U.S. automakers, the single largest category of advertisers, cut their ad spending 18 percent in the second quarter compared with 2007, continuing to spill Detroit's troubles onto Madison Avenue, industry figures released Wednesday show.
Domestic automakers spent $1.37 billion on advertising in the second quarter compared with $1.67 billion in the same quarter a year ago, TNS Media Intelligence in New York said.
Second-quarter spending was 11 percent lower than the most recent quarterly peak of $1.54 billion, which U.S automakers reached in the fourth quarter of 2005.
"All of the automakers, collectively, they are cutting back," said Jon Swallen, senior vice president of research at TNS. "It's not just coming from the manufacturers, but from dealer groups and local dealers."
High oil prices, the mortgage crisis and the credit market meltdown are making this downturn particularly worrisome for struggling automakers, he said.
Foreign automakers also are trimming their spending on advertising in U.S. markets, with a 5.4 percent cut in the second quarter, for an overall 11 percent drop in U.S. auto ad spending, to $3.27 billion, the 12th quarterly dip in a row.
Automakers' spending dragged down ad spending across industries, which fell 3.7 percent in the quarter, the steepest quarterly drop since 2001, according to TNS. As of the first half of 2008, General Motors Corp. is the sole automaker whose spending still puts it among the top 10 U.S. advertisers.
GM is so concerned about costs, though, that it won't advertise during the 2009 Super Bowl, the company said this week. It still plans to sponsor the National Football League and likely air ads before and after the game. GM also has pulled out of the Oscars and Emmy Awards in 2009 — the first time it is not running ads right before, during or after the two events in over a decade.
"They're expensive properties," said GM spokeswoman Kelly Cusinato, adding that the money spent on ads in one awards night could be better deployed elsewhere to reach a targeted audience.
Detroit-based GM is estimated to have spent $13.5 million at this year's Academy Awards and $5.4 million during the Super Bowl, according to TNS. It doesn't have an estimate for the this year's Emmys.
Cusinato said GM plans to shift more money toward ads whose reach can be more easily measured and targeted, such as online displays.
Last year, GM was the fourth-largest U.S. advertiser overall, spending $2.1 billion, down 7.7 percent from 2006. The $1.04 billion it spent in the first half of 2008 was 13 percent higher than a year earlier, but GM shifted gears in July and said it would cut advertising and marketing spending by an unspecified amount for the rest of 2008 and likely for 2009.
Like other automakers, GM has had to tighten its belt. It posted a $15.5 billion loss in the second quarter, the third-worst quarterly showing in company history.
Swallen of TNS said some quarters show an upswing in spending, in spite of the downward trend overall, due to vehicle model launches. In the first half of 2008, GM's spending was primarily boosted by ads around the relaunch of Cadillac CTS and Chevy Malibu, for instance.
"Depending on when new models are launched, we're going to see more violent swings upwards or downwards," he said. "That explains why over the first two quarters of the year, GM spending was up and Ford spending was down."
Dearborn, Mich.-based Ford Motor Co. fell off TNS' list of the 10 largest U.S. advertisers in the second quarter.
Ford cut its second-quarter advertising and sales promotion spending from $300 million to $100 million. In July, Ford reported a second-quarter loss of $8.67 billion, its worst-ever quarterly loss.
Auburn Hills, Mich.-based Chrysler LLC, which TNS estimated cut its quarterly spending 15 percent to $219 million in the second quarter, declined to comment.
For the first half of 2008, domestic automakers' ad spending fell 6.3 percent to $3.67 billion from the comparable period last year.
"Last year, the mood was brighter. Cautious, but far brighter," said Bob Liodice, chief executive of the Association of National Advertisers, whose members are marketing executives, product managers and related staff at 400 companies.
Over the past year, the economic downturn worsened as a housing slump became a crisis that has engulfed the financial services sector. Meanwhile, oil and commodity prices soared.
About 70 percent of ANA member companies that answered a recent survey are reducing their ad campaign media budgets and 63 percent are slashing production budgets.
Sanford Bernstein analyst Michael Nathanson said in a research note last month that he sees U.S. auto ad spending falling 16.7 percent overall this year to $15 billion, the lowest level in nine years.
Auto ad spending is not likely to change materially over the next 12 months, said Jim Peters, publishing and advertising analyst at Standard & Poor's.
"In tough economic times, it's all about justifying your expenses," he said.
Peters thinks the ad spending malaise could last longer this time than during the last downturn, in the aftermath of the Sept. 11 terrorist attacks.
Then, a single event drove the decline, and liquidity wasn't an issue throughout the economy as it is now, he said.
The American Association of Advertising Agencies trade group declined to comment on overall ad spending or the declines that research firms and analysts have reported.
As ad spending shrinks, smaller ad agencies will be hit harder than the big firms, which are more diversified geographically and in the businesses they serve, Peters said.
New York-based Omnicom Group Inc., the world's largest advertising conglomerate, posted an 11 percent increase in second-quarter profits from a year ago. Results were buoyed by strong showings in Asia, the Middle East, Eastern Europe and Latin America.
Strong sales in emerging markets boosted profits by 14 percent at London-based WPP Group PLC, the second largest advertising company globally, in the first half of the year.
The big players in advertising are "doing relatively well at the moment," Peters said.