Broad GM Cuts to Hit Sales and Marketing Budgets

During a conference call today, GM Chairman-CEO Rick Wagoner gave no specifics on the upcoming sales and marketing cuts, and few details about the other areas he outlined for slashing, including trimming truck production by 300,000 units by the end of 2009, reducing salaried headcount and ending salary increases in the U.S. and Canada while halting "annual discretionary cash bonuses" for executives. GM will also suspend dividends on its common stock and eliminate health-care coverage for U.S. salaried retirees over 65 starting in January, partially offsetting that by pension increases.

The move is bad news for U.S. media outlets, which have benefited from GM's giant U.S. ad budgets -- even though the country's fourth-largest advertiser has been cutting its annual ad spending since 2005.

Will protect ad budgets

Advertising Age estimated that GM spent $3 billion in U.S. marketing spending last year, which includes $2 billion in measured media, according to TNS Media Intelligence, and an estimated $948 million in unmeasured media. That's down nearly 9% from the $3.29 billion the automaker spent in 2006, including $1 billion in unmeasured media. The 2005 U.S. tally was off by nearly 20% from the $4.1 billion the company spent in 2005 in measured and unmeasured media, according to Advertising Age estimates.

But while it said it would cut marketing budgets, Mr. Wagoner said GM is looking at "protecting launch products and brand advertising" budgets. GM has had success with major blitzes for the redone Chevrolet Malibu and second-generation Cadillac CTS.

Doug Scott, senior VP of consultant GfK Automotive, projected GM's consolidation plans would mean fewer marketing managers, or adding sales to their duties. "At the end of the day, you get rid of fewer salespeople than marketing people because they are calling on dealers," Mr. Scott said. He also predicted GM would do fewer U.S. events across all its brands and focus more on its two key brands: Chevrolet for the mass market and Cadillac in the luxury arena.

Need to adjust

GM needs to adjust to the nature and demands of the U.S. market, where its profits are reeling from the falloff in truck sales, Mr. Scott said. Although GM has seen higher sales for some of its small and mid-size cars, the profit margins on those models haven't been anywhere near the hefty ones it made on big pickups and SUVs.

All carmakers in the U.S. have been affected by the quick change in consumer preferences in recent months to smaller, more fuel-efficient vehicles, Mr. Scott said. "The automakers who got stung the least had a better balanced product portfolio."