Weird Cor­re­la­tions 101: As pri­mary sea­son gears up, car sales down­shift

Cam­paign ads squeeze out their ads, cost­ing them sales “There has al­ways been ten­sion in the past”

Bloomberg Businessweek (Asia) - - CONTENTS - −Tim Hig­gins

With the pres­i­den­tial pri­maries less than a month away, one con­stituency is dread­ing the com­ing bar­rage of political ad­ver­tis­ing more than any other: auto deal­ers. In swing states, cam­paign ads can soak up a third or more of lo­cal broad­cast tele­vi­sion ad­ver­tis­ing time, crowd­ing out car deal­er­ships, typ­i­cally the big­gest buy­ers of lo­cal TV ad time. That’s had a mea­sur­able ef­fect on auto sales in political battlegrounds.

Yearly auto sales have fallen only twice dur­ing pres­i­den­tial elec­tion years since Lyn­don John­son beat Barry Gold­wa­ter in 1964, ac­cord­ing to Ed­munds.com. But Ken Gold­stein, a Bloomberg Pol­i­tics an­a­lyst and pol­i­tics pro­fes­sor at the Univer­sity of San Fran­cisco, and Carly Ur­ban, an eco­nom­ics pro­fes­sor at Mon­tana State Univer­sity, say that when political ads dis­placed car ads, auto sales weren’t as good as they might have been.

Na­tion­ally, the rate of new-auto sales slowed by 1.5 per­cent just be­fore the last pres­i­den­tial elec­tion—but by three times as much in mar­kets such as Cleve­land and Las Ve­gas that had the most political ads, ac­cord­ing to an anal­y­sis of data from mar­ket-re­search firms Kan­tar and Kel­ley Blue Book. In Cleve­land, the num­ber of car ads that ran on lo­cal broad­cast sta­tions in Oc­to­ber 2012 dropped 16 per­cent, to 4,553, from the pre­vi­ous year, while the num­ber of political ads soared to more than 27,000. Car and light truck sales rose just 5 per­cent in the greater Cleve­land metro area, while na­tional sales gained 16 per­cent, ac­cord­ing to Kel­ley Blue Book. “Ohio was car­pet-bombed with political TV ads in the months be­fore the 2012 elec­tion,” says Bernie Moreno, who runs the Col­lec­tion Auto Group, a chain of car deal­er­ships around Cleve­land. “We were not able to get our mes­sage out as ef­fec­tively.”

Auto deal­ers spent $8.1 bil­lion on ad­ver­tis­ing in all of 2014, with the av­er­age dealer al­lot­ting $114,145 to TV spots, ac­cord­ing to the Na­tional Au­to­mo­bile Deal­ers As­so­ci­a­tion. Dur­ing the 2016 elec­tion sea­son, Kan­tar’s Cam­paign Me­dia Anal­y­sis Group pre­dicts, lo­cal tele­vi­sion sta­tions may get more than $3 bil­lion in political ad spend­ing.

Can­di­dates and su­per PACs have al­ready pumped an es­ti­mated $112 mil­lion-plus into lo­cal broad­cast tele­vi­sion ad­ver­tis­ing, buy­ing more than 113,800 ads, mostly in Iowa and New Hamp­shire. By law, political cam­paigns are guar­an­teed the low­est rates for air­time, based on prices of­fered a year ear­lier. Su­per PACs, which this year will out­spend can­di­dates, pay mar­ket rates, and are of­ten will­ing to pay a sub­stan­tial pre­mium to book air­time at the last minute.

In 2012, ac­cord­ing to Gold­stein and Ur­ban, in weeks when political ads made up less than 2 per­cent of lo­cal broad­cast spots, lo­cal deal­er­ships bought about 14 per­cent of air­time de­voted to ads. When political ads spiked above 30 per­cent of avail­able ad time, auto ads’ share fell to 6 per­cent. “There has al­ways been ten­sion in the past, es­pe­cially in mar­kets where the political con­tests are the hottest,” says Kip Cassino, an an­a­lyst with Bor­rell As­so­ciates, a Vir­ginia-based com­pany that tracks me­dia trends.

This year, deal­ers are try­ing to main­tain mo­men­tum af­ter sell­ing a record 17.5 mil­lion new cars and light trucks in the U.S. in 2015. An­a­lysts pre­dict 2016 growth will be slower. “When you talk about look­ing at 2016 as one that’s fol­low­ing a record year, ob­vi­ously it’s not too dif­fi­cult for us to see the mar­ket con­tract,” says Alec Gu­tier­rez, an an­a­lyst for Kel­ley Blue Book.

TV ex­ec­u­tives usu­ally bend over back­ward in ad­vance of the elec­tion sea­son to make sure deal­ers are taken care of, ac­cord­ing to Steve Lanzano, head of TVB, a trade as­so­ci­a­tion for broad­cast­ers. “The sta­tions are very good about try­ing to be ac­com­mo­dat­ing to the ad­ver­tis­ers that are with them 365 days of a year, vs. those with them four to six weeks, maybe, ev­ery other year,” he says. But the uptick in su­per PAC spend­ing ex­pected this year may make it harder for sta­tions to honor time promised to loyal clients. Moreno, the Cleve­land-area dealer, isn’t tak­ing any chances. He’s shifted most of his ad bud­get to dig­i­tal and plans to “only spend a very small part of our bud­get on TV.”

The bot­tom line An anal­y­sis of 2012 ad data shows auto deal­ers lost sales when their ads were el­bowed out by cam­paign com­mer­cials.

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