Advertising and Marketing

Forget the Upfront, Where's My GM Money?

Ad world sorting through wreckage of big automaker's collapse 6/05/2009 06:00:00 PM Eastern

Normally, most media buyers and sellers are hunkered down in upfront-only mode this time of year, but the annual rite of spring is being upstaged by another battle: how to untangle the contractual legalese surrounding General Motors.

Media sellers are scrambling to figure out where they stand as GM goes through Chapter 11 proceedings, potentially leaving in its wake a slew of unpaid bills. TV ad-sales execs at national broadcast networks, cable companies and ad rep firms are waiting to hear if, and when, they'll get paid by the car giant, which even now is airing a new TV ad campaign. “No one wants to be caught without a chair when the music stops,” says one senior cable executive.

The car companies are top of mind, but they follow a long list of advertisers that have recently struggled to meet their financial commitments: Washington Mutual, KB Toys, Circuit City and 1-800-Mattress, to name a few.

Currently, agency contracts stipulate “sequential liability”; in other words, the agency won't be held responsible until it's paid by the client. Media sellers, on the other hand, advocate what's known as “joint and several liability,” which means they can pursue either the agency or client, or both, for payment.

Lawyers are now poring over the wording of their own documents as well as the GM bankruptcy filing. GM revealed on June 1 that it owes media buyer Starcom $121 million. In recent years, agencies have held the upper hand in insisting vendors accept contracts that absolve them of responsibility if the client defaults, though in some cases buyers and sellers have been exchanging—but not agreeing to—contracts representing their divergent views.

“This is something we are talking about quite a bit,” says one senior cable industry executive. “It is obviously a significant concern. We are in unprecedented territory. There have been bankruptcies before, but it's the scale that's concerning.”

Several broadcast networks, station groups and rep firms are also owed big chunks of cash. The gamble for media players is to weigh the extent to which GM will re-emerge as a partner with which people want to remain in business. Bernstein Research estimates that the auto giant's consolidation from eight auto brands to four could suck $1 billion from the auto ad market in 2009.

“What I advise the media is to see who the ad is coming from. Is it coming from the local Chevy dealership, which is not in bankruptcy?” says Wanda Borges, a New York-based bankruptcy specialist with Borges & Associates who is representing certain station groups.

Borges, however, does suggest that media companies might want to think twice about accepting ads from dealerships that are being closed down by either GM or Chrysler. Another bankruptcy and collections expert, Atlanta-based Robin Szabo, recommends that “anyone owed monies by Starcom MediaVest Group in regards to GM should make inquiries with Starcom and find out what terms they had, what billing they've been paid for and not, and if the bills they've rendered have been approved, and resolve any discrepancies.”

He estimates GM's payment terms are 70 days, suggesting that the last vendor bills were paid in March. Starcom did not return calls. Attorneys for the agency, Jericho, N.Y.-based SilvermanAcampora and Wildman, Harrold, Allen & Dixon in Chicago, did not respond or had no comment.

A GM spokesman said all suppliers with questions about getting paid should contact a call center that has specifically been set up to deal with inquiries, and not call the agencies. Those details can be found at www.gm.com/restructuring.

March