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Closing Chrysler Dealerships Won’t Kill Local Stations

NEW YORK: Wachovia analysts anticipate minimal impact from the closure of 2,000 car dealerships.

“We do not anticipate a significant hit to local advertising revenue for even the most exposed companies,” wrote Wachovia’s Marci Ryvicker and Timothy Schlock, listing three primary reasons for their assessment. “Many of these dealerships were failing or unprofitable for years, and therefore had already cut ad spend significantly. Many of these dealerships were considered ‘fringe,’ i.e. non-core dealers, and did not spend on local broadcast or outdoor; and all of auto had already pulled back on ad spend given the high gas prices in the summer of ‘08 and the recession.”

Ryvicker and Schlock creating an exposure index by analyzing media companies in markets where Chrysler dealerships have closed. General Motors dealerships weren’t yet factored in because closures won’t come until next year. Both car companies filed for bankruptcy in the last two months. They were among the top U.S. advertisers in 2008, with GM at No. 2, spending $2.1 billion, and Chrysler at No. 10 spending 1 billion. Chrysler is cutting 789 dealerships; GM, 1,323 dealerships by fall of 2010.

“Total ad spend in auto was down 16 percent in 2008 versus 2007,” they noted. “Breaking this out by local media--auto was -20 percent for television, -22 percent for radio, -3 percent for outdoor and -18 percent for newspapers. Bottom line… local media has already taken a significant hit from all levels of auto ad spend. Therefore, we do not expect further material declines just because of the Chrysler/GM dealership closings. That is not to say there won’t be an incremental impact, but it is likely small.”

Closing Chrysler dealership are more concentrated in urban markets, the duo said, though 75 percent of the nation’s designated TV markets have at least one dealership on the chopping block.

“The companies most at risk of incremental declines are pure-plays in small- and mid-sized markets,” they wrote. “While our exposure indices show that both Emmis and CBS have the most overall revenue and asset exposure, respectively, to markets where Chrysler dealerships are closing, these two companies do not have the most incremental risk to numbers, given that large markets are dominated by foreign rather than domestic auto OEMs and dealers. We are most concerned about small and mid-market companies such as Citadel, Hearst and LIN TV.”
-- Deborah D. McAdams