Throw in an extra day this year for leap year, at no extra charge even, and you still won't be doing much of a favor for carmakers and their dealers desperate to torque up their sales numbers. From a macro view, the auto industry has one helluva consumer challenge. The objective is to sell 16.7 million cars in the United States in 2004, the same number that in 2003 accounted for $409 billion in new vehicles at retail. That's roughly a new vehicle sale every two seconds. Add them all up, and about 15 percent of U.S. households will have a new factory model in their driveway, the name of which, in many cases, people won't ever have heard before. What a tough business model, where relative success in the industry is based on the underlying assumption that every six and a half years, every household in America buys an item whose average price tag is upward of $25,000. Must be something magic in those potholed U.S. highways and byways.
As if that weren't challenge enough, there's the issue of competition. And not competition like in the food or pharmaceutical or even the computer or retail businesses, where two, three, maybe five or six players are duking it out for market share. For consumers, buying a car is a matter of choosing from among 300 available make and model options, derivatives of those models that add up to well over 1,000, and that's before extras like steel rims, spare cup holders, global positioning systems, sun roofs, tinted windows and choices of color enter into the decision-making equation. It's little wonder it costs almost $650 in advertising for each and every car sold â€” almost double what it was 10 years ago â€” not to mention the thousands it costs to â€œmove the metalâ€? in dealer incentives and 0-percent financing blowouts.
It's even less wonder that auto companies have lately been making a lot of noise about balking at the higher prices they anticipate television networks will charge them in this year's spring auction of ad inventory for the 12-month period starting this September, an annual selling spree known as â€œthe upfront.â€? But for a few regulatory and antitrust hurdles, you'd hardly think it strange these days if General Motors, Ford or Toyota, not Comcast, stole off in a Mouseketeers hat in the dead of night.
Back to reality, however, the good news for broadcast television networks is that â€” thanks to a bumper crop of new nameplates in search of a profitable share of the 45,355 new car sales expected a day â€” overall spending by the car companies should be up by a healthy rate for the third straight year, and for the eighth year out of nine. Bad news for this same group of players â€” ABC, CBS, Fox, NBC and the WB â€” is that their critical currency, the 30-second commercial spot, is nowhere near the value it used to be to carmakers who need to get their message out to you and me. Not that it isn't the best currency available, it just doesn't hold a candle to what it was. Higher prices and falling audience levels on broadcast networks mean that automakers will try to spend a smaller slice of their overall ad pie with them, diverting more dollars to cable and local TV, newspapers, magazines and the Internet, which they view as more in keeping with their customers' media habits.
For some automakers, the warning of lower spending is real. For others, especially the Big Three, the saber rattling is more likely to be posturing heading into negotiations. Network TV still delivers the biggest audiences in a short space of time, and that's what U.S. automakers need this year and next to launch a slew of models.
â€œNo question network TV is getting less of our money this year,â€? says a defiant Steve Wilhite, Nissan's advertising and marketing chief. Nissan posted a whopping 34 percent increase in ad spending last year, the biggest year-over-year gain among automakers, and cracked the top 10 among all advertisers for the first time. Wilhite recently hired a media auditor to monitor its $900 million budget. Although Nissan's actual dollars spent on network ad time may go up again this year and next because of rising ad budgets, Wilhite insists the percentage will be smaller.
Mitsubishi executives, too, say network TV will get a smaller share of ad dollars. Meanwhile, the big dogs, General Motors, Ford and Toyota say the percentages of their budgets going to network TV should be flat to declining this year into next, while cable and local station ad outlays will go up. Chrysler says its spending with networks will be up, and its percentage may be too. Hyundai says its network TV quotas will be up.
Network sales executives, of course, understand the two trends impacting marketing decisions by automakers, but they are bidding to charge higher prices nonetheless.
First, automakers â€” especially General Motors, Ford and Chrysler â€” are under great pressure to offset increases in incentive spending. They've been turning the screws on their suppliers for three years to cut costs in order to fund rebate spending and the rising costs of health care for their employees. They have little tolerance for media companies that would like to steer clear of the cuts as companies that supply seats, fuel pumps and doorlocks pare to the bone and lay off workers.
â€œIt's frustrating to pay more and get less,â€? says Dave Rooney, Chrysler Group director of media operations. â€œIf prices are going to climb, they'd better be prepared to deliver more value, as in working with us and our agency to find more of the customers we are after, and eliminate the waste.â€?
â€œIf our product falls short of delivering to the customer we would expect to have to cut prices, not increase them,â€? says Deborah Meyer, Toyota Motor Sales corporate marketing manager.
Second, it's no secret the networks are less adept at attracting young moneyed males to prime-time programming, and thus have become a costlier medium to reach that prized audience. But it may not matter. GM, Ford and Chrysler, which represent about 60 percent of automotive ad spending, in 2004 and 2005 are in make-or-break periods of revitalization of their businesses, and are launching a slew of products in a fierce bid to recapture market share and earn desperately needed profit, many of these products carrying new model names. New models need velocity in gaining awareness. That means big national TV budgets.
â€œTV is still the fastest way to generate broad reach fast, but how we use it is the debate,â€? says Chrysler's Rooney. Chrysler has at least nine new models this year including the Chrysler 300C large sedan and Dodge Magnum wagon, both new names that need to generate about 200,000 sales between them. Rooney also has a crucial spring campaign plan for redesigned Chrysler and Dodge minivans and an all-new Jeep Grand Cherokee in the fall. These are Chrysler's most important vehicles for market share and profit.
Neither General Motors' new corporate ad chief Roger Adams, nor top media negotiator Michael Browner would comment on the company's stance in the upfront negotiations. But one GM executive in charge of one of its brands said, â€œIt's going to be a tough negotiating season, because we need big-impact TV to get all our new models off the ground, but the prices are out of whack, and we have to see if cable and spot TV can give us what we want outside of the Olympics and other sports programming.â€?
GM, like other automakers trying to woo young males, is concerned about this declining audience. To stoke sales, the carmaker had to increase discounting on its vehicles â€” $400 more per vehicle in January than at the same time in 2003. To fund those incentives, GM cancelled $40 million of TV time pegged for the second quarter, much of it from national TV. At the same time, besieged as it is with its own problems with its demographics, namely that its brands are caught in a downward spiral of relevance among many younger, more urbane car buyers, the automaker is souring on TV as the medium to change the minds of consumers under age 50, and especially under age 35. GM spent 27 percent of its ad budget on TV in the second quarter of 2002 and 2003, down from one-third in 2001. This year, after the cutback, TV will likely have less than one-quarter when the numbers are tallied. â€œPrime-time TV just isn't the draw it once was,â€? says GM North America chief Gary Cowger. â€œTiVo, DVDs, gaming, the Net â€” they're all making it tougher to get our message across, and I don't think adding clutter with more commercial time is going to lure anyone back.â€? The advent of TiVo, which allows viewers to skip commercials, plus audience fragmentation means GM can only hit 15 percent of the population with a prime-time ad, compared with 40 percent 20 years ago.
New Models and New Names
GM, Ford and Chrysler are launching about 50 new models this year, 18 of them, mostly high-volume models selling in excess of 100,000 units, with new model names. The Big Three have been stuck with stables of old passenger cars that have been more popular with rental fleets than retail customers.
Heading off to the automobile marque museum in 2004, or soon after, are Buick's Regal and Century, Pontiac's Grand Am, Chevy's Cavalier, Venture and Tracker, Ford's Taurus and Mercury Sable, Chrysler's Concorde and Dodge Intrepid. They're giving way to Buick LaCrosse, Rainier and Terrazo, Chevy's Cobalt, Equinox and Uplander, Pontiac's G6, Saturn's Relay, Ford's Five Hundred, Freestyle and Freestar, Mercury's Montego, Mariner and Monterey, Dodge's Magnum and Chrysler's 300C. Chrysler also has the Crossfire and Pacifica, names launched last year, to tout this year.
â€œThat's a lot of awareness of new names to pay for, and network TV still has to be a big piece of that even if you are spending more on the Internet and in magazines,â€? says Ford's marketing communication chief, Rich Stoddart. â€œIt's tough to build quick awareness through newspapers.â€?
Automakers prove that when the stakes are high for quick success â€” the critical time for a new model launch is the first three months â€” network TV is still the big dog. Ford's â€œmost important launch in its history,â€? according to Stoddart, came last fall for the 2004 F150 pickup truck. Almost half of the first three months, when Ford spent $100 million, was in network TV on NFL broadcasts, NCAA Football and prime-time shows like Fox's 24.
Ford has three key launches this year, the Five Hundred and Mercury Montego sedans and Ford Freestyle crossover SUV. Sales volume among the three will be about 250,000, but they are important for Ford beyond their sales volume because they represent the company's biggest effort to recapture more of the family sedan and wagon market since the last redesign of the Taurus fell so far short of the appeal generated by Toyota's Camry and Honda's Accord.
Ford expects to be up in overall spending this year by 10 percent, say company executives. That's an additional $120 million up for grabs. Stoddart says whether Ford spends a bigger chunk of its pie this year on network depends a lot on pricing and what sorts of deals can be struck both on price and integration.
â€œWe have been very aggressive in the brand integration arena. From 24, to American Idol, BCS, The Fox F150 pregame show, Ford championship NASCAR weekend, Alias. All of these are examples of the kind of integration that we are looking for,â€? says Stoddart.
Not surprisingly, the communication chief says the most promising thing he's seen in Ford's research about where to go to reach young males is doing more on the Internet. â€œWe are growing our presence significantly,â€? he says, although he's not anxious to spell out where. Ford only spent $24 million the last two years on the Internet, at least that's what was captured by TNS Media Intelligence. That compared with almost $50 million by GM.
Awareness and Brand Building
Incentive spending per vehicle was up more than 30 percent in 2003, compared with the year before. And in the early part of 2004, per vehicle spending was rising again despite pronouncements by top executives in Detroit that they are trying to curb rebates and discounted 0-percent financing deals.
Higher incentive spending is good for local TV, cable and newspapers, but not for networks. GM and Ford had channeled national deals like 0-percent financing to networks after the terrorist attacks on the U.S. in 2001, but that trend is reversing. â€œYou'll see few across the board national deals from us going forward and more locally directed deals â€” more of a rifle shot approach where we target markets by ZIP code and do more with direct mail,â€? says GM sales chief John Smith.
GM has 28 new models arriving in 2004, more if you count the 2004 models launched last fall. The world's biggest automaker is fighting desperately to get people to notice these products, especially the ones with new names. Its market share was 28.3 percent last year, a falloff from two straight years of market share increases, and well down from the 34 percent it had in 1995.
GM has done well in the truck and SUV segments during the past five years, but its passenger car business has been clobbered by outdated designs, model names buyers under 40 associate with their parents' generation and a legacy of lousy quality despite J.D. Power quality scores that have passed Nissan and are closing fast on Honda and Toyota.
GM's chief of the Buick-Pontiac-GMC division and the automaker's former corporate ad chief, C.J. Fraleigh, says the firm is obsessed with marketing programs that actually put customers in seats for test drives. It continues to offer 24-hour test drives for prospects, and is in a second year of a traveling auto show of GM vehicles it offers for test drives against competing Asian makes. And in January and February GM ran a promotion that invited consumers to go to a GM dealership and push the OnStar button in a vehicle to see if they had won one of a 1,000 new vehicles the company gave away.
â€œAnyone wanting our money needs to be thinking about how they can help us put butts in seats, because while we continue to battle old perceptions of poor quality, deficient interiors and dull designs, we find that when people experience the reality of our new models and how much better they are, our consideration goes way up,â€? says Fraleigh.
Consumer Trust an Issue
GM's core problem is one of trust, says Dan Gorrell of Strategic Vision, a San Diego-based market research and consulting company. Gorrell showed GM research last fall that illustrated how brands that spent the most on profit-killing incentives, namely GM, Ford and Chrysler, also had huge trust deficits when compared with Toyota and Honda.
Hyundai is in the trust-building business these days, says Paul Sellers, director for marketing communication at Hyundai Motor America in Fountain Valley, Calif., a division of the Hyundai Motor Company. The Korean carmaker's sales have been growing fast, but it is still working hard to build credibility among Toyota and Honda shoppers. Sellers said the company had shifted money from network TV into local TV to cope with increased incentive advertising that cut into brand-building ads. This year, Hyundai's national budget will be up 75 percent to $200 million, with much of that increase going to national TV and cable, he says. Including dealer association money, the company will spend about $400 million this year. The automaker is also launching its second SUV, the Tucson, a new name that Sellers says requires â€œa fast launch with lots of TV.â€?
Audience & Programming Challenges
The auto industry ad chieftains are increasingly interested in â€œevent programmingâ€? such as sports, The Academy Awards and special shows such as Fox's 24 and short-run series like ABC's Super Millionaire. Troubling to advertisers is the lack of good â€œappointmentâ€? prime-time TV programming coming into new schedules. NBC's Thursday night lineup is losing its Friends anchor, and its Tuesday night is losing Frasier this year. Many reality shows have been a bust, and even those that catch on present automakers with difficult decisions about program environment.
â€œThe greater fragmentation of audiences combined with what I see as a lower quality of programming is making a difficult case for more network TV,â€? says Nissan's Wilhite. He believes there is quality programming on cable, but it can be hard to find, with all the choices.
Chrysler's Rooney and Ford's Stoddart say product placement and integration are becoming much more important to them. Ford made a big sponsorship play in buying exclusivity on 24, which had Ford vehicles sprinkled throughout the series in the 2002-2003 season as well as 2003-2004. Ford was the exclusive sponsor of a commercial-free debut of the show, with the automaker's ads running only at the start and end of the episode.
Mitsubishi, which is dialing back its network TV outlay having spent over 50 percent of its ad budget the past three years on national TV to gain brand awareness, likes the results of its Super Bowl spot that tied a 30-second â€œcliffhangerâ€? ad to a Web site. Mitsubishi marketing chief Ian Beavis says the company plans similar ads that link TV and the Internet, as he feels TV ads by themselves aren't that dynamic. â€œBut when you can take a passive viewer and turn them into an active participant, that is a high quality contact with a potential customer,â€? says Beavis.
That's the problem with TV right now, it's still too passive, says marketing consultant Dennis Keene. â€œYoung males are deserting TV because it's still not interactive enough. It's not involving enough to people who have been raised on the Net and gaming.â€? Toyota's Meyer says TV is stuck in between technologies right now. â€œIn a couple of years, interactivity in TV programming, where viewers can affect the programming by choosing endings and the like, will really start to change the TV experience for the better, and we think audiences will rebound.â€?
Chrysler is the exclusive national auto sponsor for NBC's The Apprentice, with Donald Trump, a franchise Rooney believes could last several seasons, perhaps with other corporate moguls on the show. NBC also developed the Jeep Adventure Series with Chrysler. Kicked off this spring, the Saturday afternoon show is devoted to action/adventure sports from around the world with behind-the-scenes content. â€œIt gives us exclusivity and some say over the programming choices,â€? says Rooney.
Stoddart says networks should look at Ford's deal with Revolution Studios, which gives Ford preferred product placement in films produced by the film studio, as a template. The partnership with Revolution, for example, has generated one movie with a road-trip plot. Starring rapper Ice Cube and a tricked-out Lincoln Navigator, the film Are We There Yet? is scheduled for theaters this year.
Ford and other automakers are pursuing deeper ties with Hollywood as one alternative to traditional TV advertising. Automakers are disillusioned with high TV ad costs at a time when recording devices like TiVo allow viewers to avoid ads. Ford's marketers worked with the creative team writing the screenplay for Are We There Yet?, and the Navigator appears in 75 percent of the film.
Meyer says the latest viewer research is beginning to yield better guidance about where Toyota wants to be. Before last football season, the company was ambivalent about spending big on Monday Night Football. â€œBut we saw at the end of the 2002 season actually that the half-time show delivered great numbers of young males for us, and we own that space now.â€? Toyota's Web site is then the most heavily trafficked manufacturer site online, leading the company to put more money into the Internet, such as its recently announced sponsorship of eBay Motors.
The deal calls for Toyota to launch a micro-site at eBay. Toyota.com, where it will showcase new vehicles, link to items listed on eBay and display promotional offers. Toyota will also donate vehicles to be auctioned on eBay, with proceeds to benefit charitable organizations. The first of the charity auctions will take place at the end of March. To drive visitors to the site, Toyota will run banners, rich media and text link ads on both eBay.com and toyota.com. Deals like that, plus tying into gaming, holds a lot of interest for Toyota, says Meyer, who figures the automaker's spend with network TV will be flat this year.
Says Meyer: â€œTV, and specifically network TV will always be a big part for us, but in the end we have to go where our customers are, and if that means spending less and less with the networks, wellâ€¦.â€?