Why more manufacturers will follow Honda out of F1 (Ben Evans column)

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Will other manufacturer teams follow Honda out of F1

Earlier this week I asked if Honda’s F1 pull-out would be a one-off or the first of many. Guest writer Ben Evans sees more manufacturer withdrawals in the near future.

So Honda is F1’s first credit crunch victim having, in the space of 12 months, gone from two F1 teams to none. Surprising? Well not really. The first of several? Too right.

I have been increasingly concerned about the high levels of manufacturer support in F1 for some time. Six teams – Ferrari, Toyota, Renault, BMW, McLaren (Mercedes money) and Honda – are all to a greater or lesser extent governed by global car manufacturers.

Excellent, except that car companies have shareholders, and shareholders like to see tangible returns, not 100-200m departing into the ether to back an F1 team. In a world where dividends talk most and sales are declining an F1 team looks like an unnecessary expense, which it is. Whereas the likes of Williams go racing for the love of going racing, Honda go racing to sell Hondas, and F1 is an increasingly precarious place to do that.

Honda’s plunging balance sheet (like those of all car manufacturers) is largely a result of the diving US market. This is where the sales happen and this is where the profits are made. A bid US advertising push is what’s needed which 5 years ago with Indianapolis and Canada on the calendar was ideal. In 2009 it looks a little different – I cannot see a single person in the US sitting at home watching the Bahrain GP (at 4am) seeing the Honda tooling round in 17th place thinking ‘I gotta get me one of those’. Let alone 200m’s worth.

The bottom line is that for the teams F1 works well as a sporting spectacle, less well as a marketing exercise. As it is most F1 teams’ sponsorship deals usually come about because of serendipitous co-incidence – such as the team that got an 80m deal because the MD took a fancy to one of the PR staff – rather than being part of a global strategy from the sponsors themselves.

Let’s be honest, how often have you popped down the shops to buy product x because you saw it on the side of a racing car? In my case, not a lot. Given that I’ve been watching racing since I was three I should be smoking 200 a day now, while yapping on my Vodafone and banking with Santander.

The link between F1, the manufacturers and business is pretty boring because ultimately it detracts from what’s happening on track. However in 2009 it is likely to become the key issue as manufacturers pull out or dramatically reduce their investment.

The major plus side of all this is that we may see some more pure privateer ‘race’ teams in F1 and if some of the rumoured Honda buyers materialise then it could be very exciting. Hopefully the FIA and other teams will encourage the sale of the team to keep 20 cars on the grid.

Motor sport at all levels is the ultimate luxury pastime, from the weekend warriors right through the highest echelons, everyone goes racing because of a substantial financial indulgence somewhere along the line. But 2009 is not looking good as a year of monetary benevolence and it seems very unlikely that Honda will be F1’s only casualty. For the manufacturers it will be extremely difficult to justify thousands of layoffs where the combined annual salaries come to less than one weekends’ operating budget for the F1 team.

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Ben Evans
Motorsport commentator Ben is RaceFans' resident bookworm. Look out for his verdict on the latest motor racing publications on Sundays....

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19 comments on “Why more manufacturers will follow Honda out of F1 (Ben Evans column)”

  1. I have seen a number of people saying that Honda F1 was a “victim of the credit crunch” now. This is probably true, but as you touch on, let’s not forget Honda’s terrible performance the past few seasons. As you say, watching a Honda driving round in 17th place is not going to be helping to sell cars, US recession or not. Honda are as much a victim of their race results as they are of the credit crunch.

  2. I think Ben Evans’ reasoning has several holes in it. One has already been mentioned by Tom: it’s their continued sporting inadequacy much more than anything else that placed them in such a precarious position. Would Honda’s CEO have decided to scrap the F1 team had they been one of the top players?

    Running a F1 team is not equal to “L100-L200m departing into the ether”. They get value back for their investment. Oh, you say Honda couldn’t? Their green campaign plastered on their cars wasn’t profitable enough? Too bad. Then why didn’t they sell the livery to sponsors (as the more rational option)? As opposed to Honda, Vodafone, Santander and many other companies still find value in F1.

    And the ageless argument that with all those ads on the cars and around, you’re still not using Vodafone and bank with Santander. BS. Advertising and marketing does not work in such a direct way. It builds familiarity and trust, and when people face several equivalent choices, it might tip the balance in favor of a trusted brand for a significant number of consumers.

    Honda’s decision is a result of the sporting and business incompetence of their F1 operation added together, much less a failure of F1.

  3. You’re mixing up the difference between advertising and brand-building.

    As a tool to help build global brands, F1 is still very good value for money. No other branding exercise can get that much global exposure and association with a glamorous high tech sport for so little.

    F1 sponsorship is not about convincing you to buy a particular type of washing power next time you are at the supermarket – it is there to build positive associations with a particular brand.

    Who cares about the US market anyway – the growth will happen in the East during the next ten years, and F1 never had a realistic chance of surpassing other high profile events in North America.

  4. HounslowBusGarage
    11th December 2008, 9:15

    Good article, and I agree with you Tom. It would have been a lot more difficult for the Honda board to take the decision to axe the team if they were regular front-runners.
    With the results being as they were, I suspect Honda viewed the teams as an expensive embarrasment that they were only to pleased to get rid of.

  5. The teams are not racing purely for a marketing brand building point of view. The manufacturer investment in racing is also for the rapid research and development of new car technology.

  6. Good article Ben.

    You are spot on that there is limited value to having your brand all over the side of an F1 car. I suspect that like many sporting sponsorships, it has more to do with the need of CEOs to feel cool and hang in the paddock club.

    I mean, imagine if the Premier League only allowed fans on one side of the field and the other was for rich buggers and flunkeys to stand with their back to pitch ignoring the game and trying to look cool.

    Obviously it is only our sport which is so keen to screw over the fans.

  7. One of the problems is that F1 sponsorship shifted from cigarette brands to financial services – and now the financial services are in trouble. However, despite their huge spend in F1, the banks claim it has been very effective:

    “ING and Santander both say that they consider that their sponsorship of Formula One has given them coverage that far exceeds the equivalent advertising spend” (http://chiefofficers.net/888333888/cms/index.php/news/motorsport/f1_sponsorship_not_as_good_as_in_the_bank)

    I’m sure that all sponsors will reduce their F1 spending and many will pull out, but that won’t be enough to send another team under. Only a manufacturer pulling the plug on its own team will do that.

    Honda pulled out because their F1 campaign was an expensive failure.

    The five other manufacturer backed teams by contrast were the top five finishers in the constructors championship. Honda were ninth, beating only Force India and their own short-lived B team.

    No other team will drop out before Melbourne 09.

  8. @John, just read the article you included the URL to and found it very interesting reading.

    What was highly entertaining was the letter in reply from Mr Francisco Fernandez…


    ps. I agree entirely with the view that had Honda been producing consistent results the likes of BMW or Renault, and had they a more normal sponsorship package, we would have seen them on the grid in 2009.

  9. Good article Ben, but I’m afraid I totally agree with MJ4.

  10. Honda’s decision to go “green” (no sponsors) put them into the deep “red” they could no longer justify.

    Their earth car was also the result of their inability to rustle up real sponsorship due to their crap performances on track.

    Regardless of world economics I think Honda would have left the sport sooner rather than later. Even Ross couldn’t have pulled their fat out of the fire.

  11. I mean, imagine if the Premier League only allowed fans on one side of the field and the other was for rich buggers and flunkeys to stand with their back to pitch ignoring the game and trying to look cool.

    Obviously it is only our sport which is so keen to screw over the fans.

    These days most football fans think they’ve been shafted by the Premier League, the cost of going to a match these days is ridiculous & it’s almost impossible to get tickets for the top 6 teams.

    The timing of matches for TV is also a big problem.

    When you see what’s happened to Old Trafford, the new Wembley & the new Emirates stadia then you see almost what you’ve described except that it’s those around the middle tiers who are all drinking and talking without watching the game, especially the corporate boxes.

    The underlying problem is the corporatisation of major sports, we’ve only really got Williams left as the real racing team, all of the others are part of big multinationals.

    Racing teams live to race, corporations live to make a profit – the two are sometimes compatible, but not always.

    So far Bernie & Max have been happy to get the corporations involved because they’ve been able to milk them for hundreds of millions but we’re now seeing the downside to the arrangement, when the bottom line suffers the sport loses it’s importance to the CEO’s & shareholders.

    Who knows who will be the next team, manufacturer or sponsor to go but it is inevitable that some will and if it’s not managed properly it could end up bringing the sport down.

    Whether this is a good or bad thing is debatable, can’t remember who said it on here recently but I agreed with them that maybe the sport collapsing & then being reborn in a more sustainable & fan focused formula may be a good thing in the long term.

  12. Manufacturers have always come into and gone out of F1 when the markets dictated. Honda leaving can hardly be a surprise. Apart from the Super Aguri saga Honda had a team in the 60s and then left. They built the best engines in the sport in the 80s and left. Now they have done it again.

    The only difference this time is Max and Bernie encouraged the manufacturers to buy teams with the (insane) hope of them maintaining their presence ove the long term. As a result when Honda left the first time no-one missed them because they were just another not very good constructor. When they left the second time McLaren had poor engines for a couple of seasons. This time they are taking 10% of the cars on the grid with them.

    Renault’s history mirrors Honda’s but has always lagged behind it. They had a team in the 70s and into the 80s which introduced turbos and then they left. After Honda’s closed their engines business Renault took their place as the best engine supplier until the walked away again. So I would not be remotely surprised if Renault walked soon.

    Teams should be owned by racing people and not car manufacturers. If the car manufacturers want in they should supply engines and drive trains and not much else.

    Honda’s departure also proves that Max’s rhetoric about making F1 more road relevant is window dressing and lies. If it was true Honda could not afford to leave. Clearly Honda feel that they can develop the technology they more efficiently without being involved in F1.

  13. Mark,

    Who cares about the US Market? How about those of us who are proud to live and work here, for starters!?!?

    I refuse to start a political discussion here, but regardless if you like it or not, the U.S. is a global leader in almost every aspect, and this remains the number one market for almost every service that is seen in sponsorship in F1- most of all, auto sales.

    As for F1 not catching on here, I will be the first one to stand up and say that it would be unrealistic to expect F1 to top NASCAR, the NFL, or any other major American sporting brand in terms of TV viewing or other measures of popularity. However, that dosen’t mean that the sport can’t be very successful here and have tremendous potential for the brand promotion you speak of. If you want to assess blame for the failure (to date) of F1 to catch on here, perhaps you should talk to Bernie about his numerous bad comments regarding the US market, as well as his outrageous fees that have forced both races in North America off the schedule.

  14. Now that the above rant is concluded, back to topic….

    Very good article Ben- I remember dismisisng your prediction a few weeks back in the season review of teams pulling out as nonsense- shows how much I was thinking then! I also appreciate your value of the North American market- something the F1 powerbrokers seem so keen to throw away.

    In the case of Honda, I must agree with some of the above comments that if the team was sucessful and operating at or near the front of the grid, than they would possibly not be pulling out. Second, I do also believe that Honda took a bold but perhaps foolish approach by “going it alone” without major sponsorship- not only from the financial aspect, but also from the fact that it left them with no partner with which to promote their F1 outfit, limiting the aspects for promoting the team beyond the operations of the company.

    On a final note, I must laugh at those who feel the lack of tobacco sponsorship is part of the financial challenges seen in F1 today. As a dedicated non-smoker, I take great delight in not seeing tobacco adverts plastered all over the F1 world, and can tell you that if McLaren still had Marlboro or West as title sponsor, then I would have never purchased any of the team gear I have collected over the past year or so. Tobacco sponsorship, thank God, is a dying business the world over- F1 and other sports have done well in moving away from it, and that’s the way it should be.

  15. “On a final note, I must laugh at those who feel the lack of tobacco sponsorship is part of the financial challenges seen in F1 today. As a dedicated non-smoker, I take great delight in not seeing tobacco adverts plastered all over the F1 world”

    Yeah, not having the tobacco money is good, but its hard not to look at the sport and still think it’s without dirty money. The cash that comes from sketchy governments in China, Bahrain, Singapore and Malaysia are good examples. Also, brands like vodafone or shell or even the car manufacturers themselves aren’t really selling anything neccesary – to think any corporate sponsor or multinational is squeaky clean is wishful thinking.

    I think the point made earlier, that nobody needs to go racing is well taken. This sport is a massive waste of money (I love it just the same), so I think this crisis has been a long time coming. As long as the sport is still what it is and I still want to wake up at 7am on a sunday morning to sip coffee and watch the european races, I’m willing to sacrifice some of the technological whatevers and big money deals that have made the sport what it is since the 1970s

  16. Tifosi Dude,

    Indeed there is plenty of what you call “dirty money” in the sport: those government funds that get pumped into races in Asia and the Middle East have created a model that is forcing out GPs in North America and Europe. My tobacco stance is purely a personal opinion about an issue that, to me, is a moral issue affecting health and wellness standards. I am happy that any sport I watch is free from tobacco sponsorship- I can’t tell you how disgusted I got, even as a little kid, when the “Winston Cup” would roll into town at Pocono- it is much more refreshing now to hear about the “Sprint Cup” in the local media.

  17. My tobacco stance is purely a personal opinion about an issue that, to me, is a moral issue affecting health and wellness standards. I am happy that any sport I watch is free from tobacco sponsorship

    Before I start I want to make clear I respect your opinion & this isn’t in any way a personal attack, although it is a bit off topic.

    McDonnalds have several racing & other sports teams covered in the Golden Arches, as do Mars, Cadbury’s, Ben & Jerry’s & a very long list of other unhealthy food makers. Heart disease, diabetes & obesity are far bigger killers than cigarettes.

    Playboy and other pornographers have also used sport to advertise themselves, the Pit Girls are bad enough but come on, Playboy ?

    The Banks are the most corrupt organisations in the world who profit from dodgy deals & ruining peoples lives.

    Vehicle emissions have also been proven to contribute to many cases of cancer, both the British & American medical researchers have published several papers in recent years documenting the correlation between your exposure to exhaust fumes & your chances of getting cancer.
    Living next to a set of traffic lights or a busy junction on a busy road increases your chance of getting cancer dramatically compared to someone who lives on a quiet cul-de-sac (don’t know if you call them this in the states, imagine a horseshoe of houses with the open end entering the road).
    There are several reasons that this research is not widely debated in the mainstream press that we don’t need to go into now.

    There has also been some research showing that some people in Asia & South America who smoke as much as Westerners but do not get cancer anywhere near as often as their Western counterparts. These people all have one thing in common, they live in areas that do not have permanent roads & very rarely see a motorised vehicle.

    While I do not deny that smoking can increase your chances of getting cancer or other related diseases I feel that the crusade against smokers & cigarettes is getting a bit silly.

    The propaganda being pedalled by some anti-smoking organisations is as bad, if not worse, than some of the propaganda put about by the cigarette companies years ago.

    As I said, I’m not trying to start an argument or p*@s you off. I just don’t think the ban on tobacco advertising makes sense considering the other things that advertise using sport.

    Apologies to everyone else for having to read such a long winded rant, I assure you all I am seeking professional help for it :~)

  18. when I was shopping around for a bank I strongly considered ING. It felt like ING was a friendly European bank in USA, and one that has an interest in F1. So yes, seeing a company in F1 builds tat brands image. It won’t make you run to the dealer and buy a Honda, but it will stick in your head and come out when you are deciding what car to purchase next.

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