I could not believe how many car commercials were on television this past week. It seemed like every time I turned on the television, there was another one. Since it was the last week of the year, it made me curious about two questions:
- What share of television commercials come from the auto industry?
- Is there real pressure to reduce inventory at year-end and give consumers deals?
Advertising by Automobile Industry. Of all the sectors or media of advertising, television advertising is the largest with over $67 billion in annual revenues. (Advertising media include television, digital, print, radio, and outdoor/billboards.) Interestingly, the digital sector, which includes internet and mobile devices, is now the second largest advertising sector and generates $40 billion in revenue.
The automobile industry is the largest spender of television advertising dollars – reportedly between 12% and 15% of $67 billion, and the largest advertiser in the digital segment. Some recent reports in the Wall Street Journal indicate large advertisers like General Motors are actually reducing television commitments and shifting dollars into digital. This may be a sign effective digital advertising allows companies to target buyers more successfully than television advertising.
The top five selling brands of cars in the United States are: 1) Ford, 2) Toyota, 3) Chevrolet, 4) Honda, and 5) Nissan, respectively. And, according to the Television Bureau of Advertising, these five brands are the top five investors in television commercials in the same order except Honda and Nissan switch places.
Christmas and Year-end Selling. Consumers do buy cars for the holidays and at surprising levels. According to a recent article in Business Week the holiday buying season now starts on Black Friday. There are even small niche businesses that thrive by making those large bows dealers and buyers can put on the car “presents.” December is now often the month with the most unit sales.
Two other forces affect December sales. First, manufacturers and dealers want to reduce their inventories by year end. Second, and perhaps most important, many dealers are trying to hit their unit sales quotas. Whether or not they hit the quota can make a huge difference in their profitability and, of course, the bonuses paid to their teams of people.
Good Deals for Buyers. I read a survey report a few years ago that concluded consumers dreaded buying cars more than any other purchase. Many feared the interaction with car salesmen. But now the playing field seems to have tilted in favor of the savvy buyer thanks largely to the internet, which has helped buyers get better deals without dealing with salespeople. Unfortunately for dealers, this has trimmed profit margins to the point where many dealers only make money if they hit their monthly unit quota. And that is why you can often get the best deal in the last days of a month or year – your one car purchase could decide whether a dealer receives an “all or nothing” huge, quota incentive payment.
Recently, I listened to a podcast on This American Life called “Cars.” The reporters spent one month at the Town and Country Jeep dealership on Long Island. While I was surprised the dealership gave them such intimate access, it likely helped increase their sales in the end. The piece definitely supports a few of the stereotypes we have about car dealers, but also introduces us to the human side of being a car salesperson. Here are a few of my takeaways.
- Dealers have monthly quotas they must hit. This dealer had to sell 129 new Chrysler or Jeep vehicles. If they hit the quota, they would get paid somewhere close to $85,000. If they did not, they would get nothing.
- Salespeople have monthly quotas that trigger bonuses and they can be impacted if the dealership does not hit their quota. I infer from the report that the quotas and bonuses vary by salesperson and that the salespeople know the quotas for everyone. At Town and County the top salesman, Jason, will again likely sell 30 new cars that month, far more than his nearest competitor. The average salesperson sells 15 cars.
- Like other research I have read about good salespeople, they are mostly motivated by the “close” itself. They get a rush when the customer drives away with a car. Each successful salesperson has his or her own special sales approach or strategy. The most interesting to me was Manny, who had actually studied Sun Tzu’s The Art of War. To Manny he was the “tiger” and the customer was the “deer” and he had to eat. He went into detail about his strategy, which is called “Present them with the unexpected and they will fall apart.” He actually showed the reporter a video about the Battle of Cannae, when this technique was used. He also gave the reporter a recent example and how it worked with the customer.
- In the last days of a month, if the dealer is behind their quota, they will sell cars at a loss because of the huge quota check they might lose. They even sell cars to family members so as to hit the quota.
While the cynics among us believe the purpose of television advertising is to drive us, the deer, into the mouths of tiger salespeople, I think it is the wise deer in the end that benefits most. If we can wait and buy our car at the end of the month and get comfortable using the internet to do the shopping, both the deer and the tiger will flourish and enjoy life.