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By Richard Greene, NewsMagazine Editor August 22, 2006 WESTLAKE VILLAGE, Calif. -- Whether one reads market surveys or listens to industry watchers or talks with dealers, one trend is clear: As the popularity of the Internet as a tool to research, buy and sell vehicles continues to soar, more and more dealerships are shifting limited advertising dollars away from traditional print and increasingly investing in online marketing through their own Web sites and third-party services. And this development will only continue in the foreseeable future, experts report. The Big Picture Without question, consumers in increasing numbers have been turning to the Internet to research and select a new or used vehicle. The J.D. Power and Associates 2006 Used Autoshopper.com Study recently revealed that more than twice as many vehicle buyers are sourcing online classified versus newspaper and magazine classifieds as the place where they found their next purchase. According to the study, over the past five years, the percentage of buyers who discovered their used vehicle through a traditional newspaper or magazine classified ad dropped from 15 percent in 2002 to 7 percent in 2006. Executives noted that over the same time frame, buyers who said they found their next vehicle through an online classified doubled -- from 8 percent in 2002 to 16 percent in 2006. When the study was released, Min Cho, senior analyst at J.D. Power, noted, "Print continues to serve an important purpose in marketing, but its role in the area of classified listings is diminishing quickly. The domination of the Internet over print in the used-vehicle market will only increase as today's younger buyers become a larger buying force in the market." In his yearly NADA Data report, Paul Taylor, chief economist with the National Automobile Dealers Association, said that franchised dealers spent $7.75 billion on advertising in 2005. Ad expense, as a percentage of new-vehicle sales, was down 7 percent from 2004, Taylor noted. In the last decade, the average dealership's ad expense allocation for TV rose by 22 percent and direct-mail allocation jumped 31 percent, the report said. While these two venues climbed in the amount of ad dollars dealers spent, Taylor said newspaper ad spending plummeted 39 percent over the last 10 years. Taylor explained that many newspapers provide Internet used-car advertising opportunities for dealers. And in 2005, an average franchised dealership spent 9.9 percent of its ad dollars on the Internet, up from 6.7 percent in 2004, NADA Data said. Media Analysts Take a Hard Look Newspapers are taking the biggest hit, especially local auto classifieds. According to Jennifer Saba, who covers the business side of newspapers as associate editor for Editor & Publisher, auto advertising falls under two categories for newspapers -- national advertising, which typically involves the OEMs, and classified advertising, which usually includes dealers and dealer associations. The latter is feeling the advertising drop-off the most, Saba said. "Classified revenue makes up about 40 to 45 percent of total revenue for the newspaper," Saba explained. "Within that category, there are three subcategories -- real estate, help wanted and auto. Each probably contributes equally to classified advertising." While real estate and help wanted are relatively holding their own, Saba said, auto advertising has been declining at alarming rates over the past two years. "In 2004, automotive classified advertising fell somewhere between 3 and 5 percent. Then we saw a decline of 16 percent in 2005, and the decline rate was 14 percent in the first quarter of this year," she explained. "My guess is that dealers have been going to the Internet and online sources that are a little more robust in terms of attracting customers looking for a car." Recent advertising estimates released this summer by the Newspaper Association of America validated Saba's assertion. Within the print classified category, NAA findings revealed that auto advertising was down 14.5 percent to $940 million in the first quarter of 2006 versus the same period a year ago, while real estate advertising climbed 26.2 percent to $1.1 billion and recruitment advertising increased 2.4 percent to $1.1 billion. National auto advertising for newspapers has been faring a little better, Saba added. "It's up, but it represents only a small piece, about 6 percent of national advertising as a whole, which as a category represents 10 to 15 percent of overall advertising revenue," she said. "When the factories want to make a major push, especially to promote discounts or other incentives, they tend to go to newspapers. "So, this advertising is holding steady, but I don't know how much longer that's going to last, since several of the OEMs are running into so much trouble," Saba continued. "And usually the first thing they do is cut their advertising budget as pressures mount to increase return on investment. The Web is a much better place to measure ROI, whereas you can't measure that effectively in print." Saba said she recently sat in on a conference call with an auto media company and heard how dealers were advertising more online because they were looking for tangible ways to follow and document what customers were doing as a result of seeing their advertising. "Again, it's a matter of ROI and dealers can see that much better on the Web than they can with the print product," she noted. Regarding advertising expenditures for newspaper Web sites, the NAA report in June revealed these figures surged nearly 35 percent to $613 million in the first quarter of 2006 compared to the corresponding period last year. That's contrasted with an increase of only 0.3 percent to $10.5 billion in overall newspaper print ad spending in the first three months of this year, NAA officials said. The long-term prognosis for reversing the trend from traditional print to online sources, from Saba's perspective, does not appear very rosy. "From what I've been hearing, I think newspaper industry leaders are trying to get their arms around this, but I don't think they know exactly how to solve it," she said. "It looks like it's going to continue to be volatile for at least the next couple of quarters, but I don't think there's a sense yet as to whether this is going to snap back or be more of a long-term decline." Jean Halliday, Detroit bureau chief for Advertising Age, readily agreed. "As more and more people get acclimated to the Web and go online and increasingly use the Internet in their shopping process, the OEMs are wanting to be there," Halliday said. "As a result, we've noticed that factory spending online has noticeably been growing a lot, especially since the latter part of 2004." But Halliday said it's not just smaller local papers that are feeling the heat of the Internet. Larger newspapers are scrambling to devise a strategy to increase their ad revenues, she said. A recent announcement by the Wall Street Journal that it was going to open its front page to advertisers created quite a media uproar, Halliday said, because the Journal's front page, known within the industry as "the jewel box," was once considered by many to be off limits to advertising. In addition to newspapers, Halliday said that magazines in this time of overall ad softness have taken it on the chin of late from the factories. "Their advertising budgets are not growing, and this is a very, very tough time for the industry," she explained. "As a result, OEMs are taking that money out of the print bucket and in a lot of instances are putting it into Internet advertising." On the dealer side, Halliday said their shift in advertising dollars has been much more of a newer phenomenon, surfacing over the past one-and-a-half to two years. "Online advertising has definitely taken a bite out of newspapers from the dealers," she said. "A lot more dealers have gotten smarter in terms of fishing where the fish are because more and more people are going online to do their homework and to shop. They're moving their advertising budget to their own sites and to third-party sites because that's where the people are shopping." What's the future look like to Halliday? "Newspapers are clearly worried, especially regarding how to attract younger readers, those in their teens and 20s, who tend not to read the paper," she said. "So, overall, with at least 70 percent of new and used car buyers using the Internet at some point in their shopping process, dealers know they've got to be there, so they will continue to shift advertising money in that direction." To back up her point, Halliday referred to a recent report by eMarketer.com that concluded that "automotive advertisers are gearing up for an online advertising surge, and the increased online spending will come at the expense of other media." According to its Web site, eMarketer.com pointed out that automotive online ad spending in the U.S. has risen from $893 million in 2004 to $1.9 billion in 2006 and should skyrocket to $2.7 billion next year. The Dealers' Perspective So, what are dealers doing? A sampling of franchised and independent dealers confirmed that for the most part they indeed are spending less ad dollars with traditional print advertising and investing more in online marketing, especially in boosting their own Web presence. Here's what dealers, managers and sales associates told Auto Remarketing NewsMagazine when contacted about how they handle their media mix: -- Wade Walker, of Montpelier, Vt.: "We probably spend 20 percent on newspapers, 50 percent on radio, 10 percent on direct marketing and 20 percent on the Internet. We've definitely shifted money away from traditional print media over to the Internet because that's where our customers are going. We use a few third-party services but mainly we've invested more money into developing our own site because that's where most of our traffic and leads come from." -- W. Carroll Smith, of Pasadena, Texas: "No two months look alike. In our stores, we don't use a particular gold standard of how much is going to be what and where. We try to continue to move things around and measure what's getting results. But in general, for advertising new, I've got some billboards, signs, airplane banners, direct mail and more generic stuff like that. For used, I do little print and am heavier on TV and direct mail. Absolutely, we've moved more ad revenue to the Internet. Conventional newspapers don't get near the reception any more. We do use AutoTrader.com, but we concentrate more on the enhancement of our own site because we get more leads there." -- Evan Kuperman, of Blauvelt, N.Y.: "Our dealerships advertise through TV, newspapers and Internet. Yes, we have shifted. The Internet is more predominant, and most of our customers are going to the Internet to research their vehicle purchases." -- Annette Sykora, of Slaton, Texas: "We do a combination of things. On the new side, we do some TV that's affordable in our market as well as radio, newspapers, Yellow Pages and digital, meaning Ford Direct and AutoTrader.com. For used, primarily digital, but secondarily, weekly Trader papers and very occasionally, traditional newspapers. We also advertise our certified cars on the radio. Yes, we have shifted some of our advertising dollars from print to online because we get trackable results. We ran a study with our local newspaper on our used vehicles that had a specific phone line, and those ads didn't generate phone calls, but we do generate more online traffic." -- Mike Upton, of Cambridge, Ohio: "We do newspapers, radio and Internet. We utilize AutoTrader.com and Cars.com, and I've built our site. Why have we shifted a little bit of our newspaper ads? Well, it's a budgeting issue. We can only spend so much, so it's got to come from somewhere. Our site gets us more coverage and more positive results. We're about two hours south of Cleveland, but through our Web site, we're selling cars to people in Cleveland, Canton, Akron and Columbus. We're not able to do that going with the local paper." -- Keith Hagler, of Taylor, Texas: "We do some print, a little radio, we pay for referrals which have always been a big advertising pool, but our main thing is our Web site. We also use a local guy with CentralTexasAutos.com, which people can go to and then it feeds into ours, so it's more of a local deal. We've got away from newspaper print ads because we get lost in the mix. They've gotten so expensive, but the Internet gets more exposure." -- Karen Barbee, of Concord, N.C.: "We do 35 percent radio, 15 percent TV, 20 percent newspapers, 5 percent direct mail and 25 percent Internet. Yes, we've shifted some of our ad dollars usually spent on newspapers over to the Internet because we are finding that our average customer is searching the Internet more than the local newspaper. Our average customer does not even subscribe to the newspaper. A cost is involved in subscribing to the newspaper, whereas the Internet is a 'free' search, provided that you have Internet available to you. "We are continually upgrading our Web site to make it more attractive to the consumer. And we are also putting advertising dollars into Cars.com and AutoTrader.com, and we're currently weighing the advantages of even more advertising dollars in both of them." Not all dealers are following the pattern of reducing newspaper advertising and augmenting their Internet marketing. Some said their advertising buys are tailored to their specific market and reflect a different media mix. Randle Smith, of Dalton, Ga., said he puts 50 percent of his ad revenue into local TV and the other 50 percent in local radio. He said he doesn't spend anything on the Internet. Why? Rather simple, really, Smith noted. "We deal with credit-challenged customers," he said. "Our survey said most don't have computers and of those who do, only 1 percent has e-mail." But Smith was quick to say that he's monitoring this development with each customer who visits his dealership. "If they start swinging over to the Internet and move in that direction, we'll change," he said. Also using a more non-traditional tactic is Dale Willey, of Lawrence, Ks. "We may be a little different," Willey said. "We do 0 percent radio and 0 percent TV. Three or four times a year, we do a newspaper wrap but that's all the newspaper we do. Newspaper subscriptions in our community are down or static, and it hasn't grown in 15 to 20 years. "We'll do some direct mail on occasion," Willey added. "And we're involved with an ad association in Kansas City that covers the Lawrence market, so we spend some money there. And our salespeople put out their newsletters every other month that we underwrite. That's the extent of our advertising." Willey explained that he puts a lot of stock in his dealership's location and the "nice" presentation of his facility. "We also have a good reputation in the market, and that's how we promote our new cars," he said. At the same time, Willey said new-car traffic comes from people driving by and from repeat customers. "We also have strong repeat business, but after 36 years in business, we should have," he said. "There are a lot of people on the Internet these days," he continued. "But the problem is newspaper display ads are not part of the Internet process for our paper's online version." But to help advertise his used vehicles, Willey noted that the only used advertising he does is through the local newspaper classified section. "It's automatically put on their Internet site, so we get a lot of play off that." Willey concluded, "We're also using some Internet services but beyond that, that's it. Our volume continues to increase slightly. So, this works for us!" |
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