Auto AdSpends: How third-wave volatility & supply-chain challenges impact the AdEx?

With the onset of Omicron and the global semi-conductor shortage in the auto industry, players across luxury and electric vehicles share how changes in consumer consumption and production subsequent impact Auto AdSpends.

The pandemic has undoubtedly had an impact on the auto industry, particularly on the supply side, affecting production cycles and other factors. It has presented a number of production challenges, ranging from component availability to labour and resource costs. Automakers were able to weather the storm when COVID-19 was in its early stages of prevalence because there was no major production disruption. However, many supply chain issues surfaced in the second half of 2021, affecting the volume of production significantly. Auto AdSpends and advertising formats also show certain changes.

The auto industry in the H1 of 2021 was up by 57% over the last year, however, H2 was slow because of the supply chain constraints and shortage of semi-conductor. With rising cases of COVID-19 in 2022, Social Samosa finds out the growth prospects of the industry and how automakers are strategizing their communication t acknowledge the same.

Experts tell us that while the constraints will continue to affect manufacturers in the medium and short term as Omicron spreads, the industry will grow in the long run, contributing at least 8% to the overall advertising expenditure.

Growth Prospects In 2022

The auto industry witnessed recovery in 2021. The luxury car segment grew at 39% in 2021 and Audi India saw a 101% increase in sales.

In 2022, as per the company spokesperson, the company is expecting sales to pick up – however, it has to keep into account the semi-conductor shortage and the Omicron wave. As a brand, it expects double-digit growth in 2022.

Even though the automotive industry has stood its ground for the past two years, 2022 will be no exception, as per MG Motor India. The company spokesperson expects the situation to remain gruesome in 2022, owing to unforeseeable factors like freight cost, COVID-19, and other cost implications.

As compared to the year 2020, MG exhibited a growth of 21.5% for Hector, 145% for ZS EV, and 252% for Gloster in 2021.

Shashank Srivastava, Senior Executive Director, Marketing and Sales, Maruti Suzuki, shares that in the calendar year of 2021, the industry had a good growth of almost 26% over the previous calendar year. CY 2020 witnessed 2.43 million passenger vehicles being sold and in 2021 it grew to 3.08 million.

“This is the only third time in the auto industry in India that the calendar year has crossed the 3 million mark. Despite having two major challenges of semi-conductor shortage and the second wave which was hugely spread, the industry achieved over three million sales in 2021. This gives a lot of optimism for the current year. Demand in terms of inquiries and bookings has been strong, which has fuelled hope for the future. Also, since commodity prices seem to be high, there will be pressure on increasing the prices. In short, lots of optimism and also uncertainty for 2022,” Srivastava adds.

There are many factors that are uncertain including the third wave. Challenges such as uncertainty in fuel prices, inflation, and how the economy will perform, remain.

The COVID-19 pandemic has been a speed breaker for the auto industry on several counts. The silver lining, however, is that the electric vehicle industry has received a resoundingly positive response and acceptance from both the public and the government.

According to Yogesh Bhatia, CEO, LML, India is making significant progress in terms of supply chain restrictions, and he expects the government to play a key role in providing infrastructure to help reduce the reliance on foreign sources for components and goods.

Despite constraints, Jeetender Sharma, MD and Founder of Okinawa Autotech, says that the industry will continue to grow in the long run.

“It all boils down to manufacturers' long-term planning when it comes to managing their supply chains. Companies that are heavily reliant on imports, for example, will continue to be impacted, whereas those that have built a strong domestic supply chain will be unaffected – where we can proudly say that our products are more than 90% localized,” he adds.

The two-wheeler tyre industry, it grew by 23% in terms of volume over the previous year. H2 started off well, however now with the third wave and the rising number of cases, the consumer sentiment appears to be between neutral and negative, and this is felt more in metro markets and the bigger cities, shares Kavitha Ganesan, General Manager - Marketing, TVS Eurogrip.

She believes the bounce-back will be faster this time, as the impact of the new variant of the virus is not as severe as the earlier one.

Strategy For Growth

For Audi, the focus remains to run a sustainable and profitable business. This year, the company has multiple launches lined up and will continue to work on its ‘Strategy 2025’ that focuses on four key pillars – Human Centricity, Digitalization, Products, and Network.

“One cannot predict any upcoming lockdown; however, what we have seen so far is that walk-ins may not be 100% in showrooms and this is where our Digitalization strategy plays a crucial role,” says the company spokesperson.

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For EV makers, there has been an unprecedented growth in the last two years. There is a significant shift in preference, with more consumers opting for owned vehicles than travel by public transport. In the aftermath of the pandemic, not only the focus on personal hygiene, safety, and social distancing has increased, but at the same time, people have become more environmentally conscious.

Consequently, Okinawa Autotech has seen a growth momentum. The company is now all geared up to meet the mushrooming demand with an extensive line-up of products backed by a wide distribution network.

Sharma says, “With the introduction of new restrictions across states and speculations of a potential lockdown, the only thing that changes is the increased emphasis on communication. Timing is everything when it comes to marketing your products. If tapped well, this can prove to be a game-changing period for the EV- auto industry.”

No Holding Back On Spends

Srivastava shares that consumers still look for trust as a major brand differentiator (this year) and building trust through communication will be a continued priority for Maruti Suzuki this year as well. He further adds that the company will increase its ad spends for this year, at least by 10% on the back of the new launches, sustenance, and lower end of the funnel activity for the conversion.

“I don’t think advertisers will hold back on spending. If there’s no major disruption due to the pandemic, advertisers will continue the spending. Auto industry’s contribution to the AdEx will be somewhere in between 8-10% (which was 7.5% in the last couple of years),” he says.

For this year, Bhatia suggests the tone of advertising must be one of reassurance and faith, rather than simply publicizing the products on the market. Brands, in his opinion, need to step up their game and learn how to engage emotionally with their customers. Only such businesses will be able to establish long-term relationships with their clients.

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Audi too doesn’t plan to hold back on spends due to the third wave and doesn’t expect a drastic impact on the AdEx.

For Okinawa Autotech, AdSpends will continue as before in order to maintain momentum. Its advertising budgets are primarily allocated to mass spending across electronic, digital, and print channels.

While the industry might not see a major holding back of advertising spends, the medium of communication and allocation of advertising budgets between media may change, says Ganesan. She says it will see a heavier skew towards Digital and OTT.

With many exciting and futuristic products being built under various categories globally, the AdEx is only set to grow, experts suggest. However, what may change is the choice of ad formats, the types of vehicles that are marketed, and how they are marketed.

Sharma says that the industry may soon see a focus on microsites and immersive experiences delivered through ads to engage viewers in a never-before manner.

Article by Akanksha Nagar.