GM ad agencies, other contracts under review-sources

DETROIT (Reuters) - General Motors Corp is reviewing its contracts with ad agencies and other vendors to see whether they should be renewed as the automaker battles a liquidity crisis amid plummeting auto sales, sources said.

GM spent $1 billion on advertising in the first half of this year, making it the third largest advertiser in the United States, according to TNS Media Intelligence.

Most of GM's U.S. advertising is handled by units of Interpublic Group of Co Inc and Publicis Groupe SA.

Sources close to GM said The Martin Retail Group, a unit of Publicis, which handles advertising for Buick, Pontiac, GMC and Cadillac dealerships, had been informed by the automaker that it could not guarantee the ad agency's contract beyond December 31.

Speaking on condition of anonymity, one source familiar with the matter said the No. 1 U.S. automaker was reviewing all of its advertising contracts.

"In this climate, it's obvious that (GM is) evaluating every agreement with advertising agencies," the source said. "(GM is) obviously looking at all (its) business in this volatile environment, and yes, (GM is) looking at every contract as (it) comes to renewal."

"They (vendors) know the reality as well," the source added.

A GM spokesperson said the company would not comment on individual contracts.

Dave Martin, president of The Martin Retail Group, denied that GM planned any changes when it came to his agency.

"It's business as usual," he said. "We have absolutely nothing that indicates anything but business as usual."

Representatives of Interpublic did not return calls seeking comment.

GM, Ford Motor Co and Chrysler LLC, which is owned by private equity firm Cerberus Capital Management LP -- spent about $2.8 billion on advertising in the first six months of 2008, down 17 percent, but was still one of the 10 largest U.S. advertising categories.

Sales for all three automakers have plunged this year as consumers have abandoned gas-guzzling sports-utility vehicles, pickup trucks and minivans. The credit crisis has made it harder for consumers to obtain auto loans.

The chief executives of all three U.S. automakers were in Washington on Wednesday for a second day of testimony to the U.S. Congress to plead their case for a $25 billion government aid package.

SLASHING COSTS

In late October, when reporting quarterly results, Publicis warned of a "marked slowdown" for the ad industry next year, while Interpublic CEO Michael Roth cautioned that "the impact of an increasingly unsettled and volatile business environment on our sector... creates a risk to meeting our stated goals."

When Omnicom Group Inc, the world's largest ad agency, reported quarterly results October 21, CEO John Wren warned that automakers and retailers -- both suffering from a slowing economy and wilting consumer spending -- were scaling back their advertising plans.

"We have seen an expressed cutback in some of the spending plans for automotive and retail sectors," Wren said.

Earlier this month, GM outlined steps to cut costs by an additional $5 billion through 2009, on top of the $15 billion in cash-generating plans it announced in July as it warned of rapidly falling cash levels.

Of the additional $5 billion in cost cuts, GM is slashing $1.5 billion by cutting sales and media promotion spending, reducing dealer network restructuring activities and adjusting vehicle production schedules.

In testimony to the U.S. House Financial Services Committee, GM CEO Rick Wagoner reiterated the company would not run ads during this year's Super Bowl -- the single biggest event on the U.S. advertising calendar.

In trade on the New York Stock Exchange, Interpublic shares were down nearly 16 percent at $2.78, while Omnicom slid 4.6 percent to $23.70, and GM was down 15 percent at $2.63.

(Additional reporting by Paul Thomasch in New York; editing by Jeffrey Benkoe)