Digital clinches control of local auto ads
In a stunning, technology-driven shift of market power in just half a dozen years, the digital media will claim two-thirds of the $22.7 billion spent on local advertising by auto dealers in 2015, according to Borrell Associates (report here for $995).
As illustrated in the chart below, digital surged from less than 5% of auto dealer spending in 2000 to capture 50% of the local auto market in 2013, according to annual surveys conducted by the National Association of Auto Dealers, a trade group. If Borrell’s projections are correct, the digital media will capture 57% of this major advertising category this year and clinch control in 2015.
Here’s why this is a big deal: At some $33 billion a year in expenditures, autos trail only retailing as the second biggest advertising category in the United States. Two-thirds of the spending is at the local level, under the direction of individual dealerships and regional marketing associations.
Given the changes in consumer behavior discussed below, the legacy media now appear to be all but shut out of a rich revenue stream they owned a few short years ago. Here are the details:
:: Newspapers – When the Internet was coming of age in 2000, newspapers led auto advertising with 52% of the dollars spent by local dealers, according to NADA. By 2013, the market share for publishers fell to 18%. Borrell, an independent consulting company, predicts the newspaper share of the local auto ad market will tumble to 9% in 2015.
:: Radio – Second only to newspapers at the beginning of the millennium, radio sold 18% of the local auto ads in 2000 but shriveled to 3% by 2013, according to NADA. With this once-robust category almost wiped out, Borrell forecasts that the radio industry’s ad share will stay about the same in 2015.
:: Television – Local stations captured 16% of the dealer spend in 2000 and held on to 13% of the market in 2013, according to NADA. But Borrell believes the industry’s share will tumble to 9% in 2015.
To put the magnitude of the decline into dollars and cents, annual automotive classified revenues at newspapers topped $5 billion as recently as 2004 but were barely $1 billion when the Newspaper Association of America stopped reporting on the category in 2012. Industry advertising sales have declined unremittingly since then, so the number today undoubtedly is lower. We just don’t know how low.
Segmented historical data are not available for radio, but it’s safe to assume that the loss of local auto advertising contributed to the decline in the industry’s revenues from some $20 billion in 2004 to approximately $15 billion today. Because TV to date has clung to most of its auto advertising, the revenue loss has not been as significant as it has been for newspapers and radio. If Borrell’s forecast for 2015 is correct, then TV stations may begin feeling some pain in the near future.
The digital takeover of the car advertising market occurred as the auto industry climbed out of the deep sales slump that occurred in the Great Recession. Sliding from 16 million units in 2007, auto sales bottomed out at 10 million units in 2009, according to NADA. This year, Borrell predicts, the industry will return to pre-Recession levels by selling more than 16 million vehicles.
In 2007, the NADA reports, dealers spent 17% of their budgets on digital media, with the lion’s share of media buys still going to newspapers and broadcasters. The big shift to digital advertising came when digital’s share surged abruptly from 25% of the market in 2011 to 43% of the market in the very the next year. Momentum has been building ever since.
The simple reason dealers abandoned their traditional media partners is that they are following their customers, who increasingly are using the web and mobile media to shop for cars. In a recent white paper, NADA reported:
:: J.D. Powers, the market researcher, found that 80% of new vehicle shoppers consulted the web before buying a car.
:: A Polk/AutoTrader survey found that new- and used-car buyers spent respectively 10 hours and 11¾ hours researching vehicles online before contacting a dealer.
Interactive sites give car buyers an advantage they could only dream about in the pre-Internet era. With no salesmen breathing down their necks, shoppers can systematically and objectively research competing brands, selecting their ideal models, colors and trim groups. They then can conveniently search dealer inventories to locate the exact car they want. And, best of all, they can level the playing field in negotiations by learning in advance the prevailing price for the vehicle.
With consumers typically visiting no more than two dealerships before settling on a purchase, dealers know they have to intercept prospects early, often and effectively as they move through the digital buying process.
Because dealers know that free hot dogs and pony rides don’t sell cars like they used to, you can count on them to divert ever more of their advertising dollars to the digital media. At least until something better comes along.