Cutbacks in Ford advertising budget hurt WPP

WPP shares were sold off yesterday on news that its biggest client, Ford Motor Company, is to cut its marketing budget by a fifth.

Ford, which currently accounts for some 8 per cent of WPP revenues, is in deep financial trouble. The car maker, which uses WPP for most of its advertising, is to cut 20 per cent or $6bn (£3.9bn) from non-production expenditure, which includes administration and marketing, over the next two years. Ford recently had to back-track from a move to make WPP its sole advertising agency after allegations this decision was influenced by the friendship between Sir Martin Sorrell, WPP's chief executive and Nick Scheele, the car company's president.

Analysts said there was concern that Ford's position could deteriorate much further and that, even on the business that WPP retained, its margins would be cut. WPP shares closed down 8 per cent at 373p. The stock has fallen from 810p over the past 12 months.

Credit Suisse First Boston said: "We continue to be concerned about the potential squeeze that Ford may put on WPP given the former's tight financial predicament."

The broker said it expected Ford to continue the shift in its advertising budget from general brand promotion to advertising for the financing deals it offers customers on car purchases – which requires less lucrative creative work from agencies. The car industry is one of the biggest global advertisers.

Marcey Evans, a spokeswoman for Ford, said the 20 per cent goal was part of the cost-cutting under the group-wide turnaround plan, not an all-new effort. The reduction will come from the $25bn Ford spent last year in general and administrative costs. She also said the target was flexible, and nine "teams" searching for savings in areas such as advertising and computer spending could cut more or less depending on the company's needs.

Ford is seeking to return to profitability this year, after making losses of $6.4bn in the past two years.