Maurizio Arrivabene, Ferrari, Melbourne, 2015

Ferrari vetoed cut-price engine deal over ‘business principle’

2015 F1 season

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Maurizio Arrivabene says Ferrari’s decision to veto a deal to reduce the price of F1 engines was motivated by business needs.

“We exerted our veto in compliance with our legitimate commercial right to do business as a power train manufacturer,” Arrivabene told an FIA press conference in Mexico. There’s nothing to add.”

Pressed to explain the team’s position Arrivabene asked: “Why I have to justify more? Here we are talking about commercial right.”

“We are not talking about budget, we are not talking about anything else. If somebody they are asking you, they give you a specification to produce Red Bull, OK you produce Red Bull in line with the specification.”

“And that somebody they are asking you ‘OK, we want to impose you the price of that’, what you are going to do? This is the principle. It is nothing to do with the rest.”

Mercedes executive director Toto Wolff said the situation was not “black and white” and he understood the concerns of Ferrari and smaller teams who are under pressure from high engine costs.

“As large corporations we work on long-term planning. It is part of the budget process, it is part of the [research and development] 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.”

“And Ferrari’s 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 takes away the commercial ability of refinancing.”

“Now you can say ‘well for a large organisation it doesn’t matter – couple of millions don’t matter’. But they do. It is how we are being set up, always trying to improve your result and optimise your organisation. And this is why it’s a discussion which we should have behind closed doors.”

“I think it is very important to understand that financial constraints of some of the smaller teams and we remain committed to cost reductions.”

Arrivabene sided with Wolff’s explanation, adding: “It’s not a position against the other teams, it is a position that is defending a commercial principle. Then for the rest we are open to find any other solution.”

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Keith Collantine
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  • 19 comments on “Ferrari vetoed cut-price engine deal over ‘business principle’”

    1. Good grief! Here comes the death of F1 as corporate bodies retreat to their ‘defence’ positions.

    2. The Mercedes and the Ferrari don’t want to race with the others.

      1. Because it’s got nothing at all to do with shareholders who have to be kept happy thanks to the way the business world works.

        1. The same shareholders that should be thrilled at all the extra millions Ferrari gets from F1 because they are Ferrari, on top of all the other money they get? And the same shareholders who should take great comfort in Ferrari’s veto power over the rules?

          To think Ferrari could have vetoed these ultra expensive power units but didn’t, because then they wouldn’t have something to hold over the competition.

          Yeah ‘business principle’ and ‘commercial rights’ sounds alright in principle, until one considers the business principle the other teams have to deal with in F1 where it is really Ferrari that runs the big boys club, and that club can’t seem to stand the concept of just being good corporate citizens, and is fine grabbing every million dollar bundle it can grasp until F1 is strangled.

          Not all shareholders want to see profit at any cost. Ferrari is highly profitable and I’m sure could figure out a way to make this work but they just don’t want to and would rather us believe they simply can’t. They obviously can do whatever they want, including, I’m sure, squeezing F1 for a few million more to counter lower unit costs for contributing to solutions to F1’s difficulties these days, rather than contributing to the problems by allowing these power units when they already knew of the financial strife in F1.

          1. To think Ferrari could have vetoed these ultra expensive power units but didn’t, because then they wouldn’t have something to hold over the competition.

            While there is some truth to that, the fact is that road car manufacturers will have to move to small-capacity turbo engines and hybrid systems simply to pass ever more stringent emissions regulations; by having the technology in F1, it pushes the development of that technology harder and faster than would happen otherwise. And Ferrari aren’t immune; they already have a hybrid hypercar, and the 488 is a 3.9 turbo instead of a 4.8 NA.

    3. It is a nice strawman. What the deal was supposed to do was to make it cheaper to make the engines because some parts and materials were standardised bringing the cost of making an engine cheaper. So sure the price of the engine would have gone down but so would have the costs of making them. But both ferrari and mercedes are so afraid of any competition now that they will use all tricks in their arsenal to avoid competing on the track. They are now in position with guaranteed p1 mercedes and p2 for ferrari that are just afraid to lose it.

      From their perspective they are both in perfect place. Mercedes can win all the future championships under this engine generation and ferrari can be safe in 2nd with occasional win. If the rules were to change or engines would be in any way regulated or standardised further it would only mean less guaranteed podiums for these two. This is especially true for ferrari who could face stiff competition from couple of teams that are now behind them.

      And now you can ask higher price for the engines so not only are you winning everything but you are making more money as well. Not to mention you can use the sold engines to adjust the competitiveness of other teams by making the engines other teams get little less powerful. And use your veto to make sure things don’t change for worse for you.

      1. What the deal was supposed to do was to make it cheaper to make the engines because some parts and materials were standardised bringing the cost of making an engine cheaper.

        And why would any manufacturer ever want to sign up to that?

        They want to showcase THERE technology using engines they design, develop & build. Asking them to run spec components will always be a non-started because thats not what there in F1 for…. Heck its not even what F1 has ever or should ever be about.
        If you start forcing spec components you limit development potential & the engine manufacturer’s are all in F1 & specifically wanted this engine formula to learn & develop new things. If they were just there to have there badge on an engine they would race elsewhere.

        Not even Indycar forces its engine manufacturer’s to run spec components even during the times it was running a spec chassis/aero package.

        1. The solution is already given: there must be an engine suplier who is not running as a team: there is an obvious conflict of interest when you can make expensive R&D rule and downsize your costumer power so that you both win an guarantee that the losers behind you will pay for your R&D. This is getting beyond pathetic. As for myself, I´m already enjoying more the perspective of EU stopping this farse than the obviously uncompetitive F1 racing. Of course, there is always other sports to get interested.

        2. There are already tons of spec components in F1. Having each team make their own car 100% doesn’t just make any sense and F1 has never even been about that. I mean just think about it. Having some spec components in the engine don’t prevent the engine manufacturers from showcasing anything at all about the current tech.

          What is there even to showcase about something carbonkevlarunobtanium little fidget inside the engine that nobody will never even learn about? It’s not like the engine manufacturers have even showcased anything about their engines except some vague efficiency numbers.

    4. I actually completely agree with them on this, Forcing a cap on how much they can charge for a power unit will end up with them making significant losses on every unit they sell & that will not only hinder R&D but could also put them off wanting to supply more teams as that would just increase there losses. It may even see them wanting to cut back the number of teams they supply.

      I feel for the small teams & agree that something needs to be done to help them, But putting the engine suppliers in a position where there losing millions on every engine they sell isn’t a viable solution in the long term.

      Something to look at here is Indycar, The price of engines there is capped & Honda/Chevrolet have been making massive losses & have been insisting Indycar find more engine suppliers to cut back on the number of teams they need to supply. Problem been that the cap is putting new engine suppliers off entering, Especially the independent suppliers who couldn’t afford to make the losses they would be making.

      http://www.autosport.com/news/report.php/id/110305

      1. Exactly. It’s like FIA and FOM are managed by people who lack any clue in running an actual business.

        If they had set the cost cap from the beginning then fine, but to first let the manufacturers pour hundreds of millions into their engine designs. They would like to recoup that through deals with customer teams. Then FIA/FOM come out and say “You know what, you can only charge customer teams half the price”.

      2. We’ve heard the unit cost is 750k euros @gt-racer, when they were talking about a 5th engine. For eight engines that’s 6m euros per season for a team.

        The manufacturers are charging 15-20m, so that’s a lot of development the small teams are funding, and their argument is that the car manufacturers get the value out of that for their own purposes.

        So I think it was a misuse of the veto. Teams don’t really have a free market choice of engine to drive the cost down with demand, they have to pay whatever they get charged.

        1. It is a free market. No rules prevent any team building their own engines. No complaints about engine supply until RedBull started it. RedBull can build an engine and sell it cheap if they want and any team can do the same.

          1. There’s a difference @markp between a market that’s free in theory and one that works in practice. Mercedes offered a cheaper older engine recently and there were no takers. The Renault unit actually costs more than the Mercedes one.

            Teams can’t swap power units based on price and so the manufacturers don’t compete on price. The price gets set on some other basis, and it’s a basis determined entirely by the suppliers.

    5. I agree with Ferrari on this. The engines used in F1 are very expensive because of the combination of high power, small size, light weight, fuel flow restrictions, energy recover capabilities, and maximum units per season requirements. If someone actually made a cheaper engine then the car it was in would fail to meet the requirements of F1, it wouldn’t be allowed on the starting grid. An F1 engine is almost as cheap as it can be. Someone might be able to make one slightly cheaper, but not substantially cheaper.
      The only way to make an F1 grade engine a “cheap engine” would be because someone, other than the team who uses the engines, paid part of the price of it, meaning it isn’t really a cheap engine at all, it would be a normal F1 engine with a “behind the scenes” cost, i.e. someone’s additional terms and conditions on it, besides the terms and conditions engine manufacturer normally requires.
      One of the problems with the “cheap F1 engine” idea is the omitting of who is supposed to subsidise the cost. It isn’t Ferrari’s responsibility to subsidise engines for other teams.

      1. Although I agree with your final point, ‘It isn’t Ferrari’s responsibility to subsidise engines for other teams’, I’d counter that by saying that it isn’t the responsibility of the smaller teams to subsidize Ferrari’s R+D to the extent that they are forced to. If the engines themselves only cost 6m for a full season, it seems ludicrous to me that that number is increased three-fold to 15-20m.

        1. If the engines themselves only cost 6m for a full season, it seems ludicrous to me that that number is increased three-fold to 15-20m.

          The turbocharger, MGU-K, MGU-H, ECU and battery cost money too; that’s what the other 14m covers.

          1. @raceprouk Really? I assumed the 6m figure was for the whole package? As I type, Sky have just said Jean Todt wants the cap to be 12m, so if you’re correct that means Todt is asking the teams to sell at a loss? They’re definitely talking about the whole package, not just the ICE

            1. IIRC, the 6m figure applied to the old V8s; with all the extra stuff packaged with the V6s, 15m-20m isn’t all that far-fetched.

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