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Chrysler's Planned Marketing Budget:Task Force Agrees Automaker Needs Advertising -- Just Not $134 Million Worth

Published: May 11, 2009

DETROIT Chrysler wanted to spend $134 million in advertising over the nine weeks it's expected to be in bankruptcy -- the U.S. Treasury's auto-industry task force gave it half that.

So if GM, which is wrestling with the possibility of a Chapter 11 filing itself, is wondering how much influence the task force will have over marketing, the answer is: plenty. However, transcripts from the U.S. Bankruptcy Court for Southern District of New York, where the Chrysler case is being heard, proved for the first time that the task force at least understands that advertising is a necessary expense -- even if it doesn't think Chrysler needs $134 million for nine weeks of car ads.

Robert Manzo, executive director of Capstone Advisory Group and a consultant to Chrysler, testified at a May 4 hearing that the task force "believed that it was not feasible to not spend anything on marketing and advertising for fear of eroding the image of the brand," during the company's planned nine weeks in bankruptcy. However, Mr. Manzo also testified that this "hotly discussed" matter resulted in the task force basically slashing in half the amount Chrysler wanted for advertising in the period.

U.S. Bankruptcy Court Judge Arthur Gonzalez then asked the witness: "Idle plants, why market?" referring to Chrysler's shutdown of its factories for nine weeks. "The belief on all sides was that it was essential for Chrysler not to lose its brand image in the marketplace," Mr. Manzo testified. "Advertising and marketing dollars are critical to make sure the right message is out there about Chrysler, what's happening to Chrysler during this interim period and why Chrysler will be a brand going forward that is one that a consumer should continue to look at as one of their purchase opportunities."

Indeed, that's what the automaker is attempting with a national TV campaign from BBDO, Detroit, that's running in prime time on ABC, NBC and Fox to try to calm consumers' fears about the future of its Dodge, Jeep and Chrysler vehicles. The first of two 30-second spots is dubbed "Bright Future," and it refers to Chrysler's reorganization and alliance with Fiat that will build a "meaner and leaner" company for the future. The push is a departure for Chrysler, which earlier this year cut network broadcast out of its budget in favor of more inexpensively priced local TV.

Steven Landry, Chrysler exec VP-sales and marketing, said in a statement that the effort "gives us the opportunity to reinforce that it's business as usual and demonstrate a bright future ahead for Chrysler." That sentiment, however, struck a discordant note with some Ad Age readers after a story on the campaign was published on "Business as usual? Isn't that what got American car companies in trouble in the first place? Business as usual gave us cars no one wanted to buy, zero innovation, outdated labor practices and a lot of taxpayer money thrown in to keep a sinking ship from going under," commented Jeff from Boston. "How about some unusual business -- like a successful American car company?"

Consideration for Chrysler, Dodge and Jeep vehicles on did jump 15% in the days after the company filed for bankruptcy April 30, the auto site reported. But news of the filing attracted buyers looking for rock-bottom sticker prices; dealers said customers made "outrageously low offers" for Chrysler vehicles expecting them to take any price, Edmunds said. The consideration boom lasted only five days and is now back to previous levels in spite of Chrysler's new incentive program, which can add up to $6,000 per new vehicle purchased through June 1.

While Chrysler's filing lists BBDO as its second-largest unsecured creditor, owed $58.1 million, one executive close to the matter said the agency will be paid. The executive said the auto task force agreed to Chrysler's plan to give the ad agency "critical supplier" status, which moves it up the payment list. A Chrysler spokeswoman refused to confirm that information; an auto-task-force representative did not respond to calls for comment by press time.

As Chrysler prepares to spend the $67 million the task force approved, GM is cutting back as it tries to slim down to satisfy a June 1 deadline set by the Treasury's auto task force. Few, however, believe GM can avoid following Chrysler into bankruptcy court.

Reduced spending
GM reduced ad spending "some" in the first quarter, Chief Financial Officer Ray Young revealed last week in a conference call about the company's $6 billion global loss in the period. He noted in the call that GM is closely following Chrysler's procedures "in case we have to go through it."

Charts GM shared on its investor website during the call show $300 million of the $3.1 billion in spending it cut globally in the first quarter was in advertising. Although the figure was worldwide, most of the slicing likely happened in North America, since the region accounted for nearly half GM's total loss. And the auto giant told Uncle Sam it will trim $800 million from advertising this year.

A GM spokeswoman declined to comment. GM's chief financial officer said talk of bankruptcy has already had "a lot of impact" on the market, although he was unable to quantify how much of GM's first-quarter market-share loss was directly tied to that (GM said its North American share fell to 17.9% from 21.7% a year ago). "We just need to get out of the front page of the newspaper every day, and get this thing behind us," he said.

LINK:Obama Auto Task Force Halves Chrysler's Marketing Budget - Advertising Age - News
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