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Tuesday, June 18, 2013

Why are there still car shows?


This is the third in a series of guest posts by Mike Smitka's students, drawn from the Economics 244 course blog.
...marketing has changed, auto shows haven't...
Shanghai Auto Show
The marketing "world" today is significantly different than that of 40 years ago, but motors shows today are remarkably similar to those of the 1960's. As the Shanghai Motor Show of a few days ago came to a close, it occurred to me that car shows in general seem to have lost much of their original purpose, or at the very least have not adapted to the internet.
First, given the ease with which the cars are frequently discovered before they even make it to the show, the main purpose of showing off vehicles which the public has never seen before doesn't seem to make sense. Take the new BMW X4 – virtually no one was surprised at the design, because it was available on the internet long before the show. Secondly, the argument that the purpose of the shows is to get as much exposure as possible for new vehicles also seems to fail, because the companies could just as easily provide images of the cars (which is what the vast majority of people see anyway, given that most people are not able to attend these shows) via the internet.
Perhaps one could make the argument that the sense of festivity associated with these shows creates publicity that would otherwise not exist, but given the high costs associated with auto shows, that argument doesn’t quite seem to hold water. It seems to me that the PR departments associated with these shows will find ways to show off their vehicles significantly more cheaply via the internet. Unless there is a big piece of the puzzle that I am missing, it seems likely that motor shows will at the very least be scaled down significantly.
...Blake Grady...
The Prof: I think that’s an empirical question. How many people visit? – the big January show in Detroit — formally, the North American International Auto Show — attracts over 100,000 and gets exhibitors with cars many people may never otherwise see up close. Furthermore, people like to kick tires, and an auto show beats schlepping from dealership to dealership, indeed car companies hope it will be a prelude to that. Think of this co-location as a positive externality.
For the big shows, there's another positive externality: having lots of journalists in the same place at the same time, you can get more people to your product announcement than if you did it independently. Part of the attraction is the cars; part is that lots of executives show up and make themselves available for interviews. If you're from the New York Times, as our dinner with Bill Vlasic [and reading his book] made clear, you've got good access to senior management, year-in and year-out. Bzut if you're from a "small" publication — a Japanese car magazine or Polish newspaper – you can't just call up GM's CEO and expect a callback. Finally, there's an auto journalist motto: eat free or die. You don't go thirsty, either. (Thanks to Ward's Auto Dealer I attended the Chrysler [journalist] Christmas party last year, there was clear disappointment that so few execs were in attendance.) The bottom line is that these journalists are all filing stories, lots of newspapers and other outlets highlight the shows and carry reviews. Critically, internet content doesn't just appear out of thin air: the car shows all have their journalist previews a day (or two full days) before the shows open.
Hoopla helps, and is expensive to generate on your own. So as an economist, let’s call this another positive externality.
Are shows crucial to car nuts? No. Yet … the car companies need to get someone to generate the content that car guys seek out. Auto shows have their role.
That said, some shows have fallen by the wayside, when too few auto companies attend and sponsors can't recoup their venue costs. Journalists such as those at Automotive News can attend only so many events, and when SAE (the Society of Automotive Engineers) conflicts with an auto show, well, it's not SAE that gives way.