Autos Still Wheeling, but No Dealing

Inventory managed carefully, a strategy that requires less incentive advertising to sell cars

The great automotive incentive advertising boom—that flooded the media with no-money-down spots—is officially over.

The industry’s ad spending skidded to a halt in the second quarter, after increasing more than 9 percent earlier in the year, according to Kantar Media. The Japanese earthquake and tsunami in March curtailed vehicle inventory and created a shortfall in parts that impacted U.S. manufacturers.

But there was also a more fundamental shift within America’s largest advertiser category, which spent nearly $7 billion in the first half of the year. Auto marketers have been doing a better job in balancing supply and demand, so there’s less need to woo customers with offers.

“Companies pulled back on advertising and incentives because it became more of a seller’s market,” said Jon Swallen, svp, research, Kantar Media North America. “Manufacturers and consumers played chicken, with car buyers waiting to see if manufacturers would sweeten the deal.”

Consumers, as of August, were still defying economic forecasts of an industry downturn, and U.S. auto sales rose slightly in August. But according to J.D. Power & Associates, the average year-to-date incentive on car purchases is $2,600 per unit compared to more than $3,000 in 2008. Car buyers are spending more on their purchases, an average $28,000 per car compared to $25,500 in 2008. “We’re seeing a fundamental structural shift where manufacturers are now looking at higher prices on lower volume,” said Thomas King, senior director, J.D. Power.

And while U.S. auto marketers have gained at the expense of Japanese companies like Toyota—General Motors replaced the Japanese auto giant in the first half of this year as sales leader after March’s earthquake—imports are likely to step up their discounts and incentives with increased production in coming months. But most observers don’t expect U.S. auto companies to follow suit.

“The market going forward will be highly competitive, but price wars are not going to happen,” said King. “If you get too aggressive for short-term gains, you do that at the expense of your longer-term model.”

Publish date: September 28, 2011 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT