➤ Average dealership media spending is increasing but remains below historical levels.
➤ Internet allocations account for the majority of dealer advertising.
➤ Streaming video services are driving some of the recent growth in internet advertising by car dealers.
Between the pandemic and the supply chain shortage, auto dealers have cut back on their ad spending in recent years. The average dealer outlay in the first half of 2022 was almost $347,000, up marginally from 2021, but below pre-pandemic levels, according to data from the National Automobile Dealers Association. Total dealer ad spend was up about 2% year over year to $5.81 billion through June but lagged outlays from last decade. On a full-year basis, dealers collectively spent $10.2 billion in 2020 and almost $11.3 billion last year.
S&P Global Market Intelligence caught up with Patrick Manzi, NADA's chief economist, to discuss the trends he's seeing. Supply chain issues continue to limit on-lot inventory, and that has led to significant sticker increases for new and used cars. NADA anticipates that supply and inventory levels will not approach pre-pandemic levels until 2024. An edited transcript of the conversation follows.
S&P Global Market Intelligence: What are you seeing in terms of ad spending from dealers?
 National Automobile Dealers Association Chief Economist Patrick Manzi |
Patrick Manzi:
There are differences now in the type of ads you're seeing. It's not, "Come on down and get a deal today," but rather "Come in and place a pre-order" or "Come look at our [certified pre-owned] vehicles."
Production is not going to return to more normal lev
Yes. That's what we're hearing from the [original equipment manufacturers]. They are still dealing with supply constraints. One day, it's chips; the next day, it's tires. And then it might be wire harnessing.
There is also turmoil in Europe. Germany is dealing with an energy crisis resulting from the Russian war in Ukraine. It might be a case where the German government stops manufacturing because there isn't enough gas for people to drive.
There are so many variables. What if there is another COVID surge in China and the energy situation escalates in Germany? Then the progress that has been made stops, and things could get pushed back another six months or so.
But barring major incidents, you're forecasting a return to a more normal vehicle supply in 2024?
Hope so. Roughly 70% or 80% of production for the U.S. market happens in North America, so we're somewhat insulated that way.
However, production of some European brands, especially those made on the continent, is likely to continue to be disrupted. So that could limiting factor. The OEMs have done a lot of work the past year to try and shore up their supply chains. But it may be something we haven't seen yet. Maybe window glass is the next thing — who knows what it will be? So, that's the risk.
We expect the production flow to go right to the lots and consumers. Sales are expected to grow a little in 2023, but there won't be much of an inventory change. The available vehicles will be sold.
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Your dealer ad spending breakdown by medium shows that the internet leads the way by a substantial margin, taking almost 64% of share last year, versus just over 12% for TV stations.
It has risen significantly. The internet was at 56% in 2019, 60.7% in 2020 and then 63.6% in 2021.
That's just not traditional digital spending. It counts advertising running on the steaming services. We think the spending there is driving the increased share, rather than additional straight-up ad spending on sites like cars.com.
The price of used cars has skyrocketed. Through June of this year, the average transaction was $30,796, compared with $21,094 in 2019. But they're starting to level off a bit?
Used prices are falling to some extent as some consumers are opting to fix their own cars, or waiting until the market cools. Things are going to correct a bit, with prices falling back to somewhere between the pre-pandemic levels and the peak.
What about new cars? The average price through June was $45,646, versus $36,824 in 2019. Are sales going to continue to be strong relative to the available supply?
With new cars, there is still a good bit of pent-up retail demand from consumers. But even if there is a recession and that retail consumer demand cools, we think the fleets are going to look at opportunities. People are traveling again. The cars they are renting are getting really old.
New vehicle sales were above 17 million from 2015-2019. Now, NADA is looking at some 14.2 million this year, up to 15.2 million in 2023 and 16 million in 2024?
At this point, I think the 2022 number needs to be revised down a bit. I look at this every quarter and the reports from one of our data providers suggested that production would pick up. But that hasn't really materialized. It won't be a dramatic cut, but maybe 14 million or a little below.
Okay, so dealers are selling fewer cars, but at higher prices. That means these last two years have been good?
Yeah, 2021 was a great year for the average dealer and 2022 could be just as good. Dealers and OEMs are happy, but they would both love to sell more cars.
Are younger people buying more cars? I saw that new vehicle registrations for millennials surpassed those of baby boomers during the first half of 2022.
There was a lot of investment in ride-sharing before the pandemic. A lot of people were speculating that millennials didn't want to buy cars. To an extent, you could make that claim.
When the great financial crisis hit, the millennial generation was disproportionately affected. It took them longer to get in a position to buy cars or get married and move to the suburbs. That's happening now, especially as older millennials are now getting into their peak earnings.
Another thing to consider is the size of the millennial generation. Even if a smaller share of millennials purchase new cars, there are so many people in this generation that I expect demand to continue at the same rate as over the past decade.