Formula One heading for a crash
After Honda's pull-out yesterday, where now for the motor sport famed for its lavish budgets and hedonistic lifestyle? David Tremayne reports
The snows of Formula One's winter of discontent deepened yesterday, amid fears that Honda may not be the only team in trouble in the economic blizzard.
As the Japanese team outlined in Tokyo the reasons for their shock withdrawal, fears increased of a scenario from Agatha Christie's novel, Ten Little Indians, and a domino effect sweeping through the sport.
Honda called a hasty press conference in Tokyo yesterday morning, where president and chief executive Takeo Fukui explained that the financial situation in the world market had forced the decision.
"Honda must protect their core business activities and secure the long term as widespread uncertainties in the economies around the globe continue to mount," he said. "A recovery is expected to take some time. Under these circumstances, Honda have taken swift and flexible measures to counter this sudden and expansive weakening of the marketplace in all business areas.
"However, in recognition of the need to optimise the allocation of management resources, including investment regarding the future, we have decided to withdraw from Formula One."
Honda Racing's team principal Ross Brawn and chief executive Nick Fry are expected to fly to Tokyo on Monday for talks about the future.
They were informed on Thursday that Honda will continue to bankroll the team only until March – giving them three months to find a new buyer before they are shut down. Staff have been told that potential buyers have been lined up, and that Brawn is focusing on securing an engine supply deal with his former team, Ferrari.
Fukui said that the decision to withdraw had been very hard, especially as Honda have invested significant sums reorganising the team in 2008 under Brawn's new leadership.
Doomsayers believe that the Honda withdrawal could signal wholesale decline for a sport that has in the past been deemed profligate but which, in recent times, has moved quickly to adjust to the economic situation. It is not a fat cat, nor has been for the past five years at least, though the highest spending teams are investing up to $400m (£272m) annually. But FOTA, the teams' association, this week pledged to cut costs significantly for 2009 and beyond.
Insiders are watching closely to see how other major manufacturers react. Both BMW and Mercedes-Benz suffered declining sales last month in the important United States market, but are seen as being resilient. Renault is not a contender there, and recently benefited from a French government subsidy of more than $30bn, but will still cut 6,000 jobs. Its chief executive Carlos Ghosn has in the past said Renault will remain in F1 only if they are winning.
Norbert Haug, the head of Mercedes Motorsport which powered Lewis Hamilton to victory in this year's championship, said: "Over the next two years we must achieve cuts of at least 50 percent.
"Our Formula One involvement is built on financially solid foundations and is in large part financed by our sponsoring partners. Honda's pullout is very sad. It only shows how important the cost-cutting measures are that we've been advocating for more than five years, and which have only been realised to a small degree. Mercedes-Benz's contribution is cost-efficient, the resonance in the media and in the public which Hamilton's win generated was worth many times our financial investment."
Toyota, the world's most powerful car company, spends $400m a year not to win in F1, and like Honda recently experienced a drop of 34 per cent in US sales. They have reserves of $40bn in cash but nobody is impervious and sponsor Panasonic is making gloomy noises about profits.
There remains the possibility that Toyota might drop out of F1 and leave assets for the Williams team to pick up as their nominated engine partner. That would be a boost to one of the few remaining independent teams, which have been experiencing problems of their own recently as sponsors RBS, AT&T and Philips, in particular, have been hit hard by the economic downturn. AT&T have just announced 12,000 job cuts (four per cent of the workforce), while Philips expect to see a significant drop in profits.
Even Red Bull magnate Dietrich Mateschitz, who recently took back Gerhard Berger's shareholding in the Toro Rosso team, the little sister to Red Bull Racing, has called time on his popular but expensive Red Bulletin which was published each evening at grands prix. It remains to be seen how long he feels he can justify running two teams.
Yesterday, Audi, long touted as a possible F1 engine supplier, announced that they have cut back on their US racing and will compete only at Le Mans and in Germany's DTM touring car championship in 2009.
The Formula One ringmaster Bernie Ecclestone, who with FIA president Max Mosley has been a strong advocate of budget-capping, said Honda's withdrawal was an alarm call for teams who are overspending.
"This is a wake-up call," Ecclestone said yesterday. "Max and myself have been campaigning for quite a long time to reduce the vast amount of money spent to be competitive. Fans don't care how many cylinders the car has or the capacity of the engine – they just want entertainment on the track."
One recent proposal for the future has been for more economical 1.8-litre turbo-charged engines with only four or six cylinders.
Ecclestone confirmed that several parties had shown interest in buying the Honda team. "I think it's OK. I think there's a number of people out there that have shown a lot of interest, strangely, from two particular areas."
Fry also confirmed that interest and remains hopeful a buyer will be found in time. "In the last 12 hours we've had three serious people come to us and suggest they would like to buy the team, so we're still hoping to be there in Melbourne [for the first grand prix on 29 March]," he said.
"The one thing I would say is that this is a completely different situation from prior Formula One teams stopping. This team is one of the best funded, has the best assets, the best resources in the pit lane, a fantastic group of people, and a car designed by Ross Brawn, who has won many world championships, and is ready to go next year.
"I think we are going to be a desirable asset for somebody. We are very hopeful, as are most of the commentators in Formula One, that this team is going to take a big step upwards, so it is a big opportunity for somebody."
Though Honda's performance over the last year has been poor, Fry said that it was not the issue in Honda's decision. "This is all to do with the financial situation in the world, and as you know all the motor companies are being struck very hard by falling sales. Clearly more success on the track would have been nice, but this is a much-bigger-picture issue."
Selling the team will not be difficult, since Honda will probably seek a nominal sum just to cut their losses. The difficulty will lie in finding someone able to invest the $250m (£170m) annually to remain competitive.
The team's main driver, Jenson Button, yesterday visited Honda's base in Brackley, where some 700 jobs – including his own £20m a year earnings – are under threat. "It was as much a shock for me as it was for anyone else," the 28-year-old Button told mechanics.
The former F1 team owner Eddie Jordan is confident there will be a buyer. "It's too good, it's a jewel in the crown. These are the best facilities that you can imagine and to lose that to Formula One would be catastrophic."
Grand Prix meltdown: Where the money goes
The days when teams such as the then newly emerged BAR Honda operation would spend $2.5m (£1.7m) apiece on two extendable motorhomes may be long gone, but in 2008 the top teams were spending at least $1m (£680,000) per day ($365m annually) to fight for victory.
There are no such things as fixed costs in a sport as fast-moving, since expensive equipment such as state-of-the-art moving-ground wind tunnels become outdated at frightening speed, but generally a team will spend 50 per cent of that budget ($182.5m) on their workforce (which includes some very highly paid engineers), factory, testing and racing, and investment in top-line equipment. Teams such as McLaren or Ferrari, with drivers of the calibre of Lewis Hamilton and Kimi Raikkonen, can spend 10 per cent alone on drivers' salaries.
Every cent that is left (around $150m) goes into that nebulous black hole called research and development, which embraces design and manufacture of the cars. This is the bottomless pit into which so much is thrown at each race to keep a car in front of its rivals. And this is the area the governing body, the FIA, and the teams' association, FOTA, have been looking so closely at in order to slash costs in 2009.
Yesterday the FIA indicated that commonsense has arrived in the sport, with a compromise on their threat to mandate one standard engine for all teams. That would have killed a sport in which variety is essential to diehard fans.
The FIA are now in exclusive negotiations with Cosworth together with Xtrac and Ricardo (XR), to supply a complete Formula One power train starting in 2010. This will comprise a current Formula One engine and state-of-the-art transmission with an energy saving device.
If four teams take up this option they will pay $2.45m up front, then an annual payment of $8.12m for each of the three years of the supply contract (2010 to 2012). They have until 11 December to sign up to it.
However, from 2010, teams will be given other options. They can still build their own engines, albeit identical to the Cosworth base design, or they can continue to use their existing engines with the current ban on development, and a requirement for engine parity still in effect. All teams will still have to use the new XR transmission.
"In combination with the programme of cost reductions for the chassis, race weekend and team home base, these arrangements have a number of advantages," Mosley said in a letter to the teams.
"These include: enabling the independent teams to survive in the difficult economic climate; facilitating the replacement of a manufacturer team if (as seems likely) we suffer additional losses; stabilising Formula One while new road-relevant technologies are introduced together with a state-of-the-art engine, which could be in Formula One as early as 2013; avoiding any change to the Formula One spectacle."