Even With Supply Down Due To Semiconductor Shortage, Auto Industry Still Needs To Advertise.
The bounce-back in auto sales this year is suffering a setback due to the global shortage of semiconductors needed to manufacture vehicles. However, that shouldn’t mean that automakers should ease up on advertising.
“The lack of supply that the auto industry faces throughout the second half of the year—and perhaps longer—might suggest to brands that they can cut their marketing spend given that near-term sales will reflect diminished inventory,” a blog post from Nielsen read. “We know that market uncertainty often results in marketing cutbacks, but we also know that brands that take those actions pay a price in the long term.”
Research firm IHS Markit expects auto production to begin to recover later this year, but it estimates the shortage will result in $182 billion in lost output for the auto industry.
Nielsen says on average it takes three to five years to recover equity lost because of halted advertising and long-term revenue can decrease by 2% for every quarter a brand doesn’t advertise. Furthermore, company data shows that long-term marketing contributes to sales growth.
After an expected drop in ad-spending due to the pandemic, by September 2020 levels were on par with January 2020 spending and surpassed $1 billion by the end of the year. The late year ad-spend coincided with seasonal car-buying trends, Nielsen says, as well as consumer sentiment about the pandemic.
“That said, we know that vehicle inventory is running low, which will likely inhibit traditional car buying trends this fall,” the blog post continued. “That’s where brand awareness campaigns will need to carry manufacturers and dealers until they can meet consumer demand.”
Auto brands won’t have their typical fall supplies this year, which means “they should stay consistently engaged with consumers until supplies normalize,” Nielsen says. Brand awareness campaigns “need to carry manufacturers and dealers until they can meet consumer demand.”
Nielsen notes that while ad spending still lags 2019 levels, some companies have raised their spending from last year. For example, in May 2021, Stellantis, which owns auto brands including Chrysler, Jeep, Dodge, RAM, Alfa Romeo and Fiat, spent more than it did in May 2019.
“There’s never a good time to stop advertising, but the current market conditions raise the stakes considerably,” Nielsen says in conclusion. “And in light of the supply issues, it’s more than a good time to remember that long-term brand-building strategies do have an effect on sales… staying top-of-mind with consumers could be the difference maker when a future auto sale is at stake.”