GM - less money for advertising perhaps more for better cars (GM Photo)
Not only GM, its dealers and suppliers face troubled times, the media will feel the pain
Stephen Pate, NJN Network, Charlottetown, Prince Edward Island, Canada, June 2, 2009 with story from The Deal.com
With the long awaited bankruptcy of GM a done deal on June 1, 2009, the ripple effects will soon start to be felt by others who rely on the auto industry. The media biz – advertising agencies, newspapers, the Internet, events like The Academy Awards – all share in GM’s annual advertising budget of $2.12 billion. That is going to change today and forever with a smaller GM or possibly no GM at all.
Everything that GM does during its bankruptcy period, which some are optimistically predicting will only last 90 days, must be approved by a judge. This will likely have a devastating effect on GM’s sales and advertising.
During the run up this crisis in the last quarter of 2008, new car ads were cut back or canceled. Newspaper revenues dipped dangerously and the layoffs came in droves.
Even less auto advertising will start another round of restructuring in the media chains such as Gannett, E.W. Scripps, Transcontinental and CTV GlobeMedia. Loss of GM ads will hurt newspapers like the Charlottetown Guardian who are still trying to recover from the last decline in their revenues.
Immediate pain will be felt by ad agencies who are some of GM’s largest creditors and who will not get much of their bills paid in the bankruptcy.
“Chicago-based diversified advertising group Starcom MediaVest Group Inc. is listed as the sixth-largest unsecured creditor with a claim of $121.5 million. Starcom’s claim exceeds bankrupt auto parts maker Delphi Corp.’s claim of $110 million.”
“Meanwhile, Starcom is not the only advertising company making the top 50 list of unsecured creditors. Paris-based advertising agency Publicis Group SA (OTC:PUBGY) is owed $25.2 million of unsecured debt, followed by $15.9 million to Interpublic Group of Cos. and $4.6 million to McCann Erickson of Calgary, Alberta.” The Deal.com
Advertising executives say they have planned for this event. Assuming the ad agencies are solvent, the newspapers and other media outlets should get paid but everything is up for grabs in a bankruptcy. Ad agencies might be pushed over the brink as well during the summer of 2009 which will hurt media outlets who didn’t get paid for their ad placements.
Expect newspapers to react as their classified advertising fell approximately 40% in the first quarter of 2009. Car ads are the display advertising business for newspapers and the loss of GM their biggest customer will have direct impact. More newspaper restructuring will follow.
Except where otherwise noted, this work is licensed under a Creative Commons Licence – NJN Network Inc.copyright.
Thomas McLaughlin
The GMC truck division should not continue as a part of GM. GM and the US government have one chance to get the reinvention of the new GM right and avoid continued government and taxpayer support.
Domestic and import full-size truck and SUV sales are declining with fuel economy concerns, so manufacturing two of the same brand is not a profitable long-term business model. Chevrolet and GMC trucks and SUVs are essentially the same vehicles. Chevrolet models cost less, have equal or better quality and fuel economy, and outsell GMC models more than three to one. Toyota and other imports don’t manufacture two of the same full-size vehicles under different brand names; it does not make sense, economically, for GM to continue producing both GMC and Chevrolet.
Advocates who hope to keep GMC as the auto industry changes to more fuel-efficient models want to continue a business strategy that will ultimately be as unprofitable as the now defunct brands of Hummer, Pontiac, Oldsmobile, Saturn, and Saab.
Follow the import business model, eliminate GMC now, and save the costs associated with the extra GMC manufacturing processes and distribution channels, which will not be part of a long-term solution. The new GM will be more profitable going forward without GMC if Chevrolet produces and sells all of GM’s full-size trucks and SUVs.
GM won’t need government and taxpayer support again if GMC is eliminated now.
copies of bankruptcy records
More often than not I do not post on blogs, but I’d just like to mention that this post really has compelled me to do so! Thank you for your insightful article.