Ecclestone/Todt play Russian roulette with the four F1 power unit manufacturers

ecclestone-todt_2629258bThe Formula One civil war heads into another long cold winter, where agreement on almost anything is impossible. This state of affairs is hardly unexpected given the three-headed hydra that governs the sport.

TV figures are in decline as have been race attendances at many venues, and so all the F1 vested interests pay lip service to improving ‘the show’, but few agree on what needs to be done.

The regulations for 2014-2020 were supposed to be a period of stability for Formula One, where changes would be small and gradual and engine costs would reduce as the opportunity for the power units to be redeveloped was reduced year on year.

Stable regulations give new teams and engine manufacturers the confidence that a U-Turn won’t derail their multi hundred million dollar investments before the term on their business plan is complete. Yet radical car regulations for 2017 and now new engine designs for 2018 threaten this.

The FIA and Bernie Ecclestone are teeing up Ferrari and Mercedes as the bad guys in this new change process, which is apparently designed to make life easier for smaller teams. Yet the reality is Ecclestone is involved in maybe one last big F1 power play and has convinced the usually benign Jean Todt to back him.

The rhetoric for cost cutting power unit costs to customer teams and the new ‘budget’ engine is a polemic to garner favour as support is being apparently offered by the FIA and FOM. Yet the big agenda from the sport’s regulator and commercial right’s holder is to control the alleged ‘power’ of the F1 power unit manufacturers.

Jean Todt has admitted the FIA made mistakes during the consultation period for the new ‘green’ Todt inspired formula. Cost control should have been considered, agrees the FIA president, but the horse bolted long before the gate was closed.

The alternative solution to mitigate the customer PU teams spending around 20% of their annual budget on a power unit, is to award them more money. However, Bernie cannot force the bigger teams to tear up the contracts he agreed with them which were designed to buy favour for his new F1 governance agenda – including the F1 strategy group.

So the alternative is for FOM, Bernie and CVC to ‘invest’ in the sport, and reduce their take so that the customer teams can be awarded more annual cash to mitigate the price of the V6 Turbo power units. This of course is unthinkable, so Bernie is laying the blame squarely at the feet of Mercedes and Ferrari.

Yet the Fiat Chrysler Automobiles (FCA) chairman, Sergio Marchionne, Ecclestone may well be creating an adversary with bigger balls than even Enzo Ferrari. Whilst new to Formula One, Marchionne understands as well as anyone the corporate maneuverings required to see off opponents. Luca di Montezemolo was revered by many Italian F1 fans as responsible for assembling the dream team of Schumacher, Brawn and Todt, which turned around Ferrari’s decades of underperformance. Yet Marchionne ousted the former Ferrari chairman in a coup détente that was as swift and calculating as the knife of a silent assassin in the middle of the night.

Marchionne invoked the Ferrari veto when Todt and Bernie pushed through a cost cap for power unit supply to customers starting in 2017. By way of response, the FIA said in a statement: “In the interest of the championship, the FIA has decided not to legally challenge (Ferrari’s) use of its right of veto.”

The response, was at the subsequent meeting of the World Motor Sport Council, a “near unanimous” vote saw F1 supremo Ecclestone and FIA president Todt handed a mandate to address “a number of pressing issues in F1”.

However, unlike in days of yore, Ferrari is being backed by Mercedes and at the following team principal’s meeting in Mexico, Toto Wolff offered his support to Maranello.

“There is a set of rules which were implemented in Formula 1 two years ago and we started developing those engines three, four, five years ago based on those set of rules. And as large corporations we work on long-term planning, it is part of the budget process and the R&D process. From that standpoint, part of it is a business case and you need to calculate how much you can charge for those engines, how much you can recover for those engines.

“Ferrari is a public company now so it is difficult as a commercial entity to just be confronted with a situation where a price is being imposed because it somehow times the commercial ability for refinancing”.

Interestingly, the response of Todt and Bernie to the Ferrari veto was to propose a new ‘budget’ F1 engine to ‘persuade’ Ferrari and Mercedes to comply. Yet Mercedes and Ferrari then marshaled their customer teams and this threat was seen off at the subsequent F1 commission meeting, which threw the idea out.

President Todt then convinced the FIA to give himself and Ecclestone a mandate to take control of Formula One in a move designed to intimidate Ferrari and Mercedes. A deadline has been set for January where the power unit manufacturers must come up with a solution to the cost of power units or face once again the prospect of an FIA commissioned ‘budget’ F1 engine.

But now Honda’s head of motorsport, Yasuhisa Arai, has stated this week that this agenda with take ‘a long time’, and it appears that now Ferrari, Mercedes, Renault and Honda are lined up united and are refusing to be cowed by the threats of Bernie and Jean.

Marchionne is clearly leading the revolt, as he ramped up his rhetoric yesterday. At the traditional pre-Christmas Maranello press briefing he stated Ferrari would walk away from Formula One rather than have improper regulations forced upon them. “We would find other ways to express our ability to race and win,” said Marchionne. “It would be a huge shame [if Ferrari left F1], but Ferrari cannot be put in a corner on its knees and say nothing”.

He went on to point out the incompetence of the FIA by failing to include a Homologation date in the regulations for 2015, which then saw in season engine development allowed. But the Ferrari president advocates a simplification of the rules so that they are not, “interpreted by lawyers, but by engineers, as it was a few years ago.”

Marchionne also condemned the move to give absolute regulatory power to Todt and Ecclestone. ”It’s a choice we obviously do now share, because we believe that the development of the regulations should be done in a co-ordinated manner. This view is also shared by Mercedes and Renault. We spend hundreds of millions of Euros, so we are talking about decisions that should not be taken lightly”.

The head of FCA then issued a severe warning in regard to budget engines. “If we make Formula One like NASCAR, we [read all F1 manufacturers] would lose the advantage of experiencing on track solutions [for our road cars].

The Ferrari boss places the ball squarely back in the court of Ecclestone and FOM by concluding, “I understand very well the difficulties that smaller teams face, but this is something that FOM has to solve; it is not something Ferrari has to solve.”

Given that Jean Todt has conceded that the unrestricted development allowed in pursuit of his new green F1 engines should have been cost controlled, Marchionne’s position is understandable. Further, 10 FOTA teams warned Bernie Ecclestone that the cost of the new V6 Turbo Hybrids was of ‘grave concern’ and yet he chose to award the midfield teams and inappropriate share of the pie.

Formula One is clearly in crisis, and unlike any other Ferrari Supremo, if Sergio Marchionne threatens to leave the sport – he appears to actually mean it. And with him go Mercedes, Renault and Honda, leaving a single open seater championship powered by Jean and Bernie’s unicorn engine.

But be not deceived, this standoff has the makings of one of the most serious ever faced by Formula One. And the irony is that it is occurring under the watch of the FIA president who has consistently stated he seeks consensus.

21 responses to “Ecclestone/Todt play Russian roulette with the four F1 power unit manufacturers

  1. Forgive the question as I’m sure it’s been discussed to death at various points but….

    What are the obstacles to prevent the manufacturers upping sticks and creating Formula M and writing the rules/commercial deals themselves?

    Are there specific contracts that prevent them doing? Are there FIA licencing issues that would prohibit such a move? Would the EU regulations prevent such a grouping (I would have thought that the lawyers from the manufacturers could cobble together a legal alternative)? Are the circuits on the F1 calendar contractually prohibited from being used for such a breakaway? Are the drivers tied by the FIA in a manner that would prevent them driving for the breakaway?

    If they did form a breakaway surely the value of CVCs investment would fall drastically over a year or two, allowing the manufacturer group lead by Mr Marchionne to make CVC an offer they can’t refuse – a take it or leave it cut price bid to buy out F1 and restore the naming rights to the ‘pinnacle of motorsport’ and the contracts for the tracks still retained by FOM (take Monaco and Suzuka, they can keep Sochi :-))

    • That could may be work for the big boys, BUT the smaller teams don’t have the cash reserves so survive the turbulence your idea would cause over the 3 or 4 years minimum it would take to play out.

    • Exactly. The way I see it, there are two options.
      1) Extend the current PU regs past 2020 to allow the Manufacturers to recoup their costs.
      2) have FOM subsidize the cost to the customer teams.

      I have argued this with several people, and their response was why do Mercedes/Ferrari deserve more money? The truth is, both Merc and Ferrari budgeted their development based of the rules as they were written. You cannot fault them for wanting to stick to their budgets. If bernie/Todt want to change the rules, someone has to pay. Since the FIA doesn’t really have any money, it falls to FOM as the commercial rights holder. The easy solution is #2. We figure it would cost between 40-50 million dollars/euros so subsidize all the customer teams, which is less than 3% of the total revenue.

      To be fair, I think there is an argument to be made that customers should get engines for free, yes FREE. Why? Well the argument that the manufacturers made when the rule changes were being discussed, was that the PU needed to be road relevant, and that they were going to use F1 as a test bed to develop road technologies. So if the manufacturers are writing off F1 development as research for their road cars, there should be no need to charge the customers anything.

      But that didn’t happen. The FIA, Bernie, and the teams all agreed to the rules, and specifically took out the clause that limited the cost to customers as it was in the v8 era. Contracts have been signed, if Bernie and Todt want to rewrite the deal, someone has to pay. CVC has invested near ZERO dollars in the sport they own, and taken billions out. 50 million to save their cash cow should be a no brainer.

    • As The Judge mentioned, CVC consistently refuses to invest in F1.

      The only way for FOM to subsidize the road car manufacturers for their F1 engines is to have CVC sell their controlling share of F1 to an owner who thinks that is wise investment.

      Even if CVC were to sell F1, I’m not sure a new owner of F1 would find giving road car manufacturers a subsidy is a wise long term investment.

      As tourdog mentioned above, the road car manufacturers write-off the expense of F1 engines to R&D and marketing costs. At the same time the long-term revenue trend for F1 (FOM, the teams, the tracks, TV ratings, etc.) is going down, so it doesn’t make much sense to support the long term interests of the share-holders of Mercedes, Ferrari, and Renault, when F1 should focused on, and investing in their own business instead.

      Besides, reading between the lines, Ferrari indicates they’re ready to compromise.
      “Ferrari cannot be put in a corner on its knees and say nothing.” (AKA, “come, let’s talk together”.)
      “I understand very well the difficulties that smaller teams face…”
      “…we are talking about decisions that should not be taken lightly”. (Come, let’s talk.)

      But if Ferrari opt not to compromise, then F1 have a clean slate new engine available. It’s not only that the alternative engine would be the same power but more appropriately priced. Just as important, it appears likely that the engine will become the basis of the next gen of F1 engine regs. There are already 4 normal racing engineering companies interested in building such as engine.

      Perhaps it’s not a coincidence that Mecachrome would be one of these 4 companies ready to supply the next gen F1 motor. That indicates that it would be easy for Renault to stay in F1, even if Ferrari kill the turbo-compounding hybrid engines by failing to drop their prices. If the turbo-compounding hybrid leaves F1, I’m confident it would be easy for Ferrari to stay in F1 as well, despite the current wailing and gnashing of teeth by Mr. Marchionne.

      In any case, F1 must move foreward to bring themselves up out of this hole by reducing costs. Solving the problem of overpriced engines doesn’t solve all of F1’s problems, but it’s not smart to just watch F1 die when this action can help.

    • These PU’s exist for car manufactures to ‘improve their products’ and sell more cars. Shouldn’t they be the ones subsidizing the cost of the PUs??? I don’t understand why either Bernie or the teams should be the ones paying for it.

  2. I suspect it will be like last time, Bernie will be the one to blink if Ferrari flexes it muscles along with the other manufacturers. Unless it’s all part of a devious plan to buy F1 off CVC on the cheap by Bernie. I sometimes wonder if he regrets selling it to them and has been working flat out to get the price of F1 to drop so he can snatch it back.

    Other than legal and logistical challenges, there isn’t much stopping manufacturers from breaking away from FOM and the FIA to start their own series. However they are just as likely not to agree on anything as they do now so it might end in a farce. Bernie’s great advantage and skill is that he has been able to herd teams and the various manufacturers to the destination he’s picked out for the sport. Though it appears he’s lost his touch of late on that score.

    Sadly F1 will not be fully sorted out until Bernie is prised off the sport with a crowbar. Anyway I suspect Adam Parr (and a few others) will have the last laugh over Bernie in the long run.

  3. Aha! Now the comments about Alfa Romeo start to make sense. Maybe he’s thinking of re-branding Ferrari as Alfa Romeo. That way you have the 4 customer teams and no Ferrari.

    So in a way, the Ferrari name goes, but the team remains.

  4. I hope we all mistook Jean for a fool.
    And that he’s secretely devising a masterplan together with the manifactors.

  5. Just my slant on things.

    1. Bernie and Jean want back control of F1.
    2. So, force through engine rules, cost caps etc.
    3. Manufacturers leave.
    4. Share price drops.
    5. Bernie buys back F1 on the cheap.
    6. Bernie and Jean have back their control.

    Does that all really sound so implausible?

    Oh, and there is no-way I see Ferrari waving goodbye to their $100 million a year just for turning up!

    • OK, so 1-6 occur. The problem I see is getting to #7, as a result of #3. 7, Engines are extracted from a magician’s hat.

    • “Does that all really sound so implausible?”

      Yes.

      #5 (Bernie buys back F1) does sound implausible. The 3 or 4 buyers interested have indicated they may employ him, but I’ve not heard of BCE being an active buyer, or very interested in owning the enterprise again.

      #3 “Manufacturers leave.” Actually, it appears that the alternative engine would be the basis for the new engine regs, and there are 4 proper racing engineering companies that would likely give it a go with new regs open to competition. Is it a coincidence that Mecachrome is one of the companies? That suits Renault who want to be in F1 but at a more reasonable budget versus what the turbo-compounding hybrid require.

      Not only would it suit Renault, but it would make it easier for any other road car manufacturers to convince their boards of directors that supplying an F1 engine would be a reasonable endeavor. Particularly since they would also have the option to contract one of these 4 companies to have a badged engine in quickly and cheaply.

  6. Just another thought, since I really don’t like this 2 engine types rule in F1.

    The FIA/FOM should introduce a new rule into the sporting regulations which allows the FIA to distribute the engines to the works teams and their customer teams. The same principle as they use for tyres already, just applied to engines.

    So for example, say starting next season in Australia and using Mercedes to make this suggestion, 8 power units all rock up at the circuit on Weds/Thurs, and from there, the FIA then allocate a power unit to all the Mercedes teams for the weekend. The teams then hand that engine back after the weekend.

    If there is really no difference in the performance of the engines (as there isn’t/wasn’t supposed to be), no manufacturer can complain at the proposal. If they do, the first question is obvious, “why are you complaining when they’re all equal?”

    You can extend the same process to all the engine fluids, plus ECU and the software/electronics. If they’re all equal, it shouldn’t matter which you get, right?

    In reality, I still expect to see the works team beat the customer teams. After all, they built the thing and have the resource to throw at optimising the set-up over the weekend.

    As a result, much as with MotoGP’s switch to control electronics, the lap time gain between the works and customer teams wouldn’t be much more than a few tenths, much better than the 1+ second they have now, which in terms of the sporting spectacle for an F1 race weekend, can only be a good thing.

    At least in my view.

  7. For all Ferrari’s sabre rattling I’m not sure that they could afford to pull out of F1 since I seem to recall that their income from F1 from their flotation prospectus a few months ago was around $400m. The shareholders might not care much for loosing most of that from the balance sheet. Maybe Bernie thinks that too and will call their bluff. This could get very interesting, more so that the current racing.

    • When I saw their threat I chuckled a bit. I thought ‘Here we go again!’. It’s definitely a case of the boy crying wolf too often.

      • Massive difference between a Enzo Ferrari/ LdM run Ferrari to Marchionne’s leadership.

        The two aforementioned were focused on Ferrari. Sergio is one of the great business leaders in the automotive world.

        Since taking control of the FCA group, he’s turned around Fiat in 2 years from near bankruptcy to profit. He bought Chrysler from the American government with Presidential approved loans which were repaid in 2 years.

        Ferrari is the halo product within the FCA portfolio and Bernie is unlikely to scare the bespectacled boss.

        Add to this that Marchionne knew Todt when he ran Ferrari as their team boss etc and I’d wager that Sergio holds all the aces

  8. See if I read this article right….

    4 large auto makers have entered F1 as engine builders so they can develop new technology that can be passed along to their production, and leverage their activity via marketing to entice more customers.

    However these car makers seem to think their customer teams should foot the bill not only for the hardware and staffing (which is fair and reasonable), but apparently also have them help pay for this R&D and marketing used to benefit multi-billion dollar companies.

    Then ‘the Judge’ comes up with an alternative idea where Bernie should pay these customer teams more, so Bernie can subsidize the auto makers R&D and marketing. That is stupid, especially since Bernie would be happy to just use the V8s again and save everyone money.

    The FIA screwed up by not having a cost cap on PU fees pure and simple. But it wouldn’t be TJ13 reporting without pegging it on Bernie, who never wanted these PUs to begin with, who never asked for them, and who publicly predicted as early as 2011 the mess what the FIA and auto makers would create.

    Is TJ13 butt hurt from when Bernie put the clamp on media access to the Paddock Club?

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