Zenith’s Automotive Advertising Expenditure Forecast was released this week, and it makes interesting reading for the car industry and those associated with it, including the advertising and marketing sectors.
In the short term, Zenith predicts the global ad market will decline by 9% overall this year, and advertising spend by global automotive brands will be particularly hard hit, falling by around 21% in 2020 as a result of the COVID-19 pandemic. The data is based on 10 key markets, namely Australia, Canada, Germany, India, Italy, Russia, Spain, Switzerland, the UK and US. These markets collectively account for 57% of all global ad spend.
The report mentions that the spread of the coronavirus and its effect on the global economy have left consumers uncertain about their financial futures and unwilling to commit to large purchases. It also cited car manufacturer disruption to their supply chains due to shut-down plants in different countries at different times. “Faced with pressure on both supply and demand, car brands cut their ad budgets very sharply when the severity of the crisis became clear. The months of April and May had the greatest decline in most markets."
However, the good news is that Zenith predicts a rebound in automotive ad spending in 2021 and 2022, predicting growth of 10.5% in 2021 and 11.4% in 2022 - outperforming the rest of the trends in the wider advertising market.
Some of the main reasons for this growth will be based on delayed purchase decisions and ongoing reluctance to use shared and public transport, which are expected to lead to the first growth in passenger car sales in the surveyed markets since 2017.
I would add another consideration, which is the great deals which the automotive industry is currently offering to new customers, including offers by several manufacturers to cover the first three monthly PCP repayments. It is hoped that all of this will reignite demand and fuel sustained growth in the automotive industry and in automotive advertising through to at least 2022.
This good news is tempered slightly by the fact the automotive ad spend is still expected to net out around 2.8% lower than it was in 2019, so the industry is in for a bumpy road. However, in terms of growth, the Zenith report was optimistic that automotive advertising has the potential to outperform the rest of the ad industry beyond 2022.
Spending Breakdown (...the good kind of breakdown)
The report said that while automotive advertisers spend less than many other sectors on digital advertising, it remains the most important single channel for car brands. They spent 42% of their budgets on digital channels in 2019, below the 49% spent by all brands on average.
Television is the next-biggest channel for automotive advertisers. Indeed, they spend around a third of their budget on television (32%), which is 5% more than the average brand. It will be interesting to see how quickly car brands will react to streaming services overtaking linear television in some core markets like the UK, and indeed how the end of the Brexit transition period plays into predictions for the UK market specifically.
Car brands are less prominent in magazines and out-of-home. They have traditionally invested heavily on cinema ads, which has been hailed as a strong channel to reach young, relatively well-off audiences and to build a brand. However, with cinemas being mostly closed for the past 6 months, this hasn't been as solid an option for some months.
The car industry does favour radio ads (a significant proportion of radio listening takes place in cars), and the report noted that automotive brands spend substantially more on newspaper advertising (11%) than the average non-auto brand (7%). However, it is worth remembering that this is an average across the 10 markets mentioned above, and the figures are said to be skewed by Germany and India where newspapers are still popular with well-educated, wealthy readers.
The road ahead
Looking ahead, Zenith predicts that digital advertising will be the only channel in which auto brands spend more in 2022 than in 2019 - with impressive growth of around 9% on digital spend by 2022 compared with 2019. It notes that “Even before the pandemic, digital channels were becoming more important in the path to purchase and the pandemic has only accelerated that trend.”
It predicts that newspaper ad spend by the ad industry will be substantially lower in 2022 than in 2019, perhaps falling by over 25%.
Zenith's predictions in relation to out-of-home and cinema may be less certain. The report states that “Out-of-home and cinema... are forecast to recover strongly in 2021 and 2022 from their very steep losses in 2020 which were caused by social distancing restrictions. Still, out-of-home auto ad spend is forecast to decline by a net 10 per cent between 2019 and 2022, while cinema ad spend is forecast to decline by 16 per cent." Even these figures seem slightly optimistic in light of the recent trends which indicate that we are already in the grip of a second wave of the pandemic which means a continuance or reintroduction of many social distancing restrictions.
Room for growth
Jonathan Barnard, Zenith’s head of forecasting, said the coronavirus recession has been particularly tough for auto brands making it especially important for them to adapt to consumers’ changing behaviours and needs.
To end on a positive note, Australia and Canada appear to be the most advanced markets for automotive digital advertising, each devoting more than 70% of total spend to digital channels, and the report indicates that there is still potential for further growth in digital ad spend in those markets and several others, including the US and India.
“Brands that have got closer to their customers online, by investing in first-party data and personalised communication, will be well-positioned to benefit from resurgent demand during the upturn,” - Jonathan Barnard, Head of Forecasting, Zenith