Saturday, December 27, 2008

F1 Cost Containment Proposals for 2010

As part of the omnibus agreement with FOTA from early December, there are further cost containment proposals for 2010. While we can examine the details of these proposals, it is important to note that this fall's exercise has shown that while F1 regulations do not exactly change on a dime, they can change over any given three week period. Therefore anything we look at now is purely speculative and subject to change.

Proposed changes to power train regulations:

• Engines will be available to the independent teams for less than €5 million per team per season. These will either come from an independent supplier or be supplied by the manufacturer teams backed by guarantees of continuity. If an independent supplier, the deal will be signed no later than 20 December 2008.
• This same engine will continue to be used in 2011 and 2012 (thus no new engine for 2011).
• Subject to confirmation of practicability, the same transmission will be used by all teams.

Developing a new engine is expensive, no matter what the formula. FOTA is currently floating the idea of a "low cost, but not standard, turbo engine" for 2010 and beyond; obviously the specifics have not been decided yet.

While engine development freezes sound good in theory, in practice you end up with some engines better than others, and if they are frozen you end up either with a huge demand for the better ones or rules fiddling like what is happening to the "frozen" Renault engine for 2009.

Changes to chassis rules:

• A list of all elements of the chassis will be prepared and a decision taken in respect of each element as to whether or not it will remain a performance differentiator (competitive element).
• Some elements which remain performance differentiators will be homologated for the season.
• Some elements will remain performance differentiators, but use inexpensive materials.
• Elements which are not performance differentiators will be prescriptive and be obtained or manufactured in the most economical possible way.

This is all very vague at this point, whether or not it is actually practical or workable is all dependent on the details. The last thing we want is a "spec" formula where all the cars look essentially the same except for their sponsor colors.

For race weekends:

• Standardised radio and telemetry systems.
• Ban on tire warmers.
• Ban on mechanical purging of tires.
• Ban on refueling.
• Possible reduction in race distance or duration (proposal to follow market research).

Standardized communications systems are a good thing, but probably not that expensive since most teams probably purchase their gear off the shelf as it is.

Tire warmers are something that the FIA has gone back and forth on. The actual warmers themselves are not expensive in terms of the amounts of money being thrown around. The drivers claim that the warmers are a safety issue, as driving around on cold tires can be more dangerous, but on the other hand F1 drivers got on for decades without them.

No refueling -- hooray! -- I've always thought that refueling was more an attempt to show that there was strategy at work, in an attempt to get TV watchers thinking about the race rather than just mindlessly following along. With its removal, maybe we can go looking for sub-four-second pit stops again, that would be great to see.

Factory activity:

• Further restrictions on aerodynamic research.
• Ban on tire force rigs (other than vertical force rigs).
• Full analysis of factory facilities with a view to proposing further restrictions on facilities.

More general rather than specific suggestions. Again, the problem with restrictions on the factory operation is the question of policing and enforcemetn.

In general, though, these proposals should see sharper cost reductions for 2011 and 2012, once the costs of developing the new engines has been sorted. The devil, as always, will be in the details, as well as the willingess on the part of some teams to spend money that they have in ways which are not anticipated (and therefore prevented) by the regulations.

Tuesday, December 23, 2008

F1 Cost Containment Proposals for 2009.

After much drama, the FIA and FOTA have come to some agreements regarding rules changes for 2009 and beyond. It is hoped that these changes will reduce team expenditures by up to 30%, more for independent teams.

Changes to engine rules:

• Engine life to be doubled. Each driver will use a maximum of eight engines for the season plus four for testing (thus 20 per team).
• Limit of 18,000 rpm.
• No internal re-tuning. Adjustment to trumpets and injectors only.
• The three-race rule voted on 5 November remains in force.
• Cost of engines to independent teams will be approximately 50% of 2008 prices.
• Unanimous agreement was reached on a list of proposed changes to the Renault engine for 2009; all other engines will remain unchanged. Comparative testing will not be necessary.

There's a little inconsistency where they say that "engine life will be doubled", which implies four races from the current target life of two, and "the three-race-rule" which implies three races. At this point I'm still waiting to see something which is clear.

Policing the use of engines for testing will be a lot easier with testing limited to Friday afternoons. It may improve the Friday show at the tracks, since teams will now have the incentive to do their running then, since other avenues are denied them; however depending on how fragile the engines turn out to be it could lead to hoarding of engines early in the season, or a lack of running at the end of the season due to a shortage of engines... and no further reason to run testing. This is one rule which could have an effect on what happens on the track.

I'm a little undecided about the changes to the Renault engine. While the Renault engine is probably down on power compared to some, it did win two races this year. Allowing changes at this point opens the door in future years to official meddling when other engines prove to be uncompetitive...

With regards to testing:

• No in-season testing except during race weekend during scheduled practice.

This alone should save the teams a metric buttload of money.

Aerodynamic research

• No wind tunnel exceeding 60% scale and 50 metres/sec to be used after 1 January 2009.
• A formula to balance wind tunnel-based research against CFD research, if agreed between the teams, will be proposed to the FIA.

Wind-tunnel testing is another area which becomes a money pit. It does mean that teams which have invested in large facilities will suddenly find that they are not permitted to use them as designed, and I suspect policing this rule will be rather difficult.

Factory activity

• Factory closures for six weeks per year, to accord with local laws.

It'd be nice to have six weeks a year off; I am clearly in the wrong business. It is hard to predict when the teams would choose to take this time (if it is optional). Would you shut down the factory during the season for a week in between some of the more widely-spaced events (especially now that in-season testing has been banned)? Or perhaps a block of time after the end of the season before the rush to get the new car delivered -- although there are no restrictions on testing in the off-season, making this potentially very valuable time indeed.

Race weekend

• Manpower to be reduced by means of a number of measures, including sharing information on tires and fuel to eliminate the need for “spotters.”

Making the tires visibly distinctive makes it easy to see who's wearing what tires. And eliminating refueling (from 2010 on) takes the guesswork out of fuel load -- either they have enough to get to the end of the race, or they don't.

Sporting spectacle

• Market research is being conducted to gauge the public reaction to a number of new ideas, including possible changes to qualifying and a proposal for the substitution of medals for points for the drivers. Proposals will be submitted to the FIA when the results of the market research are known.

This is basically a carte-blanche for the FIA to fiddle with anything else it cares to under the guise of "sporting spectacle". My views are that the medal system is nonsense, and that single-lap qualifying was the best format that has been tried so far.

Taken as a whole, though, a couple of deep money pits have been removed, and the teams should seem some savings through 2009. Whether or not this will be reflected in reduced spending is another question. I personally think that the only way to effectively reduce the team's expenditures is to reduce their budget -- if they have the money, I'm pretty sure that they will find a way to spend it.

Thursday, December 11, 2008

Renault interested in FIA Standard Powertrain?

Autosport is reporting that there are five expressions of interest in the FIA's standard powertrain on offer, and that one of them is Renault.

The other four are the two Red Bull teams, Williams, and Force India.

This would leave Ferrari, BMW, Toyota as "total package" manufacturers, while McLaren gets their engines from Mercedes.

The offer of standard engine packages is attractive to the non-manufacturer teams, especially when you consider that the standard will also be a reference, in that while manufacturers will be permitted to build their own versions of the reference engine, their versions will not be permitted to exceed the reference version's capabilities in any way. This will put the independant teams on an equal footing as far as powertrain goes, and will be at least an equal footing to the other teams if not an outright performance advantage.

I still don't understand why a car manufacturer would want a standard engine, even if it does come unbadged. Anyone who knows anything about Formula 1 will know which teams get the standard engines, and badging this one a "Renault" won't fool anyone.

Teams which build their own engines will not have development costs spread over multiple teams, so they will end up spending more to end up with an engine which at best is at parity to everyone else's.

Engines are one of the few areas where race technologies might still have an influence on real-world products. To deny the manufacturers this area of development devalues Formula 1 to potential participants.

Wednesday, December 10, 2008

Honda Not Quite The Steal You Think It Is

Why so negative Mr President?

Surely it would be better to be positive and to look at the fact that Honda is a brilliant bargain for a car manufacturer that is in less trouble than some of the others, particularly if the plan is for major cost-cutting in the future.

There are two problems with what's left of Honda's F1 team.

First, while there have been lots of promising noise in the press about Honda's prospects for 2009, the majority of those noises have been coming from the Jenson Button boosters club in the British press. The fact of the matter is that Honda has not been very successful of late.

Secondly, and relatedly, the 2009 program was based partially on developing in-house engines. With Honda bowing out, the new buyer will either have to take over the engine program, or make alternate arrangements; and there just may not be engines available. Neither option seems particularly conducive to short-term success. An engine is a huge part of a Formula 1 car -- the car is designed from the beginning to take a particular engine. One can't just unbolt one and then bolt a different brand in.

The takeover of Honda cannot be compared to the takeover of Jaguar by Red Bull. Red Bull's first year was flattered by the fact that they were working with the inertial from the previous year, and the "Ford" engine was really a rebadged Cosworth engine, and Cosworth was happy to continue to provide motors. Red Bull's inconsistant performance (or perhaps consistantly mediocre performance) is more telling of the new organization's potential.

If the team were to be taken over, they would be looking at a poor 2009 while they tried to get things lined up properly to attack 2010, probably with the "off the shelf" powertrain currently on offer from the FIA.

Monday, December 8, 2008

Formula 1 Deadpool

Here is how things look so far:

BMW, Mercedes, Renault, and Toyota have all announced that they are still in.

Honda is out.

That leaves Ferrari, Red Bull/Torro Rosso, Williams, and Force Inda as "undeclared".

Ferrari is easy. Unless there is some serious schism with the FIA, Ferrari will be in. History shows that the schism would have to be pretty severe, as Ferrari and the FIA have always found a way to live together in the past.

Red Bull/Torro Rosso is also pretty easy. While it may be premature to call this one, I will predict that Red Bull will try to sell Torro Rosso over the winter and then shut it down at some point through the 2009 season when such a sale proves to be impossible in the current environment. The parent team is good through 2009, but if things don't turn around both on the track and in the economy at large it too is at risk for 2010.

Williams is harder to predict. On paper they are vulnerable. They are tied to another manufacturer in Toyota, who may or may not find it cost-effective to continue to provide engines. Their long term sponsorship deals are all with companies which will be hurt in the downturn. However Frank Williams and company are very resourceful and have been written off before. This one is too close to call.

And finally Force India. I really don't know much about the ownership structure, or the culture of ownership of the team. "Indian Billionaire" is such an odd description for a team owner. I can't say if the ownership is capable of weathering such an economic storm.

So in conclusion: Honda gets shut down over the winter; Torro Rosso gets shut down before the end of 2009. And next winter we get to look at Red Bull and Williams as the weak links if the economic climate doesn't improve.

Saturday, December 6, 2008

The Future of Forumula 1

So let's review how the business of Formula 1 looks for the next year, shall we?

  • Formula 1 lost its last foot hold in the highly desirable North American market when Canada was priced out of the running.

  • Formula 1 lost one of its originating countries when France decided they could not afford to host an event.

  • There may, or may not, be a change to replace drivers points with a "medals" system.

  • China may, or may not, be renewing their contract when it is up after 2010.

  • Honda, a major world manufacturer, is (most likely) out. The world economic slowdown being what it is, the prospects of finding a well-financed buyer is rather diminished.

  • Torro Rosso's future is in doubt.

  • The FIA has announced that Cosworth, Xtrac, and Ricardo Transmissions will provide complete powertrains (engines and transmissions) for Formula 1 starting from 2010.

(Leaving aside the issue that the new aero package makes the cars look ugly.)

The future, bluntly, does not look bright. Formula 1 is turning its back on traditional tracks and markets, fleeing to areas where governments and organizations are willing to pay top dollar to host an event. Nothing wrong with that in the short term, economics and capitalism being what they are, but by doing so Formula 1 runs the risk of alienating traditional western fans. These fans are used to following the racing around the world partly on the premise that the tour comes to their country (or, in Europe, a country close enough to make a trip to see the event an affordable prospect).

Removing the incentives of visits to desirable markets, plus removing the ability to showcase their engineering talents by mandating a "stock" powertrain unit, leaves one to wonder how long the manufacturers will continue to be involved. Why would Mercedes, BMW, Toyota, Renault, and Ferrari want to put their logo over someone else's work?

There is also the problem with the show, wanting this "medals" system to determine the driver's championship. Looking at the recent past, such a system historically would have only changed one year's champion out of the past twenty or so -- the last one, where Massa would have had more victories to Hamilton's. The proposal will also return the sport to the situation where the driver's championship is wrapped up by August, diminishing international interest in the ending races.

All these together represent a diminishing in sponsor value. If people are not watching, then the sponsor gets a lower return on their sponsorship -- unless the amounts of money involved in sponsorship drop similarly. If this happens, there will initially be a "flight to quality", where the top performing teams have the benefit of the available funding, and this will only put further pressure on the rear of the field, squeezing out some the under-performing teams.

If a manufacturer wants to put their sporting efforts into a formula where engineering skills are permitted to be applied in a more interesting area, they very well might leave for other formulas -- perhaps back to sports cars.

Regarding finance, I have always said that the problem with Formula 1 isn't that (say) Ferrari spends (say) $200 million a year -- the problem is that Ferrari has $200 million a year to spend, and shows a profit (both on the track and financially) by doing so. Mandating that teams can not spend money in certain areas does nothing to remove the fact that Ferrari has the financial resources, and if it can spend money in an area even for only a marginal advantage over teams which cannot afford to spend money, they will continue to do so.

Putting this all together, Formula 1 is risking becoming a "spec" racing series, where teams go an purchase the components off the shelf and put together a package. The problem with this is that it might become "yet another" spec series, one with high participation costs for low returns.

It would be mildly ironic if the FIA achieves their goal of reducing spending in Formula 1 by basically strangling the life out of it.