“General Motors Marketing Could Be Next Major Cut” by Andrew McMains, Brandweek

Published November 28, 2005

It’s the fourth quarter and time for General Motors to renegotiate agency compensation. It’s an annual rite, but this time the talks come amid another round of cost-cutting at financially troubled GM, which said last week that it would eliminate 5,000 jobs on top of a previously planned cut of 25,000.

The more sweeping cost reductions, which also include partial and full plant closures, and health coverage give-backs from GM employees, may mean deeper concessions from GM’s dozen or so agencies, said sources. In past years, GM has asked roster shops to accept slimmer profit margins; this time GM is said to be focusing on incentive compensation, with the No. 1 automaker looking to toughen the criteria for such bonuses. There also is expected to be a greater emphasis to be placed on sales results, while other metrics, such as ad recall, will remain in the mix.

“We are in the process of reviewing our plans and the plans that drive our budgets,” said a GM representative. “The two principles that we always act on [and are acting on now] are efficiency, but also effectiveness.”

Despite all the cost-cutting and an uptick in sales during the summer when GM offered employee pricing, some industry analysts maintain that the automaker should go even further to reverse its sagging fortunes. One suggestion has been to eliminate some nameplates, such as GM did in 2000, when it moved to fold Oldsmobile.

Publically, however, General Motors has rejected such talk.

“We are not considering dropping a brand. We don’t discuss it, think about it or analyze it,” said Mark LaNeve, General Motors vp-vehicle sales, service and marketing for North America. “You can certainly argue that we didn’t help our share by dropping Oldsmobile.

“Our plan is to sharpen the positioning, product plan and identity for each brand [and] make sure each brand has a specific role and run the business that way. The issue is not how many brands, its how well you manage them.”

The automaker typically spends more than $2 billion a year in the U.S. on measured media, per Nielsen Monitor-Plus.

A consultant who handles compensation negotiations between clients and agencies said GM’s look at further compensation reductions seemed logical, given its larger problems. “It’s fair and reasonable for agencies to tighten their belts when clients have to tighten theirs,” said Arthur Anderson of Morgan Anderson Consulting, New York. “In good times, agencies likely get more. In tough times, they likely get less.”

Interpublic Group appears to be the most vulnerable as six of its shops handle eight GM assignments: McCann Erickson (Buick, GM corporate image duties), Campbell-Ewald (Chevrolet), Lowe (GMC, Saab), Mullen (GM credit cards) and Deutsch (which joined the roster last month, picking up marketing duties on three Chevrolet sponsorship deals).

Other roster shops include Publicis Groupe’s Leo Burnett (Cadillac, Pontiac), Omnicom Group’s Goodby, Silverstein & Partners (Saturn) and Modernista! (Hummer).

GM is in “pretty dire straits,” said a top executive at a GM shop, “and agencies better be pretty empathetic.” An executive at another roster shop added, “Agencies are getting crushed. There’s a huge squeeze going on right now. Whether agencies buy into or not, who knows? But they’re out there in Detroit talking about it.”

—with Karl Greenberg and Aaron Baar

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