Daimler demand: No rate increase for magazine ads

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Having squeezed cost savings out of its ad agencies, DaimlerChrysler now is putting price pressure on media companies.

The auto giant informed magazine publishers it expects to pay the same ad rates in 2001 that it paid in 2000, although it will not guarantee spending levels. The flat-rate demand appears in bold type on a single-page document -- "DaimlerChrysler Corporation 2001 Print Contract Criteria" -- sent to publishers. DaimlerChrysler's top U.S. marketing executive also warned the company will slightly reduce its ad budget for next year, which means the cost pressures could spread to other media, including TV.

"It's going to be a tight year for automotive business," said a magazine publisher at a leading title who asked not to be identified. Another publishing executive said even rate hikes related to circulation increases are "not being readily accepted" by DaimlerChrysler.

VEILED WARNING?

A DaimlerChrysler spokeswoman said the company "asked for a flat rate from all our print partners this year. We're hopeful we'll receive a positive response." In what was perhaps a veiled warning to publishers that might try to push through increases anyway, she added, "Those who respond positively now will certainly be considered favorably in the future."

Automotive is the No. 2 category of magazine spending, but it has been the one blemish on an otherwise stellar year for print advertising. In the first 10 months of this year, automotive ad pages declined 9.9% from the same period in 1999. At the same time, growth in such categories as technology, now the top spender, fueled a 13% gain in pages for the industry, according to Publishers Information Bureau.

DaimlerChrysler's flat-rate request comes amid growing concerns about a slowdown in advertising in 2001 as the economy shows signs of cooling. Publishers also face serious cost challenges from paper and postal rate increases.

Adding fuel to the fire are rumblings that General Motors Corp.'s Saturn Corp. could slash magazine spending by as much as 50% next year. Saturn, which spent $23 million in magazines for the first six months of 2000, did not return a call seeking comment. General Motors President-CEO Rick Waggoner said General Motors' ad budgets aren't yet finalized and declined further comment.

One magazine sales rep predicted virtually all carmakers will cut ad budgets in 2001. "Six months from now, the environment is going to be dramatically different," the executive said. "Next year will be significantly worse for automotive." Already some automakers are turning more aggressively to incentives to move product quickly. In an ad in USA Today last week, DaimlerChrysler made the unusual move of offering rebates of up to $2,386 on its 2001 Chrysler Town & Country minivan.

NO SHIFTS TO INCENTIVES

Arthur "Bud" Liebler, senior VP-global marketing for the Dodge, Chrysler, Plymouth and Jeep brands, said he doesn't expect marketing money to be shifted to incentives. But he did say he expects the company's 2001 ad budget "to be down slightly."

As for the magazine memo, Mr. Liebler said, "We are trying to negotiate as favorable [magazine] deals as we can. The magazines have done very well from us over the last several years, and served us very well."

Bill Wackerman, VP-publisher of Details, said he was "cautiously optimistic" about the automotive outlook for his magazines, although he conceded it looks like it will be "tough" for all magazines.

The magazine negotiations surface after DaimlerChrysler got a bloody nose from its third-quarter results. While DaimlerChrysler AG, Stuttgart, reported revenues rose 8% in the third quarter compared to 1999, to $32.8 billion, the Chrysler Group suffered a $512 million operating loss. Last year, Chrysler's third quarter produced a $1 billion profit. Currently the unit, which manages the Dodge, Chrysler, Plymouth and Jeep brands globally, is in cost-cutting mode.

"We never like to see a good customer have a tough quarter," said Dave Long, president of media sales and marketing at Time Inc. "Chrysler, like many of our customers, is very demanding, but we never comment on our customers' business."

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