Can Chevy's 'Historic' Agency Setup Really Work?
They seemed like any other patrons, but the trio huddled in a Birmingham, Mich., coffee shop were actually hatching plans for an unusual agency venture. Over lattes, Todd Grantham, Joe Garcia and Joel Ewanick hammered out details for a cooperative owned jointly by holding-company rivals Omnicom Group and Interpublic Group of Cos. that would service Chevrolet's massive global creative account.
The name of the coffee shop was Commonwealth.
It is a fitting moniker for the entity brainstormed in part by Mr. Garcia, president of Interpublic's McCann Midwest, Detroit; Mr. Grantham, managing director of Omnicom's Goodby Silverstein & Partners' Detroit office; and Mr. Ewanick, global CMO of General Motors.
Both agencies had serious skin in the game: Mr. Ewanick for months had been waving the maestro's baton in a protracted, post-bankruptcy push to wring $2 billion over five years from marketing costs at Chevy. The automaker's account had been spread among 70 agencies around the globe, but the shops that stood to lose most if the estimated $3 billion GM account decamped were Goodby, which led the business in the U.S., and McCann, which reigned over it in Mexico, Canada, Brazil, India, Japan, China and Latin America, among other markets.
Interestingly, Cheil, which was invited to participate in the pitch, is keeping the business in Korea, despite the creation of Commonwealth.
Chevy parent GM is said to be McCann's biggest client and a huge revenue generator for Interpublic. UBS analyst John Janedis estimated the incremental revenue from Chevy marketing duties in additional geographies to be at least $30 million -- a surprising figure given GM's focus on cutting costs. The value of Chevy's revenue and its client rank at Omnicom could not be determined.
The Commonwealth arrangement was hailed by the partners last week as a "historic" collaboration. "I said, "Listen, the agency thing, the network thing, that 's gonna be checked at the door,'" said Goodby principal Jeff Goodby. McCann Worldgroup Chairman-CEO Nick Brien likened it to tearing down a wall.
But many in the larger agency community were less impressed. Some see it as a defensive move by agencies forced to give cost concessions to a major client.
According to one insider, GM won't pay Commonwealth directly, but will pay the holding companies/agencies that are part of the venture, making it more of a management structure than a true new entity. Neither GM nor the holding companies would discuss compensation arrangements.
Commonwealth will initially consist of 280 creative people at an office on Woodward Avenue in downtown Detroit. The office will link to the "hubs and spokes" around the world where its board of eight people (including McCann creatives Linus Karlsson, Prasoon Joshi and Washington Olivetto, along with Mr. Goodby) reside. Mr. Goodby will be in charge.
"There's no doubt that I personally like Jeff Goodby and think he's one of the finest advertising people of our time," Mr. Ewanick said in a telephone interview last week. "His personality is perfect to lead this all-star team."
That said, Mr. Ewanick made it known that he wouldn't hesitate to shuffle the pieces or lose some of them going forward. "If we have to make a change, we'll make a change, even after doing this," he said. "As much as I like some of the folks at both agencies, I have to do what's right for the company."
Mr. Ewanick started the review process last April -- months before Commonwealth was formally announced -- and began looking at presentations from both McCann and Goodby. An RFP was sent out in September. "We told [the two agencies], "You can pitch separately or together, we'll support either way.' They decided on their own to come together as a team."
Getting the details down in December "was a rollercoaster ride," Mr. Ewanick said. "Some of the issues were ours, how Chevy and GM would handle certain budgets."
Or, as one person familiar with the deal said, "GM negotiated fiercely on costs and margins. You don't save $2 billion without people getting haircuts all around."
Mr. Ewanick said some of the $2 billion in savings will come from trimming production expenses worldwide.
"The 50-50 split was intentional; no one got an override," said Mr. Grantham. "The revenues are driven by where the people come from, and that is driven by the things that need to be done by Chevrolet."
One of the first tasks for the partnership is to decide whether to continue the "Chevy Runs Deep" theme launched by Goodby in 2009. "Do we need "Chevy Runs Deep'?" asked Mr. Ewanick. "Do we need any theme? We'll make a decision this summer."
Along Madison Avenue, there was substantial chatter about whether a cooperative venture among competitors will succeed. "It's great to say it's going to be a 50/50 operation, but whenever there's a merger of equals, it rarely pans out," said a well-placed observer. "Here, you've got two organizations that are hugely competitive and who really revile each other."
Jeremy Anwyl, vice chairman of Edmunds.com, was more circumspect. The melding was "tricky, because it could be a recipe for politics and undermining," he said. "That said, the agencies are aligned in at least one way: They're both driven by the profit motive. Maybe that common ground will generate a great collaboration. "
Commonwealth even came up for discussion on stage at the 4A's Transformation Conference in Los Angeles when the news broke last Tuesday. The New York Times' Stuart Elliott, moderating a panel on sustainability, was pressing Coca-Cola's Bea Perez on why her company hadn't partnered with archival Pepsi to invent more sustainable packaging.
"I mean, if Interpublic and Omnicom can come together for the Chevy account, why can't Coke and Pepsi get together to come up with a plant bottle?" he asked. Before Ms. Perez could answer, Kate Robertson, group chairman of Euro RSCG, jumped in with a quip that earned plenty of audience laughs: "Don't kid yourself, Stuart, that 's not really happening."
"I know all the people who are talking smack," Mr. Ewanick said. "The competitors all ... wish [failure] upon [Commonwealth]. I've heard it already from some pretty senior folks at other holding companies. ... There's a lot of envy here."
Regarding the name selection, Mr. Grantham said, "Commonwealth expressed the global nature; the idea suggested unity." As for the coffee shop, it will remain a business venue. "Get the Commonwealth latte," he suggested. "I don't know what they put in it, but it's awesome."