Shops Roughed Up Along Detroit's Road to Bailout

As Carmakers Make Sacrifices, Madison Avenue Will Be Pressed Harder for Cuts

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DETROIT (AdAge.com) -- As the Big Three domestic automakers race the clock to create a business plan to qualify for $25 billion in federal loans, it's clear Detroit will have to offer up deep sacrifices. But it won't be alone: The agencies and holding companies that service the carmakers will be forced to do so, too.
Auto-agency executives said their shops are seeing ad budgets, production budgets and fees getting slashed for at least the second time this year as the car companies frantically try to conserve dwindling cash reserves -- and they are girding for more. "Everyone is getting a new whacking," one of the car-agency execs said of the latest client cutbacks. "Everyone is cognizant of what we're facing," said another.

Mark LaNeve, VP-sales, service and marketing at General Motors Corp. in North America, would only say: "We have gone to everyone, suppliers, dealers, agencies, Nascar teams, media partners, etc., to make sacrifices and help us to identify savings during the financial crisis."

Left holding the bag?
For agencies, the crisis is particularly acute. Most of the shops, which have already trimmed staff, are very likely to have to let go more employees, even if one or more of the automakers secure a loan. In the event of failure and inevitable bankruptcies, carmakers' media agencies could be on the hook for tens of millions in media dollars, depending on how their contracts are written.

Even so, the agency sacrifices aren't likely to go the same distance that now-defunct Kenyon & Eckhardt did for Chrysler when it got a $1.2 billion federal loan guaranty in 1979. That year, Lee Iacocca -- Chrysler's new president, fresh from Ford Motor Co. -- dumped Young & Rubicam and handed its entire $120 million ad account to Kenyon, which in a rare show of bravado gave up its stable $75 million Ford account to take on a wobbling Chrysler.

Leo-Arthur Kelmenson, then president-CEO of Kenyon and close to Mr. Iacocca at the time, told Advertising Age he worked out deals with the three TV broadcast networks to give the agency more leeway to pay Chrysler's roughly $15 million in monthly media bills. Mr. Kelmenson, now a principal of Kelmenson, Davis & Associates, New York, who rose to chairman of FCB Worldwide, Bozell Worldwide and Kenyon, said he managed to persuade the agency's other clients to accept later payments to help float Chrysler's media bills.

The agency chief also mortgaged his two houses and sold his boat and used the money to buy Chrysler stock as a show of support. He said he encouraged his employees to do the same.

Back in the day
"That's when ad agencies and clients were partners," said Mike Vogel, who worked in media under Mr. Kelmenson then. The kinds of moves Kenyon made on behalf of struggling Chrysler "probably wouldn't be done today," said the principal of independent shop TMV Group in suburban Detroit, who had been chairman of BBDO Detroit on the Chrysler business.

Arthur "Bud" Liebler, who retired from Chrysler earlier this decade as senior VP-marketing, said the late Ross Roy, whose independent shop of the same name handled marketing services for the automaker, "continued to service Chrysler without being paid all the millions of dollars they were owed." (BBDO acquired Ross Roy Communications in the mid-1990s, when it was a dedicated Chrysler shop.)

Mr. Liebler left Ross Roy to join Chrysler in 1979 as merchandising director weeks before Uncle Sam granted the loan guaranty. Now the head of his own communications firm and a restaurateur, Mr. Liebler noted that retired Chrysler Chairman Iacocca took an annual salary of $1 during those dark days and called for an "equality of sacrifice" for management, labor and suppliers.

A show of belt-tightening
This time around, Detroit has to be prepared to demonstrate to Congress it will curb what the Beltway has denounced as runaway spending. Last week, the leaders of the Big Three were publicly censured for using corporate planes to fly to Washington to plead their case. Salaries will certainly be under scrutiny, as well. A summary of the proposed Auto Industry Emergency Bridge Loan Act, unveiled at the 11th hour last week, calls for executive compensation limits. Automakers that get a loan are prohibited from granting golden parachutes and bans bonuses to executives whose base pay exceeds $250,000 a year.

Even if the loans do go through, agencies could have a tougher taskmaster than Ford, Chrysler or GM: the federal government. A newly appointed board, made up of the secretaries of Commerce, Energy, Transportation, Treasury, Labor plus the Environmental Protection Agency's administrator, will have the authority to review and give direction on significant company transactions, including the $4.6 billion it spends on advertising and media outlays.
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