Faced With Financial Woes, GM Unlikely To Slash Ad Spending

by David Kaplan, Mar 28, 2005, 8:00 AM

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Faced with weakening sales in North America and rising costs, just before heading into the 2005 New York International Auto Show at the Jacob Javits Center in New York, General Motors greatly reduced its financial forecast for the year and warned that it expected to lose money in the first quarter.

While the news stunned Wall Street and GM's stock fell more than 13 percent, auto researcher J.D. Power and Associates is saying that the financial rough patch currently plaguing the number one automaker will not affect advertising.

A GM spokesman was not available for comment.

Auto companies typically lead the ranks of American marketers when it comes to ad spending, one media buyer noted.

"As GM goes, so does the rest of the auto industry," said one media buyer. "If they were to reduce spending, it would have a significant effect on what its competitors do."

So far, automotive ad spending has been healthy, according to Nielsen Monitor-Plus. Combined spending for Nielsen's three automotive categories (factory, local dealerships, and dealer associations) rose 4 percent to $17.8 billion, a gain of $683 million, Nielsen reported earlier this month.

Among the car companies showing the biggest dollar increase were GM, which was up 19.2 percent to $2.59 billion; DaimlerChrysler, 34.6 percent to $1.8 billion; and Ford, 18 percent to $1.5 billion. Nissan upped spending 5.7 percent to $1.07 billion; Toyota, 14.5 percent to $1.04 billion; and Honda, 8 percent to $843.4 million.

For the past five years, auto-sales volume in the United States has consistently surpassed 16.5 million units, although 2003's 16.7 million sales volume was the lowest. Over-capacity and the constant offers of 0% financing have eaten into the carmakers' marketing budgets.

So with all that hanging over them, it's no surprise that automakers likely shake things up from a marketing perspective, said Tom Healey, a partner at Westlake Village, CA-based J.D. Power and Associates.

"They have no choice but to keep advertising," Healey said. "They have new models coming out, and the only way to sell them is to advertise heavily. I can't see them cutting back without hurting themselves. The ad budget is probably one of the safest areas of their overall spending plans."

Still, the company is looking to see how it can get the most out of its media.

Little more than two weeks ago, GM announced a review for its U.S. media-buying account. According to Nielsen measurements, the company spent $3.2 billion on domestic measured media last year--a figure that includes more than $600 million in dealer association advertising, which is included in the review.

The incumbents--Interpublic Group's GM Mediaworks in Warren, Mich., and LCI in New York, which handle national and regional buying, respectively--are contending against Publicis Groupe's Starcom MediaVest in Chicago.

Starcom already handles GM outdoor advertising, worth about $30 million, which is not included in the review. Starcom sibling GM Planworks, which handles media planning, is also not in the review.

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