Bernie Ecclestone could regret his hardline negotiation tactics for the F1 series, writes Justin Hynes
MONDAY’S NEWS that car manufacturer Nissan is forecasting losses of more than $2 (€1.5) billion this year, with the knock-on of some 20,000 job losses worldwide, may not, on the surface, appear to have much to do with the rarefied motoring activity of Formula One.
However, the Japanese manufacturer’s woes are nothing if not indicative of a crisis that could derail the sport if radical steps are not taken to modify how F1 does its business.
Nissan is owned by the Renault group and a restructuring of the Japanese company is likely to impinge on Renault’s model for the coming year.
By extension, the parent company’s diversions in Formula One, pegged very conservatively at approaching $200 (€153) million annually, will surely, for the company’s bean counters at least, soon come to be regarded as an expensive marketing exercise it can ill afford.
If Renault could be hit, then the woes of Toyota, a perennial mid-weight F1 team, are far more acute. The world’s number-one car maker last week predicted a $4.9 (€3.8) billion deficit for the 12 months to March 2009 and claimed it would make its first loss in almost 60 years this year. For a company that has one of Formula One’s largest workforces but which has, in seven years of competition, failed to score a single victory, the sport now looks like a vanity project that offers poor marketing return.
The impact of the global economic slump has, of course, already been felt, with Honda withdrawing from the sport in December of last year.
That decision, though, was made easy by Honda’s signal failure, like Toyota, to mount a consistent front-running challenge to the dominant F1 forces of Ferrari, McLaren-Mercedes and BMW.
But even for those three, Formula One now presents a tough environment and one in which cost-cutting at the development stage is no longer enough to make F1 viable. Pure regulatory changes are not enough; Formula One, and some say commercial rights holder Bernie Ecclestone in particular, must now look at its whole business model.
This season F1 will make stops at 17 venues, but missing from its calendar are races in the US and Canada, massive markets for the key European manufacturers that currently guarantee F1’s status as the marquee motorsport series.
Canada’s exit, purely on financial grounds, came towards the end of 2008, Ecclestone being unable to agree terms on a new contract. The Canadian government attempted to step in with a rescue package but finally judged the costs to be simply too exorbitant to justify holding on to the race. Both BMW and Mercedes, at risk of losing key markets in which to use F1 as a marketing tool, protested loudly. The complaints fell on deaf ears.
China, a territory many luxury and executive brands have pinned their sales hopes on over the past number of years, could be next; its Shanghai circuit is expected to stage its last F1 race this April, the costs again being simply unsustainable.
To date, the only financial area left untouched by F1’s belt-tightening seems to be the fee that promoters pay Ecclestone’s companies for the privilege of staging an F1 race. but the ability of key markets to hold races and thus give value to car manufacturers is inextricably linked to the survival of the series.
While France, much like Canada, has pulled out because of its inability to meet the financial demands of the sport, Ecclestone remains unmoved.
The F1 ringleader insists that there are others clamouring for a place at the table – he sees the Middle East (there are races in Bahrain and Abu Dhabi) as the future of the sport. But for the manufacturers, the Middle East at least remains a niche market. Formula One has done much in recent months to try to trim its sails, to make itself watertight, but the storm is still gathering.
A rescue of the Honda team continues to look a forlorn hope. The car maker’s brethren are reeling from massive blows to their main businesses, and circuits are being forced to cut ties with the expensive series in droves. New venues only take the sport further away from its heartland and its teams’ core consumer base.
There is doubtless more to come from the sport’s regulators in the shape of further cost-cutting initiatives, but for an industry now reliant on the participation of major motor manufacturers, there also now needs to be a similar gesture from the powers that run its events.
Otherwise Formula One might find itself with a cheap new ball to play with but no pitch on which to play.
Formula One The casualty list
5th December, 2008: Honda (below) delivers a massive blow to the Formula One championship, announcing it will not compete in 2009 and putting its team up for sale. "Honda must protect its core business activities and secure the long term, as widespread uncertainties in the economics around the globe continue to mount," says Honda president Takeo Fukui.
15th December: Suzuki quits the World Rally championship, saying it must focus on its core business.
16th December: Subaru follows suit, withdrawing from the WRC after more than 20 years of competition.
30th December: Kawasaki announces it is withdrawing from the MotoGP motorcycle championship with immediate effect.
4th February, 2009: Mitsubishi pulls out of all rallying activities, including the Dakar rally, in a bid to cut costs.
"The sudden deterioration of the global economy made it necessary for the company to focus its resources more tightly," says a company statement.