Ad Agencies On The Hook For Bankrupt General Motors
June 03 2009 - 2:04AM
Dow Jones News
Bankruptcy at General Motors Corp. (GM) deals another blow to
the media industry just as negotiations are set to begin for TV
networks seeking to sell the majority of their inventory for the
new programming season this fall.
Ad markets have been weakening throughout the financial crisis
and economic downturn, and while GM's bankruptcy was widely
predicted, the company's bankruptcy filing provides more details
about the financial strain the process could bring to Madison
Avenue.
Starcom Mediavest Group Inc., owned by ad giant Publicis Groupe
S.A. (PUBGY), is listed as GM's sixth-largest creditor - ahead of
GM parts supplier Delphi Corp. (DPH) - with $121.5 million worth of
exposure to the bankruptcy. Publicis also was listed separately as
a creditor, owed $25.2 million.
Starcom is GM's ad-buying agent, and the firm has apparently
spent a bundle on the automaker's behalf that may not be paid back,
depending on how bankruptcy court proceedings unfold.
Jill Kelly, a spokeswoman for Starcom, declined to comment.
The filing says GM owes $4.6 million to McCann Erickson, a unit
of Interpublic Group (IPG), and $15.9 million to its parent, which
lost business from GM to Starcom in 2005 but still handles some
nontraditional marketing efforts for the automaker, like event
planning.
Interpublic Chief Executive Michael Roth recently said his
company could have as much as $150 million in exposure to a GM
bankruptcy in a worst-case scenario, so the automaker's filing
paints a far brighter picture, but an internal source at the
company said the exposure is larger than GM disclosed.
"We have been very direct in identifying and addressing the
potential implications this decision could have on our business,"
an Interpublic spokesman said in an emailed statement.
The company has said before that no single client makes up more
than 5% of its total revenue. Last month, Interpublic negotiated
new terms with its lenders to preserve access to a three-year
credit line for $335 million in the event that any of its clients
file for bankruptcy.
The ad giant's shares fell 1.5% Tuesday to $5.44.
Despite its insolvency, GM will continue to spend ad dollars
with an eye toward its future as it struggles to counter the
negative public perceptions that go along with bankruptcy and
bailouts from the federal government. The company has launched a
new 60-second ad spot that can be viewed on GMReinvention.com and
will air on early morning and late-night TV starting Wednesday, as
well as some prime-time programming on major networks.
Deutsch, another firm owned by Interpublic, produced the spot,
and McCann Erickson will launch radio and print components to the
same campaign, including an open letter assuring consumers that GM
will continue to honor its warranties and service customers in
bankruptcy.
"We're not the first company that's gone through bankruptcy,"
says Mark LaNeve, vice president of sales for GM, in the
commercial, which is already posted on YouTube and other sites.
"Most of the airline industry did, most of the railroad industry
did - they still carried customers and carried freight. We're still
going to build cars and take care of our customers the way we
always have."
Kelly Cusinato, a spokeswoman with GM, declined to comment on
the cost of the automaker's post-bankruptcy ad effort.
"We felt that some TV and print ads were necessary to
communicate, in mass, to our customers, in a quick and timely
manner," Cusinato said. "The media we used for this campaign was
inventory that we already owned and obligations we had to honor.
Furthermore, we kept production costs to a bare minimum by using
existing footage and images."
GM's pullback in marketing has been particularly hard on local
TV and print publications that depend on ad spending from GM
dealerships for a portion of their revenue. National print
publications and TV networks are also suffering from a slowdown in
auto advertising as well as other categories, like retail and
finance. Analysts expect preliminary ad buys from TV networks for
the fall to be down around 15% from last year.
"The negotiations will be slow to get going as ad agencies are
in no rush to spend money this year," said Jordan Breslow, director
of research at MediaCom. "In the end, though, the ad dollars will
come."
-By Nat Worden, Dow Jones Newswires; 201-938-5216;
nat.worden@dowjones.com