Self-Competition?

Here's a provocative question: What's the real value of local dealer advertising groups — also known as tier two advertising?

According to a study by Borrell Associates Inc. there are approximately 1,500 dealer-ad associations that spent a total of $6.5 billion on advertising in 2006, which accounted for 24.7% of all advertising spend by auto makers and dealers.

Despite all of that money, many dealers tell me they aren't sure of the value. In fact, during our March Ward's Spring Training Conference on Automotive Marketing, a panel of dealers and ad executives examining tier two advertising could not even agree as to what the purpose is for those ad groups.

Is it branding, or is it to drive showroom traffic? Maybe it's both. Manufacturers want to build the brand while dealers want to increase sales and often, the two objectives don't always fit together.

Typically, the manufacturer has exerted a lot of control over the tier two advertising message, and that at times, creates rancor among its dealers.

But that dynamic seems to be changing, right? I'm not so sure. It's true that General Motors Corp. did turn control of the local dealer ad groups back to the dealers in April. Ford Motor Co. is doing the same thing.

But in GM's case, one executive at an ad company tells me he suspects it's a bait and switch move. On one hand, GM lets its dealer associations control the money and ad spend — at least in the area of traditional outlets, such as T.V., radio and newspapers.

Meanwhile, GM is moving much of its advertising spend — $3 billion worth — to the Internet. It's also encouraging its dealers to start putting more of their ad spend online.

The question is, as GM's ad groups spend more online, how much control will GM maintain over that spend?

It's something for GM dealers to keep an eye on the next several months.

We'll see whether the same scenario happens with Ford.

I suspect OEMs will begin to exert more control as more money gets spent online.

It's already happening. I've received several e-mails from dealers selling imports in recent weeks that they've received from their regional managers.

One import auto maker sent letters to dealers in its Denver region instructing them not to buy key words on Google and Yahoo for their stores, and instead, let the local dealer ad group handle it.

The move ostensibly is to reduce the competition for search terms between tier one, tier two and tier three advertising, which is another issue.

For example, an OEM, its dealers and the local dealer ad groups are competing for the same search terms. What happens is a dealership essentially competes against itself, if it is participating in the local dealer ad group's advertising, too.

There certainly will be some interesting, and perhaps, painful conversations in the next year as dealer ad groups find their place in the Internet age.