For Detroit, web's the new showroom (Dinosaur Media DeathWatch™)

Things look terrible for Detroit, and they are, and that has certainly hurt spending in what's long been among the largest ad categories. Spending on traditional media is in a long slide.

But that's not been the case for the internet. Carmakers and dealers are in fact shifting more and more ad dollars to the web, and the pace is expected to accelerate further, at the expense of traditional media, especially print.

A new forecast has internet automotive spending rising by 22.7 percent this year alone, reaching $2.8 billion, and by 2009 online will be the No. 2 ad medium for carmakers, behind only broadcast TV and ahead of newspapers. Between 2006 and 2011, online auto advertising is forecast to grow 83.8 percent. (See chart, below.)

“In terms of share points, the newspaper is going to lose the most,” says Peter Conti, senior vice president at Borrell, which issued the forecast. It forecasts newspaper spending will tumble to $3.2 billion by 2011 from an all-time peak of $4.9 billion in 2004.

More and more, Detroit sees the internet as the most efficient means of reaching consumers in the actual research and shopping phase of the car purchase cycle, with television still the medium of choice for branding.

But cable will get a larger and larger share of TV spending, predicts Borrell. Between 2006 and 2011, broadcast will grow marginally, from an estimated $10.6 billion to $11.7 billion. But Borrell forecasts that cable spending will increase by 45.7 percent, from $2.7 billion to $3.9 billion.

Borrell's forecast is consistent with other spending reports on automotive, most recently a report by Nielsen Monitor-Plus showing that in 2006 local newspapers saw a 41 percent decline in auto ad spending in the shift of spending to the internet.

And Borrell reports that despite the most recent rounds of spending cutbacks, responding to tumbling sales against imports, carmakers and dealers will actually be spending more in the coming years, if at a slower growth pace than in years past. It forecasts growth of 1.7 percent a year on average over the next five years, down from a compound annual growth rate of 3.7 percent during the last five.

“There is a slowdown,” says Conti. “We hear from the manufacturers that they are slashing their overall budgets, but at the same time they are increasing their online budget, only they don’t have to spend as much online to get as much bang for the buck.”

In looking at the media that will suffer the most in the online shift, newspapers will be hurt the most but the pain will also spread across print to directories, magazines and direct mail.

To describe why TV is holding up, Conti points to what he calls the car-buying funnel, the process whereby folks narrow the number of models under consideration over a six-month period before they buy.

The early part of the process is the dreaming phase, when advertising media with strong branding capabilities, like TV, work well and will continue to do so.

It’s the shopping phase, the more local part of the process, which has been the most disrupted by the internet. Traditionally at the end of the cycle people may have picked up a newspaper to see where the best deals are. “But looking at the paper has diminished greatly in the cycle,” says Conti. “It has really gone to the internet.”

The report also looks specifically at used-car sales, an area that tends to be a local business and in which ad dollars are also moving to the internet. In fact, by 2008, Borrell forecasts that online will have passed newspapers as the No. 1 medium for used-cars advertising.

The study also looked at which types of internet advertising will dominate the auto category in the future.

To date paid listings and banner ads have made up the bulk of local online auto advertising. But video and paid search are expected to take off. Borrell believes these two areas will grow from 29 percent of the local online advertising market to about 76 percent by 2012.

Web Spending to Surge as All Auto Ad Spending Growth Drops By Kate Kaye May 10, 2007 Auto advertising growth overall is slowing, but a new report shows auto manufacturers, franchises, dealers and private sellers will continue to increase online spending, projected to go beyond $4.2 billion by 2011. The Borrell Associates report, released yesterday, shows video and paid search advertising will attract 76 percent of local online dollars from auto advertisers by 2012. Print newspapers, magazines and direct mail are among the media expected to bear the brunt of the online auto ad shift. Compared to annual ad spending increases of 3.7 percent by auto advertisers from 2001 to 2006, local media research outfit Borrell Associates expects compound annual auto spending growth to be 1.7 percent over the coming five years. "Overall, spending is kind of stagnant," said Borrell Associates VP Pete Conti. Meanwhile, the Web will see a spike in auto ad spending. According to Conti, online ad spending in 2001 by car sellers was pegged at $471 million. That's steadily increased and is set to go up nearly 84 percent from $2.3 billion in 2006 to over $4.2 billion in 2011. "That is a huge leap," he said. In 2001, total new and used car ad spending was around $25 billion, and is forecast to reach more than $33 billion in 2011, Conti told ClickZ News. Ad dollars allocated to cable and telemarketing each are expected to increase over 40 percent in the next five years, while spending on newspapers, direct mail and directories each will drop over 20 percent, according to the report. The research firm projects video and paid search ads will comprise the bulk of ad formats used by local online auto advertisers by 2012. In 2007, 29 percent of local auto Web ad spending will go towards video and paid search, and by 2012, Borrell expects 76 percent to be spent on those formats. "One-third of dealers are buying search engine advertising, and 80 percent of them say it is successful in driving new traffic to their sites," notes Borrell's "2007 Online Auto Advertising Shifts Into High Gear" report, released yesterday. Larger dealers are buying paid search advertising, said Conti, but most smaller dealers are not sophisticated enough to do so yet. Many local auto advertisers are taking advantage of free listing venues such as Craigslist and Google Base. Thirty-second video spots in auto dealer directories, mainly on newspaper sites, cost between $150 and $350 per week, according to the report; such efforts have generated from $160,000 to $600,000 in ad revenues annually in mid-size markets. Along with video and search, e-mail spending on local online advertising is also set to rise; however, banner units will see a spending decline. Used auto sellers are putting larger portions of their ad spending online compared to all auto advertisers combined, which dole out 7.6 percent of the total $30.5 billion spent to the Web. Used auto sellers put 20 percent of their ad budgets online in '06, and private car sellers allocated 27 percent of their budgets to the Web. Of the $421 million spent on used auto advertising by private-parties in 2006, $114 million was spent online. "Given current trends," notes the report, "it is likely that online will become the No. 1 media choice for individuals advertising their used vehicles this year." Used auto sellers in general have a big opportunity online, said Conti. Over $831 million, or almost 20 percent of ad spending by used auto sellers, including franchises, independent dealers and individuals, went online in 2006. Borrell Associates predicts spending on used car advertising online this year will comprise 39 percent of all new and used vehicle advertising.

“There is also a big opportunity for those who can master used-vehicle marketing, and in particular private-party sales," Conti noted. "The number of used vehicles on the road continues to swell, and dealers and individuals alike will need new ways to connect with buyers.”

Borrell Report: More Bad News For Auto Ads By E&P Staff Published: May 11, 2007 12:00 PM ET NEW YORK If you sit in on enough quarterly earnings call, you learn quickly that the drop in automotive advertising revenue is (partly responsible) for mucking up results. A new report from Borrell Associates reveals the slide will continue. “The fat times are over for automotive advertising,” Borrell analysts wrote. “Manufactures and dealers are plowing more money into their own Web sites, disintermediating traditional media by letting consumers get price-and-item information directly.” In the past five years, auto advertising grew at a compound annual growth rate (CAGR) of 3.7 percent to $31 billion. Over the next five years, auto advertising is expected to slow, growing at a CAGR of 1.7%. Borrell predicts that by 2009, online auto advertising will hit $4 billion and will surpass newspapers, cable, radio, and direct mail. Newspapers are projected to lose 24.6% of auto advertising when comparing 2011 estimates to 2006 spend. In 2006, Borrell estimated that auto advertising was at $4.3 billion, by 2011 that number will drop to $3.2 billion. There is bad news for direct mail marketers too. The category is expected to lose 21 percent of its auto revenue over the next five years as dealers turn to e-mail lists. The report finds that shoppers looking to buy a new car are going directly to the source, visiting manufacturers’ Web sites, rather than third parties. Local dealers are getting into the game, by launching Web sites of their own, with a full list of inventory and financing information. However, the Internet is not yet an effective branding tool for, as Borrell coins it, people in the “dreaming” stage. TV is still the best method for selling a brand but Borrell expects manufactures will drive traffic to their Web sites via TV spots.

Borrell analysts predict that by 2012, online video and paid search will dominate ad dollars spent by auto dealers.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.