GM Squeezes Up to 10% Fee Cut from Agencies

10 December 2001

After several months of terse haggling in [metaphorically] smoke-filled rooms, General Motors and its agencies have inked a deal that will see greater emphasis on performance-related payments and a reduction in basic fees by up to ten percent. The accord, insiders say, covers corporate and brand advertising as well as media planning/buying and the GM Card.

Under present agency contracts, the profit margins of all GM’s main shops are pegged at 18%. The barrier has almost certainly been lowered for 2002, say sources, although no-one is quoting numbers. The bargaining, said one participant, was “particularly difficult because of the economy, and there's extra scrutiny there.”

The main protagonists on the agencies’ side of the table – Campbell-Ewald, D'Arcy, Hal Riney & Partners, Lowe Lintas & Partners, McCann-Erickson, Modernista! and Mullen – all had ample warning of the negotiating strategy GM intended to employ. Shortly after taking up his post in January [WAMN: 05-Jan-01], executive director of corporate advertising and marketing Christopher Fraleigh made it clear that he would focus on performance-related remuneration.

GM formally confirmed that the contracts for 2002 were “just completed”, although its spokesperson denied that the auto giant had sought to trim agency margins: “We're not looking to reduce agency profit,” he said.

In common with all US auto manufacturers, times are hard for GM. It’s marketing budget has been slashed during the current fiscal, down from $3 billion in 2000 to below half that figure ($1.4bn) in the eight months to August 2001.

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