The automaker, which earlier this month unveiled a massive turnaround plan, is renegotiating compensation contracts with its ad agencies to lower costs.
"What drives agency compensation is the scope of the work and the labor and fees associated with that," said Jan Klug, VP-global marketing for Ford. "We're looking to reduce ... costs so we can be very competitive."
Ford, the nation's fourth-largest advertiser, is examining agency overhead, profit margins, benefits, cost of living factors and the number of agency staffers needed to work on its accounts. "We've been with our agencies for a lot of years, through good times and bad," said Ms. Klug, who expects negotiations to be wrapped up within two months. "The negotiations haven't been gut-wrenching."
Ford's lead global ad agencies are all under the WPP Group umbrella. In the U.S. the offices are: J. Walter Thompson, Detroit; Y&R Advertising, Irvine, Calif., and New York; and Ogilvy & Mather, Dearborn, Mich., and New York. The oldest relationship, with JWT, dates to 1943. Omnicom Group's GSD&M, Austin, Texas, handles Land Rover North America and Havas Advertising's Messner Vetere Berger McNamee Schmetterer/Euro RSCG, New York, handles Volvo Car Corp. on a global basis.
A JWT spokesman described the talks as normal, two-year negotiations and declined further comment.
BIG NET LOSS FOR 2001
Ford Motor Co. spent $1.33 billion in U.S. measured media in the first 10 months of 2001, according to Taylor Nelson Sofres' CMR.
Word of the negotiations came after Ford disclosed Jan. 17 a staggering 2001 net loss of $5.45 billion on revenue of $162 billion-its first loss in nine years. Ford's move comes more than a year after DaimlerChrysler's Chrysler Group consolidated its account at Omnicom Group's PentaMark Worldwide in a bid to cut costs.
Ford's current agency compensation system was established three years ago by a predecessor to Ms. Klug, David Ropes, then director of corporate advertising and integrated marketing. Mr. Ropes, who left the company in fall 1999, did away with traditional agency commissions in favor of a combination of labor fees and performance incentives. The incentives are based on various qualitative and quantitative measures that include Ford meeting profit targets.
Ms. Klug said she will keep the performance incentive plan in place, but that agencies will undergo comprehensive annual reviews and will have to forfeit bonuses if targets aren't met. The reviews assign agencies a numerical grade based on such factors as quality of creative work and account planning capabilities. "They go through all the areas [in which] the agencies provide us with support," Ms. Klug said.
One Ford agency, Zubi Advertising, Coral Gables, Fla., which handles Hispanic advertising for the Ford Division, is making its own compensation adjustments. The agency sent a letter to its client saying it did not expect a 2001 bonus even if one was due. Ford employees did not receive year-end bonuses and Ms. Klug said the agency's attitude was, "Why should we get a bonus when you aren't?"
"We assumed we were getting a bonus because of our performance," said Joe Zubi, exec VP at the agency. "But as Ford's agency partner, we felt we should share some of their difficult times." He would not comment on current compensation negotiations.
Meanwhile, General Motors Corp. finished its `02 agency contracts in recent weeks. A spokeswoman said GM's two priorities were to reduce costs and get "great advertising." But the client is letting the shops find ways to help cut costs. She declined to give specifics.