• by Erik Sass  @eriksass1, June 12, 2007

Last year ranked as the eighth-strongest year on record for new car dealerships, with most dealers faring well despite a dip of 3% in dollar sales to $675 billion.

That's according to a recent report from the National Automobile Dealers Association. But this same performance didn't translate into ad revenue for newspapers--just the opposite, in fact. It's yet another ominous indicator for newspapers, which historically relied on the classified and national display auto ad categories for 10% to 15% of their total revenue.

Until 2005, national display ads were a relatively bright spot for newspapers, continuing double-digit growth on a year-over-year basis through the last quarter of that year. However, the trend reversed sharply in the first quarter of 2006, and national display ads eventually plummeted 41% to $516.3 million for the full year. In addition, automotive advertising's share of total national advertising in newspapers fell from 10.73% in the last quarter of 2005 to just 4.45% in the same period of 2006.

The trend is even more evident in classified advertising, despite the fact that dealerships' used-car sales actually increased during 2006.

Historically, dealers have advertised their used-car inventories in the classifieds--but a 4% increase in average transaction prices and a 3% increase in gross sales did nothing to benefit the print classified category. In 2006, print revenues for auto classifieds tumbled 12.8% to $3.99 billion, compared to 2005. And the trend appeared to be accelerating in the first quarter of 2007, when revenues fell 20.1%, compared to the same period in 2006.

The ad dollars leaving newspapers are headed primarily to two other media: TV and online.

TV, a mainstay for auto dealers and carmakers, received 19.5% of dealership ad dollars in 2006 compared to 17.3% in 1996, according to the NADA report. In those 10 years, the Internet--a new category--has grown to 11.5% of total spending in 2006. Online auto advertising topped $2.3 billion in 2006, and it's expected to reach $4.2 billion by 2011, according to a separate report from Borrell Associates. Meanwhile, newspapers fell from 52.2% of ad budgets in 1996 to just 27.3% in 2006.

Newspapers have tried to tap into the online surge by forming online networks that pool their car listings. One of the most successful, Cars.com, is operated by Classified Ventures, LLC, co-owned by Belo Corp., Gannett Co. Inc., the McClatchy Co., Tribune Co. and the Washington Post Co. First-quarter earnings reports from the individual newspaper companies suggest the network is posting double-digit growth. However, online classifieds constitute a small proportion of total newspaper revenues, between 5% and 10% for most newspapers.