GM expects $2 billion in savings from marketing overhaul
GM's global advertising expenses rose 5 percent to $4.48 billion in 2011, according to its annual report filed last month.
DETROIT -- General Motors projects it will save $2 billion over the next five years by sharply consolidating its worldwide marketing and advertising agencies.
In coming days, GM is expected to announce that it will give a few major agencies nearly all Chevrolet creative ad duties, shedding dozens of smaller firms that do Chevy work around the globe.
It's part of a broader effort that in January resulted in GM awarding most of its $3 billion media-buying and planning activities to one firm: Aegis Group's Carat unit of London. That move also shed dozens of agencies.
Joel Ewanick, GM's global marketing chief, believes that streamling the Chevy ad work and GM's media-planning budget should save the automaker about $2 billion over five years, a spokesman said.
Saving 10 percent
That amount would represent, on average, $400 million a year, or about 10 percent of GM's annual advertising budget. Last year, GM's global advertising expenses rose 5 percent to $4.48 billion, according to its annual report filed last month.
Not all of the savings from the consolidation will flow to the bottom line, though. Some will be plowed back into the marketing budget, the spokesman said, but he declined to say where GM would boost spending.
More than 50 ad agencies and some 2,000 employees at outside firms do creative work for Chevrolet around the world. In January, Ewanick said he wanted to cut that number to fewer than five agencies to slash costs and align Chevy's marketing across regions.
No more patchwork
Last year, Ewanick told Automotive News he wants GM's sprawling marketing apparatus to operate as one unit, rather than a patchwork of regional departments. Merging budgets and borrowing ideas across regions will cut expenses and enhance Chevy's message, he said.
"I'm bringing these guys together and making them talk," Ewanick said. "Some of the work they're doing in India we could run in North America or in Europe."
GM doesn't break out ad spending by brand, but Chevrolet accounted for more than 60 percent of the automaker's unit sales in 2011. In the United States alone, GM spent $1.1 billion on Chevy advertising last year, according to Kantar Media North America, a New York firm that tracks ad spending.
The consolidation is part of a push by GM CEO Dan Akerson to speed Chevrolet's growth overseas and establish the brand as a true global player. For the past two years, for example, GM has increased Chevrolet's market share in Europe in an effort to establish Chevy as its mainstream brand there, positioned below the Opel marque.
Higher profit margins
The ad-firm shake-up also underscores Akerson's mandate to cut marketing and engineering costs in a bid to increase profit margins. GM officials have said they want to boost pretax margins to 10 percent, which would match the world's most profitable automakers, from 6 percent last year.
In a research note last week, RBC Capital Markets analyst Joseph Spak said GM still has plenty of opportunities for cost cutting, nearly three years after its bankruptcy restructuring.
"GM had been operating in 'crisis mode' for so many years, that basic blocking and tackling was neglected," he wrote. "Additional cost savings and efficiencies are still possible and GM has put better controls and processes in place to realize them."
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