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.