With Italian carmaker Alfa Romeo increasing its involvement, Formula 1 will have four carmakers leading a team each for the first time since 2009
To win in F1 today, one has to throw money. And mostly, only car manufacturers can do that
Last week, when Alfa Romeo announced that its partner name in its Formula 1 team now stood erased, it made a statement for itself—and for Formula 1. The iconic Italian luxury carmaker, from the same Fiat stable as Ferrari, was essentially declaring it was here to stay in F1 after a toe-dipping exercise last year.
An equally significant statement that Alfa Romeo made was for Formula 1. Car manufacturers—who have had a tetchy relationship with this premier motor racing series—are increasingly, once again, game to invest their millions in F1. Teams in Formula 1 can be broadly divided into two categories: Car manufacturers (or factory teams), such as Ferrari, Mercedes and Renault, and non-car manufacturers such as Williams, and what used to be Force India.
Before the 2019 season, which begins next month, the last time that F1 had four car manufacturers leading a team was in 2009, before the Wall Street contagion swept through F1 (chart 1). That contagion swallowed four car manufacturers who had spent a few years and a few billion dollars trying to upend—mostly unsuccessfully—the established order in a motor racing series where money, technology and experience converge to create a great divide. Two of the departing manufacturers were Japanese (Toyota and Honda), one was German (BMW) and one was French (Renault).
Honda quit in 2008, after three years in the sport. Toyota and BMW left in 2009, after eight years and four years, respectively. And Renault, the only one among this set to taste some success, made a partial exit in 2010 after nine years: It stopped running a team, but it continued supplying engines to other F1 teams.
Besides the urgency to trim costs at a parent level, necessitated by the 2008 economic slump, a thread running through the four departing names was their inability to crack the winning code in a field of 10-12 teams. By the time they left, each was either a middle-field runner or was languishing further (chart 2). For prestigious brands like these, such pedestrian performance made for bad optics.
A decade on, the direction has changed. Renault returned to running a full-fledged team in 2016. Honda returned in 2015, but only as an engine supplier. Alfa Romeo entered last year as a title sponsor to the Sauber team. Now, without altering the ownership or management, Alfa Romeo has increased its involvement by extinguishing the Sauber name. Aston Martin, the British maker of luxury sports cars, is also testing the waters. But it is running into the paradox that is F1—it seeks new stakeholders, but it either ends up making it prohibitive for them to compete or difficult to make money.
Aston Martin joined F1 in 2018 as the title sponsor for the Red Bull team. It also expressed an interest in manufacturing F1 engines from 2021, the year from which the F1 governing body said it would revise engine specifications to make them simpler and cheaper. But now, the F1 governing body is inclined to retain the current engine specifications for longer, which tilts the scales towards incumbent manufacturers and is causing aspirants, such as Aston Martin, to revisit any move on expansion into F1.
As it is, smaller car manufacturers like Aston Martin have less financial room. In 2017, it posted revenues of £876 million. By comparison, at the height of its F1 adventure between 2002 and 2009, Toyota was reportedly spending between $300 million and $500 million a year.
For Toyota, that was a small change. In 2009, Toyota had revenues of $208 billion and a marketing spend of $15 billion. It’s only when, in the aftermath of the financial crisis, Toyota went from a profit of $17.1 billion in 2008 to a loss of $4.5 billion in 2009, did it pull the plug on something that wasn’t yielding the desired results on track—and, probably, also off it. According to Forbes, in 2016, the three top-spending teams were all car manufacturers. Behind them were the seven teams that were neither fully nor significantly owned by car manufacturers. Ferrari and Mercedes operated on budgets that were about four times that of the most frugal operations (chart 3).
Profits are elusive for F1 teams. Even an outfit as storied as Williams—seven driver and nine team titles, the last one though in 1997—has delivered negative shareholder returns in the past eight years (chart 4). Sure, there’s the return from branding and air time, but that is mostly the preserve of winning teams. To win in F1 today, one has to throw money. And mostly, only car manufacturers can do that.
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