Honda website
Honda website

JULY 24, 2002

The effects of the falling economy

THE world's economy seemed to be perking up after the September 11 attacks last year but in recent weeks share prices have fallen below levels seen in the mid 1990s. This is part due to the accounting scandals in America which has undermined the confidence in accounting but also because of problems in the telecom and insurance industries. More and more companies are reporting losses in the last 12 months and confidence is low. This will inevitably have an effect on sponsorships available because the economic downturn means that companies will be saving what cash they have in case they need it if the economy continues to slide.

Motor racing teams have already complained that times are hard and the worsening market conditions can only aggravate what is already a very difficult situation. The long-term effect of this is that the pressure for change in F1 is likely to increase as the medium-sized and small teams are finding it more and more difficult to compete against the bigger teams. Even they are finding it hard to maintain budgets but because of the pressure to succeed the budgets are not dropping at the moment. This is not going to be sustainable for long.

When teams are forced to look at their budgets the areas which are traditionally affected most is research and development, and that means that there are likely to be reductions in testing. It is logical therefore that the bigger teams will try to impose reductions on everyone to try to keep the current levels of competition. To date the big teams have refused to agree on major testing bans but we feel that there will soon be a move towards that as it becomes harder and harder to justify.

The bad news for the motor racing world is that cut backs will almost certainly lead to job cuts in the industry which already has quite a lot of people out of work. This is less of a problem for experts in individual fields but will cause problems for those who do not have specific, sought-after skills.

As with all recessions however the main effect will be shake out the weak organizations.