DETROIT - General Motors is preparing to take control of nearly $500 million in local advertising funds that currently are allotted to GM area dealer groups.
Dealers say the automaker soon will transfer control of that money to GM's five newly created regional directors. The plan could be announced as early as next week.
If so, GM's 750 dealer marketing groups would lose control of local advertising. However, the automaker is considering a proposal to continue refunding some of that money directly to dealers to supplement each store's ad budget.
Expectations of an impending announcement were stoked by a Nov. 25 memo to dealers from John Middlebrook, GM's vice president of vehicle brand marketing. That memo advised dealer groups not to undertake any long-term ad campaigns extending beyond April 1, 1999.
Moreover, the automaker may ask a single agency to handle all regional advertising, according to a source close to GM. At risk are the 60 ad agencies that currently handle creative content and media buying for the dealer groups.
GM spokeswoman Donna Fontana declined to discuss the memo or GM's advertising plans.
'We are looking at how we handle regional marketing,' she said. 'We are not ready to talk about anything yet.'
STUDYING HONDA, SATURN
Three dealers who have been briefed by GM say the automaker has benchmarked a number of automakers, including Honda Motor Co. Inc. and Saturn Corp.
Several influential dealers are lobbying GM to emulate Honda, said Frank Ursomarso, president of Union Park Pontiac-GMC in Wilmington, Del., and a member of GM's dealer advisory board.
'Honda is the best example for a successful dealer situation,' Ursomarso said, after a November meeting with GM executives. 'Personally, I have recommended that GM move in that direction. It works well, and it is a model benchmark to look at.'
Ursomarso likes Honda's system in part because that automaker returns some of its regional advertising funds to individual dealerships. If GM preserves those refunds, Ursomarso thinks GM dealers will endorse the new system.
A second dealer who has been briefed by GM predicts the automaker will adopt portions of the Honda system.
'Honda's (system) is a good one,' said the dealer, who asked not to be identified.
The issue has drawn considerable attention among dealers because so much money is at stake. For each new GM vehicle sold, 1 percent to 2 percent of the invoice price goes into a regional advertising fund. It varies by market, depending on each dealer group's media budget.
Individual GM dealers are refunded a portion of that amount; the rebate differs by marketing division.
Through August, GM dealer marketing groups spent $319 million, according to Competitive Media Reporting, an independent media consultant.
Ursomarso said GM is unhappy with that system because it is difficult to harmonize national advertising with local dealer ads. Moreover, GM thinks it is costly and inefficient for dealers to work with a variety of advertising agencies.
THE HONDA SYSTEM
Under the Honda system, the Japanese automaker controls regional creative content and media buying but consults with dealers in each area. Each dealer also is refunded a portion of the invoice per vehicle - ranging from $70 to $165 - as an advertising allowance for his or her store.
Honda does not dictate what dealers' ad copy must say. But Honda dealers must use logos and lettering mandated by the manufacturer.
Honda Division relies on one agency - Rubin Postaer & Associates of Santa Monica, Calif. - to handle regional and national advertising.
'It saves a ton of money because you have economies of scale,' Ursomarso noted. By contrast, 'GM has a situation where every dealer group is producing ad media. Some is good and some is awful.'
Saturn's regional advertising policy is similar to Honda's system. Publicis & Hal Riney of San Francisco handles Saturn's national and regional ads. A dealer council reviews Riney's ads and makes recommendations for regional campaigns. To finance the ads, each dealer pays $250 for each car sold.
There is one big difference between Saturn and Honda: Saturn does not rebate any money to individual dealers.
GM is expected to consolidate further the number of agencies that handle regional advertising.
Over the past two years, GM's marketing divisions have begun trimming that roster, although some divisions have made more progress than others. For example, four agencies now handle Oldsmobile's regional ads, while 30 agencies work with Cadillac.
GM's national ad agencies include Campbell-Ewald of Warren, Mich., which handles Chevrolet; McCann-Erickson Worldwide, which represents Buick; D'Arcy Masius Benton & Bowles of Troy, Mich., which handles Pontiac and Cadillac; Ammirati Puris Lintas of New York, which handles GMC; and Leo Burnett USA of Chicago, which handles Oldsmobile.
General Motors' plans could be complicated by a group of Chicago-area dealers who say they will try to block any GM effort to take control of dealer groups' advertising funds.
The dealers have hired Samuel Skinner - a former U.S. secretary of Transportation - to represent them in a possible lawsuit against GM. The Chicago dealers are appealing to GM dealer groups around the country to join the coalition.
The Chicago dealers say that two Milwaukee dealer groups have pledged support.
'Our group is prepared to take action immediately,' said Dennis O'Keefe, general counsel for the Chicago Auto Trade Association. 'What we are seeking is a dialogue with GM.'