What Are Your Auto Dealers Doing with Their Tier 2 Ad Money?

BY Kathy Crosett
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Auto dealer advertising has undergone a huge transformation in the past few years as they’ve shifted spending to digital channels. That change has impacted the future of Tier 2 ad money. The market continues to experience additional disruption from the COVID-​19 pandemic. As a result, Cox Automotive predicts full-​year sales for the U.S. in 2020 will amount to 14.3 million units. While that figure is far lower than the 2019 sales level, the market has improved significantly since the second quarter and both automakers and their dealers are bullish about 2021.

The Auto Ad Market

Automakers are looking for the best way to help dealers promote their new models and financing deals. One of the biggest changes in the auto advertising ecosystem has taken place at the Tier 2 level.

Just to review, the auto industry advertising structure includes the following tiers:

  • 1 — Automakers
  • 2 — Dealer associations
  • 3 — Dealers

Borrell Associates pegs the automotive ad market at $33 billion with automakers accounting for 32%, franchised dealers 53%, and dealer associations 4% of the total.

In his analysis for digitaldealer​.com, Alex Russo reviews the historical significance of Tier 2 advertising funds. Dealers and OEMs pooled funds to promote models and deals on traditional TV. Ads for New England-​based dealers displayed snow covered roads at the right time of year, for example. Viewers in the Southeast saw ads with a far different landscape.

Then, digital advertising became a more popular way to reach buyers. Russo explains that Tier 2 funds aren’t working as effectively for dealers. Tier 2 was initially designed for TV. Now, many agencies who set up regional digital ad campaigns, using Tier 2 funds, don’t properly set up direct to dealer links. Dealers are left wondering whether the ROI in Tier 2 advertising is worthwhile.

The Future of Tier 2 Ad Money

Russo makes the case that digital agencies who have pitched the OEMs and the dealer associations and won the contracts to provide digital marketing services should become adept at using technology. This better use of technology will allow dealers to see how well their advertising is working for them.

Some automakers may insist that their digital agencies make these changes. Another solution is to go the route that Mercedes-​Benz has taken. Starting next year, Mercedes-​Benz will change its Tier 2 budgeting strategy. About half of these funds will be allocated to dealers to use. “The rest will be funneled to the brand's national marketing program.” In this way, local dealers will have more funds to spend in the market that they understand well.

2021 Ad Planning

As you work with your local auto dealers to plan the 2021 advertising calendar, ask them what’s happening with Tier 2 funds. If they’ll have access to more OEM support, they may want to increase their advertising, on the digital and traditional front. Given the frustration that dealers have voiced about how Tier 2 funds are working for them, they may be able to talk their suppliers into shifting more local ad money their way.

You can help them understand their digital profile by running a Digital Audit in AdMall from SalesFuel.