General Motors Corp., Ford Motor Co. and Chrysler together accounted for 3.3% of 2007 U.S. measured ad spending, according to Ad Age DataCenter's analysis of TNS Media Intelligence data. Big deal? Yes -- as in $4.6 billion in measured spending.
of total U.S. measured spending
of total U.S. network TV spending
of total (foreign and domestic) automakers' U.S. measured spending
of total U.S. magazine ad spending
of total spending in Sports Illustrated
of total spending on Fox network TV
of total U.S. cable-TV ad spending
of ad spending on ESPN
If one or more of Detroit's carmakers goes away, gets smaller or goes into bankruptcy, "all media companies need to be concerned and there will be an impact on agencies, which derive a substantial amount of their income from [Detroit]," warned Bob Liodice, president-CEO of the Association of National Advertisers. "These are substantial, heavyweight players. You've got some of the largest marketing spending companies in America."
The Big Three's measured ad spending tumbled 14% in the first eight months of the year -- even before a credit freeze, freefall in October auto sales and dwindling cash made bankruptcy reorganization a real prospect for at least some of Detroit.
Some media are especially vulnerable. The four major TV networks last year generated a hefty 5.9% of revenue from the Big Three, according to TNS data. Most reliant was News Corp.'s Fox: 9.2% of the network's measured ad revenue came from Detroit.
A Fox spokesman said the network has only two hours of national broadcasting daily, so its percentage of Detroit ads would be significantly higher than those of the other national broadcast networks, which offer many more hours.
Domestic auto companies last year supplied 2.5% of cable ad spending, but some networks were far more dependent. The Big Three accounted for 6.8% of measured ad spending on Walt Disney Co.'s ESPN, making the sports network the most reliant on Detroit among the 10 biggest ad-supported cable networks. Ed Erhardt, ESPN president of customer marketing and sales, declined to comment through a spokesman.
Detroit accounted for 2.8% of 2007 measured magazine spending, but reliance on autos varies dramatically. Among the 25 magazines with the highest automotive ad revenue in 2007, according to a review of TNS measured-media spending, enthusiast magazines commanded the highest percentage of revenue from Detroit: 24.9% and 19% for Sources Interlink's Automobile and Motor Trend, respectively, and 15.7% for Hachette's Car and Driver.
In measured ad dollars, Time Inc.'s Sports Illustrated topped the list with 2007 Detroit ad spending of $54.4 million (based on one-time rate card), or 8% of SI's ad revenue. Time Inc., in fact, publishes eight of the top 25 magazines for auto advertising. Sports Illustrated and Time Inc. said they didn't have anyone available to comment at press time.
"If I was a magazine that relied heavily on Detroit automakers, I'd be looking for the gas pipe right now," said Gene DeWitt, founder of consultancy DeWitt Media Strategies.
This story's analysis -- focused on automaker national spending -- doesn't begin to take into account what's happening locally at the dealership level. "Dealerships selling Detroit Three brands are closing their doors every day," Automotive News said last week. Those closings and the remarkable drop in auto sales -- the total auto industry is now selling at a run rate of 11 million cars and light trucks a year, down from 16.2 million in 2007 -- mean a huge drop in dealer and dealer-association advertising in newspapers and on radio, TV and other local media. Consider that automakers last year accounted for 52.1% of measured auto ad spending; dealers and associations accounted for most of the rest.
If there's any good news for media, it might be that they've already weathered at least some of the damage. The Big Three accounted for about 49% of automaker measured spending in 2007 and 2006, but that fell to 45.5% in the first eight months of 2008. The ad market is far less reliant on Detroit today than it was in, say, the crippling recessions of 1980-82, when Detroit's unit-sales market share topped 75%. But that hardly diminishes the depression now hitting Detroit -- and the far-reaching consequences for media and agencies.
A recent report by the Center for Automotive Research revealed that if the domestic auto industry went belly-up, nearly 3 million U.S. jobs would be lost, personal income would drop by more than $150 billion and Social Security receipts would fall by $21 billion.
Whether or not Washington bails out Detroit is to be determined. But Mr. DeWitt said Detroit's "auto companies are going to be kept alive some way because they are part of our strategic resources for national security. We need them."
To be clear, Detroit won't be going out of business any time soon. Even in bankruptcy reorganization, automakers would continue to make and market vehicles. But the end result of this severe downturn could be fewer automakers, fewer brands, fewer dealers -- and far less auto advertising. Automotive was the nation's second-largest ad category last year, just behind retail.
Michael Jackson, who was GM's VP-marketing and advertising in North America until he left in 2007, said any failure by GM would "be devastating to the agency world and more so media."
Omnicom is the holding company least dependent on Detroit. It generated 3.6% of its revenue in 2006 from DaimlerChrysler, which last year spun off Chrysler. Omnicom didn't disclose its top client for 2007, but the top client accounted for just 2.8% of revenue. Omnicom, the largest agency firm, has a highly diversified auto roster that includes Nissan, BMW and Daimler's Mercedes-Benz.
Ford historically has been the largest client at WPP, which over the decades has acquired Ford agencies JWT, Ogilvy & Mather and Y&R. WPP doesn't disclose revenue from Ford but has reported that no WPP client accounted for more than 6% of 2007 revenue.
Several years ago, Interpublic stopped disclosing revenue from its largest client, General Motors. Ad Age has estimated that GM accounted for 6.5% of Interpublic's 2006 revenue. GM is also a major client of Publicis Groupe. Publicis shops have a longstanding relationship with Toyota, giving Publicis some insulation from tumult at GM.
Wall Street is betting on bleak days ahead for agencies as their stocks tumble. But things could be worse. Interpublic's market cap is only $1.86 billion -- but that still means Wall Street values it more highly than its largest client. GM's market cap: just $1.84 billion.
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Contributing: Nat Ives, Kevin Brown
What drives Madison AvenueTop agency companies have close ties to Detroit. Omnicom has the most diversified auto roster; WPP and Interpublic rely heavily on Ford and General Motors, respectively.
|BIGGEST CLIENTS||DETROIT CLIENTS|
|OMNICOM||Its top 2006 client, DaimlerChrysler, accounted for 3.6% of revenue.||Chrysler (Chrysler, Dodge, Jeep; corporate; media services)|
|WPP||Ford historically has been its top client. No client accounted for more than 6% of its 2007 revenue.||Ford (Ford, Lincoln Mercury; customer-service division; corporate; media services)|
|INTERPUBLIC||GM has long been its largest client. Ad Age estimates 6.5% of its 2006 revenue came from GM.||General Motors (Chevrolet, Saab, Saturn; OnStar; corporate)|
|PUBLICIS||Generates significant revenue from world's top two automakers, Toyota and GM. Its top client is P&G.||General Motors (Buick, GMC, Pontiac; services and parts operations; media services)|