Poor results spark cut: GM zaps $40 mil in upfront buys

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Following a brutal 2003 earnings report, General Motors Corp. has canceled an estimated $40 million in upfront TV buys for the second quarter of 2004.

The timing is unusual because the auto giant has 13 all-new 2004 models to launch. According to executives close to the situation, the nation's largest advertiser is not, however, shifting the money to other media or marketing disciplines. The executives said the carmaker is taking the step as a straightforward budget-cutting move.

That will make it no less worrying for the broadcast networks, which have also recently had to hear the automaker's executives encourage their brand managers to shift some of their budgets and focus away from TV and toward such areas as PR and event marketing.

Gary Cowger, president, GM North America, took a shot at the broadcast TV networks in an evening speech last month at the Automotive News World Congress in suburban Detroit. "Thirty years ago, this time of night, 90% of TV viewers were watching ABC, CBS or NBC. Used to be TV was the answer. But the old marketing model is dead ... it stopped working sometime around 1987."

Mr. Cowger went on to say the new business model to reach people is "quality of impressions" made on consumers at events that get them into GM vehicles. Since last June, he explained, GM sold 190,000 cars and trucks to prospects that kept them overnight in the automaker's 24-Hour Test Drive program. That sales rate is nearly 35% of those who participated in the program. That's why GM will continue to do more of that kind of marketing. "Tell me a television commercial or print ad that has that kind of close rate," he said.

Still, executives insist the motivation for cuts on this occasion was the poor financial results. GM last month announced its 2003 North American earnings dropped to $397 million vs. $644 million in 2002. Another possible motivation: GM is spending more on incentives-$3,479 per vehicle last month vs. $3,074 in January 2003, according to Edmunds.com, an independent auto information site.

previous cuts

GM, the nation's perennial top advertiser, drove down a similar road in 2001, when it cut $80 million from its second-quarter broadcast network upfront buys, well above the typical 5% to 10% for the period. (AA, Feb. 5, 2001). Of the $664 million GM spent in measured media in the second quarter of 2003, $182 million was on broadcast TV networks, according to TNS Media Intelligence/CMR.

The TV networks can resell canceled upfront options as scatter for more money, one media agency executive said. But the advertiser that cancels options risks losing some of the better programming inventory bought during the upfronts.

Michael Browner, executive director of media and marketing operations at the automaker, declined comment through a spokeswoman. A CBS spokesman said the network did not discuss its advertisers' business. Mike Shaw, president-sales and marketing at Walt Disney Co.'s ABC, couldn't be reached for comment. Fox and NBC executives also could not be reached for comment.

contributing: richard linnett

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