Honda’s exit from F1: Crisis begins to hurt

Honda’s exit from F1: Crisis begins to hurt

Formula One (F1) faces a shrinking grid. Honda Motor Co. on Friday said it is quitting the F1 racing championship after 44 years in the sport.

The Tokyo-based auto maker said it must protect its core business amid the rapidly collapsing global auto markets.

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The exit of Honda has a lot to do with the pain it’s taking as the global car market rapidly deteriorates. But it is also a worrying verdict on the economics of F1 motor racing.

Honda’s departure may not be a one-off. It will give beleaguered rivals such as Toyota Motor Corp. and BMW Sauber an excuse to make tracks.

Formula One is the world’s most expensive sport: performance is closely correlated to investment. Teams that can afford to splash out on the best engines, engineers and superstar drivers tend to take podium spots.

But in a sport that’s as much about when you change your tyres as how much you spend, there is still some risk to the return. Honda put in a dismal performance last year finishing ninth, in spite of having one the largest budgets, of around €200 million (Rs1,270 crore).

Unsustainable costs: Honda’s Formula One team boss Ross Brawn (right) with his team in the UK. The company’s exit has a lot to do with the pain it is taking as the global car market rapidly deteriorates. Max Nash / AP

The top four teams—McClaren, Williams, Renault and Ferrari—are each understood to generate up to €40 million annually from deals with the likes of telecom firm Vodafone Group Plc. and AT&T, Dutch bancassurer ING Groep NV and the national carrier of the United Arab Emirates, Etihad Airways.

Yet Honda’s departure should underscore how serious a threat the global financial crisis poses to the sport’s future.

All car makers will be under shareholder pressure to review their F1 commitment after global car sales fell 45% in November. Corporate sponsorships will also be aggressively renegotiated amidst a crunch in global marketing spending.

“Honda’s intended withdrawal from Formula One has confirmed the FIA’s (Fédération Internationale de l’Automobile) longstanding concern that the cost of competing in the world championship is unsustainable. The global economic downturn has only exacerbated an already critical situation," the International Automobile Federation said in a statement.

F1 needs to adapt. The sport in its present form unduly favours teams such as Ferrari, which are supported by the cash-rich Abu Dhabi state-investment vehicle Mubadala Development Co. Its governing body has already aired controversial suggestions such as introducing standard engines, and capping team budgets.

Such reforms do change the sport, but would help level the playing field financially. Honda’s departure should add some urgency to its thinking.