The past two years have been the most dizzying in automotive history. Inventories plummeted, prices skyrocketed and profits soared. In April 2020, the Seasonally Adjusted Annual Sales Rate (SAAR) for light vehicles hit the lowest level since tracking began 46 years ago. A year later, it rose to the highest in 16 years and the sixth highest ever recorded. Then inventory crisis began. In May 2021, the sales-to-inventory ratio fell below 1, meaning dealers were selling more vehicles than they were receiving on their lots. By Christmas, the average dealer had enough new cars to sustain just 15 days of sales.
As 2022 begins, the automotive sector poses the same conundrum as real estate: advertising seems unnecessary when units sell within days of becoming available. For that reason, dealers average advertising expenditure per new vehicle plummeted from $640 in 2020 to $541 in 2021. Among local media, the pain was felt mainly by radio and TV, who continue to be key beneficiaries of manufacturers’ co-op programs. But co-op and manufacturers’ incentive programs quickly dried up in 2021.
In Borrell’s newly released “2022 Local Automotive Advertising Outlook,” we outlined four key reasons for local car dealerships to continue advertising. Simply put, they need to rebrand themselves.
One of the ways they’ll be looking to rebrand will sound like familiar territory to newspapers: used-car advertising. With inventories of used cars plummeting due to supply-chain shortages, dealers are turning to advertising for used cars — and not just for one for sale.
More on that in a moment.
Borrell’s forecast calls for local dealer advertising to rise 8.8% this year, to $9.4 billion. That may seem a bit rosy given supply-chain shortages causing car inventories to plummet. But the fact is, dealerships have a new urgency and new reasons to advertise. Several large dealer groups increased spending 50% or more in 2021 as they opened used-car stores or shifted focus to a new priority — buying vehicles from consumers. These initiatives are likely to trickle down to midsize and smaller local dealerships in 2022. They’ll be looking to rebrand themselves as local fulfillment centers where consumers can sell vehicles, buy new ones, get them serviced, qualify for the best financing or pick up a car they bought online.
Here’s a big aha: Did you know that, while everybody seems to be researching cars online, fewer than 3% of consumers actually buy one online? On top of that, 36% of those who purchased a vehicle online said they’d make their next purchase in-store, according to a 2021 survey from Reynolds & Reynolds.
New Reasons for Car Dealers to Advertise in 2022:
Some of this new ad messaging was already being placed last year. CarMax, which considers itself the nation’s largest use-car dealership with 225 stores, doubled its ad budget in 2021. The money was spent to educate consumers about the omni-channel (online and in-store) car-buying experience, and on a new campaign to purchase cars from consumers. In fact, CarMax intends to become the largest buyer of consumer vehicles, weaning its dependence on third-party auctions for its used-car inventory. In 2021, CarMax crossed the threshold and began getting more than half (52%) of its inventory from consumers.
There’s one more trend worth noting: Dealers have developed a big appetite for video advertising outside of the broadcast TV realm. In 2020, they began spending more on OTT and other forms of streaming video advertising than they did on broadcast media (radio and TV) combined. By 2023, they’ll spend $1.9 billion OTT, more than they’ll spend on Paid Search. Many newspapers already play in that space. In fact, Borrell’s annual survey of more than 2,000 local advertisers last year showed that 7% of those who bought OTT advertising were buying it from a newspaper sales rep.
Automotive advertising continues to be one of the top three advertising categories in any local market. It’s clear that dollars have shifted from broadcast radio and TV, as well as cable, to the digital arena. Newspapers have big assets in that space and can offer powerful packages of print and digital advertising that can help dealers rebrand themselves.
For more information on Borrell’s automotive report, visit borrellassociates.com.
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