According to a report in the Wall Street Journal the automotive giant wants its agencies to cut costs this year and next. It could hit agencies across the board from advertising to digital.
General Motors reported a second quarter net loss of $15.5bn (£7.8bn), or an adjusted net loss of $6.3 billion after charges of $9.1 billion, on August 1 as its North American sales fell by 20%.
The owner of Cadillac and Chevrolet works with dozens of agencies around the country, including Publicis Groupe's Leo Burnett and Chemistri, which handle business including Cadillac and Pontiac as well as GM Service & Parts operations and several global GM operations.
Publicis Groupe's Starcom MediaVest also handles the $3bn-plus General Motors media account.
GM also works with other agencies including Interpublic Group's McCann Erickson and Campbell-Ewald.
According to the report GM says the cuts could amount to more than $20m and mean job losses at the agencies involved.
It follows GM's decision not to go ahead with a deal to advertise during ABC's broadcast of the Emmy awards next month.
Last month Brand Republic reported that General Motors was to reduce its marketing spend, as part of a radical response to a drop in US sales, including job cuts and asset sales.
The details of that plan centred on GM's US business and included a plan to suspend dividend payments and seek to cut 20% of its salaried staff costs.
A possible disposal of its gas guzzling Hummer division was also mooted.
Comments
Surely that's cutting all the margin out of the account? What agency can afford to do that? And why would they want to? After all, working on the GM account isn't going to win you a Gold Lion or Black Pencil...
the agencies should use it as an opportunity to re-negotiate the basis of the contract - swop the fee for an equity stake for example? or a % of the margin on every car sold?
How does 20% make ANY difference to that astronomical loss ! That aside how does GM think they can turn that sort of Quarter around - What happened?
I like your suggestion of a % of the margin on every car sold Riggers. What sort of margin do you reckon they're on with a quarterly loss of £7.8 Billion?
If they listened to their agencies in the first place, regarding creative strategy or even consumer insight about the changing nature of consumer issues such as environment/energy costs/petropolitics and developed their offering accordingly, maybe they'd would be the world's biggest car company without the irony of being the world's biggest corporate nightmare
Will, I was about to say the same thing. Jonathan, how could that ever work with GM? I don't even see what good there is in asking their supplier to reduce fees will do. The losses go so much deeper than the supply chain.
Hello Will/Lucy. Hope you're well. Why couldn't GM consider it? Because they're answerable to shareholders? Because they're making a whopping loss? I'm just suggesting that rather than rolling over and accepting the demands, agencies could try proposing different remuneration models rather than just slashing fees and account teams. Where's the long term value in doing that?
What a bunch of whiners. GM have to tighten their belts. It's happening across the industry. Agencies can't hope to keep their fees the same, while their clients profits sink. It's unrealistic. And GM is a great account - it's not all about Lions and Pencils. We're in this business to sell product!
The same business imperatives apply to the agencies who work for GM Gellan. And ad agencies run at an average profit of around 18%. So a 20% drop in fee equals working on the account for no profit. Does that make business sense?
It is probably time for them to think how they can actually optimize their new budget using a non-traditional advertising model
Richard - A 20% drop in fee does not necessarily mean losing all of the agency's profit... The likes of Publicis have loads more clients than GM... If a retained account team of 10 works on it all it would take is to make 2 redundant and there you go (not saying this is good news).
Listening to some of the posts you'd think that Ad agencies have all the answers and if GM had listened they wouldn't be in the position they are in. When they needed to make the decisions, 5-8 years ago, SUV's were making all the profits and I bet the agencies weren't saying you are mad persisiting with this product. I'm sure they were saying look at well our rather boring and formulaic car ads are working selling your cars. You can't just change direction of a company like GM overnight. Getting a car off the production line takes 3-5 years and significant investment. The problems are legacy; could ad agencies solve the pensions and medical insurance problem? The heart of the problem for GM is their cost base is too high and they are uncompetitive against new competition. Maybe cutting budgets will get the agencies to start thinking more creatively and develop more cost effective marketing that doesn't just involve relatively expensive tv ads of cars going around a mountain road, snow field, empty city etc...
Having worked at an agency with significant GM business (not advertising, though), I know first-hand that they have been ratcheting-down their fees for many years. The business was on a regular re-pitch (3 years) and each time a 'target price' was arrived at for the winning agency to deliver the services. As an earlier poster said, a 20% reduction in all of their agency fees worldwide won't even scratch the losses they're making, but could well end up with (even) poorer outcomes as the agencies involved peg back their service levels.
No issue with hard-nosed, pragmatic negotiating, but a blanket approach just isn't bright thinking and smacks of being a 'gesture decision'.
There's only one sure-fire way out of the problem and that's better product. The recent revival of Fiat is enough to show that.
Comments
Richard Hayter - 07/08/2008
Surely that's cutting all the margin out of the account? What agency can afford to do that? And why would they want to? After all, working on the GM account isn't going to win you a Gold Lion or Black Pencil...
Jonathan Rigby - 07/08/2008
the agencies should use it as an opportunity to re-negotiate the basis of the contract - swop the fee for an equity stake for example? or a % of the margin on every car sold?
AwallafaShagba - 07/08/2008
How does 20% make ANY difference to that astronomical loss ! That aside how does GM think they can turn that sort of Quarter around - What happened?
Will Arnold-Baker - 07/08/2008
I like your suggestion of a % of the margin on every car sold Riggers. What sort of margin do you reckon they're on with a quarterly loss of £7.8 Billion?
Robert Bermingham - 07/08/2008
If they listened to their agencies in the first place, regarding creative strategy or even consumer insight about the changing nature of consumer issues such as environment/energy costs/petropolitics and developed their offering accordingly, maybe they'd would be the world's biggest car company without the irony of being the world's biggest corporate nightmare
Lucy Barrett - 07/08/2008
Will, I was about to say the same thing. Jonathan, how could that ever work with GM? I don't even see what good there is in asking their supplier to reduce fees will do. The losses go so much deeper than the supply chain.
Jonathan Rigby - 07/08/2008
Hello Will/Lucy. Hope you're well. Why couldn't GM consider it? Because they're answerable to shareholders? Because they're making a whopping loss? I'm just suggesting that rather than rolling over and accepting the demands, agencies could try proposing different remuneration models rather than just slashing fees and account teams. Where's the long term value in doing that?
Gellan Watt - 07/08/2008
What a bunch of whiners. GM have to tighten their belts. It's happening across the industry. Agencies can't hope to keep their fees the same, while their clients profits sink. It's unrealistic. And GM is a great account - it's not all about Lions and Pencils. We're in this business to sell product!
Richard Hayter - 08/08/2008
The same business imperatives apply to the agencies who work for GM Gellan. And ad agencies run at an average profit of around 18%. So a 20% drop in fee equals working on the account for no profit. Does that make business sense?
Meritxell Guitart - 08/08/2008
It is probably time for them to think how they can actually optimize their new budget using a non-traditional advertising model
Ben Cook - 08/08/2008
Richard - A 20% drop in fee does not necessarily mean losing all of the agency's profit... The likes of Publicis have loads more clients than GM... If a retained account team of 10 works on it all it would take is to make 2 redundant and there you go (not saying this is good news).
Wyndham Lewis - 08/08/2008
Listening to some of the posts you'd think that Ad agencies have all the answers and if GM had listened they wouldn't be in the position they are in. When they needed to make the decisions, 5-8 years ago, SUV's were making all the profits and I bet the agencies weren't saying you are mad persisiting with this product. I'm sure they were saying look at well our rather boring and formulaic car ads are working selling your cars. You can't just change direction of a company like GM overnight. Getting a car off the production line takes 3-5 years and significant investment. The problems are legacy; could ad agencies solve the pensions and medical insurance problem? The heart of the problem for GM is their cost base is too high and they are uncompetitive against new competition. Maybe cutting budgets will get the agencies to start thinking more creatively and develop more cost effective marketing that doesn't just involve relatively expensive tv ads of cars going around a mountain road, snow field, empty city etc...
Tim Lofts - 08/08/2008
Having worked at an agency with significant GM business (not advertising, though), I know first-hand that they have been ratcheting-down their fees for many years. The business was on a regular re-pitch (3 years) and each time a 'target price' was arrived at for the winning agency to deliver the services. As an earlier poster said, a 20% reduction in all of their agency fees worldwide won't even scratch the losses they're making, but could well end up with (even) poorer outcomes as the agencies involved peg back their service levels. No issue with hard-nosed, pragmatic negotiating, but a blanket approach just isn't bright thinking and smacks of being a 'gesture decision'. There's only one sure-fire way out of the problem and that's better product. The recent revival of Fiat is enough to show that.