MAY 3, 1999

BAR and Honda

British American Racing could pull off one of the biggest coups in Formula 1 in recent years if the board of directors at the Honda Motor Corporation in Japan gives its blessing to a proposed engine supply deal for the 2000, 2001 and 2002 seasons.

British American Racing could pull off one of the biggest coups in Formula 1 in recent years if the board of directors at the Honda Motor Corporation in Japan gives its blessing to a proposed engine supply deal for the 2000, 2001 and 2002 seasons. The deal would see BAR using the factory Honda engines, replacing the planned Honda Racing Developments team. BAR has a tentative deal with Honda thanks to strong political support within Honda from American Honda and from Honda'sÊMotorsport Division, although the fact that the brash new F1 team offered Honda $60m for the deal was, we understand, the most persuasive element in clinching an agreement.

Honda had been considering investing around $100m over the same period in the HRD operation, which was headed until his death by Dr. Harvey Postlethwaite. The BAR offer is worth around $160m to Honda as it will gain $60m and will not have to spend another $100m. The deal would mean that the Japanese car company would have to get rid of HRD. Our sources say that Jordan Grand Prix will retain a supply of Mugen Honda engines for 2000 and 2001 but these will not be the same specification as those supplied to BAR and will cost around $10m a year more than is currently the case.

The deal will not be cheap for BAR because in addition to the $20m needed to pay Honda for the engines, the team will have to pay compensation to Supertec as it has a contract to use the French engines next year. Supertec boss Flavio Briatore says that breaking the contract will cost the team $16m - which means that BAR will have to invest $36m next year if it is going to go ahead with a switch from Supertec to Honda.

Our sources in Japan say that the BAR-Honda deal has been agreed in principle, but remains dependent on the board of directors of Honda voting it through. The Honda board is currently split on the question of Formula 1 racing. Some board members feel that the money needed for F1 would be better spent elsewhere in the company with the priority being investment in much-needed new production lines at three factories in Japan and new product development for the US market. Some directors argue that these investments are essential if Honda is going to grow quickly enough to survive as an independent car manufacturer .

The BAR-Honda deal adds several more issues to the boardroom debate. The abandonment of the HRD project would result in what will be seen as a massive loss of face for the company. President Hiroyuki Yoshino announced in January that Honda would enter F1 with "not only the engine but also the chassis" with the intention of strengthening Honda's identity around the world. Three weeks later Honda's big rival Toyota announced that it had similar plans. If Honda now goes back on the commitment it will give the impression that the company is running away from a confrontation with Toyota. While this may not seem to be important to the Western way of thinking, the importance of not losing face in Japan should never be underestimated and Honda remains, in many respects, a very Japanese company, despite the increasing influence of American Honda.

The company must also take into account the damage it will do to its image within the F1 community if it does pull out. The HRD team in Bracknell now numbers around 120 staff. Closing down the factory would not reflect well on the company and would upset F1 bosses. More significantly, perhaps, it must be remembered that last year Honda managed to convince BernieÊEcclestone and the F1 teams to agree that it should be the 12th team in the Concorde Agreement. In exchange the company committed itself to entering the World Championship. If Honda now decides to break that commitment F1 boss BernieÊEcclestone, the FIA and the other team bosses are not going to be happy and are likely to demand enormous compensation from Honda. If the 12th slot in the Concorde Agreement opens up, it will have a negative effect on the value of all the other teams as there will no longer be a closed shop which forces any newcomers (such as Toyota) to buy a franchise. The alternative to committing to the World Championship last year was a payment of a $25m bond by Honda. Ecclestone is likely to ask Honda for at least that much in damages, to allow the company to break its contract. We believe that Ecclestone met representatives from Honda in London last week and laid out his terms. What these were remains a mystery but Ecclestone is well aware that allowing Honda to pull out will do nothing for his credibility among the other F1 teams and he may simply refuse to allow Honda to go back on its commitment. It was interesting at Imola that McLaren boss Ron Dennis was highly critical of Honda trying to slide out of its commitment.

Honda may simply be forced to accept that it is easier to continue with the original plan. Upsetting the entire F1 community will not help BAR-Honda hopes of success. The new F1 team has only just finished a costly and damaging battle with the FIA over the question of twin liveries and the team's Craig Pollock says that he simply wants to quieten things down and get on with the racing. A deal with Honda may make the team more competitive but it is going to cause more conflict.

Honda could agree to sell HRD to someone else - if a buyer can be found. This would give F1 its 12th team. The only obvious buyer at the moment is Toyota and it does not make sense for Honda to hand over its factory, a trained staff and the design of its car to its rival. A great deal of time and money has been invested in the HRD car, which has been specifically designed for the new Honda engine. By the start of next season this will have been developed even more and is likely to be more competitive and reliable than any car built by BAR, which admits that it is still trying to come to grips with the teething problems associated with such a rapid entry into F1 and needs stability - which an engine change will not bring.

In theory Honda could pass the HRD design on to BAR but this will make it even more difficult for Honda to sell HRD as a going concern. One suggestion we have heard from Japan is that HRD could be passed on to BAT and there could then be two factory Honda-engined teams. This would solve most of Honda's problems and might be attractive to BAT given the mess of branding with the current twin-livery arrangement. It would enable them to have two competitive teams with different tobacco brands.

The drawback is that it would need more BAT investment in F1 and with the banning of tobacco advertising looking increasingly likely to come in 2002, the investment might be hard to justify. Unless, of course, BAT believes that there are organizations who might buy an F1 team at the end of 2002.

This might explain why BAR's Adrian Reynard is rapidly positioning Reynard Motorsport as a future partner of GeneralÊMotors...