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DaimlerChrysler's Chrysler Group introduced the "Anything but Cute" ad campaign last month to promote the new Dodge Caliber compact car, aimed at young buyers.
One of five ads is "Too Tough," a 30-second spot that features the fairy. It was created by the Detroit office of BBDO Worldwide, part of Omnicom Group.
Gay advocates say the transformed male character has stereotypically gay characteristics and note that "fairy" is a derogatory term for a homosexual man.
"This guy looks pretty gay to me," said Jeffrey Montgomery, executive director of the Detroit-based Triangle Foundation. The group promotes rights for gay, lesbian, bisexual and transgender people.
"I'm willing to believe they didn't intend it to be a gay man, but I don't believe they're shocked someone would draw that conclusion," Montgomery told the Detroit Free Press for a story on Thursday.
The Internet-based Commercial Closet, which monitors marketing tactics that could be offensive to gays and lesbians, was more critical of the ad.
"It directly finds humour with the term fairy, referring not just to the type that flies around with a magic wand, but also the universally recognisable gay stereotype of an effeminate gay man," it said in an online review of the ad.
Chrysler said it has had an average number of complaints about the ad. It said the man is not intended to be gay and said the ads will keep airing.
"We're kind of surprised that people are making a conclusion about someone's sexual orientation based on the clothes they're wearing," said company spokeswoman Suraya Bliss.
Northwestern University marketing professor Tim Calkins said it is hard to make an entertaining commercial without offending a particular group.
"The key is if you find an ad that's offensive, then you have to respond and in some cases take it off the air," Calkins told The Detroit News.
