Social Media and the Automakers

Automakers are finding it difficult to decide where to spend their advertising budget dollars to get the most bang for the buck. Take General Motors (NYSE: GM) for example whose $4.47 billion ad budget remains unchanged from the 2011 budget. Among the ad decisions it made, GM decided to skip advertising during the last Super Bowl (with 111 million viewers), but is a major sponsor of this year's upcoming Summer Olympics on the NBC networks.

It not long ago decided to pull paid ads from Facebook (Nasdaq: FB). The move to pull ads from Facebook, despite its 900 million members, highlighted something that new investors to the social media giant are finding out about the hard way with its falling stock price. There is yet little consensus in the ad industry as to what sort of return companies will get by advertising on Facebook.

So until that consensus emerges, some firms like GM will opt to not advertise there. Advertisers like GM are still coming to grips trying to understand the more interactive platforms – social media and mobile devices – and will not commit to Facebook and Twitter until there is a definitive way to measure the success of an ad campaign.

Investors should not freak out though as this is really nothing new. In the last century, advertisers were also reluctant to begin advertising on the new forms of media such as the television and the radio until they became better established.

Where GM and the other automakers spend their ad dollars is a high stakes game for media companies, both new and traditional such as the television networks. Why? Because no other sector spends more on advertising than the automotive sector which spent a full 17 percent of all the US advertising dollars last year, according to Kantar Media.

Many of those dollars went to the TV networks such as the number one network, CBS Corporation (NYSE: CBS), although the numbers are slowing drifting downwards for the networks. Automobile companies are expected to allocate 39.6 percent of their ad budgets to TV this year. This compares to 41.4 percent last year and 42.3 percent in 2010.

That gradual downward trend for firms like CBS is due to the rise of non-traditional media outlets like Facebook. Global ad revenue at Facebook will top $5 billion in 2012, up from $3.15 billion last year. Mobile ad spending in the US is expected to jump from $1.45 billion in 2011 to more than $10 billion by 2016, says research firm eMarketer.

This change in the allocation of ad budgets has been led by other industries, but it seems the automobile industry (despite the GM-Facebook parting) is catching up. In fact Ford Motor (NYSE: F) took a jab at GM after it made the announcement to drop Facebook advertising. Ford tweeted “It's all about the execution.” Ford went on to say that its Facebook ads are effective since they are combined with engaging content and innovation.

Overall online ad spending is forecast by ZenithOptimedia to climb by 16 percent this year. However, automakers will spend $11.9 billion of their total $30.9 billion advertising budgets online in 2012, up 39 percent from last year, according to Borrell Associates. This shift to online media only makes sense for the automakers. Think about the shift in how consumers purchase vehicles today who gather much of their information and comparison shops for cars online.

The macro trend of shifting to online advertising by the auto industry and others will continue in a big way. The only question facing investors in companies such as Facebook will be how much you are willing to pay for such growth in their ad revenues?

This article was originally written for the Motley Fool Blog Network. Make sure not to miss any of my daily articles for the Motley Fool by going to http://blogs.fool.com/tdalmoe/.