Auto watchers wave caution flag

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"The future is coming" is the pre-launch tag on Infiniti's Web site for next spring's G35 sedan. The future is indeed coming for automakers-and it doesn't look so great for the industry.

The consensus is sales will fall sharply in 2002, reflecting both the economic downturn and the lost opportunity next year from sales made this fall with 0% interest incentives. Ad budgets generally are still in flux, with carmakers balancing the need to promote with the imperative to control costs.

It could be a cold winter. Todd Marschke, a sales manager for National Cable, Southfield, Mich., expects car companies to keep first-quarter spending in check. "We feel [automakers] are holding back some of their budgets for incremental buys as the year progresses," he said. Declining to cite specific clients, he said '02 ad budgets have been cut 20% to 30%, with spot cable TV cuts as high as 50% in certain regions. But while some '02 ad budgets have been put to bed, he added, "a lot haven't."

The industry has been on this bumpy road before. After reaching sales of 14.5 million vehicles in 1989, sales skidded during the recession to 13.8 million units in 1991 and slipped to 12.3 million vehicles in 1992, according to Ad Age sibling Automotive News. Carmakers reacted by slashing ad spending from $5.7 billion in measured media in 1990 to $5.3 billion in 1991, before hiking spending to $5.9 billion in 1992, according to Taylor Nelson Sofres' CMR.

Carmakers will sell 15.9 million cars and trucks next year vs. nearly an expected 17.2 million in 2001, predicted George Peterson, president of consultancy AutoPacific.

Driven by 0% deals, U.S. car and light-truck sales leaped 29% from a year ago to 1.7 million vehicles in October, the highest monthly sales in the history of the industry, said Automotive News. Mr. Peterson said the deals are attracting buyers who would have waited several months.

Susan Jacobs, president of auto consultancy Jacobs & Associates, predicted the downturn could be longer than expected. "The car companies will be marketing incentives in 2002 just like they are now because none of them seem to be planning for serious declines in volume," she said.

Mark Gardner, managing director of consultancy Deloitte & Touche's auto group, said the industry's top priority now is cost containment across the board, not just in advertising.

Ominously, Jeff Bell, VP-marketing communications at DaimlerChrysler's Chrysler Group, predicts the industry will cut ad spending next year by the same percentage as the sales drop in '02-more than a 7% drop if AutoPacific's sales projection is right. Automobiles are the biggest U.S. ad category (see P. 37).

"We're being conservative in our plan" for 2002, said Mr. Bell. He expects to spend less next year since a big chunk of Chrysler's advertising comes from regional dealer groups via a co-op-style arrangement tied to unit sales.

It's a mixed bag overall: While several auto marketers expect to hike budgets for next year, others plan to cut. Others with fiscal years are sticking to their planned budgets.

Infiniti will spend about the same in advertising in the next fiscal year (starting April 1) as it is this year, said Steve Sammons, corporate manager of marketing communications at the Nissan North America's unit.

Dave Weber, VP-marketing at Hyundai Motor America, hasn't finalized his '02 ad budget, but he expects a 10% hike. "We think we're well positioned for the next 12 months" because of the brand's value-pricing and aggressive warranty, he said. With no incentives advertising, Hyundai saw October sales skyrocket by 94.9% over last October-the biggest gain of any car brand.

Toyota Motor Sales USA's Toyota brand will "pretty much spend the same" in the next fiscal year, said Steve Sturm, VP-marketing. The Toyota brand reported its best-ever October with unit sales up 30.6%. "We haven't really changed anything because it's working."

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