2011 Honda InsightEnlarge Photo
The supply of vehicles from Japan—and those assembled in the U.S. with parts from there—is being negatively affected by the March 11 earthquake and tsunami. The result is Japanese automobile manufacturers and their U. S. dealers wondering, “Why advertise if you don’t have the product?” As a consequence, there are initial signs of advertising budgets being reduced because of dwindling supplies of vehicles.
Yet, these same car makers and dealers are between a rock and a hard place: they stand to lose long-term market share if they don’t keep American consumers engaged with their product. The latter is accomplished by spending a ton of money on radio, TV, print, and online advertising.
Massive advertising budgets
The U.S. auto industry was the largest advertiser in the country last year. Car makers and dealers spent over $13 billion trying to convince consumer to buy their vehicles. According to a recent article by Reuters, over half that amount was spent by manufacturers, with dealers responsible the remainder.
However, both Japanese car makers and dealers are in a bind. On one hand, why spend hundreds of millions of dollars on advertising if you don’t have enough cars to meet demand? There is also the danger of driving customers to dealerships when they don’t have enough cars to sell. This sets up disappointment and dashed expectations on the part of car buyers. The last thing these car makers and dealers want to do is develop a negative attitude with their customers that can hurt them in the long run.
Yet, if Japanese car manufacturers and dealers don’t make their name and brand recognition a priority with the American consumer, they could end up losing even more market share to the domestic Big 3, and other non-Japanese imports.
Losing market share
The primary Japanese brands of Toyota, Honda, and Nissan are already under pressure from shifting market forces. The Ford Motor Company is experiencing an upsurge in sales in the U. S. The same is true for the Korean car makers Hyundai and Kia. As Japanese car manufacturers and dealers face dwindling inventories, car buyers will have no choice but to switch to other makes, creating even more opportunities for these brands, and others.
I recently spoke with Anthony Pordon, a Senior Vice-President with Penske Automotive about the impact of dwindling Japanese inventories at their Honda, Acura, Toyota, and Lexus dealerships. Penske is the second largest auto dealer in the U.S. Pordon said that he expects their inventories will be more severely affected come June. He doesn’t expect the full brunt of those supply chain problems to peak until the third quarter of this year.
It will be interesting to see how Japanese car makers and their U.S. dealers shift advertising budgets in response to the upcoming shortage of cars to sell.