Graham Keilloh  |    |   0  |  28 January 2016

The engine cost deal - too good to be true?

If you’re one based in the UK you’ll likely be aware of those Government information films that appear occasionally in TV commercial breaks. Drive carefully; drugs are bad; don’t start fires, that sort of thing. Back in my university days I recall they used to be concentrated overwhelmingly in broadcasts in the tiny wee hours of the morning (thus offering a glimpse into my nocturnal habits as a student), indicating presumably that no actual commercial entity would get much utility trying to sell stuff to those like me still up for some reason at 3am. But one – warning against financial scamming where people were hoaxed into believing they’d won a competition – resonated with me more than most of the others. And not just because it was voiced by the late and legendary John Peel. Its concluding message? If it seems too good to be true, it probably is.

This thought has been somewhere near the front of my consciousness in recent days, ever since the reports of the sudden ‘peace for our time’ resolution on the lingering issue of F1 power units and their associated costs. That which had been manifested by the supplier manufacturers charging teams around double – perhaps more – than was the case back with the pre-2014 V8 spec as well as them having the potential to lock even one of the sport’s most haughty teams out of the game.

And I don’t believe too many saw the peace for our time coming. We had appeared to have reached an impasse – between two vast power blocs loosely of the same manufacturers versus the sport’s governors. Neither wanted to budge.

But in that grand F1 tradition it wasn’t actually about engines, just as the infamous FISA/FOCA ‘war’ of the early ‘80s was not actually about underbody aero rules. A lot like then the matters at stake were the sport’s two perennial preoccupations of power and money, as explained by Christian Horner for one. “You've got a much bigger issue than the engine” he noted in Brazil. “This is about who controls Formula One, the a catalyst”.

On one hand you had the formidable figure of Ferrari’s Sergio Marchionne, the Fiat CEO who in 2014 appointed himself Ferrari president – of whom we noted in a previous column that ‘bruiser’ is a polite description. With the other manufacturers by his side they envisaged a sport that they would control via their importance as engine suppliers. Alongside this an upshot of Marchionne’s accession, Ferrari’s uncoupling from Fiat and subsequent flotation – and a few other things besides – was that Marchionne was on Ferrari’s behalf keen to extract as much lucre out of F1 as possible.

And on the other hand you had the about as formidable Bernie Ecclestone, who wanted the power (and claim on the lucre) back, and with the suddenly-conspicuous Max Mosley he began to plan. Towards the end of last season he got FIA President Jean Todt on board too – Todt’s motivation was less clear but rescuing the hybrid formula that he’d grown to like as well as ensure F1’s sustainability seems most likely. And they started to play hardball. First off proposing a €12m per season cost cap, that Ferrari exercised its notorious veto in response to. Then in what appeared a classic Mosley move – threatening something unpalatable in order to get movement on what you want – suggested an independent, you might say dumbed down, ‘budget’ 2.2l twin turbo V6 engine which teams would be able to use instead of the current spec in an equivalency formula, and interest from independent suppliers was sought. With this dangling over them the manufacturers were sent off to do some homework to come up with a better solution.

Yet sight should not be lost that the manufacturers have been pumping all sorts of investment into the sport’s engine production under its existing spec. Mercedes even with the demand on its kit and top dollar prices still has required a subsidy of something like £100m from the main business over the past two years with Renault needing something similar. Niki Lauda claimed indeed late in 2015 that with the proposed €12m cap Merc would not even be able to cover its costs. Little wonder that Marchionne vetoed the idea, and that the manufacturers fancied greater say more generally.

There seemed nearly no prospect of resolution, and then we got the brinksmanship. In addition to the Mosley-esque play Ecclestone and Todt in December received a ‘mandate’ from the World Motor Sport Council “to make recommendations and decisions regarding a number of pressing issues in Formula One such as governance, Power Units and cost reduction”. Many insisted this was an empty threat as teams would have taken legal action for going outside of the agreed rule-making protocol that is written into their contracts. Bernie nevertheless insisted in turn he’d “win easy” in such a dispute. Not everyone agreed.

Marchionne sure enough responded in kind, confirming during Ferrari’s media Christmas lunch that the team’s participation in the sport after 2020 – when the current deals end – was in doubt, stated that “nobody would be interested in Formula 1 without Ferrari”, speculated about Ferrari engines being used in a rebadged Alfa F1 effort (assuming someone else paid for it) as well as added elsewhere that FOM (i.e. Bernie) should pay for the mooted independent engine.

It was a stand-off and there appeared not the slightest prospect of any of the champion gun slingers flinching.

But after months of proceeding through impenetrable murk without so much as a sliver of light all of a sudden we were enveloped by the stuff.

According to those widespread reports, following a meeting of the Strategy Group and then the F1 Commission in Geneva pretty much everything I’d advocated, however wistfully, to resolve the problems is coming to pass: the fundamentals of the power units remain but we are to have a cost cap from 2018 apparently of €12m per season, around half the prices quoted routinely in 2015 and not far off either what the V8s used to set teams back. Cost savings from common parts as well as from reducing the gearbox limit for the season from five to three. And some sort of guarantee of supply to all F1 teams. What’s more they promise the engine spec will remain untouched through to the end of 2020. Hosanna.

That’s the problem this time. There are too many players – and too many extremely powerful ones – for whom it’s not obvious what they’ve got out of this.

So why am I not smugly content at all this? Well to take us back to the sage Mr Peel, it seems too good to be true – is it?

Just as with Neville Chamberlain returning from Munich clutching the Anglo-German Declaration in September 1938 declaring peace for our time (not the oft-misquoted ‘peace in our time’ pedantic fact fans), is the peace for our time here not what it’s cracked up to be? Deferring problems for not long later?

Despite appearances sudden and unanticipated outbreaks of sanity are not unheard of in F1, almost like after however long of their habitual blinkered pursuit of number one all suddenly and collectively look out and spot the precious vase of the sport as a whole teetering on the edge of a table top, and consider what they’ll stand to lose if they allow it to fall and smash. Indeed that was a lot like what happened with the swift lifting of the fog of the FISA/FOCA war mentioned. Then for years there seemed nothing to be done; the sport was in deadlock and some said even if all could be got to agree the mooted remedies would not work. And yet small yet sensible changes were pushed through almost literally overnight in the 1982/83 close season and the previously most obtuse operators did no more than grumble to themselves while adapting. “Perhaps sanity did prevail after all; perhaps people really did care about the future of the sport and the image it presented” mused Maurice Hamilton incredulously afterwards.

Just as in 1982/83, while a solution seemed nowhere near this time the required changes also were deceptively ‘small yet sensible’. And if there was any source of comfort as the 2015 season ended it was that the sense that things couldn’t go on as they were was near enough unanimous.

Yet there were differences back then compared with now. One is that both sides got roughly what they wanted, indeed had since the Concorde Agreement was agreed prior to the 1981 season – FISA the rules; FOCA the deals. The upshot of the FOCA-aligned teams’ boycott of the Imola race in 1982, albeit haphazardly reached, was that the same FOCA teams would accept FISA’s rules and decisions, however grudgingly. Plus the dividing line of interests separating the largely turbo-powered FISA-aligned teams and the Cosworth-powered and therefore more ground effect-reliant FOCA teams had got blurry. Brabham (Bernie’s own indeed) already had a BMW turbo in the back in 1982 while Colin Chapman had inked a 1983 deal for Renault engines, and this was a tipping point as almost everyone else followed in fairly short order.

And that’s the problem this time. There are too many players – and too many extremely powerful ones – for whom it’s not obvious what they’ve got out of this.

On one level both camps have walked away with something. The manufacturers have seen off the budget engine – which as outlined is probably the reason it was dangled in the first place. They do not now have the prospect of independent suppliers leaping over the top of them on pace; of losing the R&D benefits of the current unit; of having to spend developing a dumbed down unit of their own.

The other side has got its cost saving it said it was after. Todt can be content that the hybrid formula stays and the sport’s sustainability is greatly aided, at least for now in both cases.

The big loser in all of this in fact appears to be Red Bull. Its engine ‘crisis’ rather brought this matter to a crunch point; the team clearly was in the Bernie et al camp, to the point that some speculated that the ‘crisis’ was in fact a set-up designed to bring the manufacturers to heel. It was also clear from the pronouncements of Horner and others that it rather fancied the new alternative spec budget engine, seeing it presumably as a means of leaping back to the front. Well whether that was the case or not you could say that it was all worse than useless for the team. No budget engine anymore; no guarantee of a good engine either (only of an engine). And thanks to the latter move it also cannot now try to establish some leverage by using not having an engine as a reason to walk from the sport, as it mooted plenty in 2015.

As also explained though this wasn’t actually about engines or costs really. Not as far as the head of each competing beast was concerned. Marchionne, that bruiser again, also appears to have got little, indeed we’ve ended up roughly with the outcome that he vetoed last autumn. Mark Hughes argued however that: “it’s believed that in the detail of what was ratified…there is enough cost saving to the manufacturers that Marchionne can suffer no loss of face”. Perhaps; the devil often is in the detail after all. It seems impossible that he simply folded.

Then there is Bernie. Of course, no one’s ever got rich deciphering what his endgame is on anything but just like Marchionne on the face of it he’s got nearly nothing that he was pushing for. The current engine spec which he appears to view derisively remains (though at least some pumping up of the volume awaits this season coming) while he doesn’t get the simpler engines with more independent suppliers that he was advocating. Is he happy simply to have got one over on the manufacturers for now? Given that likely was his big aim then yes quite possibly he is.

But there is another unresolved matter in this, that even when the dispute was at its height many looked at with certain trepidation: that end of the 2020 season mentioned when the current commercial deals end. Not by coincidence you’d think when this current peace settlement is due to end also. What then? Will all simply take up again? It would explain why some rather prestigious people were happy to let things go this time.

[Is this] only a ceasefire with hostilities resumed at an already identified date? That manoeuvring and trash talking in advance of will be upon us before we know it? Sadly it looks possible. Perhaps probable.

As James Allen says taking up the story, “two things linger: first the threat from the manufacturers after 2020 to flex their muscles in negotiations with the F1 commercial rights holder (currently Ecclestone and CVC Capital Partners). There is concern that Sergio Marchionne of Ferrari, Dieter Zetsche of Mercedes and Carlos Ghosn of Renault, see a pathway for a post Ecclestone post CVC Formula 1 and will form an alliance to bring that about. That threat has not gone away, even if this current skirmish has now been headed off”. As Hughes noted too the threat of the manufacturers walking and setting up their own series – implicit throughout this dispute – will become very real then too with no contracts to bind them to F1. And what will the cautious, consensus-driven Todt do then? Will he again hold firm with Bernie?

So no peace for our time? Only a ceasefire with hostilities resumed at an already identified date? That manoeuvring and trash talking in advance of will be upon us before we know it? Sadly it looks possible. Perhaps probable.

A postscript too. As touched upon I’m glad that the fundamentals of the sport’s engine spec continue, indeed have been committed to for a stretch. There were problems with the detail of them as intimated of course which hopefully this resolution from Geneva will go some way to solve. Yet they remain wonderful pieces of kit – and indeed Mercedes’s engine boss Andy Cowell pointed out recently they now have more power even than at the end of the V10 era, and deliver it with just over half the fuel, and many reckon 1000bhp will be breached this season. And the implications for the car industry, and for the world, seem glaring. Joe Saward outlined that the industry has spent more than a century trying to improve the thermal efficiency of engines (i.e. the measure of the energy that goes into an engine and the energy that comes out in a different form) and it’s crept up only glacially in this time, with two years ago the best engines at only around 35% thermal efficiency. Now F1 power units have thermal efficiency of almost 50%.

“The sport should make more of this incredible achievement” said Saward. “In time these advances will seep through into production vehicles and I hope that when other car companies start to understand this, they will rush to join the F1 circus.”

But somehow as Saward has noted elsewhere beyond Merc inserting the word ‘hybrid’ into the title of its car it’s hard to cite much at all that anyone in the sport has done to promote it all. Worse, right from the get-go the Greek Chorus of complainers were more than happy to fill the void. You suspect that only F1 could turn such a towering opportunity into something to be embarrassed about.

Allen concluded in a similar vein: “Hopefully now the sport can do a better job of telling the story of the technology without undermining its own achievements. If everyone has decided that hybrid turbos are the future then they should act like they believe in them.”

We can but cross our fingers that is one thing in all of this that doesn’t have to be too good to be true.

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