APRIL 27, 2004

The battle for Formula 1

Next week the Formula 1 team bosses will gather in Monte Carlo for two days of talks about the future of Grand Prix racing. Although billed as a chance to discuss everything, it is more likely to be a meeting at which teams will be faced with harsh realities and will have to conclude that if they wish to stay in business they must accept the terms being offered by the FIA. The new FIA regulations for 2008 have drawn a line in the sand. The teams do not have a say in this if the FIA chooses to ignore them. But the fact is that the GPWC's proposals were less attractive to the majority of the teams and drove them into the arms of the FIA and the Formula One Group. The new rules will allow costs to be reduced if only because some of the manufacturers are going to leave the sport rather than accept things like a common electronic control unit (ECU) and as a result the money supply in F1 is going to be squeezed. This is the only known way of reducing costs in F1 because if money is available engineers will replace track testing with dyno and rig work; they will find new materials and get around tyre restrictions.

The problem is that almost everyone has now reached a point at which the sport is too expensive. In many ways this is like an arms race with everyone spending vast sums of money on weaponry simply to have the same or more than the opposition. The sport gains nothing from this because the same teams are at the front and the difference of few miles per hour adds nothing to the spectacle.

The GPWC's failure to give everyone a fair and transparent deal has finally nailed the credibility of the organisation. Team bosses were outraged in Malaysia when they were leaked copies of the Memorandum of Understanding to find that Ferrari, Williams and McLaren would all get more money than the smaller teams. Once that document was out, the GPWC was fatally flawed and the irate team bosses were soon talking to Ecclestone about breaking out of the current deadlock.

The GPWC is not in a position to fight back because its members are not sufficiently committed to the sport if the current trends continue. Ferrari has reached a point at which it cannot justify the spending required on F1 because its car sales are (and have to be) pegged at 3000 a year to maintain the exclusivity of the brand. To get around this Ferrari began to rebuild Maserati and it is possible that one day the Maserati brand might replace Ferrari in F1 but even then Maserati's 10,000 cars a year is not a big enough market to justify the cost of a successful F1 programme. The Ford Motor Company is having similar trouble justifying the Jaguar programme and that is based around much bigger numbers of car sales. Jaguar's image is changing and sales are rising and so one can argue that the F1 programme has already been a success but paying to go to the next level is not something that Jaguar can justify without huge support from Ford or from new corporate sponsors. Ford is also aware that it has the capability to make money in F1 by being a simple engine supplier via Cosworth and does not necessarily need to have its own team once the specific aims of Jaguar have been met. Costs are also an issue at Renault which is being flattered at the moment by the sales figures of its partner Nissan. With a new management coming into the French firm in 12 months from now, there are no certainties.

BMW has a different problem in that it does not have its own F1 team. And Williams is well aware that as costs go up, it is going to be shouldering a lot of them rather than BMW. Williams is a privately-held team and so building up debts and spending too much are serious fears for the men in charge and even the threat of losing BMW as an engine supplier is not as worrying as losing the whole business.

And that leaves Mercedes-Benz. The management says that the firm is committed to Formula 1 but a new boss is coming later this year. Even if he is a believer in racing there are still fears that a change at the top of parent company DaimlerChrysler could tip the balance. Jurgen Schrempp, the top boss, is under attack from all sides. Since he engineered the merger or Daimler-Benz and Chrysler in 1998 the company has lost huge amounts of market capitalisation. There are people trying to unstitch the Chrysler deal and at the same time Schrempp's globalisation policy is failing. His refusal to continue to invest in Mitsubishi Motors means that in effect DaimlerChrysler has nothing left in Asia. There is a small shareholding in Hyundai but this too is surrounded by conflict and will probably not survive. Questions are now being asked about the entire corporate culture at DaimlerChrysler with The Financial Times wading in yesterday about what it called "serial bungling" at the company and called for Schrempp to go.

The GPWC therefore is an unsteady edifice and many in F1 believe that Max Mosley's new 2008 regulations will ultimately lead to the collapse of the GPWC. Once that happens (and the denouement will probably be at the Monaco meeting) it will be a question of seeing who is going to stay and who is going to go and then putting together a commercial settlement for the future of the sport.

That is not going to be easy. Ecclestone is in a powerful position but his past success (some call it greed) has left scars and there is a strong desire not to let him do the same thing again. At risk is the health of the FIA Formula 1 World Championship in 2008 because if the deal on offer does not make any sense some team owners will just give up and do something else. They are all wealthy men and a lot of them are getting towards retirement age and they do not like to see their teams struggling for cash, knowing that so much of the money which is being generated is leaving the sport. And young men look at the figures and conclude that the risk involved is too great for an attempt.

In order to attract more cars, therefore, it is possible that the federation might try to moderate the situation by insisting that Ecclestone clears up the issue of who is in control of the Formula One Group and then comes up with figures which are more generous to the sport.

Ironically, it could be that the F1 teams and the FIA will end up fighting alongside one another in an effort to get more money coming back into the sport, rather than watching it go out to bankers and trust companies in obscure parts of the tax-free world.

The battles over the future are far from over but at least there is now hope that a solution will eventually emerge.