GM, Chrysler Bankruptcies Could Leave Shops Holding $300 Mil Bag

BBDO Owed $58 Mil; More at Stake for GM Agencies IPG, Publicis

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DETROIT (AdAge.com) -- As Chrysler and General Motors Corp. fight for their lives, the automakers' three major agency holding companies could be left in the lurch collectively for more than $300 million.

In Chrysler's Chapter 11 filing last week, Omnicom Group's BBDO Detroit is listed as its second-largest unsecured creditor, owed $58.1 million. It's believed, however, that the bulk of that money is owed not to the agency but to the media for purchases made on Chrysler's behalf. The majority of that is believed to be owed to local TV stations, as Chrysler moved from national buys to spot earlier this year, according to three executives close to the matter.

The government has created a special pot it will fund to support so-called critical vendors. The court will decide whether BBDO qualifies as one. If that status is granted, the agency would collect about a third of the $58.1 million it is owed and use its sequential-liability claim for the rest during the time Chrysler is in bankruptcy, one of the executives said. Neither BBDO nor Omnicom would comment.

In the meantime, BBDO was hard at work last week on an educational ad campaign for Chrysler designed to explain to consumers that despite the bankruptcy, the automaker is still in business. The ads were to break May 3 in newspapers in the top 50 U.S. cities and today in The Wall Street Journal and The New York Times and USA Today on Monday.

GM has another month to go before its deadline to satisfy creditors or declare its own bankruptcy, but should it be forced to do so, Publicis Groupe and Interpublic Group of Cos. could be on the hook for a combined $250 million, according to Ad Age estimates.

'Conservative assumptions'
Interpublic VP-Chief Financial Officer Frank Mergenthaler said on the company's first-quarter call with analysts last week that receivables, work in progress and committed media for GM stood at roughly $150 million at the end of February and that figure "is still a relatively good number" for the scope of the holding company's exposure to the automaker. Michael Roth, chairman-CEO, said on the same call that the $150 million figure "assumes some very conservative assumptions, and hopefully that won't be the case, but we're using that for guidance." Mr. Roth said the figure doesn't include a worst-case scenario, notably a wholesale shutdown of Interpublic's Detroit operations, which is highly unlikely at this juncture.

McCann Erickson, Birmingham, Mich., handles the GM corporate account and Saab, which the automaker will cut from its garage of eight U.S. vehicle brands. Campbell-Ewald is Chevy's longtime agency. Deutsch, Los Angeles, has Saturn, which GM hopes to sell or shutter.

The amount GM owes Publicis could be as high as $100 million or more, according to two executives familiar with the relationship. CEO Maurice Levy was unavailable to comment.

Standard & Poor's said in late March Publicis "is significantly exposed to [GM], particularly through its media-buying arm. If GM files for Chapter 11, Publicis could . . . face significant losses on its outstanding receivables from GM."

Shortly after, Mr. Levy told Advertising Age the credit-rating firm's comment was "exaggerated."

Publicis' Starcom MediaVest Group handles media planning and buying in the U.S. for all GM brands; digital work via Digitas; and creative for Buick-Pontiac-GMC. GM announced last week that Pontiac will be eliminated.

Several auto-industry experts predict that GM, trying to trim costs and work with a leaner organization, will consolidate its U.S. creative accounts with a single holding company. But others, such as Jim Moore, former president of Leo Burnett, Detroit, said a shrunken GM no longer needs big agencies that are part of holding companies. GM declined to comment on the matter.

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