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Commercial Production Companies Forced to Extend Loans to Bailed-Out Automakers

02.12.09

Here’s a look at how the auto industry’s failure and misuse of their bailout funds are affecting more than just those on the assembly lines in Detroit:

A privately owned, small business called Commercial Productions, LLC. (We’ll call it ComProd for short) produces television commercials for various industries, including for the Big Three, and have for years.  Car commercials are the bread-and-butter for some of these production companies, pulling in revenue from one spot that could sustain the company for the rest of the year.

Things have changed this year.  The entire meltdown caused the government to extend lines of credit to both GM and Chrysler in order to help keep their operations running.  Some of that money was earmarked for advertising, since that is a vital aspect of their business model.

Now, GM is telling ComProd and all the other production companies that in order to make their commercials, they’ll have to accept 50% of their fees 70 days after the first shoot day.  That’s over two months after shooting before the first payment arrives.  The rest of the fees will arrive 70 days after delivery of the finished commercial.  If you include pre-production, shooting, editing, coloring, and digital effects, it’s entirely possible that ComProd wouldn’t see their last dime until five months after getting the job.

Let me point out that these car shoots only last three to five days, tops, for the most part and everyone else involved in the production side must to be paid, by law, within a week of the work date.  Also, these aren’t regional ads for the local auto parts store.  These are spots for one of the biggest corporations in the world and can easily cost upwards of $1 million.  Where will that money come from under GM’s new plan?

From the small business owner.  From ComProd.

Since GM can’t get any money extended to them from the banks and they’re terrified of parting with any of the governmental funds they’re received (the executives have to get paid, after all), they’re forcing the ComProds of the world to front the roughly one millions dollars for the commercial by themselves.  It’s essentially asking companies to self-produce a commercial on spec in the hopes that you’ll get paid half a year later.  Only the commercial is actually already sold and airing on national television before you see a dime.  ComProd takes on all the risk with no promises of any reward other than the salaries that they are rightly owed.  That’s not risk sharing.  There’s no incentive.  Really no reason to accept this bad deal at all.

Or is there?

Of course, ComProd could say, “Thanks, but no thanks,” to the offer and go on their way.  The problem this causes, though, is that there will be a company out there that has the capital to afford to take the risk that GM asks of them.  Now it doesn’t come down to ComProd’s merit or quality in winning the bid for the project; it’s simply about who has enough money and is willing to gamble.

In the end, it’s GM that will end up failing.  Even if they get some company to take on their financial burden, it also means GM won’t be able to pick the most qualified company and director.  They’ll simply take what they can get from whomever gives it.  And when your product is already seen as sub-standard, putting out shoddy commercials really just sinks the ship even faster.

Unfortunately that won’t happen before these little companies like ComProd end up having to close shop because they were forced to act like banks and extend interest-free loans to these mega-corporations and then got screwed when GM ended up being unable to pay that second installment five months down the line.  I’m sure that’s not what the government was expecting when they agreed to the bailout deal.  The idea was that by keeping the Big Three afloat, we’re also keeping alive all of these numerous small companies – and all of their employees and their families – that do business with the auto industry.  It doesn’t work when they hoard the money for themselves much like the bankers did with theirs.

The commercial companies need to band together and all agree that none of them will be doing business with any of the automakers that are demanding such absurdly risky stipulations in their deals.

The automakers have already received plenty of taxpayers’ money.  They don’t deserve another dime.

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