Hyundai announced the move at a meeting of select Hyundai dealers at the National Automotive Dealers Association's annual convention in New Orleans.
'A done deal'
James Auffenberg, an Illinois Hyundai dealer at Sunday's meeting, said Bates was notified about the creative review 15 minutes before the session.
"It was a done deal before the meeting started," he said. Dealers expressed "a lot of concern" about the review, he added. "Business is awfully good now. Why do we have to be doing this right now?"
Bates, part of Cordiant Communications Group, will be one of the contenders participating in the review, said Hyundai's vice president for marketing, David Weber. "This is not being done because of dissatisfaction with Bates' creative."
Messages left for a Bates executive were not returned by press time.
Hyundai also confirmed at the meeting
Kia creative not in review
Omnicom Group's OMD will lose its Kia media account. Independent davidandgoliath, Los Angeles, handles Kia creative. A Hyundai spokesman said "to the best of my knowledge they [Kia] are not doing a creative review."
Kia couldn't be reached for comment.
Mr. Weber denied the shift was driven from Hyundai and Kia's South Korean parent. He said separate task forces in Korea and the U.S. reached the same conclusions about how best to gain cost savings with two car brands. Hyundai acquired Kia in December 1998.
Mr. Weber said unbundling Hyundai's media planning and buying account from Bates and consolidating it with Kia at Carat will give the automaker "additional clout" in the marketplace. The sibling car brands expect the move to cut media costs by an undisclosed double-digit percentage, which will be put back into media spending, Mr. Weber said. One dealer at the meeting estimated the savings would be 20%.
Exploring new compensation methods
Bates was compensated for ad production costs and media commissions, but most of the fees came from the commissions, Mr. Weber explained.
"Because we're moving the media to another company, that model doesn't work anymore."
As part of the creative review, Hyundai will investigate new compensation methods, he indicated.
One executive close to the matter, who asked not to be named, said any savings from the unbundling will have to be spent on compensating Hyundai's new creative agency. Bates was able to cut its creative fees because it had the whole pie.
Mr. Weber said Bates completed more than 160 creative projects for Hyundai in 2001. Some TV commercials cost several hundred thousand dollars, but simpler newspaper ads cost $850 each. He said he didn't know Hyundai's production pay rates to Bates.
Bates' regional deal work
Bates also has media and creative contracts worth some $60 million with Hyundai's four regional dealer ad groups. That business isn't up for review. But executives close to the situation expect Carat to eventually win those media accounts, with the national creative winner getting the dealers' regional accounts.
Don Reilly, a Virginia dealer at the meeting, said, "We have a great deal of trust in American management that's led us since 1998."
Mr. Weber said he wouldd like a decision by mid-April. No Korean management will sit on the panel.
Hyundai hired Select Resources International, West Hollywood, Calif., as the consultant. It will send out requests for proposals this week. Agencies interested in participating are to call the consultant.