Auto Ad Decline Expected to Continue

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By: Jennifer Saba

Don?t expect any pick-up in auto advertising revenue, according to a note issued by Wachovia Equity Research.

Senior Analyst John Janedis and his team conducted a survey of 140 auto industry experts with a 20% response rate and found that ?there appears to be further auto related [earnings per share] risk,? wrote analysts.

?Several ad categories have contributed to the weakness in the newspaper industry over the past few years, perhaps none as much as the classified auto category,? wrote analysts.

The company most at risk: McClatchy. Auto advertising revenue at the Sacramento-based company makes up the largest percentage of total ad revenue in Wachovia?s coverage universe. For the industry at large, auto classified and national advertising represents about 9% of total newspaper ad revenue.

In Q1 2007, Wachovia tracked auto ad revenue trends across the companies it covers. The Journal Register Co. was down 20.7% followed by The New York Times Co., down 19%; McClatchy, down 16.1%; Tribune, down 16%; Gannett, down 13.5%; and Lee Enterprises, down 9.8%. For those companies collectively, in Q1, auto ad revenue was down on average 15.8%. April is off to a worse start. Wachovia calculated that on average, auto ad revenue for the group dropped 14.7%.

Blame the woes of the U.S. auto manufactures for the fall off in revenue. Fifty-two percent of respondents said auto print national ad revenue is forecast to be down 6% in the Q2. Of that group, 30% are even more negative, estimating a decline of 11%. The big three automakers are cited as the reason for the decline in national ad revenue.

What comes out in the report is how the domestic auto industry is going through the same challenges as the newspaper industry. The manufacturers are chasing after the young at the expense of older demo groups who tend to buy autos more. Some could say the same thing affects newspapers trying to win the affections of young readers while turning away their older, core audience.

In the note, Wachovia cited anecdotal comments from survey participants. One made this observation: ?Print is never going to re-establish itself as strong as it was prior to the Internet. But, print is still very important to reach specific key targets that are upscale, don?t watch a lot of broadcast, and are mature and educated. In other words ? the people buying new cars. Domestic autos are alienating their core buyers who are older, just a time when the nation is getting older.?

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