For auto industry, 2009 holds even tighter ad budgets

Experts predict more auto spending will go to online, less to print and TV

DETROIT -- The hangover that walloped the U.S. auto industry in 2008 is still hanging on this New Year, which will be marked by even tighter ad budgets with the biggest expenditures reserved for crucial model launches.

And it's not just General Motors, Chrysler LLC and Ford Motor Co. that will be pinching pennies.

"All manufacturers, foreign and domestic, are announcing production cuts and losses and in this kind of environment all the manufacturers are cutting costs," Mark LaNeve, vice president of vehicle sales, service and marketing at GM North America, told Advertising Age, an affiliate of Automotive News.

To ride out a year where auto sales are expected to dip below 12 million units in 2009 and normally deep-pocketed dealers are struggling, experts predict that more spending will go toward online marketing that reaches consumers when they are ready to buy and researching their purchase. Fewer automaker dollars are predicted to go to magazines and newspapers, while TV will be used less often and with an eye toward greater targeting.

Promising better return on investment, GM will slash $600 million from U.S. advertising and promotions in the next four years to just $2.6 billion from $3.2 billion in 2008. It has not publicized its plans to accomplish this, though the automaker has cut a number of high-profile events such as the Super Bowl.

Toyota to make similar moves

A similar approach is expected to be taken by Toyota Motor Sales USA. In recent years it has significantly dialed up the number of consumer events for its Toyota, Scion and Lexus brands, but it is now trying to pull back from a lot of those alliances, especially inside sports arenas, an executive at a competitor said. "You're going to see a lot more of that [cutting back]."

Toyota, whose Japanese parent is poised to post the first global-operating loss in the company's history, did not return calls for comment by press time.

Kia Motors America "is constantly evolving" its ad plans because of the market uncertainty, Michael Sprague, vice president of marketing, told Advertising Age. "Everyone is in the same boat," he said. Still, he said Kia expects to spend about the same in 2009 as it did last year because it has several major launches. Independent David and Goliath, Los Angeles, handles the carmaker's account.

Tim Ellis, vice president of marketing at Volkswagen of America's VW brand, believes all automakers have done "a very sober analysis about 2009" and have already wrapped up their ad plans. He predicted the car companies will cancel a lot of "conventional auto promotions."

Carmakers "are trimming the fat wherever they can while trying to retain core media properties and launch budgets," he said. The VW brand's ad and media plans for the first half are finalized and Ellis said he doesn't expect any pullbacks.

Back to reality

The industry over-invested in TV last year, especially for seasonal sales events, but the economic turmoil is bringing the industry back to reality with more focus on strategic marketing and media planning to improve targeting, Ellis said. The VW brand "will use TV more sparingly" in 2009, including for the launch of the Passat CC in mid-January, though he declined to give specifics about the TV cuts.

VW will dramatically beef up online efforts this year with ads, videos and content, as well as efforts on social-networking sites, to reach in-market shoppers and those considering a purchase in the next six to nine months. The marketer plans to do more brand-building online because "that's where all the conversations are," said Ellis. He said most of VW's competitors also appear to be moving online more to reach in-market shoppers. Crispin, Porter & Bogusky, Miami, is VW brand's agency of record and also handles digital.

GM predicts that in 2009 the auto industry will sell 11.7 million new vehicles in the U.S. Auto information Web site Edmunds.com projects that the industry will tally some 13.1 million new vehicles in the U.S. for calendar 2008 (compared to almost 16.2 million in '07), and expects unit sales to drop almost 5 percent in 2009.

How long it will last

How long will it go on? Todd Turner, president of consultant CarConcepts, doesn't believe the industry will see much improvement in sales until November 2009 -- a more pessimistic outlook than experts who project a rebound to start this summer.

"The fundamentals are shot," he said, due to low consumer confidence and tight lending. "It's fear -- people are afraid of not having a job."

Carmakers aren't the only ones trimming ad spending. Their regional-dealer ad groups, which generate a chunk of their budgets from every new-vehicle sale, are also cutting back due in part to smaller volumes, noted veteran auto marketer and agency exec Ian Beavis, now executive vice president and executive client director of Aegis Group's Carat. Beavis said the biggest drop in industry ad spending will be from individual auto dealers because "their margins are getting squeezed" and they are cutting expenses any way they can just to survive.

In 2007, new-car dealers spent more than $7.8 billion in U.S. advertising, according to trade group National Automobile Dealers Association. Regional-dealer ad groups spent $2.5 billion in U.S. measured media in the first quarter of 2008, more than the $1.98 billion spent by the automakers in measured media during the period, according to TNS Media Intelligence.

Beavis expects automakers to limit their magazine ads to key model launches, with newspapers continued to get battered by the industry's spending pullback and digital getting more dollars. This year "will be a real challenge for media," said Bob Cosmai, an auto consultant and former CEO of Hyundai Motor America.

'The C word'

Charlie Hughes, president of consultant BrandRules, said "the No. 1 marketing problem" for automakers today will be generating confidence, or what he calls "the C word."

He recalled a national newspaper ad he approved while chief of Land Rover North America during the 1991 recession. Using the slow economy as a pitch, the headline screamed "Buy something," whether it was a Range Rover, a microwave or theater tickets.

Hughes described the ROI on the ad from independent Grace & Rothschild, New York, as "infinite" because it showed the automaker had confidence and "showed we were leaders." The ad was picked up by Land Rover in 30 other markets and generated a ton of media coverage -- but only a mild uptick in Land Rover sales, he said, noting: "Some things you can't measure just on sales."