Car News in India

For a sport that pivots around cars, Formula 1’s ability to draw and keep their manufacturers is cyclical and, in the current season, at its lowest in its 61-year history.

Just two of the 12 teams in what is the pinnacle of motor sport today are owned and managed by car manufacturers, Ferrari and Mercedes. A third manufacturer, Renault, has a part involvement, as an engine supplier to other teams. Contrast this to, say, 2005, when seven of the 10 teams were car manufacturers.

The 2008-09 credit squeeze made car manufacturers take a hard look at what they were getting in relation to what they were spending.

Amid acute business pressure, Honda, BMW and Toyota became manufacturers number 12, 13 and 14 to leave the sport following a failure to crack the brutal paradox of F1: winning makes teams financially viable; but to win, teams need to spend.

The savings were significant, given the economic backdrop. Take Toyota, which was the last car manufacturer to enter the sport, in 2002. It did so with a budget that matched veteran and frontrunning teams like Ferrari and Mercedes.

The company declined to disclose its budget, but industry estimates put it at $350-500 million a year. Part of Toyota’s budget was funded by sponsorships.

This strike rate would be becoming of a team eight years old. But it was considered a failure for Toyota given the money they were throwing. For a company that had revenues of $208 billion and a marketing spend of $15 billion in 2009, it was easy to bankroll its F1 operations for eight years.

But in the wake of the 2008-09 crisis, Toyota went from a profit of $17.1 billion in 2008 to a loss of $4.5 billion in 2009. In November 2009, it walked away from F1. “The commercial value is there if teams are successful,” says Hormazd Sorabjee, editor, Autocar India magazine. “But if they are not winning, it makes less sense. That is one of the reasons why Toyota and Honda pulled out.”

Another team that pulled out after the 2009 season was BMW, which had more success than Toyota in two stints between 1982 and 2009. The reasons for withdrawals did not dwell on not meeting performance expectations, but spoke, somewhat euphemistically, about wanting to go in another direction.