Honda Withdrawl from F1

[mogwai]

Originally Posted by Moneyseeker

Been an interesting year for FOM and their investors have they have seen how vulnerable F1 is global conditions, not owning any circuits themselves and now manufacturers pulling out leaving teams without engines.

I have always said that FOM/Liberty will never make the return on F1 that BE/CVC did and I still believe that. In order to protect their investment...

Buy their own circuit so they will always have a base for races/testing and where they could develop an European F1 experience - Liberty are in the entertainment inudstry aren't they - and then you would have a tangible asset, not just a load of contracts that as this year shoed, can be proved to be worthless.

Edited to the bits which are really ********. No offense intended but here is why that is not how things work in the real world.



Tangible assets. Entertainment companies are NOT tangible asset companies. Their revenues are not generated from holding anything other than contracts to supply entertainment. It may include some hard assets (ala Bernie owning paul ricard) but those hard assets are NOT the primary drivers of revenue for any entertainment company unless you're someone like Disney (they are a media company and diversified so not the best example) or a theme park. However, look at how Six Flags struggles during years when we DON'T have a pandemic and you'll see, entertainment firms relying on hard assets are not a good mix. The actual revenue driving assets are the contracts and the sales and hard assets for an entertainment driven company are an inefficient use of their resources.


The Dallas Cowboy's, for example, do NOT own the stadium they play in. That's a fools investment and that is why big investments like that are, in the developed/non-totalitarian world, are public/private partnerships.



For another consideration think of these tangible assets in terms of Silverstone or the Nurburgring or COTA. Hard assets such as these are NOT what an entertainment company should be investing in as the return on these assets are a drag. This idea that own tracks can generate any meaningful return on the capital is simply incorrect.

Regardless of what you think Liberty should or should not do, fact is the firm has a massive catalog of assets and complex arrangements which relied upon debt and debt refinancing. Their liquidity runway was adequate for this year though clearly there were concerns about the financing burden on their coverage.



And speaking of return for Bernie, consider the fact that when Liberty bought F1, the brand was burdened with +3B in debt...that doesn't seem like a wise use of funds either.



Hard assets aren't the solution...racing is the solution.


Good article at Forbes from earlier in the year if you'd curious. Chris Sylt is spot on in his analysis. https://www.forbes.com/sites/csylt/2.../#483c69af66e6


Everything else you said was fine

[Knowlesy]

Cyril is certainly underperforming. Let's take a look at that 2022 plan:

Fernando Alonso on board.

An actual engine to use.

Chassis finally starting to progress.

More improvements to the factory.

You can almost smell the fear in Milton Keynes. I wouldn't be surprised if they folded the team to save face.

[Richard C]

Sad news for both F1 and myself as I am a long time Honda fan.

Originally Posted by Moneyseeker

Sounds like quite a sudden Honda board decision to me, probably the people that RBR deal with at Honda day to day had no idea either. I doubt RBR had that much advance warning.

It might be sudden, but I think it's not exactly shocking. Just look back to news around the end of 2019 start of 2020, and Honda was on the fence about continuing even then. They did commit to at least 2021, but beyond that was a big question mark. With Honda clearly stating that their direction and the direction of F1 power units were not in sync.

Originally Posted by Moneyseeker

As the engine regs are stable for the coming years - would make sense for Red Bull to buy the engine project from Honda - bring in a Cosworth or Illen to develop and run it. Would give them control, would enable them to try and get on par/or an advantage over their rivals.

What is an F1 engine project, it is about money - if you have the fundng you can recruit the best people, develop the best product. Red Bull has plenty of money, it would safeguard it's F1 future.

Originally Posted by Moneyseeker

Could be the case, IIRC Mechachrome was Briatore wasn't it, but in this case do we think Honda would want to commit resources themselves even if RBR was paying unless it could be a Mugen run programme that RBR badge themselves.

Originally Posted by steve_r

The Mugen Honda / own branding option seems possible.

Originally Posted by Casper

The PU is so complex the idea of Illen or a similar company being involved is not feasible. Honda are pulling out for just that reason so for an external supplier to make a go of it the motor will have to be be far simpler than at present.

I agree with Casper. I am dubious of someone just taking the Honda unit and picking up from where they left off. Be it a partnership of Mugen or taking the technology to Illen, or any other small scale bespoke racing engine provider, I just don't think it will work.

I see lots of challenges to overcome.

If you take the entire thing and take it elsewhere, then that is not just the basic IP of the current solution, but a ton of data and internal institutional knowledge as to "how" and "why" it works. Is Honda going to put a price tag on that? Could they even transfer that knowledge to someone if they wanted without providing long term support? Honda may even have some level of secret sauce IP that they don't want to let out of the house even if they don't plan to immediately use it. Or maybe they will patent it as keeping it secret no longer is needed (with no guarantee someone else could use it in F1). Even then, these power units are probably so complex (and supply chain related items so deep) I just wonder if someone could take the solution and shift it over and continue to produce new examples let along develop it.

As to Honda partnering with someone (such as Mugen) be the face, but Honda continuing the work behind the scenes and having someone else foot the ongoing operating and R&D cost. That could happen if this was purely a financial question and Honda was just tired of spending the money, but still liked the direction. While the money required is for sure a concern at Honda, I think the real issue is as they say. They just don't think F1 currently (or in the future) is in sync with their corporate strategy! So in that situation, they will want to redirect those internal resources away to focus on their strategy. They will have little interest (even if someone else pays the bill) to keep their internal F1 team together. Plus, they rotate staff in/out. They will want those people to go forward and be part of other internal initiatives.

Originally Posted by Akrapovic

Good. The F1 engine market needs to completely collapse in on itself so we can remove the power from the big manufacturers.

Yes. The manufactures have pushed for costly and complex units which means that only large manufactures with deep pockets are able to finance the R&D needed. Even then, nobody has been able to really push beyond what Mercedes has done. The recent changes to engine modes has hurt Honda as much as anyone (and left Mercedes still on top).

Originally Posted by steve_r

Correct me if I am wrong, but I think that the 2022 engines will be the same as the current generation ones.

I believe the current regulations will be good through 2021 only (which is as deep as Honda will commit). That there are discussions on what will happen 2022 and beyond. With the current expectations it will be broadly based upon the current regulations (1.6L turbo V6) but without the MGU-H system. The MGU-K would remain.

I applaud the move to simpler solutions. But I frankly think they are not going far enough and should move to a more commodity solution and to do away with the power unit arms races. Would this mean some type of controls to limit performance? Probably. I assume it would be mostly done via VERY tight regulations with some occasional BoP type of things (I know, I know). The problem is that the discussion is lead by the manufactures so they are looking for a sweet spot in complexity that is good for them, but would not be good for someone like a Judd, Cosworth or Ilmor.

On the surface this seems contrary to manufacture involvement. But rather what it does is allow manufactures to create their own versions of a relatively "spec" power unit and reap marketing benefits (as they do in other series that runs this way). But clearly it would not be a particularly challenging engineering experience. Some manufactures would not be interested, some would. But what would also be part of this would be the ability for small suppliers such as Judd, etc. to provide competitive engines.

It also would allow someone like Red Bull to build their own engine. If I was Red Bull, and I wanted to remain in F1, I would press HARD for much more simple engine regulation for 2022+ that would allow them to eventually build their own engine. A basic non-turbo ICE that did not rely upon current levels of combustion efficiency plus maybe a more commodity hybrid solution. They could either hire away people from established player or just buy one of them. And that solution wouldn't have to be 100% focused on F1. It could continue to service other series as well.

One last comment... Since Eddie Jordan is so good at predicting things, why wasn't the F1 sites flooded with quotes by him saying "Honda about to leave F1!"

Richard

[gert]

Short term Red Bull does seem to have a problem. The Autosport article suggests the decision was only taken recently, well after RB and AT signed up for an extended stay in F1.

Mercedes already has 3 teams now, and will have 4 next year.
Ferrari has 3 teams, now and next year.
Renault has 2 now but only 1 team next year (their own)

So, Ferrari nor Mercedes are obliged to deliver engines if they don't want.
And why would they?
I doubt Mercedes would be happy to supply a direct and strong competitor. Even if Red Bull-Mercedes wins, Mercedes still loses.
Ferrari have enough trouble now, and just like Renault they have been treated badly by Red Bull before. I seem to remeber they said "never again" back then.

So that leaves Renault, who can be obliged to supply engines.

[steve nielsen]

Ferrari vetoed the 4 cilinder engines, that was the reason it became a V6

[chillibowl]

Originally Posted by Richard Casto

If you take the entire thing and take it elsewhere, then that is not just the basic IP of the current solution, but a ton of data and internal institutional knowledge as to "how" and "why" it works...

but this is what they essentially did with their chassis IP when they basically gave it Brawn and Fry.

granted an engine may be closer and dearer to their heart then the chassis IP was.

[GT6]

Honda do it again, seem to remember this happening before, F1 needs to think carefully before they act, but they need to do something if they want to avoid this happening again.

[Moneyseeker]

Originally Posted by mogwai

Edited to the bits which are really ********. No offense intended but here is why that is not how things work in the real world.



Tangible assets. Entertainment companies are NOT tangible asset companies. Their revenues are not generated from holding anything other than contracts to supply entertainment. It may include some hard assets (ala Bernie owning paul ricard) but those hard assets are NOT the primary drivers of revenue for any entertainment company unless you're someone like Disney (they are a media company and diversified so not the best example) or a theme park. However, look at how Six Flags struggles during years when we DON'T have a pandemic and you'll see, entertainment firms relying on hard assets are not a good mix. The actual revenue driving assets are the contracts and the sales and hard assets for an entertainment driven company are an inefficient use of their resources.


The Dallas Cowboy's, for example, do NOT own the stadium they play in. That's a fools investment and that is why big investments like that are, in the developed/non-totalitarian world, are public/private partnerships.



For another consideration think of these tangible assets in terms of Silverstone or the Nurburgring or COTA. Hard assets such as these are NOT what an entertainment company should be investing in as the return on these assets are a drag. This idea that own tracks can generate any meaningful return on the capital is simply incorrect.

Regardless of what you think Liberty should or should not do, fact is the firm has a massive catalog of assets and complex arrangements which relied upon debt and debt refinancing. Their liquidity runway was adequate for this year though clearly there were concerns about the financing burden on their coverage.



And speaking of return for Bernie, consider the fact that when Liberty bought F1, the brand was burdened with +3B in debt...that doesn't seem like a wise use of funds either.



Hard assets aren't the solution...racing is the solution.


Good article at Forbes from earlier in the year if you'd curious. Chris Sylt is spot on in his analysis. https://www.forbes.com/sites/csylt/2.../#483c69af66e6


Everything else you said was fine

You no doubt will have seen that Liberty has announced it's investment in Meyer Shank Racing, or in other words a tangible investment....

[hoffman66]

Just shows that F1 is relatively unsustainable in the current market when a company that came in relatively recently, just ups and quits.

[TrapezeArtist]

Dear Regie

You know we have always been very impressed by your engines and would love to use them again in 2022. We're sure you understood all those little jokes we used to make a few years ago about the engines not being so good. My, how we laughed!

Lots of love
Dieter, Helmut and Christian
XXX

[Moneyseeker]

Originally Posted by mogwai

Edited to the bits which are really ********. No offense intended but here is why that is not how things work in the real world.



Tangible assets. Entertainment companies are NOT tangible asset companies. Their revenues are not generated from holding anything other than contracts to supply entertainment. It may include some hard assets (ala Bernie owning paul ricard) but those hard assets are NOT the primary drivers of revenue for any entertainment company unless you're someone like Disney (they are a media company and diversified so not the best example) or a theme park. However, look at how Six Flags struggles during years when we DON'T have a pandemic and you'll see, entertainment firms relying on hard assets are not a good mix. The actual revenue driving assets are the contracts and the sales and hard assets for an entertainment driven company are an inefficient use of their resources.


The Dallas Cowboy's, for example, do NOT own the stadium they play in. That's a fools investment and that is why big investments like that are, in the developed/non-totalitarian world, are public/private partnerships.



For another consideration think of these tangible assets in terms of Silverstone or the Nurburgring or COTA. Hard assets such as these are NOT what an entertainment company should be investing in as the return on these assets are a drag. This idea that own tracks can generate any meaningful return on the capital is simply incorrect.

Regardless of what you think Liberty should or should not do, fact is the firm has a massive catalog of assets and complex arrangements which relied upon debt and debt refinancing. Their liquidity runway was adequate for this year though clearly there were concerns about the financing burden on their coverage.



And speaking of return for Bernie, consider the fact that when Liberty bought F1, the brand was burdened with +3B in debt...that doesn't seem like a wise use of funds either.

By contrast in the UK, most premier league football teams own their stadium, it moght be through associated holding or limited companies, but the clubs own the stadiums, it is their home, the emotive and tangible attachment their supporters have to their club.

Hard assets aren't the solution...racing is the solution.


Good article at Forbes from earlier in the year if you'd curious. Chris Sylt is spot on in his analysis. https://www.forbes.com/sites/csylt/2.../#483c69af66e6


Everything else you said was fine

To add to my other post, the point I was albeit poorly making, is that the Honda withdrawal on top of Covid is another example of how things outside Liberty/FOM business control can compromise what they have actually bought. With no teams or teams without engines they have NO business.

This is my point, this yes they are in the business of supplying entertainment, but F1 is not showbiz, you cannot simply hire another act if your star turn drops out. With the greatest respect, you can create an entertainment venue more or less anywhwere from a sports stadium to a patch of grass. But you can only run F1 on an FIA circuit, with teams capable of building cars and engines on their own business model and priorities and actually with a superlicenced driver to drive it.

I suggested them buyng a circuit as a European base to create a complete F1 experience - Europe is where the heart of F1 is, not the Middle East. Have the fallback to run their own races if need be - protecting their investment. That is buying one low risk asset, not relying on hard assets, I am not suggesting any more.

Seeing what happened this year and bearing in mind your enertainment product can only run on a relatively limited number of venues, is it not prudent to at least own pne of them yourself to insure your entertainment can run, somewhere?

IF Mercedes and Renault were to pull out of F1, Liberty would have no business, their bits of paper would be worthless.

Essentially, Liberty relies on other global companies, to provide their 'entertainment' or product and one of the biggest global companies in the world can no longer see the value in the 'product' for them, that is another story of the day and actually it is amplified by the number of other global brands that didn't beat a path to Chase Carey's door to sponsor F1, which he has already said surprised them.

But as you say, F1 is a mere pimple in Liberty's portfolio and they will brush it aside, do some more wooden dollar swapping between companies and carry on regardless.

I still maintain that Liberty bought F1 at the top of the market, the golden era financially had peaked. Unaccoutable regimes throwing public money at F1 are more or less over, global companies prefer digital reach to F1 billboards and F1 cars and the car manufacturers themselves are spending all they have to meet ever approaching carbon free, EV targets and the race to stop being legislated off the road with the added rider that people learning to drive (in the UK certainly) is falling all the time, so their future customers are not there either.

Others disagree, but Honda as just told F1 it is no longer relevant, it's not part of their carbon free future or marketing.

[chillibowl]

Originally Posted by Moneyseeker

Others disagree, but Honda as just told F1 it is no longer relevant, it's not part of their carbon free future or marketing.

Thats the real headline here right!

[Richard C]

Originally Posted by chillibowl

but this is what they essentially did with their chassis IP when they basically gave it Brawn and Fry.

granted an engine may be closer and dearer to their heart then the chassis IP was.

I had typed a larger reply to this and swear I posted it, but it seems to be gone. Regardless, here is a slightly shorter version.

I think the Brawn chassis aero, while brilliant, was significantly less complex than the current power units. Teams also are already geared up to design, build and deploy chassis/aero solutions. So that was an easy transition.

Having someone hand you a current F1 power unit and say "good luck" is likely to not go well. You would need to be someone who already understands how they work, plus have the supply chain and infrastructure to not just reproduce what has been given to you, but improve upon it. That list is probably small if not zero (unless you area an existing manufacture such as Porsche)

Also, we are talking about the 2014-2021 specification. Which Honda will continue to provide RBR/AT with. This really is about what happens in 2022 which will be a new specification. Yes, it is likely to be a simpler evolution of what we have today, but make no mistake, those engines will be all new, because they are currently optimized for the current regulations. And the new regulations will drive new optimizations. The point being this is about a totally new engine and less about taking Honda's solution and running with it. But who knows what the 2022 power unit regulations will be? Maybe they will kick the can down the road and keep on with the current specification? But I can't see Ferrari agreeing to that given their current situation. They are probably more interested in rolling the dice on a new specification than continuing on with the current one.

Richard

[Richard C]

Originally Posted by chillibowl

Thats the real headline here right!

Frankly that is correct. That is the bigger story.

Richard

[Akrapovic]

Decouple F1 from road car development in the same way that sailing and horse racing are no longer relevant to their commercial industries.

[helgi]

Managers on the march. They just want to sell "a fresh product". EVs and PHEVs are as carbon neutral as ICEs, because power suppliers depend on coal (30% in Japan) and gas (38% in Japan). And hydrogen can be only worse than that - because of amount of energy need to get an equivalent of 1 liter of petrol.
And I have no problem with manufacturers leave racing completely - it just what sport needs to revive. Will be less "prestigious" but way more fair.

[Richard C]

Originally Posted by Akrapovic

Decouple F1 from road car development in the same way that sailing and horse racing are no longer relevant to their commercial industries.

Yes. However can the F1 community swallow the implications of that.

Richard

[P38 in workshop]

Originally Posted by chillibowl

Thats the real headline here right!

Has anybody else seen the lengthy promotional videos for the Japanese enthusiasm for hydrogen derived energy on the news channels recently?I do wonder if there might be a hydrogen powered Le Mans car coming from Honda now they have decided the Formula 1 programme has run it's course.

[Akrapovic]

Originally Posted by Richard Casto

Yes. However can the F1 community swallow the implications of that.

Richard

Yes. F1 does not, and has never, needed big motor manufacturers running factory teams to survive. When you look down the history of the sport, the times it was most popular (not arguing better - just popularity) were times of McLaren, Williams, Lotus, Benetton etc. Ferrari is the obvious outlier in this, but they're not a normal factory operation anyway.

[GT6]

Hydrogen powered cars are coming and the future may lay along that path, but we do not know how things with pan out at the moment, electric cars may be getting good PC advertising at the moment but we see how it goes.

[wolfhound]

Renault willing to supply the Red Bull teams with power units. However as yet there has been no contact.


https://www.autosport.com/f1/news/15...onda-withdraws

[mogwai]

Originally Posted by Moneyseeker

To add to my other post, the point I was albeit poorly making, is that the Honda withdrawal on top of Covid is another example of how things outside Liberty/FOM business control can compromise what they have actually bought. With no teams or teams without engines they have NO business.


Seeing what happened this year and bearing in mind your enertainment product can only run on a relatively limited number of venues, is it not prudent to at least own pne of them yourself to insure your entertainment can run, somewhere?

IF Mercedes and Renault were to pull out of F1, Liberty would have no business, their bits of paper would be worthless.

Others disagree, but Honda as just told F1 it is no longer relevant, it's not part of their carbon free future or marketing.

Good points and I think I get what you're saying. Someone posted a little further down was that Honda effectively told F1 that they didn't feel F1 had a future. It's interesting they say that when Merc just committed that F1 had a future. I put money on the German's getting it right, especially considering the company was able to successfully put feet in both the "green" and the "non-green" camp. Honda couldn't successfully execute and the board got tired of the "spend" necessary.



To your point though, nope. Owning a hard asset isn't a good use of their capital. Hard assets aren't an efficient use of capital unless they are required by the business environment, like a theme park. F1 can, even in lean times as shown by this year, run at venues owned by other parties who have taken on that risk. It's a wise choice from a business perspective to "rent" the tracks periodically from companies which have already borne the risk of those assets like silverstone, imola, etc. No need for Liberty to take on those costs with limited returns.


Also, Liberty Media is only now beginning to monetize the massive IP of historic video and races. That is something that the prior owners were simply not interested in nor capable of doing and yet, as we have seen with the Netflix special, there is a massive revenue opportunity there.



You are probably correct, Merc and Renault leave there may be less appeal and business risk. I would suggest though that is why this is a multiyear contract sport...and why the Concorde Agreement signature was so important. That's the commitment and exit clauses are expensive.



FWIW, these guys are rather robust business people. It's not like they simply looked at Bernie's sale price and negotiated from that. it's a bit of armchair quarterbacking to think that. Despots throwing money at F1 was not and, I suspect, Liberty thinks that is not a long term strategy. They will go to their core audience, and honestly despots be damned.


Liberty will have seen this as an effort to grow the business at a rate which is greater than their cost of capital. Maybe 10% a year? Maybe 8% a year? On top of that, drive the teams to increase their net worth along the way...by the way, Mercedes know this as well. Probably Red Bull (ala Detreich Matechitz) knows this as well. This is, imo, all about cost of capital and conservative estimates of future growth and in a period of massively low interest rates, simply refinancing the outstanding 3B in debt at a lower rate make them money.

[steve nielsen]

Originally Posted by GT6

Honda do it again, seem to remember this happening before, F1 needs to think carefully before they act, but they need to do something if they want to avoid this happening again.

not just in 2008, also in 1999 when they had a HRD car in testing designed by Harvey Postlewaite, running a serious testing program with Jos Verstappen and looking very promising in testing , but then decided to only supply engines to BAR after Postlewaite died.

[TrapezeArtist]

Originally Posted by GT6

Hydrogen powered cars are coming and the future may lay along that path,

That’s what my university thermodynamics lecturer told me. In 1972.

[Akrapovic]

Originally Posted by TrapezeArtist

That’s what my university thermodynamics lecturer told me. In 1972.

Hydrogen cars are like nuclear fusion. Always 10 years away.