A bizarre mentality
thejudge13 reported on October 9th what I considered a rather strange story emanating from Renault. Here’s an excerpt from that day;
“Apparently Renault has said it will not provide any more teams with engines as it has 3 customers already. So Marussia and HRT needn’t bother knocking on the door of the Renault Chateau huh? The reason given by Jean-Francois Caubet, Managing Director of Renault Sport is that – (paraphrased) these 2 teams are rubbish and its bad for Renault’s image.
He tells Ferrari and Mercedes they need to do their fair share and supply 4 teams like Renault does now. This Gallic thinking is seriously flawed, because one would imagine the research and development costs are so high, building a few extra units for a couple more teams would share the cost around better for everyone”.
I then made a few disparaging comments about Jean-Francois and his possible drinking habits. Of course on November 6th, we then reported the ‘retirement’ of Jean-Francois Caubet and the appointment of his successor, Renault Sport’s president Jean-Michel Jalinier. However, Jean-Francois’ departure was overshadowed by the same day appointment of Renault Sport protoge Cyril Abiteboul as Tony Fernandes replacement at Caterham.
I have to admit I missed the significance of Caubet’s sudden ‘retirement’ at the time, and I often refer to the subtle art of reading the tea leaves. This was more a dunking of the tea bag.
2014 engine suppliers
There have been rumours of ‘PURE’, Cosworth and even Honda being ready to join the F1 engine supply party in 2014. However, Cosworth who have supplied HRT and Marussia this year are up for sale and as yet have no V6 2014 prototype engines built.
Craig Pollock’s ”PURE’ engine foray is now regarded by many as defunct and the new 2014 engines are scheduled to be with the teams by June 2013. For this very reason the rumours that Honda are likely to to return to F1 in just over a year must surely be spurious too.
Martin Whitmarsh was asked about engines in Interlagos and he believes for “2014 we’ve got, as far as I know, only three manufacturers committed to the sport”.
Desireability of a Renault F1 engine
There was a historic snob value over F1 engines and it was based on horse power. The mighty Silver Arrows cars had the grunt of many hundred horses and in the 50’s the German engine powered cars were perceived to have the most Cahuna’s. Renault engines by contrast have never been seen as having the most raw power, but you may be surprised if I tell you 11 of the past 21 constructor titles have been won by cars with a Renault engine.
Renault and Red Bull were instructed to modify their behaviour over engine mapping this year. This was in actuality a feather in the engine suppliers cap, and the impression is whilst the French power train does not have the biggest grunt, there are a lot of clever technicians who know how to deliver exactly the right kind of power and when on a circuit by circuit basis.
In the run up to Austin, on the day we were reporting the pensioners of North America had bought 9% of F1, we also had the story that Torro Rosso will ditch Ferrari engines in 2014 and turn to Renault. Clearly Jean-Francois exclusive business plan was not appreciated by the Renault powers that be, and now Renault have done a u-turn and are prepared to whore themselves to anyone who has the cash.
Interestingly this weekend just gone the French car maker’s president Carlos Ghosn made a visit to the Brazilian Grand Prix and during a small media round he confirmed that Renault will equip more teams with engines, according to Mathias Brunner from Speed Week.
So why have Renault done an apparent U-Turn faster than Napolean could call a retreat?
The R&D effect
Well the talk is of engine costs for a customer team in 2014 has been in the region of no less than $20m a year. This is a hike of more than $12m a year and the reason for this is that the estimated research and devleopment costs into the new technology is around $100m for each manufacturer.
The FIA are under pressure to keep engine costs down and one way of doing this will be to allow the manufacturers minimum contract periods with customers of 5 maybe 6 years. The term of the contract is important because the longer the contract runs the smaller the amount of R&D costs can be allocated to each year of the contract.
Let’s examine the present Ferrari scenario. As it stands they have 2 teams to supply with engines in 2014, themselves and Sauber. So the R&D share of cost over 5 years for each team is $10m per annum.
Renault in contrast have now 5 potential customer teams for 2014. Red Bull, Torro Rosso, Lotus, Williams and Caterham. So the $100m R&D cost recuperation over 5 years means per team a comparative $4m p.a. – $6m a year less per team on the share of the up-front costs than the Ferrari example.
Should Renault manage to persuade 1 more team, whether it be Marussia or Force India to become a customer, then they would supply 6 of the 11 teams on the grid. This would be a coup indeed as the share of R&D each team suffers falls to $3.33m a year – $6.66m less than for Ferrari teams and a whopping $33m less over 5 years. This thinking is what probably did for Jean-Francois and why Renault have made a huge U-turn.
A change of historic perspective
Historically F1 has treated engine manufacturers like sponsors in that supplying teams with their branded power trains gives them marketing value from their mere involvement in F1. Writing off $30-40m has been small fry to them and so does it really matter whether they have just 2 or 6 teams with whom they can share the R&D costs?
We need to return to the Resource Restriction Agreement to understand this fully. Everyone except Red Bull and Torro Rosso were up for the RRA rules as proposed by the FIA. This proposal would limit resource on all aspects of car design, testing, engine acquisition and build but was only applied to the competing team budgets.
There is a common misunderstanding that the cost of engines was not be included in this team resource restriction/budget cap and therefore Mercedes and Ferrari could spend limitless cash on engines – or hide other costs for their works teams in the engine spend. This is just not true.
The FIA requires the engine manufacturers to supply at least 3 teams from 2014, and the price of the engine is to be the adjudged the same to a works team as it would be to a customer team and the engines are to be identical. This would still allow manufacturers to behave as sponsors and gain marketing kudos for their brand without charging the full R&D spend to any of the teams.
However, Christian Horner and Red Bull have been vociferous in refusing to agree to RRA/budget capping unless the engine manufacturers were included in any arrangements – and they appear to have won the day with this argument. So presumably the engine manufacturers have to now supply a proper business plan including R&D spend and demonstrate the income received from the works/customer teams is covering the cost of the engine production.
A land grab catch 22.
Following the departure of Jean-Francois Caubet, Renault appear to have swiftly grasped the nettle realising the more customer teams they have, the more they can spread their production costs and are still on the hustings looking at the 3 remaining teams without confirmed engine deals for 2014.
It is surprising Ferrari and Mercedes (the manufacturers) are being so laconic over this. You would expect them to be chasing customer’s and trying to get their fair share of engine contracts. Why are they not doing this? Perhaps there is a catch 22 that they have spotted that means whichever way the RRA goes, it isn’t a problem for them.
As I mentioned earlier, the FIA regulations insist the engine manufacturers supply no less than 3 teams. I am told by someone from Renault I met in Barcelona, the reason for this was to ensure the engine suppliers could in fact spread out the costs of engine supply more evenly.
If Renault sign 1 more team then it is not possible for Mercedes and Ferrari to comply with this regulation. The regulations as far as I understand do not prohibit Renault from signing as many teams as they wish to their stable – and therein lies the catch 22.
Bang goes the engine RRA
The FIA would then have to either 1) regulate for a maximum number of teams or 2) change the rules on the minimum number of teams – an engine manufacturer can supply.
If the FIA allow Renault to dominate engine supply – and why shouldn’t 7 teams be allowed to choose Renault – then the costing of this new FIA V6 engine initiative for Ferrari and McLaren becomes astronomic per unit produced. This will not concern them as they have historically supplied power trains for prestige rather than profit.
However, the RRA/Budget on engine manufacturers then becomes a nonsense and is in effect unenforceable. How can a sensible figure be set across the board for the price of an engine when 1 manufacturer is producing 35 a year and the others just 10. (5 engines per team 2014 – plus a couple of spares maybe).
The collapse of RRA for engine suppliers surely flies in the face of everything Horner and Red Bull have been trying to achieve. Well maybe not, they are bright individuals in Milton Keynes and must surely have run the above scenarios. So what is the reason for the Red Bull RRA engine hullabaloo? Here’s a piece I wrote a couple of weeks ago where I suggest the real reason for Red Bull’s stalling tactics over the RRA – that has been agreed by the other 10 – is “Just one more year: Why Red Bull are obsessed with controlling engine spend“.
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