NEW YORK (AdAge.com) -- In a single stroke, General Motors Corp. today dealt a deathblow to the 200-person media-buying shop dedicated to its business and further bruised that agency's parent, the already struggling Interpublic Group of Cos.
Starcom MediaVest Wins GM $3.5 Billion Media Account
Automaker Wants Focus on 'Innovative, Strategic Media Buying'
Interpublic Issues Unaudited 2004 Results
Operating Loss Estimated at $285 Million; CEO Defends Agencies
Cloud Over IPG Darkens
Possible New Financial Restatements and Extensive 'Material Weaknesses' Revealed
Interpublic Delays Release of Earnings Report
Cites 'Items That May Require Adjustments'
IPG Names Michael Roth New CEO
David Bell Moves to Co-Chairman
Former IPG Sports CEO Nears Deal With Talent Agency
Mark Dowley in Talks With Endeavor to Bring in Ex-Clients
S&P Cites 'Negative Implications' for IPG
May Downgrade Holding Company's Credit Rating Further
Interpublic to Settle Shareholder Lawsuits
Company Will Pay $115 Million in and Stock
Lawsuit Alleges 'Accounting Manipulations' at Interpublic
Current and Former Top Executives Named as Defendants
IPG Restructuring Charges Higher Than Predicted
CEO Tells Analysts That Reorganization Process Is 'Messy'
David Bell Named Interpublic Chief
John Dooner Steps Down, Will Return to Head McCann-Erickson WorldGroup
IPG Executives Give Back 1.2 Million in Options
CEO David Bell Defends John Dooner Pay Package
What Sank John Dooner
Lack of Experience and Financial Naivete, Say Analysts
Interpublic Stock Hits 10-Year Low
Analysts Say New Credit Agreement Less Harsh Than Expected
Standard & Poor's Issues Interpublic Debt Warning
Cites Possibility of Junk Status Rating
Interpublic Exec Is Selling His IPG Stock
David Suissa Files to Sell 69,995 Shares
SEC Launches Formal Probe of IPG Accounting
Focus Includes Five Years of Earnings Statements
Status of Some IPG Debt Reduced to Junk
Further Rating Downgrade Possible
Interpublic Reports SEC Inquiry
Feds Begin 'Informal' Action; CEO Says He Is 'Embarrassed'
Analysts Lose Faith as Interpublic Stock Tumbles
Shares Drop 30% Following $120 Million Earnings Restatement
Interpublic Slashes Profit Forecast
Nearly Doubles Earnings Restatement to $120 Million
As part of the overall cost-cutting mode it hopes will help lift its battered stock price and credit rating, GM shifted its $3.5 billion U.S. media-buying account from Interpublic's GM Mediaworks to Publicis Groupe's Starcom MediaVest Group, Chicago, following a much-watched two-month review. The move consolidates GM's media services business with Starcom, whose GM Planworks unit has handled the automaker's media planning since 2000.
A GM spokeswoman denied that the account shift was all about cost efficiencies. "This was much more than an effort to squeeze suppliers and cut costs," she said in an e-mail. "Equally or perhaps more importantly was our desire to find new solutions to address the changes on media and in our media consumption behaviors."
Largest U.S. advertiser
The enormous clout of the largest U.S. advertiser throws additional force behind the already considerable Starcom juggernaut, whose client list includes Procter & Gamble Co. and Coca-Cola Co. And the GM shift is yet more evidence of the seductiveness of the Starcom brand of ideas-oriented media strategy, the success of which points to a media game that's evolving beyond the old rules of bulk and scale.
For Interpublic, the loss hurls another roadblock in the third-largest ad holding company's attempt at a turnaround, already stymied by bookkeeping issues that have prevented it from issuing its 2004 results and by numerous operational problems, including a number of client defections and leadership holes at its media buying and planning networks.
GM has long been Interpublic's largest client, accounting for $487 million or 8.3% of Interpublic 2003 worldwide revenue. The U.S. media-buying assignment represented about 10% of Interpublic's GM business.
Interpublic's stock price dipped as much as 48 cents on the news in early trading but rebounded to close down 16 cents at $12.46. Publicis Groupe's shares were up 42 cents on the news to close at $29.79.
A victim of GM's business woes
To some degree, Interpublic was a victim of the serious business problems facing its largest client. GM's market share has been on a slow slide for years due to broadened vehicle lineups and more competitive truck models from Asian competitors. Yet during the slide, GM had remained profitable -- until the first quarter of this year.
GM reported a loss of $1.3 billion globally in the first quarter, saying its North American auto operations was the main reason for its loss of $1.3 billion vs. earnings of $401 million a year ago. GM said its North American market share was 25.2% in first quarter of 2005 compared with 26.3% a year ago. The carmaker has said its annual health-care costs for workers and retirees, now in the $5 billion range, continues to grow, plus its pension fund requirements, as key contributors to its current fiscal woes.
Big guns sent to defend account
Despite the prospect of being grinded down on fees, Interpublic went to the proverbial mattresses to retain the account, sending heavy hitters such as McCann Worldgroup Chairman-CEO John Dooner; Interpublic Executive Vice President for Global Operations Stephen Gatfield; Co-chairman David Bell; and Magna Global CEO Bill Cella to Detroit last month to help defend it. It also pushed Mediaworks President-CEO Rick Sirvaitis out of the way, installing his deputy, John Miles, to run the defense.
At the same time it was trying to fend off Starcom's advances, Interpublic executives attempted to play down the importance of the account to its financial situation. Last month, the company issued a press release stating the GM media business represented less than 1% of Interpublic's global revenue. An Advertising Age analysis based on Interpublic's public statements determined that the loss will represent a $5 million hit to annual net income and a loss of up to $45 million to $50 million in annual revenue. The analysis also found that Interpublic hauled in fees of 1.3% to 1.4% of the measured media.
"We put together a very strong team and an excellent proposal for General Motors' domestic media needs," Interpublic's chairman-CEO, Michael Roth, said in a statement. "While we regret that this decision did not favor us, General Motors remains a valued client and business partner. Our companies look forward to continuing to make significant contributions to GM's business, across a range of geographies and marketing disciplines."
Not necessarily a financial windfall
While none of the parties would discuss the fees that Starcom will collect on the assignment, it's clear that the agency won't be getting rich off of it. Both sides were aggressive in pricing, and it's generally assumed by executives close to the review that Publicis' revenue will be lower than Interpublic's, given GM's cost-cutting initiative and industry-wide downward pressure on pricing.
"We have a lot of challenging deliverables we have to achieve, but with the economies of scale at Planworks, if we achieve them, the fee is eminently fair," said Planworks' president' Dennis Donlin, who will lead the combined buying and planning entity. The transition from Mediaworks to Planworks is expected to be complete by Oct. 1.
Ongoing media services problems
For some observers, the move highlights the Interpublic's ongoing media problems. Universal McCann, the larger of its networks, has been beset by client losses, including Nestle, and is currently searching for a new CEO after sidelining former chief Robin Kent. Messrs. Roth and Dooner are also searching for an executive to lead a reorganized media offering, with oversight of Universal McCann as well as Initiative and the negotiating unit Magna Global.
The fate of Mediaworks' 200 or so employees is unclear. Executives familiar with the matter speculated that some will move to other Interpublic companies, some will follow the GM account to Publicis and some will be laid off. Mediaworks, along with sibling promotions company R*Works, recently moved to a new headquarters in downtown Detroit. (R*Works was not part of the review.)
In addition, LCI, which buys GM dealer ad group media, won't be affected as dramatically because it handles other client work.
An Interpublic spokesman declined to comment on the matter.
~ ~ ~
James B. Arndorfer, Claire Atkinson and Bradley Johnson contributed to this report.