Asia's financial woes spread to U.S. car shops

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Kia Motors America said it dropped Goldberg Moser O'Neill because it needed a larger shop to support rapid growth. But the agency tells a different story.

Haggling over compensation delayed signing of the agency's 1999 contract until this month, said Fred Goldberg, chairman of the San Francisco agency. He added that Kia has set ambitious sales goals for 2000 without having the budget to support the effort.

"They raised their sales objectives and not their advertising budget," Mr. Goldberg said. "They expect magically that their sales are going to go up."

Goldberg Moser's fees from Kia had dropped for the past three years, he said. The agency may have to cut staff as a result of the account loss.

IMPORT PRESSURES

If money was indeed at the root of the move, the agency was another in a series of U.S. shops feeling the home-market pressures of Asian automakers. In July, America Honda Motor Co. pulled its $190 million Acura Division account from Suissa Miller, Los Angeles, to give it to Honda Division agency Rubin Postaer & Associates, Santa Monica, Calif., in what the company and the agency described at the time as a cost-cutting move.

Similarly, Nissan Motor Co. Chief Operating Officer Carlos Ghosn last month announced cutbacks for the ailing company, including the possibility of consolidating advertising into a single global agency. Beyond saying that such a move is not certain, officials at Nissan North America have declined comment on advertising.

Dick Macedo, Kia exec VP-marketing and sales, said his company would announce a new agency selection early this week, adding that the account would total "more than $100 million" by 2001.

BIG-AGENCY RESOURCES NEEDED

With sales growing and three model launches planned in the coming year, Kia needs big-agency resources, he said.

"We hired a creative boutique in 1993 and they have not been able to develop beyond that," Mr. Macedo said. "We need a lot of strategic help."

Mr. Goldberg disputed that, saying that Goldberg handles clients such as Coca-Cola Co.'s Citra brand and Micronpc.com.

Kia's parent, Hyundai Motor Co., is struggling with financial problems, much as Kia was before its purchase by Hyundai last year.

Other account moves have had strong financial components. Bruce Miller, president of Suissa Miller, said the Acura decision was imposed on American Honda by its parent company, Honda Motor Co., because of its struggles in Japan and Europe.

"Honda does really well in the U.S., but not so well in Japan and terribly in Europe, which led to us losing the business," Mr. Miller said. "The Americans gave us the business and the Japanese came in and took it away."

However, Honda's Eric Conn, assistant VP-national automotive advertising, said that while it was painful to cut Suissa Miller, Honda's different regions have to support each other.

"When you have a world corporation, you all have to pull together to keep things going," Mr. Conn said. "If one area's starting to have a little trouble, the others are called upon to help."

Other Asian automakers have shown signs of uncertainty. Daewoo Motor America, after announcing in July it was searching for an agency to handle its model-year 2000 ad work on a project basis, now says the decision is on hold.

Top executives of its debt-burdened parent, Daewoo Group, resigned this month and General Motors Corp. has been negotiating to buy some or all of its automotive operations.

A CHALLENGE

"There are certain things happening in Korea and that has made it a challenge at this point," said Bill Tucker, VP-customer relations for Daewoo Motor America.

Bob Schnorbus, director of macroeconomic analysis for consultancy J.D. Power & Associates, said U.S. units of Asian automakers can be insulated from overseas financial problems only for so long.

"Clearly, the Japanese and Korean manufacturers are under tremendous profit pressure and they're going to do all they can to improve their performance," Mr. Schnorbus said. "They've been trading margins for market share, but that may be about to change as they deal with the realities of their balance sheets."

Among Korean companies, Daewoo is "teetering on bankruptcy" while Hyundai, in somewhat better shape, is "only half dead," he said.

Larger companies such as Toyota remain strong, but smaller players need to find a niche or face problems, he said. Nissan suffered from trying to offer a full vehicle line, Mr. Schnorbus noted.

Although Toyota and its agency, Saatchi & Saatchi, Torrance, Calif., are behind schedule in inking a new contract, agency CEO Scott Gilbert said that's "a non-issue."

Toyota has always run lean, but is not retrenching, he said.

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