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Automakers rev up ad spending

November 23, 2010
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 this month. John Casesa of Merrill Lynch said in a research report that U.S. automotive ad spending reached about $9.9 billion in 2003 compared with $8.5 billion in 2002. 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," said 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." Spending on car ads rose steadily since 1995 except for 2001, when it declined due to a weakening U.S. economy and the events of Sept. 11, Casesa said.