Madison Ave. gripped by dangerous dependence on Detroit

Top 3 holding companies reliant on Chrysler, Ford GM as their largest clients

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Problems at the Big 3 automakers spell trouble for the Big 3 agency holding companies.

Those companies don't say it explicitly, but the fact is that Detroit's biggest players are also the biggest clients of Omnicom Group, WPP Group and Interpublic Group of Cos. Omnicom's No. 1 revenue account globally is DaimlerChrysler, which is cost cutting from Stuttgart to Detroit. WPP's largest customer is Ford, also in the midst of massive restructuring to compete with surging brands from Asia. Top client at Interpublic is General Motors Corp., struggling with shrinking market share and mounting losses.

Each of the Big 3 holding companies generates from 4% (Omnicom) to 8% (Interpublic) of revenue from its top account, according to company filings.

Among the firms, Omnicom is in the strongest position. A diverse client base makes it less reliant than rivals on its largest account. Omnicom has other cars in its garage, including Nissan, Mitsubishi, Subaru, GM's Saturn and, outside the U.S., Volkswagen. The share of revenue that Omnicom collects from its top 10 clients-18.5% last year-is far lower than that of Interpublic (24.7%) or WPP (31%), giving it better protection if a big client stumbles.

Agency fees have held up-so far. Interpublic's 2005 revenue from GM rose to a record $502 million, according to an Advertising Age analysis based on securities filings. WPP hasn't disclosed '05 revenue from its largest account, but the analysis shows its compensation from Ford in 2004 approached a record $633 million.

challenges for agencies

Omnicom may be hitting the wall on fees: Its revenue from DaimlerChrysler last year-$419 million-was flat, the first time that's happened in 13 years of data analyzed by Ad Age.

Between 13% and 14% of Ford and DaimlerChrysler global ad expenditures end up as revenue at WPP and Omnicom, according to the analysis. About 9% of GM's '04 ad spending ended up as revenue at Interpublic, which splits global ad duties with Publicis Groupe.

An Omnicom spokeswoman declined to comment for this story. Spokesmen for WPP and Interpublic also declined to comment.

There's no denying that troubles in Detroit are creating challenges for agencies. "Any supplier to [the automakers] is at risk," said John Casesa, longtime Merrill Lynch auto analyst who left and formed his own consultancy last month. "It's no different whether the suppliers create advertising or water pumps."

"It's quite clear that Detroit needs to shrink dramatically," said Mr. Casesa, managing partner of Casesa Strategic Advisors. While GM, Ford and DaimlerChrysler all have announced plant closings and staff cuts, they could shrink much more if profitable vehicle sales don't improve and they run into road bumps with the United Auto Workers union when contracts expire in 2007, he added.

Auto giants are pressing agencies to cut costs and improve efficiency. WPP this year is moving its Detroit operations-including JWT, Ogilvy & Mather and Y&R-into two buildings and creating four shared services units, the most concrete manifestation of WPP's "Team Ford." Omnicom early this year cut about 200 jobs at Chrysler's main agency, BBDO Detroit, Troy, Mich.

It's not all bad news. The automakers are performing well in some international markets-GM last year sold more vehicles outside the U.S. than at home-and that means business for global agencies. Interpublic's McCann Erickson, for example, last year helped GM launch Chevrolet in China.

The fourth-largest holding company, Publicis, has some insulation from the woes of Detroit. GM is a key account, to be sure, and Publicis' Leo Burnett this month lost a portion of its Cadillac work to Boston independent Modernista. But Publicis also benefits from the rising fortunes of Toyota, likely soon to displace GM as the world's biggest automaker.
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