GM Tells Congress It Plans to Slash $600M in Marketing

DETROIT, December 02, 2008: According to Jean Halliday, writing for AdAge, as the Big Three U.S. automakers today unveiled business plans they promised to Congress to secure government funding, specifics on marketing and advertising spending went largely unaddressed by Ford Motor Co. and Chrysler -- though General Motors Corp. outlined a program to slash $600 million in spending by 2012 and support only half of its eight brands.

GM said it would concentrate its marketing and product development in the U.S. on four brands: Chevrolet, Cadillac, Buick and GMC. Those account for 83% of its current vehicle sales in the U.S., but Chief Operating Officer Fritz Henderson in a conference call today said the profitability of those four "is much higher" than 83%. He did not provide specifics.

'Significant reductions' GM will make "significant reductions to advertising and promotions" as part of the paring of brands, Mr. Henderson said. The company's filing shows that advertising and promotion spending will account for $3.2 billion of its total $30.2 billion in structural costs this year. But by 2012, GM said it plans to cut $600 million in ad and promotions, reducing its outlay to $2.6 billion as part of a move to reduce annual structural costs to $23.2 billion by that year. GM will have 40 vehicle nameplates in 2012, down from 48 this year and 63 in 2004.

That leaves Pontiac, Saturn, Saab and Hummer facing dubious fates, although GM said Pontiac will continue as a specialty niche brand within the Buick-GMC division. Mr. Henderson said Pontiac would have a "specialized vehicle like the Solstice [roadster] although I'm not saying that's the vehicle going forward."

GM Chairman Rick Wagoner, also on the conference call, said because the company has different franchise deals with Saturn dealers, it will accelerate talks with those retailers to explore alternatives for the brand. GM will immediately start a global strategic review of Saab, which could be sold. The company has been conducting a strategic review to sell Hummer for several months.

GM, the biggest of the three carmakers, said it expects an initial draw of $4 billion this month and is seeking term loans of up to $12 billion to provide adequate liquidity levels through the end of next year. The automaker said it intends to repay the loans as soon as 2011.

Steering clear of 'bankruptcy' Neither Mr. Wagoner nor Mr. Henderson would utter the word "bankruptcy" when asked directly by reporters on the call whether GM would need to resort to reorganization under Chapter 11 if Congress fails to provide loans. "It would be very uncertain and dangerous, but not just for us," Mr. Wagoner said, adding, "We hope our case is compelling this time and we believe our case is this time."

Ford Motor Co. asked for up to $9 billion in bridge financing, though the automaker, which has tried several different restructuring modes since posting an annual loss in calendar 2001, said it hopes to finish its turnaround plan without tapping into the loan program even if approved. (Bridge loans are short-term loans taken out for a period of up to three years, until permanent financing is arranged.)

The company did not outline specifics of whether ad and marketing budgets would be trimmed. But Jim Farley, group VP-marketing and communications, said the company is "going into a very large launch mode next year," indicating that spending would be a priority. And an executive close to Ford said the automaker plans to support those launches next year and hasn't made large-scale cuts to those key programs.

Investing in technology Ford's plan calls for an investment of some $14 billion in the U.S. for advanced technologies and products to improve fuel efficiency over the next seven years on all its models. By 2010, Ford said half of all Ford, Lincoln and Mercury light-duty models will qualify as "Advanced Technology Vehicles" under the U.S. Energy Independence and Security Act, increasing to 75% in 2011 and over 90% in 2014. Presumably, getting the word out about the new technology will require marketing.

Chrysler, the smallest of the three, was last to file its plan in Washington. The private automaker, in which equity firm Cerberus Capital Management holds a controlling stake, is asking for a $7 billion secured bridge loan by the end of the year, when it estimated it will have roughly $2.5 billion in available cash.

The automaker, which slashed more than 1.2 million units of vehicle capacity since 2007, or 30%, said it plans 24 major product launches through 2012 that include a "wide portfolio of hybrid electric vehicles ranging from neighborhood electric models (like golf carts) to battery-electric versions."

Testimony this week Chrysler Chairman-CEO Robert Nardelli, who will testify before two congressional committees Thursday and Friday with his counterparts, Ford President-CEO Alan Mulally and GM's Mr. Wagoner, didn't offer specifics in the plan on the automaker's ad spending. But the plan noted that if the $7 billion government bridge loan is granted, Chrysler would use $1.2 billion of it for "other vendors," which very likely includes its ad and media agencies. Omnicom Group is Chrysler's main provider.

Chrysler is working with a number of organizations, including its own dealers to use public relations and events to take its case to the streets. Mr. Nardelli, Vice Chairman Jim Press and other Chrysler officials are spending the first part of this week in a grassroots effort it calls a "Virtual Road Show" with initiatives spread across seven states.

Both Chrysler and Ford followed GM's lead online in taking their case to the public and stakeholders. Ford activated a new website, thefordstory.com, to inform consumers about its plan, but has no plans to advertise and take its case directly to the public, a spokesman said. WPP Group's Wunderman Team Detroit, Dearborn, Mich., created the site with the client.

Chrysler updated an existing site, grabdemocracybythehorns.com, with more information about the bridge loans with an area for supporters to contact their elected officials.

The filings in Washington coincided with the industry's reporting of November U.S. new-vehicle sales, which GM said marked the industry's worst showing since 1958 on a per-capita basis.