Automotive Ad Spend to Go Flat in 2006

Merrill Lynch Report Cites 'Intensifying Turmoil' Among Domestic Automakers

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DETROIT ( -- Auto advertising, which has risen steadily every year for a decade -- excepting one 4% slump in 2001 -- will go flat in 2006, according to a report issued today from Merrill Lynch.

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'Intensifying turmoil'
"Intensifying turmoil in the domestic auto industry will put increased pressure on ad budgets next year," said John Casesa, auto analyst at the investment company. He predicted that automakers' U.S. spending in calendar 2006 will be essentially flat at $11.5 billion, following an estimated rise of 6% to $11.4 billion this calendar year.

The financial woes of General Motors Corp. and Ford Motor Co., which are restructuring, cutting staff and production, will put pressure on all their expenses, including advertising. But Mr. Casera cites reasons why he doesn't believe auto outlays will fall, including heavy new-model-launch schedules; a generally more competitive market; brand-rebuilding strategies of some marketers; and the increasing need to sell the deal.

GM's sluggish sales
GM, for example, introduced its Red Tag Event sale in mid-November after sluggish sales but has spent heavily to advertise a series of multi-brand deals all year. GM's second-quarter corporate spending in measured media, which includes June when it launched employee discounts, rose to $200 million compared to $75 million in the first quarter, according to TNS Media Intelligence. Interpublic Group of Co.'s McCann Erickson, Birmingham, Mich., handles GM's corporate account.

While automakers will replace 13% of the industry's total annual volume with new vehicles in 2006, that will more than double to 28% in 2007, Merrill Lynch reports.

Highest incentives ever
Meanwhile, incentives have not abated., an independent auto information site, is reporting today that that the average incentive in November was the highest for ever for that month, at $2,413 per new vehicle. That's 20% higher –- or $401 more -- than the prior month and $18 higher than November 2004.

Automakers doled out a total of $3 billion in incentives last month, according to Edmunds, with GM, Ford and Chrysler Group accounted for 77% of the total -– $2.3 billion and an average of $3,398 per vehicle. Japanese brands accounted for 14% of incentives, or $427 million; European marketers accounted for 6%, or $172 million and Korean makers 3%, or $92 million.

$5,540 SUV incentives
Large sport utility vehicles continued to carry the highest average incentives in November, $5,540 per vehicle sold, Edmunds said. BMW's Mini Cooper was the only brand in November with no incentives, while Ford Motor's Jaguar brand spent the most at $7,222, followed by sibling Lincoln with $5,171 and GM's Buick with $4,133 per vehicle sold.

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