Are auto brands going slow on marketing to cross semiconductor shortage hurdle?

The global semiconductor shortage has come up as an unexpected challenge for automakers around the world. The undersupply of this crucial component – because of a confluence of problems such as insufficient capacities at manufacturing units, the pandemic, and the tense socio-economic environments across the globe – has slowed down the production process for new vehicles.

Each company is dealing with a long list of pending orders. In India alone, carmakers are sitting on the books of 7 lakh pending orders as of December 2021, according to the recent Economic Survey 2022.

Additionally, as per reports from the Society of Indian Automobile Manufacturers (SIAM), passenger vehicle sales in December 2021 were down by 13 per cent on a year-on-year basis. The country’s two-wheeler sales also plummeted to the lowest in the last 9 years because of fuel prices going up and owing to the decreasing purchase power in rural districts, courtesy rising inflation.

According to dentsuMB Managing Partner Indrajeet Mookherjee, “This Covid-induced semiconductor shortage disrupted car sales across the world and it also resulted in higher waiting periods and lower production in India as well. Mass car makers who have higher volumes have been feeling the heat more with an average 10 per cent sales slump month on month while premium car makers who have secured the supply side are still able to grow their volume share.”

Sharing more on the crisis, Grapes CEO Shradha Agarwal says, “Very evidently, the semiconductor shortage has impacted the industry quite a bit. We have seen new launches taking a hit over the past two years and it will take some time for the situation to normalise.”

Impact on AdEx

All this has now affected marketing spends and strategies of leading carmakers in the country. The industry is of the opinion that the brands are being very cautious about how much, and where all they are spending their precious ad monies.

Initiative CEO Vaishali Verma highlights, “We work with a lot of auto brands and the last two years have been pretty stressful for the industry. While the demand is there, because of production-related problems, the supply is limited. And this paired with accelerated inflation, and increasing crude oil and fuel prices, made the first five months of 2022 very grim as well. We have witnessed the category slashing down at least 60-70% of their marketing budgets.”

However, things have slowly started looking up post-Covid, in terms of the AdEx of auto players.

Mookherjee notes, “There was a Covid-induced dip in AdEx for auto brands in the last 2 years. However, there has been an upsurge after Covid. With markets and dealerships having reopened, there has been an evident increase in demand for cars in urban HHs in the post-Covid world. Also, newer entrants along with existing players are driving the AdEx, especially in the SUV segment. The auto sector is expected to contribute nearly 7% to the overall AdEx, becoming the 3rd largest segment after FMCG and E-commerce in 2022.”

How have marketing strategies evolved?

Even as the situation around semiconductors remains dubious, with the next two years projected to be slow, the marketing strategies have surely evolved for the industry.

When it comes to the media pie, print, which has been a mass favourite for the auto industry, has slowly started taking a backseat as digital comes to lead the roost. Television spends, on the other hand, have largely remained stable.

“From an overall perspective, the auto sector’s dependency on print is reducing and digital is gaining momentum. The presence of big-ticket sporting events and consistent viewership means TV spends are stable. Cinema, Radio and OOH are seeing a reduction in terms of expenditure and these budgets are increasingly being diverted to digital. In the digital online space, paid video search and social media are witnessing exponential growth,” Mookerjee elaborated.

He further said, “From a communication point of view, we are in the middle of a great shift from advertising to experiences. With data at the centre of everything, communication will be tailor-made to specific customer clusters based on their needs & experiences.”

As for Agarwal, the industry is resorting to spending more on seasonal/festive campaigns, “Print, radio, and OOH all are seeing a reduction in ad revenues. GRPs on television are paused, with not much incremental growth happening. These brands, therefore, are surviving largely off digital where the ad rates are quite low and affordable, while offering better targeted reach.”

Verma further said the industry was now doing more of “quick to action” ads instead of brand or intent building. “The idea is to get more and more people to experience the product, get them to test drive and order a vehicle. Performance-driven campaigns are taking centerstage.”

What brands say

The leading auto brands in the country, however, are focusing only on the positives of the time: increased demands, growing purchase intent for several categories, and maintaining a robust production portfolio.

A Tata Motors company spokesperson told e4m, “The demand for our ‘New Forever’ range continues to be strong. The same has been reflected in our May 2022 month sales, where we have recorded our highest ever monthly sales of 43,341 units, since the inception of the PV business, reporting a growth of 185% over the same period last year. All our products are leaders in their respective segments, forming a portfolio that is rich in selections, ranging from smart trim choices to strong powertrain options, making us the only OEM catering to customer needs across petrol, diesel, CNG and EVs. Furthermore, while the semi-conductor situation and supply-side challenges remain uncertain, we continue to monitor the situation closely, while remaining agile, taking prudent actions with our multi-pronged approach and finding innovative solutions with our suppliers to debottleneck production capacities. These actions have helped us on an ongoing basis and have not let the shortage impact the supply side to a large extent.”

Maruti Suzuki Senior Executive Director - Marketing & Sales, Shashank Srivastava, in an earlier interview with e4m had mentioned, “We have a good portfolio of vehicles, about 15 at present, which is the largest in the industry. Different models require different types of chips. We tried to adjust the production plan to keep pace with the supplies of chips. The production, which was about 40 per cent last September, has now come up to 93 per cent. It would take some more time for things to become normal. And I can't say how much time it is going to take due to non-visibility in the global supply chain.”

He had further claimed, “The auto industry’s advertising expenditure would increase 15-20 per cent as compared to the previous year. Last year, the auto segment accounted for Rs 5,000 crore of AdEx, out of overall Rs 57,000 crore expenditure on traditional media platforms, keeping digital aside. Half of it, that is roughly Rs 2,500 crore, was from car manufacturers alone.”

Mercedes-Benz India Vice President – Sales & Marketing Santosh Iyer quips, “The global auto industry continues to face disruptions and delays stemming from chip and container shortages. However, we are witnessing a better-than-expected recovery. Despite supply chain challenges, we expect 2022 to be one of our best years ever in India in terms of sales, as for the first time we have an order bank of over 5,000 cars.  The continued high demand for our new launches is evident from our recently launched C-Class which registered more than 1,000 confirmed bookings even before its price announcement. We have sold every car available with us, and the waiting period ranges from two months for some models to two years for speciality cars such as the G-Class.”

Speaking of the impact on marketing plans, Iyer adds, “The vehicle shortage has certainly had an impact on our marketing plans and we have shifted focus from advertising to CRM. We have been investing our resources in curating very luxurious and exclusive experiences for our customers and prospects like sending them to Paddock clubs for F1 races, creating unique AMG emotion tours and many other experiences that money cannot buy. We are using this opportunity to build strong relationships and further strengthen our brand ethos of ultimate luxury. Marketing spends have also accordingly shifted from performance media campaigns to brand campaigns and customer experiences.”