PERSPECTIVE: Ailing Ford may cut adspend - but it's a short-term solution

This week's news that Ford is to seek significant cuts in its adspend is less a dramatic revelation than a continuation of the desperate "revitalisation" plan launched by the company back in 2001. The real drama came with its effect on WPP's share price, down 8 per cent.

The world's second-largest car company has been under severe financial pressure after recording a loss of $6.4 billion over the past two years.

Last year's restructuring, which saw dramatic plant closures and a tidal wave of redundancies, followed a slump in productivity, questions over quality, the Firestone tyre debacle and the coup that ejected Jac Nasser from the boardroom. Sir Nick Scheele, Ford's chief operating officer, is now back-against-the-wall as the company's balance sheet is picked over by analysts.

The accelerator has been slammed down in the search for $9 billion in cost savings within the next five years with the aim of driving profits to $7 billion by the middle of the decade, ambitious targets in the context of fierce competition and a slow-down in demand. With a planned 20 per cent cut in non-production costs, the spotlight has now fallen on advertising and marketing spend.

WPP is responsible for around 80 per cent of Ford's adspend worldwide, which makes Ford WPP's biggest client, accounting for around 7 per cent of WPP's £4 billion revenues. Hence the wobbling WPP share price. And although Ford and WPP have one of the most embedded relationships in marketing, the latest story is the second time in recent weeks that the coupling has come up for scrutiny.

Last month, it emerged that as part of Ford's economy push, Scheele had sought greater efficiencies from the way WPP handles Ford's business.

The fragmented nature of Ford's dealings with a range of WPP agencies had led to multiple billings and the duplication of work. In return for streamlining its management of the account, WPP would be given preferred supplier status by Ford.

This cosy proposition was viewed with suspicion by others at Ford, concerned that it breached internal rules on contract awards and had been influenced by Scheele's relationship with WPP's Sir Martin Sorrell. The "preferred supplier" plan has been scrapped (for the moment) and with it the chance to make some of the planned cost savings.

Although advertising and marketing will not bear the entire brunt of Ford's renewed search for economies, WPP is sure to feel the squeeze.

Ford is now expected to shift its marketing budget away from big branding statements to advertising its finance and incentive programmes - a less attractive, and lucrative, proposition for WPP's agencies. But with a host of new models - well received by the critics - stepping up for promotion, Ford compromises the vital turnaround components of brand advertising and marketing at its peril.

- Caroline Marshall is on maternity leave.