The carmaker is WPP's largest client globally, accounting for $529 million in 2002 revenue, or 9¢ of every revenue dollar, according to an Advertising Age analysis. Ford is the No. 1 client at WPP's J. Walter Thompson Co. and Young & Rubicam and an important client at Ogilvy & Mather Worldwide.
"We represent a significant percentage of [WPP's] revenues so it's appropriate we get the best of what WPP has to offer," said Jan Valentic, VP-global marketing at Ford. "We wanted the best of WPP to solve our business problems and not buy everything a la carte." The upcoming change will allow Ford to have centralized financial negotiations with WPP, although Ford's worldwide agreement with WPP will include regional requirements by brand.
The deal will give WPP the opportunity to get more Ford business across its 130 companies that include market research, public relations, events and logo design, Ms. Valentic said. This fits into WPP Group Chief Executive Martin Sorrell's strategy of cross-selling more services to WPP's blue-chip client roster and increasing marketing services as a share of WPP revenue.
WPP also will be invited to any pitches around the world, along with non-WPP agencies.
In exchange, Ford expects a sort of "favored nation rate ... like a frequency discount by having so much volume" with WPP, she said, although she would not give specifics.
Ford anticipates cost savings through the global optimization of WPP's resources and the development of standardized practices and operations. The company expects the new arrangement will give it more controls on cost, time saving based on centralization and sharing of best practices and research globally. Ms. Valentic wouldn't disclose how much Ford expects to save.
WPP will face cost pressures from its top client, but it also will have the opportunity to snare more business. Satesh Korde, named president of WPP's newly formed global Ford Motor Co. Group, was unavailable for comment.
The automaker has been cutting costs across all areas of its business since losing more than $5 billion in 2001. Ford's five-year revitalization plan, which the automaker said recently is on track, aims to deliver pre-tax profits of $7 billion by 2005. Ford wants to cut $1 billion in non-product-related costs, which would include advertising.
Ms. Valentic said the deal won't affect Ford's relationships with independent Doner, Southfield, Mich., or Havas' Euro RSCG MVBMS, New York. Doner handles Ford-controlled Mazda North American Operations; Euro has Volvo globally.
Ford in 2002 reported $2.9 billion in worldwide ad spending, or 2.2% of sales, down from $3.1 billion or 2.4% of sales in 2001.
not sole supplier
The new deal differs from one proposed earlier this year by Ford President-Chief Operating Officer Nick Scheele that would have given WPP so-called single-source-supplier status. That proposal resulted in the public airing of an apparent controversy involving Mr. Scheele when a Ford insider released an internal memo in March questioning WPP's supplier designation. Ford said at the time that Mr. Scheele may not have followed purchasing procedures and the company formed a cross-departmental task force to study the WPP issue.
Ms. Valentic headed that 20-member task force. In regards to internal memo, she said it's obvious to her whoever wrote it "had no idea how we manage our agencies." Ford has a "very transparent financial agreement with our agencies and WPP has been terrific in essentially opening up their books to us so we understand how the costs come to light."
She and her team wrote the presentations on the latest WPP proposal for upper management, which recently approved the deal. WPP's Mr. Korde sat in on the presentations, which Ms. Valentic said were written "with WPP's blessing ... all the way up to Martin Sorrell."
Ford accounted for 9% of WPP's $5.9 billion in 2002 revenue, according to Ad Age's analysis.
contributing: Bradley Johnson