Features - Financial
JULY 23, 1999
BY JOE SAWARD
One thing is certain. To understand the strength of McLaren in motor racing one has to see it as an engineering empire rather than merely a racing team. One also needs to understand that it is backed up by Techniques Avant Garde SA - a financial empire which has global assets of $600m. The TAG empire is based on high-technology businesses and is owned by the Ojjeh family's private trust company, located in the Cayman Islands. TAG is registered in Luxembourg and headquartered in Paris.
The company is controlled by Mansour Ojjeh and his brother Aziz although the empire was established by their father Akram who made his fortune acting as a business agent for the Saudi Arabian royal family. In the early 1980s the family was said to be making as much as $350m a year on commissions from the deals it organized between European companies and Saudi Arabia. These involved arms, aircraft and other essential items which Saudi Arabia lacked. Akram Ojjeh was a man of considerable influence and his services to western governments were recognized by the award of a Legion d'Honneur from France, an Order of Leopold II from Belgium and the Order of Nassau Orange from Holland.
The Ojjehs were vastly rich, they owned houses all over the world and acquired paintings by Picasso, Renoir, and Van Gogh.
Eventually Akram fell from favour in Saudi Arabia and turned to investing some of his profits in Europe. When Mansour took over the empire he began to diversify and in 1985 bought the struggling Heuer watch company from Piaget and acquired a 60% shareholding in McLaren International. In five years TAG Heuer was transformed into a global brand and McLaren enjoyed enormous success in Formula 1 racing and began to diversify under the TAG McLaren Holdings banner.
TAG's third major division is TAG Aeronautics, which has exclusive distribution rights to Bombardier's Canadair Challenger range of twin-engined executive jets in the Middle East.
TAG SA was originally planning to build up a strong hotel business in partnership with the Meridien Group but that deal ended in acrimony. TAG remains active in property development and is a major backer of City Center Developments, a 2.6 million square foot development in downtown Los Angeles. TAG's other interests include banking and agriculture - it owns an avocado ranch in California and a soya bean plantation in Paraguay.
Mansour Ojjeh allows the bosses of each division of the company a lot of autonomy.
"Ron Dennis is in charge at McLaren," he says, "but all major decisions are made between us and we speak on the phone almost every day."
TAG McLaren Holdings - McLaren's parent company - consists of six major businesses although the Formula 1 team remains the flagship of the group. The last official figure for TAG McLaren employees in October 1997 was 638 but the staff is now somewhere in the region of 750 people.
The other businesses are McLaren Cars - which built the fabulous McLaren F1 road cars and is now working on a new supercar with Mercedes-Benz; TAG McLaren GT, which built and ran racing versions of the McLaren road car, winning the Le Mans 24 Hours in 1995 and the 1997 FIA GT World Championship. There is TAG Electronic Systems, which today supplies the electronic packages for several F1 teams and is believed to do other unspecified electronic work in the automotive, aviation and defence industries. There is also TAG McLaren Marketing Services which has a booming business as a sponsorship and advertising agency. The newest company in the group is TAG McLaren Audio, which is developing groundbreaking in-car sound systems for sale to the public.
The TAG McLaren Group's last published accounts were in October 1997 and these reveal that the firm had a turnover of around $165m and made an operating profit of around $34.5m, although it had debts of $80m. Of this McLaren International was responsible for about half of the turnover - $92m. It supplied half of the profits but at the same time carries around two-thirds of the group's debt. TAG Electronics and TAG McLaren Marketing are both profitable businesses while the loss-making TAG McLaren GT Ltd and McLaren Cars - which has now begun to make small profits - carry a heavy debt load, the McLaren F1 supercar programme having not been as successful as the company had hoped it would be. Despite this the McLaren supercar established the company at the forefront of automotive technology - which was one of the main aims of the project.
There is no doubt that the TAG McLaren Group is strong and growing and is likely to make further technology-related acquisitions in the years ahead, in order to gain more stability from diversification.
Although Dennis has to keep the Ojjeh Family happy he is not troubled by pressure from any shareholders and as long as the TAG McLaren Group runs profitably and Mansour Ojjeh remains a Formula 1 fanatic there is nothing for Dennis to worry about. This is an advantage which should not be underestimated, particularly when one considers the pressures that Dennis came under between 1994 and 1997 when the team was failing to perform.
Careful study of the group reveals that Ron Dennis has long been a believer in exploiting synergies to build up businesses and create new areas for development. Most of these have been successful but not all have worked. Dennis had hoped that a company called McLaren Advanced Vehicles would build a supersonic car to break the Land Speed Record. The MAVerick programme would have greatly enhanced the company's image as a leader in automotive technology but despite a lot of research work that project was stopped.
On several occasions McLaren had also considered expanding into American racing - where it was very successful in the 1960s and early 1970s. As recently as 1995 Dennis discussed sharing facilities and the costs of development with CART team boss Roger Penske - who runs a British factory in Poole, Dorset. These have so far not resulted in any cooperation.
The TAG McLaren Group, however, has plans to continue growing and by the end of 2000 expects to have 1000 members of staff. This figure came to light during the battle for planning permission for the team's new headquarters on a site outside Woking.
At the moment the various TAG McLaren companies are dotted around Woking in seven different buildings. They will be gathered together on one site when the team's new factory is finished. This has been delayed for a long time as McLaren began looking for a new headquarters as long ago as the late 1980s. In 1990 the company bought the Lydden Hill racing circuit near Dover with the intention of developing it into a facility which would be "a flagship for British industry". The announcements were followed by lengthy legal battles over ownership and then planning permission. Finally in 1993 the project was shelved because most of the McLaren staff did not wish to relocate from Woking to Dover. The idea of a facility with its own test track - nicknamed McLarenello - also faded with the increased restrictions on testing in F1 and the development of simulation software. Teams still needs to validate the computer results but this is considerably less work and can be handled by an efficiently-run test team. McLaren deliberately set up its test team to ensure that it could cover all needs. When circumstances demand the test team can split into two units and run independent tests at different circuits.
McLaren still needed a new headquarters but it was not until 1995 that the team acquired an ostrich-breeding facility near Woking called Mizens Farm. Once again there were problems with planning as the 50 hectare site was located in a protected "green belt" area. McLaren had to go back to court to win permission for its 32,500 sq m factory. Initial designs included a large lake with a semi-circular building acting as a reception area. There would then be six buildings fanning out, each linked to the reception area. The team hopes that the headquarters will become a landmark both in terms of architecture and as a world-class automotive research centre. The design is being overseen by Britain's best known architect Sir Norman Foster.
The facility - which will be called The Paragon Technological Centre - will eventually include a 4,600 sq m Visitor and Learning Centre, which will be run in conjunction with Britain's National Museum of Science and Industry. There is also likely to be a museum featuring McLaren race cars dating back to the first machinery built by Bruce McLaren in the early 1960s.
Work began on the new factory in August last year with the priority being the construction of a new large-scale windtunnel. This was pushed hard by the team's new technical director Adrian Newey when he arrived at McLaren in the middle of 1997. Having been used to the facilities available at Williams, Newey was rather surprised at how far behind McLaren had slipped in aerodynamic research.
The team began using the windtunnel at the National Physical Laboratory in Teddington, Middlesex in the mid 1980s when it was a government-owned facility. It has since been privatized but the exclusive deal has continued with McLaren funding upgrading work. In recent years the aerodynamic department has been headed by Frenchman Henri Durand with two teams of aerodynamicists: one working on design and the other on development.
Shortly before Newey joined the team, McLaren signed a five-year technology partnership with British Aerospace. The team has enjoyed a long association with the company, which used to have a major facility on the old Brooklands racing circuit at Weybridge - just a few miles from Woking. When that facility was closed down in 1990 many BAe personnel joined McLaren, notably operations director Martin Whitmarsh (who is now managing-director) and production manager Geoff Highley.
McLaren and BAe worked closely on the stillborn McLaren Land Speed Record car "Maverick" and when the technology partnership began BAe seconded two Computational Fluid Dynamics specialists to the McLaren's aerodynamic team on a fulltime basis. There followed an aerofoil development programme working on nose profiles and improving air flow to the front brakes at the British Aerospace low-speed windtunnel at BAe's Military Aircraft Division at Warton in Lancashire. Under BAe's McLaren Project Manager Chris Lee there were a variety of leading edge technology programmes including vehicle dynamics simulations, carbon fibre composite stress analysis and rapid prototyping using laser technology.
The partnership is expected to be extended to use the slightly larger BAe Airbus Division windtunnel at Filton. This was used between 1994 and 1996 by John Barnard's Ferrari Design & Development company and in 1997 by Barnard on behalf of Arrows. The deal with Barnard ended because of the BAe-McLaren alliance and McLaren is known to have tried to buy Barnard's half-scale rolling-road machinery which had previously been used for Ferrari projects. In recent months we hear that McLaren may have bought the Benetton rolling road which had been used in the Defence Evaluation and Research Agency windtunnel at Farnborough.
It is likely that BAe will also be involved in the design of construction of the windtunnels which are to be built at the new McLaren headquarters and these are likely to be as impressive as the new facilities at Benetton and Ferrari.
McLaren's relationship with British Aerospace is a good example of the team's concept of Technology Partners - which it has pioneered over the years and which is now being widely copied by other F1 teams such as Ferrari and Prost Grand Prix.
The concept is a simple one. Companies with ambitions and specialized skills supply those skills to McLaren on an exclusive basis in exchange for the global publicity the team can generate and other business which McLaren organizes between its partners. When McLaren approaches a company about a deal it has first formulated ways in which the team can help the company increase its business. McLaren men refuse to talk about such strategies but there is no doubt that the team sets out to ensure that its partners profit from the deals they sign by becoming involved with other McLaren backers.
An indication of the use of McLaren for publicity purposes came when Daimler and Chrysler merged recently. The new company chose to buy space in newspapers all over the world to announce the deal. Chrysler used the image of its chairman Bob Eaton in the advertisements, Daimler-Benz used Mika Hakkinen... The message was clear, the company wants to promote its sporty image and McLaren fulfils that role.
As another example when McLaren needed powerful workstations for its factory it offered Sun Microsystems UK marketing rights in exchange for equipment. This proved to be so successful a deal that a worldwide partnership between McLaren and Sun Microsystems grew from that initial contact. Computer Associates, another McLaren Technology Partner, uses Ron Dennis and the team for one of its major publicity campaigns.
The partnership between McLaren and Mobil is particularly interesting. The American oil company develops all the fuel and lubricants used by the team and by Ilmor Engineering but it also figures prominently on the car. Although McLaren will not admit it we believe that the team brokered a deal for Mobil to become the worldwide original supplier for fuel in Mercedes-Benz vehicles. Our spies suggest that the deal was achieved when McLaren offered to run silver cars without Mercedes having to pay for it. Mobil pays a great deal more money than that area on the car would suggest - but it is a small amount when compared to the annual income which was generated by the Mobil-Mercedes supply deal.
This is a classic example of McLaren's clever use of cross-marketing, an area in which it is well ahead of all the other F1 teams - and, as a result, is not keen to discuss details.
Other McLaren Technology Partners include Loctite, which supplies its most advanced adhesives; Kenwood, which develops advanced communications systems for the team; Computer Associates which supplies software skills to the entire TAG McLaren Group; the German software group SAP which has a big involvement with Mercedes-Benz; the Parametric Technology Corporation, which recently took over the Computervision company, and supplies the team with its Pro-Engineer design programme - which is also now being used by other F1 teams; Cadence, another software company; and Siemens, which has links with Mercedes and supplies the team with its lap top computers.
Some of these software deals and undoubtedly linked to extra business which comes to the companies involved by their association with TAG Electronics.
TAG Electronics supplies its TAG 2000 electronic management system, which is capable of controlling both the engine and chassis systems, and data acquisition. TAG Electronics also supplies the team with hardware for the F1 cars, notably electronic dashboards, ignition coils, alternator voltage controls, sensors, data analysis and telemetry systems. As a sideline to make money TAG Electronics also supplies control systems to Peugeot Sport and Arrows for their engine programmes.
In addition to the technology partnership programme, McLaren has a number of official suppliers. These companies do not necessarily work exclusively with McLaren but they supply goods in exchange for the publicity the team generates. These include Bridgestone and Charmilles Technologies. The latter company is a good example of the official supplier status. The firm leads the world with its Robofil electrical erosion machinery. McLaren has been using the Robofil 4020 since 1996 and has two other Charmilles machines which run 24 hours a day and cut out intricate parts such as gear wheels from solid metal. Benetton and Prost both use Charmilles technology, the former going so far as to machine uprights from solid lumps of metal.
Computerized machine tools are a vital part of the production process in F1 these days and McLaren uses a variety of different CNC metal cutting machinery and lathes. It has just formed a new partnership with the Yamazaki Mazak company for its machinery but also uses Hitachi Seiki machinery at Woking.
In addition there are normal commercial suppliers who supply specialist parts which are used in the racing cars. These include firms such as Automotive Products (brakes and clutches), Calsonic (water radiators) and so on.
McLaren also has a system of Corporate Partnerships. These companies are, in effect, sponsors and their names are seen either on the cars or on the drivers. They may also provide both services and money to the team while McLaren allows them to use the McLaren image to sell their products. You cannot pick up a can of Schweppes drink these days without finding a McLaren racing car on it. These companies include the Italian engineering company Camozzi, which makes pneumatic components for automation; fashion house Hugo Boss - which used the drivers as clothes horses and in their publicity campaigns - the Finlandia vodka company, Warsteiner Beer and TAG Heuer watches, which has an effective "Dont crack under pressure" campaign involving Hakkinen.
The team's principal partner is the West cigarette company and McLaren supplies the drivers and F1 machinery - including the amazing F1 two-seater - to West for a variety of functions in the course of a year.
McLaren's links with Mercedes-Benz are largely marketing-related. There may be more technology links in the future when the new Mercedes-engined McLaren sportscar appears but these have been restricted to date, probably because McLaren was working closely with Mercedes rival BMW on the sportscar in the past.
Mercedes-Benz is, however, integrally involved with Ilmor Engineering, which builds the company's V10 F1 engines. In fact Mercedes owns 25% of Ilmor. The Brixworth-based company was established in the early 1980s by former Cosworth engineers Mario Illien and Paul Morgan with financial backing from American entrepreneur Roger Penske. Penske owned 50% of the shares but sold half of that to Chevrolet. The result was that Ilmor built the highly-successful Chevrolet Indycar engine. When that programme ended Penske brokered a deal in which Chevrolet sold its share to Mercedes-Benz. Ilmor built Mercedes Indycar engines and then Formula 1 power units. Before the Mercedes deal Ilmor had run its F1 engines under the Ilmor V10s and Sauber V10s names.
In addition to the shareholding there are technical links between Ilmor and Mercedes-Benz, with the Germans providing calculation assistance and expertise in other areas such as combustion research, computer modelling and so on.
Ilmor has grown in recent years to 300 employees and in April 1997 opened a new design laboratory and engine development shop which increased the premises to 6,500sq m. There is a continual exchange of information and personnel between Ilmor in Brixworth and the Mercedes-Benz racing engine department in Stuttgart-Unterturkheim where research is done on Mercedes-Benz dynamometers. This department, under Dr Hans-Peter Kollmeier, has 25 engineers and provides whatever assistance is needed at Ilmor, including material research from Daimler-Benz subsidiary DASA.
The team at Ilmor is led by Illien but he is supported by the company's Head of F1 Design Stuart Grove, who spent many years at Cosworth before joining Ilmor in 1995 after a year at Ferrari. Another former Ferrari engineer Max de Novelis is in charge of development engineering while former Cosworth man Jim Coats is in charge of electronics.
To ensure that the Ilmor engine and the McLaren chassis are properly mated McLaren has a team of engineers working solely on engine installation. This is headed by 32-year-old Mark Ingham who worked at Cosworth Engineering after leaving Cambridge University and worked with McLaren during the 1991 season. He then moved to Peugeot Sport in 1994 and eventually joined McLaren at the end of that year.
The engine installation team is a good example of McLaren's philosophy of sub-dividing engineering tasks into individual departments, each reporting to the chief designer Neil Oatley, who oversees the build of the car. He reports to technical director Adrian Newey - who oversees all technical issues at McLaren International, including production, race and test engineering and research and development.
The arrival of Newey marked a distinct change in McLaren's style of management. Before then Dennis has avoided hiring high-profile technical directors. This attitude can be traced back to 1986 when John Barnard left the team to join Ferrari. It was an acrimonious split and Dennis resolved never to rely on a star designer again. The committee style of management worked while the team was still using cars based on the Barnard designs but the lack of success in the mid-1990s showed that a new leader was required. Dennis eventually accepted the idea and Newey was hired in 1997.
The team's concept of departmentalized design remains intact with different project groups looking after suspension design, composite design, transmission development, engine installation and aerodynamics. Each group of engineers has access to information from the research & development department led by former Williams engineer Paddy Lowe and the vehicle engineering department under Steve Nichols. There is also a lot of cross-fertilization of ideas between the F1 and sportscar programmes. The unusual suspension system used last year on the MP4-13, for example, came to the F1 team from the GT team, which used the idea in races as long ago as 1996 when Nelson Piquet drove one of the cars fitted with system in South American sportscar events.
Another man who is involved from time to time in the engineering discussions at McLaren is Gordon Murray, the former Brabham F1 designer, who now works at McLaren Cars. His experience and innovative thinking was, we understand, important in the development of the MP4-13 suspension.
As the TAG McLaren Group has grown it has become impossible for Ron Dennis to run everything. In October 1997 he gave up his role as managing-director of McLaren International to the team's operations director Martin Whitmarsh. Dennis is responsible for overseeing not only the McLaren F1 team, but all the TAG McLaren companies. At races, however, he rejoins the team and is its chief spokesman and also runs controls race strategy in collaboration with chief race engineer Steve Hallam and team manager Dave Ryan. Dennis also looks after political questions, attending most of the team meetings as McLaren's representative.
The little-known Whitmarsh has been with McLaren since July 1990, having joined the team from British Aerospace when the company closed down its operations in Weybridge.
According to our figures the team employs almost 400 people although it is believed that some of these are seconded to McLaren International from TAG Electronics - which has a staff of 110 staff - and TAG McLaren Marketing.
One of the team's strengths is Ron Dennis's theories of management. He believes that in order to get the best out of one's employees they need to be happy in the job they are doing and that an employer has failed if he does not find them a niche which suits their talents. This means that McLaren employees tend to stay with the company and there is a high-level of company loyalty. This is best illustrated by some of the top management: Commercial Director Ekrom Sami, who runs TAG McLaren Marketing, started out helping in the workshops at Project 4 - Dennis's company before the merger with McLaren. Dave Ryan was a McLaren mechanic in the 1970s and Jo Ramirez was one of the early recruits when McLaren International was established. The team also employs Tyler Alexander, a former partner in the old McLaren team and Neil Trundle, who was Ron Dennis's partner in Rondel Racing in the early 1970s. Dennis prides himself on good man-management.
The McLaren race team is made up of 26 people, including 10 engineers and technicians under Steve Hallam. Each car has a race engineer, an assistant, a software engineer, a data engineer and a systems engineer. There are 12 race mechanics for the three cars at each event. There are around 10 other general staff who look after spares, sub-assembly, tyres and so on. The crew at each race also includes the staff of the motorhomes, including drivers, cooks, hostesses and so on.
The test team is smaller, numbering only 16 but the race engineers generally do the testing as well and the motorhomes are present at the bigger tests.
In addition to all the obvious departments McLaren boasts a Heritage Department which looks after all the team's old Formula 1 cars and earlier McLaren machinery such as Indycars, Formula 2s, CanAm and early sportscars. These will all ultimately be housed in the planned McLaren Museum.
In addition to the main TAG McLaren Group companies there are also a number of smaller subsidiary companies which include West Competition Ltd - run by former F1 engineer David Brown. The team runs a two-car team in the International Formula 3000 Championship. The team is used by McLaren as a means of training young drivers and has the long-term aim of developing mechanics and engineers as well. Lydden Circuit Ltd is still owned by McLaren and runs the Kentish circuit, while Absolute Taste Ltd - run by Lindy Woodcock - looks after the McLaren, West and West Competition motorhomes and caters for VIP guests at all the Grands Prix and at tests. The company is planning to expand to cater for top-level non-motor racing events in the future.
The McLaren F1 team has four 40ft tractor-trailer units in team colors: two are used by the race team and two by the test team. In addition there is a 40ft Ilmor Engineering truck at each race and a smaller Mobil fuel truck. In addition the McLaren F1 fleet includes the two-storey team motorhome (which cost around $1.6m to build), a similar one which is owned by the team's title sponsor West but is operated by McLaren, and a smaller motorhome which is owned by Mercedes-Benz and operates from Germany. The motorhomes need additional small trucks to carry equipment and supplies.
The team no longer has a private jet nor a helicopter but it should be noted that in the autumn of 1997 TAG Aeronautics took over the running of the Farnborough Aerodrome from Britain's Ministry of Defence with the intention of developing it for private aviation. The Farnborough airfield is only 10 miles from the McLaren factory. TAG also bought the Aeroleasing Group of Switzerland, a leading European jet charter company, and ordered $250m worth of aircraft from Bombardier. TAG McLaren is never short of private jets...
The McLaren structure
Chairman: Ron Dennis
Managing director: Martin Whitmarsh
Financial director: Bob Ilman
Commercial director: Ekrom Sami
Technical Director: Adrian Newey
Chief designer: Neil Oatley
Chassis design: Matthew Jeffreys
Transmission design: David North
Suspension design: David Neilson
Engine installation design: Mark Ingham
Head of Aerodynamics: Henri Durand
Aerodynamic design: Phil Adey
Aerodynamic Development: Peter Prodromou
Research & Development Department:
Head of Research & Development: Paddy Lowe
Special projects: Tyler Alexander
Vehicle Engineering Department:
Head of Vehicle Engineering: Steve Nichols
Chief Race Engineer: Steve Hallam
Race Engineers: Pat Fry, Mark Slade
Production manager: Geoff Highley
Race & Test Teams:
Team manager: Dave Ryan
Team coordinator: Jo Ramirez
The individual departments
Ron Dennis's office5
Commercial Department 36
Design/Research & Development