Auto Ekes Out 2.3% Ad-spending Boost

Competition, Launches Prevent Decline; 2007 Outlays to Hit $11.1 Billion

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DETROIT (AdAge.com) -- The U.S. auto industry, the largest ad category in the country and the bellwether for yearly ad spending, barely increased spending in 2006 and will likely come up flat in 2007. And had it not been for increased competition and a frenzy of launch activity, even those meager gains might not have been realized.

According to projections in a report by Merrill Lynch released Dec. 1, auto marketers will spend an estimated total of $11.12 billion in measured media next year, just 1.6% more than the projected $10.95 billion they will spend this year, which is only 2.3% more than they spent in 2005, the report says.

"The industry is currently in a period of the most intense launch activity we've ever measured," wrote John Murphy, auto analyst and author of the report. "The U.S. industry's model-replacement rate reached record highs this year, with an estimated 24% of lineups redone. It will remain high in 2007, with 19% replaced," Merrill Lynch says. General Motors Corp., Japanese transplants, plus Hyundai and Kia are leading the new-product paces and advertising along with it.

Despite that, the report projected a 3% decline in consumer demand both this year and in 2007, with total U.S. light-vehicle sales reaching 16.47 million in calendar 2006 and off slightly in 2007 to just more than 16 million units. The U.S. industry's historical high came in 2000, when it sold 17.4 million new cars and trucks. In 2005, automakers sold a combined 16.9 million vehicles.

Because of the various challenges, the industry will up its measured media spending over the next year. It's expected to lay out $695 per unit sold in 2007, a 4.5% jump from the estimated $665 it will spend in 2006. In 2005, carmakers backed each new vehicle sold with $632 in measured media.

Honda, Toyota, BMW and Porsche, which Merrill Lynch noted are all strong brands, managed to keep their per-unit ad spending almost flat or reduced from 1995 through 2005. But carmakers with various turnaround strategies-Mitsubishi, Ford Motor Co., GM and Nissan-spent above average industry rates during the same period.
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