Analyst's Say Automakers Will Increase U.S. Ad Spending

DETROIT, Dec 5, 2003; Reutersreported that automakers have revved up their spending on U.S. advertising, boosting it by about 16 percent this year as the market becomes ever more competitive and highly promotional, an industry analyst said on Friday.

John Casesa of Merrill Lynch said in a research report that U.S. automotive ad spending was seen totaling about $9.9 billion in 2003 compared with $8.5 billion a year earlier.

Citing industry sources and reports in automotive and advertising trade publications, he estimated that total spending was likely to increase another 7 percent to 8 percent in 2004, to about $10.7 billion.

Factors driving the rise, which will put pressure on auto earnings, include a flurry of new product launches -- especially from Detroit automakers -- and the growing need to "sell the deal" amid intensified consumer incentive activity, Casesa said.

"The nature of advertising spending in the auto industry is changing," wrote Casesa, who estimates that advertising and marketing expenses now account for more than 15 percent of automotive revenues in the U.S. market.

"Evidence is mounting that advertising is becoming an increasingly fixed cost, as it is essential to compete in a free-for-all characterized by converging market shares, oversupply, and shortening product cycles."

Casesa noted that spending on car ads had risen steadily since 1995 with the exception of 2001, when it declined due to a weakening U.S. economy and the events of Sept. 11.