GM bankruptcy will be felt by sports teams, media as ad spending diminishes
The bankruptcy of General Motors Corp., one of America’s biggest advertisers, deals yet another blow to TV stations, newspapers and magazines that already are reeling from the recession.
Sports franchises also could feel the sting, with analysts expecting the automaker to continue cutting back its multimillion-dollar sponsorships of professional teams.
GM shelled out $2.1 billion on advertising last year, second only to Procter & Gamble Co., according to Nielsen Co.
A company trying to emerge from Chapter 11 can’t spend billions on advertising, though. The Obama administration asked Chrysler, the other member of Detroit’s Big Three automakers currently in Bankruptcy Court, to halve its proposed marketing budget, which indicates that advertising could be one of the many things reduced as GM restructures.
GM executives acknowledge that their marketing budget is smaller this year than last, though they declined to say by how much. Chief Financial Officer Ray Young said the company would market its remaining brands heavily despite a 2009 budget he termed “a low point.”
The company’s woes ripple more broadly. By the end of next year, GM plans to eliminate nearly 2,500 dealerships that might otherwise buy local advertising. U.S. ad spending fell 2.6% in 2008, according to Nielsen.
“You have a double whammy with dealerships shutting down and manufacturers curtailing their ad spending,” said Gordon Borrell, chief executive of research firm Borrell Associates. “It’s across the board hitting everybody.”
GM sponsors at least one team in each of the four major professional sports leagues, said Jim Andrews, senior vice president of IEG Inc., a research and consulting firm that tracks sponsorships.
The automaker pays about $5 million to $10 million a year to Major League Baseball, a deal it renewed before this season began, he said, and about $1 million a year to sponsor teams in the National Basketball Assn., National Football League and National Hockey League.
But GM has been rolling back some of its sports sponsorships, deciding not to renew its deal with the U.S. Olympic team, which Andrews estimates was worth about $7 million. It also has scaled back its NASCAR sponsorship and ended Buick’s nine-year endorsement contract with golf star Tiger Woods.
In the short term, the GM filing is likely to hit already struggling TV stations and newspapers the most dramatically, Borrell said, because both get a large percentage of their advertising revenue from dealer groups and dealerships. Some television stations get half of their advertising dollars from the automotive category, he said.
Last year the category accounted for 11% of all dollars spent on newspaper advertising -- $2.5 billion, according to TNS Media Intelligence. Newspapers are hurting badly, with ad sales down 30% in the first three months of the year, the Newspaper Assn. of America said Monday.
Companies typically market cars through three tiers: Manufacturers pay for commercials that advertise new models or push a brand nationally, dealer associations corral voluntary contributions from regional dealers into ad campaigns, and individual dealers advertise pricing and perks to get customers into their lots.
Dealer spending shrank 24% last year from 2007, and manufacturer spending decreased 10%, according to TNS Media Intelligence.
Advertising from dealer associations has suffered as more car dealers decide they don’t want to spend on group advertising when they have to cut back so much in other areas, said Peter Welch, president of the California New Car Dealers Assn. Many are opting out of assessments, the voluntary 2% contribution they put into funding the regional dealer ads.
“The dealer is saying, ‘Look, no one is buying cars, I’ve already laid off 40% of my workforce, I can’t afford to be doing assessment anymore,’ ” Welch said.
There is a bright spot for advertisers: used cars. Borrell expects used-car advertising to grow 6.7% in 2009 from the previous year, after being down 3% in 2008. Sites such as Autotrader.com, a marketplace for used cars, are seeing increased revenue as more advertisers flock to their sites, Borrell said.
“That’s where all the action is -- buying quality used cars,” he said.
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Times staff writer Ken Bensinger in New York contributed to this report.
