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International: Starcom MediaVest wins GM's $3.5 bn US account; major blow for IPG

13-May-2005
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International: Starcom MediaVest wins GM's $3.5 bn US account; major blow for IPG

In a single stroke, General Motors Corp. yesterday dealt a deathblow to the 200-person media-buying shop dedicated to its business and further bruised that agency's parent, the already struggling Interpublic Group of Cos.

As part of a desperate cost-cutting move it hopes will help lift its battered stock price and credit rating, GM shifted its $3.5 billion US media-buying account from Interpublic's GM Mediaworks to Publicis Groupe's Starcom MediaVest Group, Chicago, following a much-watched two-month review. The move consolidates GM's media services business with Starcom, whose GM Planworks unit has handled the automaker's media planning since 2000.

The enormous clout of the largest US advertiser throws additional force behind the already considerable Starcom juggernaut, whose client list includes Procter & Gamble Co. and Coca-Cola Co. And the GM shift is yet more evidence of the seductiveness of the Starcom brand of ideas-oriented media strategy, the success of which points to a media game that's evolving beyond the old rules of bulk and scale.

For Interpublic, the loss hurls another roadblock in the third-largest ad holding company's attempt at a turnaround, already stymied by bookkeeping issues that have prevented it from issuing its 2004 results and by numerous operational problems, including a number of client defections and leadership holes at its media buying and planning networks.

GM has long been Interpublic's largest client, accounting for $487 million or 8.3% of Interpublic 2003 worldwide revenue. The US media-buying assignment represented about 10% of Interpublic's GM business.

A victim of GM's business woes

To some degree, Interpublic was a victim of the serious business problems facing its largest client. GM's market share has been on a slow slide for years due to broadened vehicle lineups and more competitive truck models from Asian competitors. Yet during the slide, GM had remained profitable -- until the first quarter of this year.

GM reported a loss of $1.3 billion globally in the first quarter, saying its North American auto operations was the main reason for its loss of $1.3 billion vs. earnings of $401 million a year ago. GM said its North American market share was 25.2% in first quarter of 2005 compared with 26.3% a year ago.

Big guns sent to defend account

Despite the prospect of being grinded down on fees, Interpublic went to the proverbial mattresses to retain the account, sending heavy hitters such as McCann Worldgroup Chairman-CEO John Dooner; Interpublic Executive Vice President for Global Operations Stephen Gatfield; Co-chairman David Bell; and Magna Global CEO Bill Cella to Detroit last month to help defend it. It also pushed Mediaworks President-CEO Rick Sirvaitis out of the way, installing his deputy, John Miles, to run the defense.

At the same time it was trying to fend off Starcom's advances, Interpublic executives attempted to play down the importance of the account to its financial situation. Last month, the company issued a press release stating the GM media business represented less than 1% of Interpublic's global revenue. An Advertising Age analysis based on Interpublic's public statements determined that the loss will represent a $5 million hit to annual net income and a loss of up to $45 million to $50 million in annual revenue. The analysis also found that Interpublic hauled in fees of 1.3% to 1.4% of the measured media.

"We put together a very strong team and an excellent proposal for General Motors' domestic media needs," Interpublic's chairman-CEO, Michael Roth, said in a statement. "While we regret that this decision did not favor us, General Motors remains a valued client and business partner. Our companies look forward to continuing to make significant contributions to GM's business, across a range of geographies and marketing disciplines."

For some observers, the move highlights Interpublic's ongoing media problems. Universal McCann, the larger of its networks, has been beset by client losses, including Nestle, and is currently searching for a new CEO after sidelining former chief Robin Kent. Messrs. Roth and Dooner are also searching for an executive to lead a reorganized media offering, with oversight of Universal McCann as well as Initiative and the negotiating unit Magna Global.

Source: AdAge.com

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