Interpublic Feels Pain as GM Slashes Spending

Automaker Hacks Its Ad Budget, Costing Group $100 Million in Revenue

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LOS ANGELES ( -- General Motors Corp. cut worldwide ad costs last year by 7%, or $400 million, to $5.4 billion, but Interpublic Group of Cos. took a far bigger hit. The holding company's
Interpublic is learning firsthand the costs of being a supplier to a troubled giant.
Interpublic is learning firsthand the costs of being a supplier to a troubled giant.
revenue from GM, long its largest client, plunged 20%, or $100 million, to $400 million, according to Ad Age DataCenter estimates.

GM worldwide ad costs, disclosed in a 10-K filing late last week, marked a pullback from 2005's record $5.8 billion. GM last year spent 2.6% of revenue on advertising, down from 3% in '05 but still above the average 2.4% it spent from 1995 to 2004.

Cut smaller than estimated
According to the filing, GM's cut in actual worldwide ad costs was far smaller than the estimate TNS Media Intelligence released last week for GM's reduction in U.S. media spending. TNS estimated GM cut U.S. spending by $713 million, or 23.7%, to $3 billion. TNS bases its figures on rate cards; GM, like most advertisers, negotiates discounts.

But GM acknowledges a double-digit U.S. cut. Mark LaNeve, GM North America VP-vehicle sales, service and marketing, told Ad Age last month that '06 spending fell 10%, adding that '07 spending would be flat.

Interpublic is learning firsthand the costs of being a supplier to a troubled giant. GM's 10-K noted: "By leveraging its global reach to take advantage of economies of scale in purchasing, engineering, advertising, salaried-employment levels and indirect material costs, GM seeks to continue to achieve cost reductions."

*Ad Age estimate. Source: Ad Age DataCenter analysis of company filings

Interpublic took three hits from GM. First, GM moved U.S. media buying from Interpublic to Publicis Groupe effective October 2005, meaning significant lost revenue in 2006. Second, GM cut media spending. Third, GM put continued fee pressure on agencies.

Less revenue from GM
Add it up, and GM's share of Interpublic revenue fell to an estimated 6.5% -- $400 million -- in '06 from 8% -- $500 million -- in '05. Back in 1979, Interpublic generated 15% of its revenue from GM.

Reduced dependence on a troubled client could be a good thing. Indeed, Interpublic last year reported flat revenue despite GM's cuts, meaning it made up lost revenue with other accounts.

Interpublic this year received a key endorsement from GM: The automaker moved the $190 million Saturn account to Interpublic's Deutsch, Los Angeles, from Omnicom Group's Goodby, Silverstein & Partners, San Francisco.

Interpublic Chairman-CEO Michael Roth, speaking at a Bear Stearns conference this month, said: "To be able to win Saturn, frankly, without a competitive pitch, shows you that our relationship with General Motors is very solid."

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Click here for a chart of deeper data on GM's relationship with Interpublic
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