI's Bundy Corp., both in the Detroit area.
Now TI wants to build its image as a major player in the auto industry. 'We want to become more of an American company, not just a British company,' says Jim Davis, who was named president of the automotive unit in July.
Like most other supplier companies, TI was sitting on a sparse marketing budget, representing less than 1 percent of total revenues. But in early December, the new company received blessing from the United Kingdom for its 2000 marketing plan, which represents an increase of about 50 percent over last year. With the additional money, the automotive group is moving aggressively on a plan that includes increased advertising in the trade press, new radio spots and a doubling of its exhibit space at the Society of Automotive Engineers show in Detroit in March.
'Things like this were almost unheard of a year ago at TI,' says Chris Conciatu, TI Group's marketing manager.
Supplier marketing began picking up steam in the early 1990s as automakers pushed down more complete component design to suppliers. Since then, most of the marketing has been directed at automotive manufacturers.
Creating a brand image consumers know and love, the way suppliers of tires and stereos have done, is a tougher nut to crack, even for Tier 1 suppliers with deep pockets. That's because the 1 percent figure hardly allows suppliers to pursue a consumer-branding campaign.
'For a Tier 1 supplier to launch a product into a national brand campaign and create demand ... costs $20 million to $30 million a year,' says Bill Dawson, director of communications for Johnson Controls Automotive Group in Plymouth, Mich., a leading global supplier of interior seating and safety items. It expects global revenues of about $9.3 billion for 1999.
'The economics of promotion dollars are tough,' Dawson says. 'It's very costly to go to consumer branding.'
Budd Co. of Troy, Mich., can barely make ends meet in the marketing and advertising department. The manufacturer of chassis, sheet metal, suspension systems, frames and stampings also spends less than 1 percent of its $2 billion annual revenues to achieve its ambitious marketing goals. 'We do business-to-business communications and ads to reach decision-makers at the OEMs, so our market is very targeted,' says Thomas McDonald, Budd's vice president of public affairs. But McDonald says his lean marketing budget often forces him to create prototype advertising that can switch between customer products. For example, 'Frame by Budd' or 'Stampings by Budd' must work, whether it's placed next to a Ford, Toyota, Mercedes or Chevy product. Most of Budd's ads appear in major trade publications.
Talking to the consumer
Few suppliers have delved into the field of brand marketing, but the concept is expected to take off in the new millennium.
It has worked well with components such as speakers, stereos and tires. Now Johnson Controls Automotive Group is getting into the act with HomeLink, a device that can be programmed to turn on lights and open garage doors. HomeLink initially was installed only in Mitsubishi vehicles, but this year it will be available on more than 100 car and truck models. It also is sold at retailers such as Sears, Roebuck and Co. and Radio Shack.
Dawson says the device has received marketing boosts through consumer materials distributed by original-equipment customers and retailers.
'We get e-mails from consumers saying, `We understand (HomeLink is) a JCI product; send us a list of cars that have HomeLink,' he says. JCI also linked with the Chevrolet Venture brand team and Lego to introduce the Lego Playseat, which will be in about 40,000 Ventures this spring. The supplier also is considering brand promotions for its integrated in-vehicle memo recorder and a device to monitor run-flat tires.
Hiro Mori, project manager with the Automotive Consulting Group in Ann Arbor, Mich., believes supplier marketing will become even more pronounced and consumer-oriented as suppliers assume more responsibility for designing and building components. He compares automotive suppliers with computer branding a few years ago.
'Today you see `Intel Inside,' ' Mori says. 'The day is coming when suppliers will see something like `Lear Inside.' '