Chrysler Fallout Sign of Things to Come?

NEW YORK Last week’s Chapter 11 bankruptcy filing by Chrysler hammered home just how sharply ad spending by the auto sector has fallen in the past year and into the early months of 2009. Buyers and sellers are bracing for further declines, with many in the industry believing General Motors will follow Chrysler’s lead and file for Chapter 11.

A GM rep confirmed that a Chapter 11 filing was almost certain if it fails in efforts to reorganize out of court.

Chrysler will continue to advertise, a rep from the auto company told Adweek, though she declined to comment on spending levels going forward. In fact, the company launched a new print campaign on Sunday to remind consumers that it’s still in business.

Buyer sources said Chrysler “will go light in the upfront,” preferring to hold on to its cash for tactical spending. GM’s upfront spending plans are unclear. One senior buyer said the automaker spent significantly less in last year’s upfront and expects the same this year. The GM rep would only say the company planned to participate in the upfront, but would not comment on specific spending levels.

Last year, spending was down 10 percent across all carmakers to $8.2 billion, according to Nielsen. For the first two months of this year (the latest available data), spending dropped another 25 percent to $938 million, per Nielsen.

Last year, Chrysler posted a 29 percent decline ($843 million) in total advertising spending versus 2007. Dealer spending is also off sharply — down 45 percent in the first two months of the year after posting a 14 percent drop last year to $1.8 billion, per Nielsen.

Meanwhile, Chrysler reported in its Chapter 11 filing that its lead creative shop, Omnicom’s BBDO, which is owed $58 million, was its second-largest unsecured creditor. One agency source said a portion of that debt was for ads that have already run and that was actually owed to media companies but declined to be more specific.

BBDO declined to comment, although Omnicom issued a statement: “BBDO has enthusiastically supported Chrysler since 1944 and continues to do so. … It is early in the reorganization process, and we continue to work closely with our client.”

The company said it stood by Omnicom CFO Randy Weisenberger’s recent comment that in the worst-case scenario — Chrysler folds and the Detroit office shutters — the agency’s cash exposure would be limited to $35 million or possibly a little more.

PHD, the Omnicom media shop that handles Chrysler media duties, has been closely managing its Detroit operation — which solely services the carmaker — and taking measures in response to reduced client spending for months.

Earlier this year, PHD laid off 30 staffers at the office. In the last quarter, it has made an aggressive push, winning approximately $500 million in new business, about as much as Chrysler will cut its spending this year, per sources.

“If Chrysler were to go into liquidation, which we don’t expect, it would mean the disappearance of the Detroit office and that billings would go down,” said a senior executive within the Omnicom group of companies. “But it wouldn’t change the status of the network in any structural or significant way.”

And the revenue hit? Given Chrysler’s spending cuts in recent years, the executive quipped it’s “a lot smaller than you think.”

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