by Susan J. Aluise | May 22, 2012 9:53 am
When General Motors (NYSE:GM) announced plans to drop paid ads from Facebook (NASDAQ:FB) last week, the biggest news about the automaker’s no-confidence vote seemed to be the timing — three days before the social-media giant’s IPO. But now that GM is drop-kicking its ad buys for Super Bowl XLVII next February as well, it’s clear that the carmaker is following through on a massive — and risky — advertising and marketing overhaul.
The two high-profile decisions are just the latest big strategic moves since January, when the automaker decided to drop Starcom, its media agency since 2005, and award its $3 billion global account to Aegis Media’s Carat. GM also moved its lucrative Chevy contract to a joint venture called Commonwealth, comprised of Goodby, Silverstein & Partners and McCann Erickson.
Even more significantly, GM is shaking up its North American sales and marketing hierarchy.
Alan Batey, Chevrolet’s U.S. vice president for sales and service, will step into the newly created position of vice president, U.S. sales and service. He will report to GM North America President Mark Reuss. Don Johnson, U.S. VP of sales operations, will take over Batey’s job on June 1, and executives in the Cadillac and fleet operations units will step up to fill the open jobs, all of which will report to Batey.
The architect of GM’s new marketing approach is Chief Marketing Officer Joel Ewanick. GM lured Ewanick away from Nissan (PINK:NSANY) in May 2010 — a mere two months after he came aboard from Hyundai (PINK:HYMLF) — where he was responsible for successfully repositioning the Korean automaker in 2009 with its “job-loss guarantee” Super Bowl ads.
Two years into the job at GM, Ewanick’s handiwork is visible everywhere, from replacing the company’s long-time agencies with fresh blood to setting a goal to slash $2 billion from GM’s media spending over the next decade.
And if you’re focused on saving money, the priciest ad buy in the media universe arguably is a good place to start. CBS’s (NYSE:CBS) going rate for 30 seconds of Super Bowl XLVII ad time reportedly will run $3.8 million to $3.9 million, compared with last year’s $3.5 million.
“We understand the reach the Super Bowl provides,” Ewanick said in a statement last week. “But with the significant increase in price, we simply can’t justify the expense.” Over the past decade, GM has been the third-largest Super Bowl advertiser, spending a total of $82 million during that time, according to ad-tracking company Kantar Media.
Ewanick’s decision also may have something to do with last year’s poor showing compared to Chrysler’s blockbuster “Halftime in Detroit” ad, featuring Clint Eastwood and Eminem.
GM also had to contend with the flap surrounding its “Apocalypse” ad for Chevy’s Silverado pickup. The Super Bowl spot depicted four friends trying to escape the Mayan 2012 “end of the world” prophesy. Three friends escaped the disaster in their Chevy trucks; their Ford-driving buddy doesn’t make it.
The ad kicked off a snipefest between Ford (NYSE:F) and GM that eventually included terse letters from lawyers.
Ewanick may see little value for advertising on “America’s Game,” but his former bosses at Hyundai have a different view. Hyundai last week announced that it has committed to an ad buy for Super Bowl XLVII. Then there’s social media. GM’s pullback from paid advertising on Facebook comes amid rumors that Facebook officials recently fumbled a presentation to GM by focusing on the value of its free pages. Although neither side has offered details of the meeting, a Reuters report said GM dropped Facebook ads because they generated only about half the clicks per page view compared with the average website and were less effective than Google‘s (NASDAQ:GOOG) AdSense.
But while GM has pulled $10 million in paid ads from Facebook, Ford and Chrysler are staying the course. Ford took a few jabs at GM in response — boosting its digital and social-media ad commitment and suggesting that GM just doesn’t know how to use new media properly.
Ford has found the social-media platform valuable so far, to the point of launching the 2011 Explorer exclusively on Facebook back in 2010. Chrysler also has said it has “no intention of following GM’s lead” by bailing on Facebook advertising.
The bottom line: GM’s massive marketing changes are either the beginning of a bold strategic direction or merely an illusion of movement aimed at assuaging the concerns of its largest shareholder — the U.S. government – in a presidential election year.
GM drove its IPO to the top in only a year, and the accolades it received were well-deserved. But in a global vehicle market that has become far more competitive, GM can’t afford to rest on its laurels.
Toyota (NYSE:TM) has rebounded from last year’s earthquake, tsunami and nuclear disaster to reclaim the title of the world’s top carmaker, which TM had yielded to GM last year. In the U.S., Toyota could pass Ford for the No. 2 sales spot as early as this month.
GM’s North American market share has also slipped, from about 20% in 2011 to 17 % last month. That’s not the direction the automaker or its shareholders want it to be heading in, particularly in light of the havoc Europe is wreaking on the entire industry right now. And an 8% U.S. sales decline in April came in against the backdrop of a 20% surge in Chrysler’s U.S. sales and only a 4.6% drop at Ford.
Sure, GM is dropping Super Bowl ads because it was blown away by the Chrysler Clint Eastwood spot. The Silverado ad — developed by the new ad team of Goodby, Silverstein — also apparently drove away customers toward Ford.
It’s hard to fault GM for taking a break from the Super Bowl after such a big failure in execution by its new ad team. But with GM launching 20 new vehicles this year –particularly the global launch of the Chevrolet Colorado midsize truck — it’s troubling to see GM lose out on such a prime venue to showcase its products.
With car sales hemorrhaging in Europe, ugly sales numbers in Brazil and the slowdown in China, North America is the bright spot for GM and its peers. At around $24.50, GM shares are down about 25% since March — a far cry from its $33 IPO in November 2010. With the U.S. government still holding 26% of the stock, which if sold today would lose the taxpayers more than $15 billion, there’s probably pressure for the carmaker to economize.
GM CEO Dan Ackerson may be willing to trade the top global sales spot for profitability, but you still need robust sales to deliver strong margins. GM faces a lot of obstacles in the short term, and as much as I like many of the company’s cars, I can’t get behind this stock right now.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
Source URL: http://investorplace.com/2012/05/is-gm-being-penny-wise-and-pound-foolish/
Short URL: http://invstplc.com/1fuoby4
Copyright ©2017 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.