THE CHRYSLER BANKRUPTCY
Obama halves Chrysler's planned marketing budget
Lesson for GM: U.S. will have plenty of influence
Advertising Age
May 11, 2009 - 11:01 am ET
DETROIT -- Chrysler wanted to spend $134 million in advertising over the nine weeks it is expected to be in bankruptcy. The U.S. Treasury's auto industry task force gave it half that.
So if General Motors, 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. Transcripts from the U.S. Bankruptcy Court for the Southern District of New York, which is hearing the Chrysler case, showed 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 bankruptcy. 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," 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."
Chrysler's national campaign
Indeed, that's what the automaker is attempting with the 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 S.p.A. 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's executive vice president of 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 struck a discordant note with some readers of Automotive News' sister publication Advertising Age after a story on the campaign was published on AdAge.com.
"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?"
Bargain hunters
Consideration for Chrysler, Dodge and Jeep vehicles on Edmunds.com did jump 15 percent 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 declined to confirm that information. An auto task force representative did not respond to calls for comment.
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 task force. Few, however, believe GM can avoid following Chrysler into bankruptcy court, and GM CEO Fritz Henderson said on a conference call today that bankruptcy is becoming more probable.
Reduced spending
GM reduced ad spending "some" in the first quarter, CFO Ray Young said after the automaker's report last week of a $6 billion net loss in the period. He noted on a conference call that GM is closely following Chrysler's procedures "in case we have to go through it."
Charts that GM shared on its investor Web site 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. GM told the United States it will trim $800 million from advertising this year.
A GM spokeswoman declined to comment. GM's Young 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 percent from 21.7 percent a year earlier.
Said Young: "We just need to get out of the front page of the newspaper every day, and get this thing behind us."
So, not only does Obama now have control of Chrysler, it is now telling it what to do with what money... Awesome free market we have
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