08/12/2008
FEATURE BY MIKE LAWRENCE
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The news that Honda will close, unless a buyer can be found, is sad, but it is not surprising. It is hard to see why Honda returned to Formula One in the first place just as it is hard to see why Toyota, Mercedes-Benz, Renault and BMW are involved. None of these companies need F1, they have established first class reputations without it. Toyota has spent squillions over eight or nine years (there was all that activity before their debut) and has had the odd podium. You cannot call that money well spent.
People aspired to a BMW or Mercedes-Benz before they entered Formula One. Audi make some of the best cars around and they are not in F1.
When Mercedes-Benz went racing in 1952 and 1954 and '55, it had an important point to make as it recovered after WWII. M-B made its point and withdrew. This has been the pattern of every major manufacturer that has entered any high level of motor sport.
There was a time when Subaru made dreadful cars with clunky four-wheel-drive. A bog-standard Subaru Impreza is now one of the most delightful road cars made and both Subaru's image and product have been greatly enhanced through rallying.
Few companies need Formula One. About the only one I can think of which would be enhanced is Hyundai. Its road cars have much improved, but there is still resistance. Even a moderately successful programme could give Hyundai a powerful boost.
A major fall in sales across the industry is the present headline, but there are further problems in store. Many new sales are done via a leasing agreement. A typical lease expires after three years whereupon the leasee can either buy the car for a predetermined amount, say 100 golden clams, or receive 100 golden clams off a new model from the same manufacturer who then has a three-year old car to sell.
There are all these leasing contracts which will have to be honoured during the next three years. A manufacturer can effect a short-term saving by cutting production. Honda is to close its British factory for two months, redundancies will be among suppliers, but those leasing contracts will bite.
Part of the problem has been created by manufacturers. Cars are now so well made and equipped that it is really no hardship to keep one for an extra year or so. The modern car, even at the low end of the market. is a miracle of design and quality. There are cheap cars with more computing power than NASA had when it put men on the moon.
Until now, the used car market has been fairly stable. A Mercedes-Benz or BMW would lose about 15% of its value in its first year, given an average mileage. Most cars lose about 30%, and some will drop half their value. The bottom has dropped from the used car market and dealers will be trying to obtain 100 golden clams for a car with an agreed resale value and they are not going to realise anything like that.
A friend of mine bought an Aston Martin V8 Vantage last year and it cost £85,000. He sold it after 12 months for £65,000, which is what he expected. Six months further on and it is worth £40,000. In any other six months it would have dropped £5-10,000, but the last six months have not been any six months.
Many of these leasing deals will have been financed by a manufacturer's financial services subsidiary. For years now the Detroit Big Three have made their money by providing the finance to buy their cars, a ludicrous situation. They were just about the only sellers in history who preferred not to have cash customers.
Honda may find a buyer and will probably be happy to sell for a nominal price, after all it has contracts to pay off and I for one would not like to pick up Ross Brawn's contract. Middle Eastern or Russian money would have to be favourite otherwise there will be only 18 cars on the grid and Bernie promises 20. Of course, teams could run a third car, but it would be not unreasonable for them to expect more money.
While Bernie is talking up the sport with vague comments about several buyers interested in Honda, Max has issued a warning saying that other teams may withdraw. It might help if they were singing from the same songsheet.
A major selling point for Honda is that the buyer will selflessly help to pay CVC's massive debt. The buyer will know that for every clam shell he earns, he will donate a similar amount to CVC for doing nothing more than mortgaging itself. This is like opening a bank account and giving half your money to the bank to help pay the massive salaries and bonuses of the people who have screwed the world financial system.
CVC's annual interest would run an F1 team, without sponsorship, and I want to know what the sport is getting for its money. In the end, it is the fans who pay, either directly in terms of increased ticket prices or because we lose our races.
France will not have a GP in 2009 because it has been priced out of the market. North America has been priced out of the market and Indianapolis is a venue that puts the fan first. Hockenheim made a huge loss in 2008 and is expected to pay more to FOM in 2009 for the privilege of losing even more. I would not bet on the British Grand Prize taking place either.
I have every sympathy for motor manufacturers, they have to plan years in advance and have no control over matters like the cost of oil or a global recession. Manufacturers have to predict what we may want to buy in 2014 and that is well nigh impossible because they not only have to predict core product, but also style.
If you make computers, you go with the core product. If you design frocks, you concentrate on style and can change within weeks or days. Car makers have to predict years in advance and invest more than a billion pounds in a new platform.
It has always been my contention that reliance on motor manufacturers is a bad idea because they are never part of motor sport, they merely use it for as long as it suits them. That is fine, but what the sport (actually, the FIA) has done is to eliminate the little guy. Sir Frank Williams was once a little guy who ran a second-hand March 761 for pay drivers in 1977.
Frank's business is motor racing, it is its be-all and end-all. Over the years we have seen dozens of small outfits try their hand and some, like Cooper, Lotus, and Brabham have done very well. Ferrari is a slightly different case, but Enzo Ferrari made road cars mainly to finance his racing. Some people, Enzo among them, have sneered at the garagistes, but Surtees, EuroBrun, Onyx, March, Tecno, Zakspeed, Osella, even Andrea Moda, were in F1 because that was their main aim.
Dozens of teams have tried to establish themselves and they used to be able to do it on performance, not by posting a bond of US$65 million. Teams came in knowing that only 20 cars on the grid would receive a slice of the cash, but they still came in because they believed they could be the next Lotus.
Thanks to the FIA and its insistence on one-make series, it is no longer possible for someone to build a car for a junior series and progress from there. The last person to do that was Adrian Reynard, 35 years ago. Under Max Mosley, only established companies like Lola or Dallara get a look in. We also have a franchise system in F1, a system familiar to Americans but anathema to Europeans. My local, amateur, football team has a theoretical chance of progressing to the English Premiership. Every year it competes in the preliminary rounds of the FA Cup and, in theory, could play in the Cup Final at Wembley.
Motor racing has suffered because of the closed shop which takes away the chance to dream. A young Adrian Reynard, or a Colin Chapman, a John Cooper, a Dan Gurney or an Enzo Ferrari could not make their way today.
We need open competition throughout the sport. Rules in Formula Three are framed to support Dallara and the reason given is money. Piffle! Fifteen years ago, the cost of a chassis became such a small component of an F3 budget that Reynard and Ralt disappeared as teams switched to Dallara. The cost of the race car had become less than the running of the transporter and the hospitality unit.
I would like to see the availability of a decent F1 engine and transmission, as in the days when you bought a Cosworth DFV and Hewland gearbox and went racing. The thing about that was that since many teams had the same engine and transmission, chassis design and aerodynamics leapt ahead, while teams which made their own units were not excluded.
Formula One has evolved into a sport which cannot be sustained any more than some of the other leading categories. Audi has announced that it will not run teams in American or European LMS, only at Sebring and Le Mans, yet Audi has set records in terms of the haul of wins as well as advancing diesel engines. Audi's withdrawal, because road cars are not selling that well, could have a devastating effect on some series.
Honda is the first major manufacturer to throw in the towel, but it will not be the last. Toyota has spent billions in order to make up the numbers and cannot even fill the seats in a circuit it owns. Mercedes-Benz being in F1 did not prevent its quality and reliability problems which not even its press office could hide. BMW has an enviable reputation, and one F1 win. BMW engines also had ten wins with Williams, but that was not good enough. BMW had to buy a team, and invest serious money, so it has one Grand Prize win to its name. I can see that going down well at the shareholders' meeting.
Renault is in a category of its own, it not being in the American market, except as Nissan, and the French government still owning 15.7% of its shares. Johnny frog-eater is a rum little devil and you never know what he'll be up to next.
Apparently, there are three credible buyers for Honda and I do hope that the team can be saved. Salaries in F1 are going to fall, or stay on hold for a while, because there is now an excess of supply. Whenever a team comes to the market, some people have a rush of blood to the head, but there is a fly in the ointment and it is called CVC.
CVC does nothing except put up prices and rake off money for its investors for whom F1 is merely a source of revenue. CVC had success with MotoGP, but that was building from a relatively low base. MotoGP was an event waiting to happen, it needed only the odd tweak and push.
CVC is part of the finance wheelers and dealers who got us into the mess we're in. Nobody in the automotive industry knows whether they will have a job tomorrow. Buy Honda Racing and you pour money into the pockets of people who see motor racing only as a milch cow. Buy Honda Racing and you help CVC pay the interest on its loan which will have Formula One in hock for years.
Surviving teams are now in a position to demand a larger slice of the cake, someone will have to field a third car, and pay for it, if Honda does not find a buyer. What has CVC ever done for you? Will you be distraught if CVC files for bankruptcy?
We do not have races in North America, which is a disgrace. We will not have a French GP, which is a joke. We may not have a GP in Germany or England, and that is risible. Rest assured, we will have empty grandstands in Bahrain as part of its drive for tourists. Who, in the name of Zeus, wants to be a tourist in Bahrain? There is nothing there apart from sea and sand and you can get those in other places, many of them more pleasant than a little sheikdom that exploits its migrant workers.
Does Formula One belong to CVC or does it belong to you and I, the dedicated and often abused fans? Will you be upset if CVC goes bust? The financial whizz-kids got us into the mess we're in, those who granted mortgages to no-hopers all took their cut on every deal.
A house is usually the biggest investment most of us make. The second biggest is a car, sit back and watch all those lease agreements unroll. Then the motor industry will really be in the doo-doo. You ain't seen nothing yet.
Mike Lawrence
mike@pitpass.com
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