Local Car Dealers Upped Ad Spending 4.2% During First Half.
Despite constrained inventories and few incentives to offer potential buyers, local car dealers increased their adverting spending during the first half of the year. Franchised dealerships spent a total of $4.26 billion on advertising, according to the National Automobile Dealers Association from January to June. That was a 4.2% increase compared to what they spent during the first half of 2021.
Despite still trailing what was spent on marketing during pre-pandemic 2019, the tally for this year is the strongest in three years. The low-point came in 2020 when the pandemic forced many local car dealerships to close their doors—some for good. During the first half of 2020, NADA said $3.6 billion was spent on advertising by dealers.
“Many dealers are still working through the order backlogs they have built up over the past year. When vehicles arrived on dealer lots in the first half of the year, they sold quickly, and this will also likely be true for the rest of 2022 and into 2023,” said Patrick Manzi, Chief Economist at NADA. “Still, despite the challenges of a new-vehicle shortage, the average dealership has performed very well through first-half 2022,” he said in the mid-year update.
Despite the challenges, NADA says the nation’s 16,752 car and light truck dealers sold 6.8 million vehicles during the first half of 2022 with sales topping $618 billion.
The smaller number of new cars and trucks being sold, combined with the uptick in the amount of money being spent on advertising, combined into the highest amount of money spent on advertising on a per-unit-sold basis in the past six years.
NADA reports for every car or truck sold during the first half of the year, dealerships spent an average of $695 on advertising. That was a 28% increase from the $541 low-point recorded a year ago.
Also rising was what car and truck buyers paid to drive off the lot.
“With tight supplies of vehicles and high demand from consumers, manufacturers pulled back on incentive spending in the first half, and average incentive spending per unit fell each month through June,” said Manzi. NADA says the average incentive spending has decreased from a record high of over $4,700 per unit in April 2020 to record lows of under $1,000 per unit in June 2022.
Because of the cuts to incentive spending, lower inventories, and strong demand from consumers, NADA says new-vehicle average transaction prices were pushed to a record high of just under $46,000 through June. Used car prices rose to an average of $30,800.
“While used-vehicle wholesale prices have fallen slightly from their recent highs, we expect that used-vehicle values will continue to be well above their pre-pandemic levels for as long as the industry is dealing with the chip shortage and its limiting effects on new-vehicle inventories,” said Manzi.
Given the persistent production disruptions during the first half of the year and the resulting diminished sales performance, NADA in July reduced its 2022 new light-vehicle sales forecast to 14.2 million units, down from an initial estimate of 15.4 million units at the start of the year.
“As rates climb higher, interest rates will shift from a tailwind for vehicle affordability to a headwind,” said Manzi. “Despite this forecast reduction, we expect that 2022 will be another very solid year for America’s franchised dealers.”