Mixed Results From Auto In Q2. But Staying Top Of Mind Remains Priority For Dealers.
Automotive has traditionally been radio’s largest ad category. But with computer chip shortages brought on by the coronavirus significantly depleting inventories on dealer lots, radio’s public companies reported a mixed bag of results for the category during their second quarter earnings calls last week. Some saw large year-over-year increases in ad sales, while others are looking toward fourth quarter for a recovery.
On the bright side, Beasley Media Group reported a 135% year-over-year increase in auto ad sales. The category accounted for nearly one of every ten ad dollars booked in Q2 2021. “With many car dealers closed in second quarter of 2020, this category showed huge year-over-year increases in all our markets, especially Boston and Philadelphia,” CFO Marie Tedesco said. With fewer new cars on dealer lots, Tedesco said the Q2 ad spend increase came mainly from used car sales and services. She said she expects new car ad spend to rebound by fourth quarter “as the industry’s supply chain challenges ease and the auto chip becomes more readily available.”
Entravision Communications CEO Walter Ulloa said his company “saw growth in each tier” with total auto ad sales up 114% compared to Q2 2020.
But not all groups were as fortunate. Cumulus Media reported weaker auto ad sales due to the chip shortage. Townsquare Media said the category had yet to recover for the same reason. Audacy felt the pinch too, with management saying it expects demand to remain suppressed through third quarter with a rebound likely in late 2021 or early 2022.
“Our top local advertising category, automotive dealers, is still suffering from supply chain related issues,” Audacy CFO Richard Schmaeling said, adding that that the crucial category “will be a key driver of growth in 2022.”
CEO David Field said Audacy maintains “close working relationships” with dealer groups across the country and the category appears primed for a recovery. In one of Audacy’s largest markets, two of its four largest customers – both auto dealers – are currently off the air. “We’re very close to them, as I mentioned, and they’re telling us, they expect to be back to normal here advertising with us and with their businesses sometime later in this year,” Field said. “I’d say more often than not, it’s more of a fourth quarter recovery that we’re hearing anecdotally.”
With a diversified advertiser base, iHeartMedia CEO Bob Pittman said “no single sector [has] a big impact on us.” And despite the effect the chip shortage is having on new car inventories, he said many automakers and dealers are continuing to advertise.
“I think many of those auto companies, even dealers have decided they have got to keep the demand there,” Pittman said. “Because when they do have supply, they want pent-up demand. They don't want to have to start all over from marketing."
Don’t Pull The Plug, Nielsen Tells Auto Industry
Remaining on the air is a message that that Nielsen has been advocating for. “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 reads. “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.”
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.
Nielsen notes that while auto 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. “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.”