The big 3 autos and how it will affect Advertising Revenues

Nov 19, 2008 by Paul White

For the past 8 years the 3 Major US automobile manufacturers have been in decline.  Now its looking more  realistic that at least one of them will go belly up.  All three of them might even have to file for chapter 11. Considering that these three companies are some of the biggest spenders in TV, Print, and Radio advertising. This could have a trickle down effect that will surely affect your bottom line. 

Mchael Brush from MSN money wrote an interesting article titled: What if GM goes broke?

"

The hit to the press:

Foreign automakers such as Honda, Toyota and

Volkswagen

spend far less on splashy newspaper ads than U.S. car companies do."

My gut instinct.

At least one of the major companies will go belly up ( GM is most likely ).  This is both good and bad.  Bad because it will severely impact the unemployment rate. Good because most of the consumers who previously bought GM will go out and buy a Ford or Chrysler.  This assumes that people who buy a domestic car usually stay loyal to domestic cars. 

The local impact.

Most dealerships will close their doors. Forget about getting parts for your car.  Simple stuff you can find at autozone and will still be available, but the kinds of parts that only GM makes will no longer be available.  This will surely result in a rapid depreciation of your GM car's resale value.  Unless of course a third party buys that side of the business from GM ( similar to what happend to Deloreon ).  Some local dealerships will try to continue to opperate on just their used car business and the service side, which are the bigger money makers for the businesses.  Some may try to get franchise rights to become a Toyota or Honda dealership.  However the imports don't like taking the mcdonalds approach to selling cars.  Toyota and Honda would rather increase prices than to just over saturate a market ( similar to what GM did in recent years ).  There will be lots of radio and TV spots to fill ( especially late at night ) where GM, Ford or Chrysler previously filled.

Recommendation:

Might be a good time to make friends with the sales manager at your local Toyota dealership.

Who is to blame:

Many would say that GM's leadership is mostly responsible.  And even today GM's top executives refuse any kind of government bailout that will result in them loosing their 7 figure salaries.  But GM used to be a profitable company.  They have always opperated this way.  In my honest opinion it all goes back to housing.  When Bush came to power, he pushed to get every person into a home.  It was his belief that eveyone should be a homeowner.  So he pushed some initatives that made credit very easy to get.  Cheap credit is the root cause of this entire mess.  Money is not created, it is simply displaced from one sector to another.  By making credit cheap ( meaning low interest rates, with little or no proof of income ), people who previously could not get approved for a loan could now get approved for not only a home, but a pretty nice one too.  This caused the Supply ( homes for sale )to demand ( People wanting homes )  ratio to dramatically change.  Home prices as a result went through the roof.  Now when you take people who only make $2000 / month, and allow them to buy homes with a mortgage payment of $1500 / month.  You get people who are living beyound their means.  These same people who used to live in an apartment for $700 / month now don't have the additional cash flow to spread into other parts of the economy ( such as buying a new car ).  GM didn't change, but GM's customers got drawn into buying a home that they could not afford.  Then of course everyone gets foreclosed. This causes panic on the financial markets, and as a result credit get tight again,  even more so than before.  Now people who want to buy a GM car can't even get approved for their car loan.  This is the root cause of GM's problems.


Related Categories