Cutting costs the Honda way

19/11/2008
NEWS STORY

As most of the world's developed nations stand on the verge of recession, spending hundreds of millions of dollars to get two cars around a track 18 times a year seems pretty irrational. This is the big threat to F1 and one which has the sport's governing body, the FIA, working overtime.

Budget caps standard engines, you name it, the FIA has suggested them all to try to bring costs down. Last year it introduced a multi-year freeze on engine development in an effort to curb spending but if the latest financial results from Honda's F1 team are anything to go by it has had quite the opposite effect.

According to a recent report in the Financial Times by Pitpass' business reporter Chris Sylt, Honda's costs accelerated 21.9% to 147m in 2007- a record for any UK-based F1 team. Its closest rival over the last five years was Renault with overheads of 134.3m in 2006.

Revenues at Brackley-based Honda increased 23% to 149.3m last year but, according to industry trade guide Formula Money, a paltry 7m of this is believed to have come from sponsorship. This is because 2007 was the year in which the team introduced its radical logo-free 'earth car' livery. Almost all of the team's costs are thought to be covered by the Japanese car company which owns the team and it got a grand total of 6 points for its troubles.

The team's biggest cost is believed to be engine development and production but coming in close second is the spending on its employees. During 2007 Honda added 109 staff to give it a total of 667 - again more than any other UK F1 team. In contrast, this year's F1 world champion, McLaren has 570 staff and costs of 125.7m.

However, although Honda's staff numbers rose by 19.5% on 2006, total staff pay only increased 10.9% to 35.3m. The team's highest paid director, believed to be its chief executive Nick Fry, was paid 539,000 - a 5.7% increase on the previous year.

In addition to the investment from its ultimate owner, the net debt of the team's immediate parent, Honda GP Holdings, increased 27.2% to 43.3m in 2007. The team also burned through most of its cash in the bank taking it down from 8.3m to 450,000. It finished the year with a shareholder's deficit of 9.7m.

Nevertheless, the accounts state that Honda will continue to fund its team throughout the 2009 F1 season and its next set of results are likely to show even higher costs. This year former Ferrari technical director Ross Brawn joined the team as its new team principal and it is believed to be heavily investing in the KERS energy recovery technology which will be introduced to F1 next year.

Fry recently said "the budgets for the top teams are in excess of $300 million. While that is sustainable for a team like Honda, we recognise that others cannot compete at that level."

Just last month Williams revealed that it had burnt up net losses of 50m over the past two years and had trebled net debt to keep running. In contrast to Fry's increase in salary, Williams' owners, Frank Williams and Patrick Head took an 800,000 pay cut for the second year running. The team is the only one in F1 not to be owned by a billionaire or a car manufacturer and it will be eagerly awaiting the FIA's decision on how F1 will cut costs.

The FIA has put out a tender to produce a standard engine and this closed on 7 November. However, several car companies involved with F1, including Ferrari and Toyota, have suggested they may leave the sport if a standard engine is introduced. This would be highly ironic since the FIA's goal is to prevent the F1 grid from shrinking, but, echoing Fry's comment, the six teams owned by car manufacturers are actually the most able to continue competing in F1. The sport is only just beginning to navigate its way through the gloomy economy and it may well be a very different animal when it comes out.

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Published: 19/11/2008
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