Omnicom, Publicis Worst Hit in Auto Brand Axings

(MoneyWatch)  The news that General Motors and Chrysler are to cut or scale back several automobile brands will fall most heavily on Omnicom and its BBDO and PHD units.

Publicis's Leo Burnett and its media group will also suffer. Coming out of the fallout somewhat less lethally injured will be Interpublic, whose Deutsch and McCann Erickson units handle two GM brands, Saab and Saturn.

Here's a chart of the expected damage:

• General Motors
• Leo Burnett - Buick, GMC and Pontiac in 2007 (Publicis, plus media at Publicis Media Group)
• Modernista! - Hummer - 2011 (Independent)
• Deutsch - Saturn - 2012 - (IPG)
• McCann Erickson - Saab - (IPG)
• Chrysler
• BBDO - Dodge Magnum, Durango, PT Cruiser, Aspen, Crossfire, Pacifica) - (Omnicom, plus media at PHD)

IPG is due to report its Q4 2008 numbers on Feb. 27, and it will be interesting to see what the decline of these brands (spending has been cut for a while) will do to its numbers. BNET previously discussed Omnicom's Q4 cashflow and debt problems here.

Now you should direct your attention to page 7 of Omnicom's Q4 statement, to the chart titled "Cash Flow ?€" GAAP Presentation (condensed)" It sounds really boring, but it could be the most interesting part of the whole statement.

There's a line that says "Other Changes in Working Capital." Generally, this describes the net change in the difference between Accounts Receivable (money clients owe Omnicom) and Accounts Payable (money Omnicom owes vendors).

You can see that this period it was negative $12 million, when the period before it was positive $243.8 million.

This means that currently, accounts receivable and accounts payable were almost the same, but the accounts receivable grew by $12 million more.

True, $12 million isn't much in the grand scheme of things. But in the period before, it seems Omnicom was having an easier time collecting from clients and/or delaying payments to its suppliers, because it showed a positive $243.8 million.

What does that mean? It could mean nothing. But given that Omnicom was $700 million cashflow negative, any further declines in working capital (i.e. if the number with a minus in front of it gets bigger) could be a sign that Omnicom might be having difficulty collecting from its clients -- such as car companies -- on billings they owe. It is not unforeseeable that clients will try to delay payments to agencies as long as possible in this market. You wouldn't want to see that negative $12 million be the start of a trend.

As for Publicis, it's accounts receivable declined and its accounts payable rose, plus the company is cashflow positive, so the network is actually performing quiet well in terms of collecting from its clients and delaying payments to vendors.

IPG's Q4 cashflow and balance sheets will be interesting for the same reasons. In Q3, the net change in IPG's accounts receivable and accounts payable was positive $140 million. We'll see in a few days' time if IPG can do better than Omnicom's negative $12 million this time around.

• See BNET's previous coverage of ad agency finance:
• Omnicom's Credit Crunch: a Gamble by CEO Wren That Didn't Pay Off
• WPP Pays Almost No UK Tax; Used "Spider Web" of Debt; Foreign Countries to Avoid Obligations
• Publicis Q4: $15.5M Army Fraud Settlement Not Noted in Its Numbers
• WPP's Ireland HQ Is Nothing But a Tax Dodge
• Is WPP at Risk of Breaching Its Debt Obligations?
• Fitch Cuts WPP's Debt Rating; Suggests Pay Reductions