Sunday, May 17, 2009

Car dealer closings will crunch local ad sales

The shutdown by Chrysler and General Motors of roughly 10% of the surviving auto dealers in the United States could cost newspapers and local broadcasters millions in annual revenues they can ill afford to lose.

The forced closing of a combined 1,889 dealerships ordered last week by Chrysler and GM will more than double the estimated number of dealers who went out of business in 2008 when the economy imploded and neither dealers nor their prospective customers could get financing.

An estimated 900 of the nation’s 20,770 dealerships succumbed in 2008, according to the National Association of Automobile Dealers (NADA). Once all the dealers dumped by Chrysler and GM shut their doors, the number of franchises will fall to a modern-day low of 17,981, assuming (optimistically) that no additional dealers succumb to the most toxic economic since the Depression.

Beyond the immediate impact on the affected dealers and their employees, the sharp contraction in the retail side of the car business will carve another hefty hunk out of the already diminished revenues of newspapers, local television stations and radio stations.

Across all ad categories, newspaper revenues fell 16.6% in 2008 to $37.8 billlion, local TV dropped 6.5% to $20.1 billion and radio fell 8.6% to $19.5 billion, according to statistics obtained respectively from the Newspaper Association of America, BIA Advisory Services and the Radio Advertising Bureau.

Among the three industries, auto revenues are broken out only for newspapers. But the trend for publishers was ugly even before Chrysler headed to bankruptcy court, where GM is likely to turn up by the end of the month.

Auto classified advertising in newspapers fell 29% in 2008 to a 25-year low of $2.3 billion, representing less than half of the $5 billion in car ads sold by publishers as recently as 2004.

Based on data from the NADA showing how auto dealers historically have allocated their marketing budgets, it is possible to estimate that the drop in the number of dealers could reduce newspaper revenues by as much as $140 million this year.

This 6% decline would come on top of whatever additional spending cuts are undertaken by the auto dealers who remain in business. The survivors may trim their spending to cut operating expenses, boost profits or because they no longer feel they have to compete with dealers selling the same brand in their markets who have gone out of business.

As of 2007, newspapers garnered 27% of the advertising dollars spent by auto dealers across the country, according to the NADA. This is down by almost half from the 52% of dealer dollars that newspapers controlled in 1997.

The NADA reports that TV and radio broadcasters each sell about 17% of the auto advertising sold in the nation, which made their respective shares of the market worth about $1.5 billion apiece in 2008.

Assuming sales fall 6% for each of the electronic media because of the dealer shutdowns, then each of the broadcast industries could be headed this year for a tumble of approximatley $100 million. As noted above, auto expenditures would even fall further if the surviving dealers rein in their spending.

While newspapers have had a few years to get used to a significant decline in auto advertising, the wounds will be fresher and the blows may fall harder on broadcasters than publishers.

Auto classified advertising in 2008 represented only 6% of the sales for the newspaper industry as a whole. Anecdotally, broadcasters say that auto advertising can represent up to 20% of the revenue for certain metro radio formats and up to 30% of sales for a metro television station.

Six of the top 10 ad spenders at TV stations in the fourth quarter of 2008 were either domestic or foreign brands, according to the Television Bureau of Advertising. But expenditures by five of the six auto groups in the final quarter of 2008 were lower than in the prior year, contributing to a 29.3% plunge in auto ad sales for the final period of 2008.

The full impact of the auto sales collapse was buffered for many broadcasters in 2008 by an enormous leap in political advertising. Political ad purchases on TV rose 675.5% in the last three months of the year, paced by a 2,146.2% surge in purchases by the Obama for President Committee.

This year, broadcasters will not be so lucky.


Anonymous Anonymous said...

A respected broadcaster in the major metro market I teach in said that auto dealers represent 70 percent of the revenue for their news broadcasts. He said staffing levels are now at 1970s numbers in the news department.

8:26 PM  
Anonymous Tom Johnson said...

Has anyone yet found the list of the dealerships and their location?

5:09 PM  
Anonymous Anonymous said...

I'm not so sure these dealerships have been contributing much advertising to begin with. A good test will come after June 1 when Obama announces his "trade a clunker" plan offering huge tax rebates to consumers who trade in their used cars for new ones.

5:36 AM  
Blogger Steve Ross said...

Some of the new-car dealerships will move into used cars, so not all the advertising will be lost, but this is probably a small effect -- and will tend to shift dollars into classified from display.

6:41 AM  
Anonymous jrhmobile said...

Don't bet on dealers who convert to used car lots spending big advertising money, because ultimately the dealer doesn't pay for that advertising. By and large, that's co-op money from the manufacturers. When these dealers lose their manufacturer franchises, their co-op dollars leave too.

10:31 AM  
Anonymous Anonymous said...

I believe auto dealers will spend less money on all types of advertising once the dealers scheduled to close do so. There is no reason for surviving auto dealers to spend much money on newspaper or tv advertising since there won't be much competition in most markets. Media business brokers will have to tell owners of newspapers and tv stations to lower prices if they want to sell their businesses.

12:22 PM  
Anonymous Anonymous said...

Auto dealers have relentlessly pressured newspapers into lowering their auto ad rates as they were squeezed by market forces. Auto dealer ad revenue in competitive markets is much less profitable now than it was 3, 4 or even 10 years ago.

Yes, it will hurt to lose it, but it will have much less impact on newspapers' bottom line than the loss in other categories. I'm betting this is true for broadcasters too.

6:35 PM  
Blogger Jay Awram said...

I still have not seen the rationale for closing the dealerships.
What is the cost to Chrysler/GM to leave them open? They sell the product of the manufacturers. Now there will be less salesmen, less advertising, less opportunities for someone to wander onto a lot. There will be lower sales. How does that help?

8:37 AM  
Anonymous Mike Kelley said...

I wonder if there is truth to reports that the dealer closings are being done according to political affiliation? That would be kind of the Chicago way.

7:13 PM  
Anonymous Bulletproof Jackets said...

What is going to happen to all of the vehicle inventory of the closed dealerships? Will they have to sell at cost to get rid of them or will they try to move them to the open dealerships to sell? I could use a new car and getting one for half price would be wonderful. Anyone know?

11:21 AM  
Blogger Steve Ross said...

What? Your local newspaper hasn't done the story on that? Chrysler isn't buying back the inventory. GM and Chrysler dealerships that survive will be taking over inventory if they can finance it. GM wants to help make that possible without destroying sales of cars off the assembly line. So what will happen depends in part on the local situation.

11:41 AM  
Anonymous Bulletproof Jackets said...

im not that great at reading the local paper. Where i live we only have one GM dealership, one ford, and one chrysler. So there really hasn't been any talk of that here. I was just hoping to get on a cheap car in a neighboring city.

7:53 PM  
Anonymous Anonymous said...

I build newspaper ads in house for a large local auto dealership, we are taking advantage of the lowest rates and the most aggressive offers the paper has ever offered. Can they survive on the limited revenue? How much profit is out there against expenses? Can the Titanic reinvent itself into a Catamaran and turn in to the wind before it's to late?


2:32 PM  
Blogger said...

Good article. So... is the worst yet to come, or is this "Change" going to be more painful than anyone could have imagined?

4:18 PM  
Anonymous Sms Falas said...

O Very good post

4:31 PM  
Anonymous Anonymous said...

Thanks to Terry Norman and Gina Fox I found this.

3:32 PM  

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