Why GM's Spending Slash Doesn't Cut It

With 260 Models on the Market Automaker is Taking a Big Gamble

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In slashing spending by $200 million, General Motors Corp. is taking the road less traveled-and perhaps the wrong one.

GM's competitors are closely monitoring the troubled auto giant's plan to cut national, multi-vehicle brand incentive ad programs estimated at 10% of its U.S. media spending, but they don't expect to follow the ad-spending leader. Rivals can't afford not to spend, as there will be a confusing total of 260 models on the market this year.

Toyota Motor Corp., which plans to crank up vehicle production 10% this year and threatens to pass GM as the world's largest automaker, would be foolish to ease up on the accelerator. Hyundai Motor America and affiliate Kia have aggressive sales targets that require strong advertising spending. And Ford Motor Corp., though mired in financial troubles of its own, has a number of key launches that will make spending cuts unwise.

Not only do industry-watchers believe competitors won't follow suit, but at least one believes GM is making a mistake in trimming outlays. Art Spinella, president of CNW Marketing Research, said that when GM increased Chevrolet advertising in January by roughly 11% vs. a year ago, Chevrolet dealerships saw a 21% increase in floor traffic. Across all GM brands, showroom traffic rose by 18% last month, he said, triple that of the industry's 6%. And just over half those folks flocking to dealerships were new to GM.

This is no time for GM to cut, Mr. Spinella said. "Advertising is the only means GM has of being competitive to convince people to consider GM. They need to keep advertising."

A spokeswoman for Toyota Motor Sales USA said GM's spending plans had no bearing on its own. Toyota, said Jim Sanfilippo, exec VP of Omnicom Group's auto consultant AMCI, "is going to go with its game plan and is not looking over its shoulder at GM."

Hyundai Motor America and affiliate Kia not only won't curb budgets, they "will be pressed" to increase their spending this year, said Mr. Sanfilippo. That's not because of GM. Hyundai plans to sell 500,000 vehicles this year in the U.S., said John Krafcik, its VP-product development and corporate strategic planning, including its first entry into minivans with the Entourage, battling Toyota's Sienna and Honda's Odyssey.

Todd Turner, president of CarConcepts, said that if Ford, which faces 30,000 layoffs, does end up reducing budgets, it will be a cost-cutting move and not a response to GM. Still, that's unlikely, he said, with the Ford Edge, the fall debut of the MKX and the rebranding of the new Zephyr sedan (as the MKZ) coming this year.

Francisco "Cisco" Codina, Ford Motor's group VP-marketing, sales and service for Ford, Lincoln and Mercury in North America, declined to discuss any ad spending figures or shifts.

George Peterson, president of consultant AutoPacific, doesn't anticipate a knee-jerk reaction to GM, but said flexible competitors may be able to hit places GM vacates in buys.

GM started its vehicle re-pricing strategy in mid-January in a move to exit big incentives. Chevrolet led the charge with a big, integrated ad blitz that included a "head-to-head" comparison with competitive models on third-party auto site Edmunds.com.

While declining to comment on cuts, Brent Dewar, VP-marketing in North America, said GM "will focus on our launches" as well as its products and divisions, suggesting that spending will be tailored to brands, rather than the corporation as a whole. "We are not focusing on going to market as GM."

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