The spread of the novel coronavirus and its impact on the global economy has left consumers feeling uncertain about their financial future and unwilling to make large purchases. Car manufacturers have also suffered from disruption to their supply chains as production has been shut down in different countries at different times. With the pressure on supply and demand, car brands slashed their advertising budgets as the severity of the crisis became clear. The months of April and May saw the sharpest decline in most markets. Since then, year-on-year declines have eased and Zenith expects to see a gradual recovery as the year progresses.
"In Switzerland, the picture is even more dramatic in an international comparison. Here, the market for automotive advertising has collapsed by 38.8% this year, which is significantly more than the global average," explains Maria Brinkmann, Managing Director of Zenith Switzerland. "Spending is down by double-digit percentages in all media categories. Cinema is losing the most (-70.4 percent). Digital advertising got off relatively lightly with a drop of 29.8%."
Above-average growth in advertising revenue expected in the coming years
For 2021 and 2022, Zenith anticipates above-average growth in automotive advertising spend of 10.5% in 2021 and 11.4% in 2022. Initially, this year's sharp decline will ease the comparison in 2021, but delayed purchasing decisions and a continued reluctance to use public transportation are expected to lead to the first increase in car sales since 2017. This motivation will also spur continued growth in automotive advertising in 2022.
Nevertheless, automotive advertising in 2022 will not yet return to the level of 2019, but will be 2.8% lower than in the year before the coronavirus outbreak despite a rapid recovery. Automotive advertising will therefore recover less strongly than the overall market, which is expected to be only 0.6% below the 2019 level in 2022. In the years after 2022, automotive advertising has the potential to outperform the market again.
"For Switzerland, we expect a strong increase in automotive advertising investments of 29.7% in 2021 and another moderate 0.9% in 2022. However, the 2019 level will not be reached here either by 2022. There is a gap of 100 million francs," says Maria Brinkmann.
Car brands invest largely in digital advertising - but less than the market
Digital advertising is the single most important channel for automotive brands. Nevertheless, automotive brands invested around 42% of their budget in digital channels in 2019, while the average brand across all sectors spent 49% digitally. Automotive brands are also less prominent in magazines and out-of-home.
Television is the second largest channel for automotive advertisers. This is where they spend significantly more of their budget (32 percent) than the average brand (27 percent). Television remains an important platform for building brands for their mass audiences, although premium digital environments are starting to take over this role for some audiences. Car advertisers are also spending more money on cinema, which is good for brand building with a young, relatively well-off audience. They also invested in radio advertising, as radio is often listened to in the car and therefore proves to be a particularly relevant medium for motorists.
Worldwide, automotive brands invest significantly more in newspaper advertising (11 percent) than the average brand (7 percent). This is mainly due to two markets: Germany and India. In both countries, newspapers still have a wide reach among well-educated, affluent readers. Car brands are capitalizing on their ability to communicate more detailed information such as brand values, specifications and accessories.
"In Switzerland, too, car manufacturers invest the most, namely around a third of their advertising budget, in digital measures," explains Maria Brinkmann. "The second strongest channel is TV at 27%, closely followed by out-of-home advertising at 22%. In our view, out-of-home advertising will even overtake TV by 2022."
Digital advertising: the only channel forecast to grow
Zenith predicts that the digital channel will be the only channel where car brands will spend more in 2022 than in 2019. Brands will focus more on premium digital video to offset declining primetime ratings and make better use of their customer data to better target digital advertising. Even before the pandemic, digital channels were becoming increasingly important in the path to purchase, and the pandemic has only accelerated this trend. Zenith expects this to continue in the coming years. Car brands are forecast to spend around nine percent more on digital channels in 2022 than in 2019.
In Germany, digital channels will not recover as quickly, meaning that investments in them will not reach the 2019 level in 2022 either.
Newspapers and magazines have been losing market share for years as their readers migrate to the internet. Zenith predicts that by 2022 they will barely regain any of the advertising revenue they lost in 2020. Newspaper advertising revenues will therefore be 27% lower in 2022 than in 2019, and magazine advertising revenues will fall by 28%. In contrast, out-of-home and cinema will recover strongly in 2021 and 2022, following even greater losses in 2020. Nevertheless, Zenith expects out-of-home advertising to decline by a net ten percent between 2019 and 2022, while the number of cinema ads is expected to fall by 16 percent.
Television and radio will remain important media for automotive advertising, with relatively modest declines of six and seven percent respectively between 2019 and 2022.
Australia and Canada as pioneers in digitally led automotive marketing
Australia and Canada are the most advanced markets for digital advertising in the automotive industry, each spending more than 70% of total spend on digital channels. Even here, there is potential for further growth - the share of digital spend in Australia is expected to increase from 75 percent in 2019 to 79 percent in 2022 and from 72 percent to 75 percent in Canada.
In other markets, the growth potential is even higher, especially in those that are currently lagging behind. Zenith forecasts that the digital market share of car advertising in India will increase from 15% in 2019 to 23% in 2022, in Switzerland from 27% to 33% and in the USA from 31% to 38%.
"The coronavirus recession has hit automotive brands particularly hard, making it especially important for them to adapt to changing consumer behaviors and needs," says Jonathan Barnard, Head of Forecasting at Zenith. "Brands that have moved closer to their customers online by investing in first-party data and personalized communications will be well positioned to benefit from the resurgence in demand during the recovery."