Production Cos. Balk At Ford’s Cost-Cutting

Client meets with shops as several of them refuse to bid on boards

LOS ANGELES Ford Motor Co. held meetings last Wednesday with its agencies and production companies to allay fears among car-commercial specialty shops that the automaker’s new cost-cutting guidelines threaten industry pricing and quality standards.

In an action that one source called “unprecedented,” a number of shops—acting without any apparent orchestration—refused to bid on Ford boards until their concerns over what some dubbed the “Ford mandate,” calling for markup rollbacks, had been resolved.

“We called for the meeting as a pro-active step,” said Paige Johnson, manager of global market public affairs at Ford in Detroit. “We felt we had to be face-to-face with the people who would be affected. It was done with a cooperative spirit, to talk about the ways of cutting any waste, and to move forward. … As we see it, the ball’s now in their court.”

Though participants uniformly described their meetings as positive, none felt any concessions had been made or conclusions reached.

Sources said the new guidelines called for a reduction of production-company markups to 15-20 percent overall, 10 percent on travel and per-diem charges and no markup on film and processing costs. One source pegged the new aggregate markup at 14 percent, half the prevailing norm, commenting, “You can’t run a business on that.”

In the ’70s, a standard markup was 35 percent or more, but through years of increasing fiscal austerity and pressure from a glut of directors seeking work after the dot-com boom and bust, it has gradually dropped to well below 30 percent, leaving production companies with dangerously low profit margins and experiencing numerous bankruptcies. “It’s very difficult to run a production company when the margins are in peril,” said Jules Daly, president of RSA USA, Los Angeles.

Johnson said Ford is in a “revitalization mode,” in which every expenditure is under intense scrutiny. “There was no cap on markups in the guidelines,” she said. “We were proposing a range, looking for more realistic ways of looking at margins. The feedback we received at the meetings was very positive.”

“It is a fragile environment,” said Jeff Scruton, senior executive producer at MJZ, Los Angeles. “We were approached with the guidelines about three weeks ago, and I must say we had to pass on boards for a job for which we’d been recommended. We decided that not only were the margins too low, but that we didn’t want to be the company that set a precedent that would further weaken the structure of the community, permit them to point to the job we’d done for a certain price and pressure others to do the same.”

Scruton could not confirm any “unified front” against bidding on boards, but he said “it wouldn’t surprise me to learn that the reaction of other companies to the guidelines was similar to ours.”

“I think we took a giant step by meeting,” Daly said. “The production companies needed to hear it from the horse’s mouth, with both [ad] agencies present.”

In attendance at one or more of the meetings, according to sources, were Laura Fraga, manager of global media and events, as well as other Ford representatives; and, from Ford’s WPP Group agencies, Robert Parker, svp/creative director, broadcast development at Young & Rubicam, Irvine, Calif., and Carole Gall of J. Walter Thompson, Detroit. Parker would not comment on the meetings; Gall could not be reached.

Ford and the agencies met with at least three production-company presidents separately: Daly, Frank Scherma of and Chuck Sloan of Plum Productions, both in Santa Monica, Calif. All of those firms command rosters of top directors who work on various Ford models and associated brands, which include Mazda, Volvo and Jaguar.

“There was no ‘bad guy’ at our meeting,” said one production-company attendee. “The agency reps were mostly observing and listening. Everyone was grateful that Ford responded and very honest about the problems we’re all facing. We were open with the fact that we’ve hit bottom. We can’t give any more without sacrificing quality.”

Daly said she felt Ford executives had “done their homework” in that regard. “They’re quite aware that [commercial] production quality sells vehicles,” she said. “Every company, including ours, is looking for ways to be more efficient.”

One production source, while resisting cutbacks, nonetheless sympathized with Ford. “From their perspective in Detroit, they have the pain of laying off workers on the factory floor, and yet they see that top directors make $100,000 on a job. But you just can’t cost-cut creative as you can manufacture steering wheels. It doesn’t work that way. And the agencies are stuck in the middle of this. They want to do right by their clients, yet their creatives want to work with the best talent in the business. The problem is, if we accept the Ford guidelines, everyone else will soon follow, and that will mean chaos.”

At stake is the crown jewel of Ford’s $100 million F-150 push: Six minutes of content wraparound for the uninterrupted Oct. 28 premier of Fox’s 24 are “still in creative development,” said a source at Ford.

Last year, Ford and its subsidiaries spent $1.5 billion on advertising, $871 million of it for the Ford line of cars and trucks, according to Nielsen Monitor-Plus.