Auto Bailout Won't Help Advertisers

Detroit's Big Three have announced their turnaround plans. But the fact that the U.S. automakers aren't going belly up does NOT provide the ad industry any reason to breathe a sigh of relief.

The advertising industry is very much reliant on the Big Three, and though they'll be sticking around, they'll also be cutting way back on ads. General Motors (GM) CEO Rick Wagoner said in congressional testimony two weeks ago that the company would pull back on its ad spending and shift its focus to more efficient web ads. And just this week GM pointed to a 20 percent decline in auto advertising spending from 2008 to 20012. Now the reality of leaner auto advertising is really starting to sink in.

Yesterday Morgan Stanley analyst Benjamin Swinburne releasing a report that says the bear case for vehicle sales suggests an additional 100 to 200 basis points of downside on top of its current projection of an 8 percent advertising decline in 2009.

Local TV would suffer the most, as it derives 12 percent of revenue from auto dealers. Newspapers see 7 percent of their revenue coming from local and regional dealers. And the fact that the auto makers are planning to reduce the number of their auto brands will take its doll on broadcast networks; those flashy ads for Cadillacs and the like comprise 10 percent of their ad spending. The stock losers are of course those most exposed to local TV advertising, including CBS, News Corp (NWS), and Lamar (LAMR). The ad industry is already facing so many challenging headwinds, which seem to be whipping up into a perfect storm. What else could possibly pile on next?