Auto, Pharma's Peril Is Not Deterring Ad Dollars

Massive layoffs and plant closings announced recently by major U.S. automakers General Motors and Ford, and by pharmaceutical giant Merck, among others, will not adversely affect ad dollars they have spent and are planning to spend on the broadcast and cable networks, at least in the short term. In fact, most financial analysts and media agency executives believe that if these financially troubled companies hope to turn their fortunes around, they will need to keep using television to move their products."To get out of a bad financial situation, you have to not only cut costs, but also sell more goods," said Ray Warren, president of media agency Carat USA. "You have to show the consumer that you continue to be optimistic about your products. If you don't advertise, you might as well go out of business. And if you're a marketing executive for one of these companies, television is traditionally the safer place to advertise than nontraditional media. This is not the time for these companies to experiment by throwing spaghetti against the wall."While GM has been looking for nontraditional ways to promote its brands, even within TV, it not only purchased a sizable amount of scatter time on the broadcast and cable nets in fourth quarter, but it did not exercise cancellation options on its first-quarter upfront ad holds. Ford and Merck also will continue to have a significant presence on TV, although Merck will see the patent on its top-selling cholesterol drug, Zocor, expire early next year, meaning the company will most likely stop promoting it as heavily."We continue to approach them with ideas, and are having active conversations with GM and their agency," said one cable network sales exec."The American auto companies still need to move metal," said one broadcast network sales exec who declined to speak for attribution. "Their production numbers for each car brand, as well as new car launches and incentive programs, are what drives their spending. It has very little to do with staffing levels. Plus, with foreign automakers building more production plants in the U.S., the American automakers have to decide how much they want to concede any further share of the market."Overall, Merrill Lynch is forecasting flat spending for the auto category in 2006. "Several factors should prevent an outright decline, as spending per unit will likely remain strong," said Merrill analyst John Casesa, who added that a generally more competitive market and a heavy new model launch schedule should cause ad spending per unit to rise.Despite the layoffs and financial shortfalls, the TV ad marketplace is quite robust. Cancellation options for the Big Six nets for first quarter averaged 2 to 6 percent, relatively low. And several sales execs said they were surprised at the heavy influx of fourth-quarter scatter that began with the start of the November sweeps. Many networks took in strong scatter ad dollars at above-upfront prices from wireless, video-game, automotive and packaged-goods advertisers. Many cable nets also reaped the benefits of those additional scatter dollars."It seems like many companies held back some ad dollars in the upfront and are now beginning to release those dollars in fourth and first quarter," one network exec said.

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Auto, Pharma's Peril Is Not Deterring Ad Dollars

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