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.