Red Bull may be heading for F1 scrapyard with Honda

[TheStig]

Formula One is experienced at dealing with shocks. In the past year it has been hit with spying scandals, accusations of race rigging and seen the colourful sex life of Max Mosley, head of F1's governing body, splashed over the media. But that did not prepare F1 for the shock on Friday when it was announced that Honda, one of the best-funded teams, would pull out of the sport if no one came forward to buy them. Like their superstar drivers, F1 team bosses are used to feeling invulnerable but this news burst a bubble and showed them even this industry is not immune to recession.

Car manufacturers have come and gone from F1 in the past. Ford, Peugeot and Porsche all dabbled with it but there is good reason why their departures did not rock the sport as Honda's has done. In 2007, Honda's team spent £147m – and all for an intangible marketing benefit for their owner. Given the current gloomy economy, this is not justifiable and the argument does not just apply to Honda but the remaining nine teams. It leaves them panicking, wondering who will be next to put the brakes on F1.

The most obvious candidates to follow Honda out of F1's door are Japanese rivals Toyota. The Japan Automobile Dealers Association say Japan's carmakers suffered their biggest drop in sales of new cars for 39 years last month. This coincided with Toyota announcing that by March 2009 their net income would be £4bn – a 68 per cent decrease on last year. Their shares have lost 52 per cent of their value over the past year which could leave shareholders demanding they boost profits by ditching costly outgoings – such as the huge F1 expenses.

According to F1's industry monitor Formula Money, F1's team owners invested £1.1bn in the sport in 2008 with Honda leading the pack having given their team £240m. It was followed by Toyota, who spent £205m, and Mercedes, who gave £180m to Lewis Hamilton's McLaren team.

In the past five years, Toyota are believed to have burned through £955m in F1, which puts their involvement at high risk. Toyota said on Friday they are "currently committed to succeeding in Formula One and to reducing costs", but a commitment to remaining in the sport was missing.

Companies which do not have shareholders are equally at risk. The Red Bull drinks business have been F1 team owners since buying out Ford's outfit in 2004 but their latest financial statements show that last year their spending hit top gear. In 2007, total costs at Red Bull Technology, the company which designs and builds cars for Red Bull Racing and sister team Toro Rosso, accelerated 22 per cent to £130.3m – the third-highest amount ever spent on a UK-based F1 team. Red Bull poured in most of this finance, with sponsorship only amounting to £10.25m.

In 2007, Red Bull Technology's staff costs rose by 32.5 per cent on the previous year to £36.1m and they invested £10m in office and workshop equipment. At the end of last month, Red Bull bought out their partner, former F1 driver Gerhard Berger from Toro Rosso, leaving them with two teams under their complete control. Despite this show of strength, Red Bull could be next to pull out of F1.

Despite Red Bull's lavish spending in 2007, they have revealed that they will be cutting back on F1 frills such as their Red Bulletin magazine and even their Formula Una grid girls.

Some commentators have now speculated that Red Bull may have bought back Toro Rosso to offload both teams in one hit. However, the hurdle they would have is the one facing Honda – not many people have a few hundred million pounds to spend on running an F1 team. This may change.

In the wake of Honda's exit, Mosley announced that from 2010 British engineering firm Cosworth will provide F1 teams with an engine option which will cost £1.68m upfront. Teams can still produce their own motors but there is little incentive for doing so since they would not be allowed to make them more powerful than Cosworth's option. Whether this has the desired effect is another matter.

Many claim that regardless of the gloomy economy, car manufacturers will tap into virtually bottomless budgets in a bid to win against their F1 rivals. Last year, for the first time in F1, teams ran with engines frozen to the 2006 specification – one of Mosley's earlier cost-cutting plans. It did not work.

Total costs at Honda, McLaren and Red Bull all increased in 2007 with the drinks company boosting research and development spending by 53 per cent to £25.5m. "What we have been successfully doing is moving money from one area of the team toanother," explained Honda F1's chief executive Nick Fry last year. Now he is paying the price.

http://www.independent.co.uk/sport/motor-racing/red-bull-may-be-heading-for-f1-scrapyard-with-honda-1055621.html

Article by:
By Christian Sylt and Caroline Reid:

TheStig

[SennaMan]

this article and it is otherwise an excellent one misses the point entirely:

major car manufacturers will never 'commit' to F1 as it is not their reason for existence; their bottom line is!

to expect them to [as the theme of the article assumes] is just pie in the sky 'non-think'

the advent of the majors into F1 and the consequent demise of the independents through staggering escalation of spending has led straight to the present crisis within F1. A lot of it going on frivolous excesses of 'lifestyle' type activities for too many 'hangers on' and not directly to the teams technical funding. In my view it is this lavish culture now endemic in F1 that is largely to blame and it must be eliminated or sharply curtailed.

as one of the remedies to restore F1 to full heath simply prohibit car manufacturers having their own teams but allow them to support independents in tandem with other sponsors and put limits on discretionary corporate 'style' spending i.e. the lunches, glossy mags, grid girl teams etc.

McLAREN, and WILLIAMS especially, are examples of how well this model could work

WILLIAMS has to race; the major business corporations do not and should not be allowed to continue to bastardize F1.

[John S]

Yeah I agree SennaMan that the racing teams should be independant from the car manufacturers but just how is it going to be acheived when there may not be enough sponsorship money in the sport in the next couple of years to keep the existing Indy teams going.

[leather12]

you got the point John,
money can become scarce very fast, I remember I was not happy when renault entered F1 as it meant constructors, tyrrell is gone, so is lotus, all independents...the genius existed and those teams had to count their beans continuously...
F1 is a paradox into sport, exagerating everything to the point of eating budgets...
I always asked myself why did the engineers walk around with carbon fibre cases, lots of girls, lots of powder thrown in the face of the real fans....We have to go back 50 yards in a grandstand, but only jet setters have some contact with the drivers.
I have no more hero because of the dimension it all took, it's beyond normal
We ask for racing, hard and fair game, we don't need team apparatus to live our passion (I still have my T shirt from Lotus when R Peterson was driving) and we certainly don't want to have lawyers following each words to find a gap...
F1 has to reivent itself, to start with basic rules based on common sence, ban the use of costly materials, leave that to the NASA where they need it for real...
Ecclestone should now start to worry a bit...he's never been a genius many people said, he worked for his own pocket all the time, day and night.
Constructors speak only in terms of return, their budget is trimmed with their publicity, but once the car sale drops, they simply shut the tab as F1 is not their core business...
I hope this financial crisis will bring more humility in that last circle of high spenders.

[SennaMan]

you got the point John,
money can become scarce very fast, I remember I was not happy when renault entered F1 as it meant constructors, tyrrell is gone, so is lotus, all independents...the genius existed and those teams had to count their beans continuously...
F1 is a paradox into sport, exagerating everything to the point of eating budgets...
I always asked myself why did the engineers walk around with carbon fibre cases, lots of girls, lots of powder thrown in the face of the real fans....We have to go back 50 yards in a grandstand, but only jet setters have some contact with the drivers.
I have no more hero because of the dimension it all took, it's beyond normal
We ask for racing, hard and fair game, we don't need team apparatus to live our passion (I still have my T shirt from Lotus when R Peterson was driving) and we certainly don't want to have lawyers following each words to find a gap...
F1 has to reivent itself, to start with basic rules based on common sence, ban the use of costly materials, leave that to the NASA where they need it for real...
Ecclestone should now start to worry a bit...he's never been a genius many people said, he worked for his own pocket all the time, day and night.
Constructors speak only in terms of return, their budget is trimmed with their publicity, but once the car sale drops, they simply shut the tab as F1 is not their core business...
I hope this financial crisis will bring more humility in that last circle of high spenders.

brilliant post leather12 - thanks for your clear, passionate and expert perception mate

hey and welcome to the forum - am enjoying your points of view leather12

keep 'em coming mate!