Dealers reevaluate ad spending in pandemic

Nielsen Automotive Group scaled back much of its paid advertising this spring as it grappled with state orders from New Jersey to close showrooms to slow the spread of the coronavirus.

The dealership group restarted some minimal spending in June, said Colin Carrasquillo, its digital marketing manager. But Nielsen, which has six franchised dealerships and a used-only store in New Jersey, won't approach advertising the way it did before the pandemic. Carrasquillo said that going forward, he will more strictly assess whether the group's ad sources are delivering the best results for the money.

"I will tell you, the spend is so much smarter," he said.

Many dealerships are reevaluating how they advertise — not just how much they spend and on which platforms, but whether that investment ultimately produces sales. Some retailers and dealer advertising consultants say that laser focus is an outgrowth of dealers' efforts to control costs this spring, when state actions to contain the virus restricted many stores' sales operations.

Several dealership managers, including Carrasquillo, told Automotive News they cut everything from paid-search campaigns to third-party lead generators to direct mail starting in March. Although vehicle sales have recovered and some dealerships have modestly boosted spending in recent weeks, dealers aren't in a hurry to ramp back up. Some said leads, organic search traffic and sales picked up despite the lower ad spend, and they're inclined to run lean to see whether that continues.

With the shift in approach comes more experimentation. Several dealers said they supplemented paid marketing efforts with their own organic social media content highlighting digital retailing tools or sanitizing protocols.

"This is how we should have operated all along," Carrasquillo said. "How can we become more efficient with our expenditure? And it's crazy that it took a pandemic to finally wake up, if you will, and say we have not been doing a good job of that."

More than three-quarters of dealership leaders who responded to an Automotive News survey in March said they likely would cut marketing budgets. Such cutbacks sidelined advertising at a time when dealerships normally would have promoted spring sales events, according to some dealership marketing vendors.

Those vendors say ad spending could still be crimped in the near term by uncertainty about the virus's spread, the potential for more state shutdowns and tight vehicle inventories.

Longer term, more dealerships will look for advertising efficiencies — better results at a lower cost — out of necessity for the bottom line, some consultants said.

"I've been trying to get our dealer clients to do that for years, and it took an unfortunate incident for people to kind of embrace that mindset," said Nick Brunotte, digital solutions director for DHG Dealerships, who helps dealerships assess their digital advertising spending.

"It's just a mental shift and a willingness to let go of the way things used to be because it's no longer the best way to do things," he added.

Franchised dealerships spent an average of $554,292 on advertising in 2019, or $640 for each new vehicle retailed, according to the National Automobile Dealers Association. The average spend through the first two months of 2020 outpaced the same months in 2019, but the figure dipped in March and slid even more sharply in April, the most recent month for which data has been reported. Through the first four months, advertising expenses slid 14 percent, NADA reported.

The spending generally hit its lowest point in April before starting to rebound in May and June, according to data multiple dealership advertising vendors shared with Automotive News. How dealers adjusted their budgets depended in part on geography, since some parts of the country were hit harder by COVID-19 than others.

"They're in a very low-margin business, and they need to be efficient in order to be able to turn a profit, so dealers rarely will accelerate spend before they feel like doing so will sell cars," said Jeremy Anspach, CEO of dealership digital advertising vendor PureCars. "As they saw more and more consumer confidence, more and more people willing to do social distancing but be released from their stay-at-home orders, spend started back up."

While spending through PureCars is up in May and June compared with the low point, it still lags February's pre-virus levels, the company reported.

Dwayne Lane's Auto Family in Washington state turned off at least 70 percent of its paid advertising starting in April after the state had prohibited most vehicle sales, said Sheila Countryman-Bean, the five-store group's marketing and public relations director.

Dwayne Lane kept up a minimal spend to keep its name active online but turned off paid-search campaigns, paid social media and traditional TV and radio spots, Countryman-Bean said.

The group today has resumed at least 40 percent of its normal paid advertising, including some TV and digital video, she said. Still, the retailer has "drastically reduced" its TV budget. Dwayne Lane routinely advertised during televised sports events, but professional leagues suspended games for months.

"We're just waiting to see if they're going to allow those things to start," she said.

TV and print are more expensive than digital media and harder to measure, yet many dealers have long advertised there, said DHG's Brunotte. Dealers can track data about digital ads to learn how customers interacted with the content and whether the messages got in front of shoppers likely to buy. That's harder to gauge from TV or print viewers, making it tougher to determine the value, he added.

Rob Sight Ford in Kansas City, Mo., maintained its paid Facebook advertising and plans to increase investment there, said Bobby Sight, the dealership's operations director. He also now cultivates an audience through organic videos, which showcase incentives and cleaning practices. He also has paid for advertising campaigns on some of those videos.

Sight said the store pulled back on paid-search campaigns — possibly forever for used vehicles. It slashed its budget for paid new-vehicle searches by at least 70 percent from pre-pandemic levels because inventory was low.

Despite no paid-search spending on used vehicles, June was the best month for used vehicles in volume and gross profit in the history of the dealership, Sight said.

"We've all gotten a really good chance to evaluate what we think we really need and what we think works and what we can cut," he said.

LotLinx CEO Len Short, whose company targets likely buyers with ads for specific vehicles in dealership inventory, said he estimates some 20 percent of dealership advertising might never come back.

"If I'm smarter about this, more efficient, I can restore margins, and I can do just fine in terms of volume," Short said. "And they will take margin over volume every day."

Search engine marketing, or pay-per-click, typically makes up about half of Nielsen Automotive Group's digital advertising budget, Carrasquillo said. While it's on hold, he said, some of the group's stores sold more vehicles in June than a year earlier and at a higher gross profit per vehicle.

Some of that may be the result of pent-up demand. Even so, Carrasquillo said, he is now rethinking search engine marketing in general. If Nielsen decides to restart it, he would buy fewer generic search terms that deliver more eyeballs, though at a higher cost per click, in favor of specific keywords that cost less and generate less traffic but may attract serious shoppers.

"If I don't have to spend the money to get those kind of results," he said, "why would you?"