Auto Dealers Ramp Up Online Ad Spend

Online advertising in the automotive sector increased 51.5 percent to $1.2 billion in 2004 and will continue to show strong increases as online video ads become more prevalent in coming years, according to a new study by Borrell Associates.

The study projects that auto advertising online, while accounting for only 4 percent of the overall $30 billion ad spend by the automotive sector in 2004, will grow to nearly $2 billion in 2006, approximately 6.4 percent of all automobile advertising that year.

“We expect that as Internet marketers move to include more online video in their advertisements that the automotive sector will continue to grow in the next three to five years, even as other online verticals slow down or level off,” said Gordon Borrell, president and chief executive of Borrell Associates.

Part of the ramp up is based on impressive performance statistics. According to J.D. Power & Associates, Web sites generated 22 percent of all new cars sales in 2004. Although ads in other media, such as print, TV, and radio, may have also contributed to those sales, the fact the Internet (usually email sent through the company’s Web site) was the point of contact for the sale caught the attention of a number of dealers, Borrell noted.

Of the three auto ad segments, dealerships increased their online ad spend the most in 2004, nearly doubling their interactive budgets. Manufacturers, meanwhile, increased their online marketing expenditures 38.8 percent. The slowest segment of the three was dealer associations, which increased their online advertising efforts 20.2 percent to a relatively tiny $58.3 million in 2004. That number is more striking when one considers dealer associations account for 25 percent of all automotive advertising spend but only 5 percent of all online advertising in the sector. Borrell projects that figure will grow by an additional 26 percent in 2005.

Although online spending increased across the board in the automotive sector, the industry’s ad expenditures in traditional ad formats, such as broadcast television commercials, print ads in auto industry magazines and newspapers, and radio spots, declined slightly in automotive advertising share.

“It’s not that the other advertising media are ineffective at generating sales, so much as the media mix is being thought out again and adjusted,” Borrell said. “What the proper mix will be is something that will require a few years to determine, but I wouldn’t be surprised to see shifts as large as 10 or 15 percent in coming years.”

Borrell Associates is not the only research organization to identify the fault lines of growth within the automotive sector. In an advertising report issued in January, cars.com found that 65 percent of local dealerships reported changing the way they advertise online, spending more on contracts with third-party providers to drive traffic to their sites and generate sales.