“F1 can survive without Ferrari” says Mosley

Yesterday I met with Max Mosley for a long interview which is in today’s Financial Times.

He was in London briefly following this week’s world motor sport council meeting where the £40 million budget cap was voted through.

I posted yesterday on the letters exchanged between him and Luca Di Montezemolo Ferrari president. Ferrari are very angry about the budget cap plans and the ‘two tier’ system which might see two classes of car racing in F1 next year. Montezemolo’s letter hints at a possible legal challenge to the plans.

I asked Mosley whether F1 could survive without Ferrari.

“It could,” he said. “It would be very sad to lose them. They’ve been in the sport since the start, but if it’s a choice between that and a situation doomed to failure and which would collapse F1 …  We are not going to bend over backwards to keep them.”

Mosley described the budget cap move as “by far the biggest development in my time in the sport”.

He is confident though that this is a time for action, not for wait and see, as the economy struggles to recover from global recession and cars companies are losing £1 billion a month. But he accepts that it might go wrong and that this summer could see a damaging stand off between some teams and the FIA.

“If you are trying to make big changes things can go wrong,” said Mosley. “We may have a very damaging conflict, it’s possible, but we are prepared for that. We’d tough it out. We’ve got very little room to negotiate, but the message I’m getting from the board of two or three of the manufacturers is that if you can keep us in F1 so that the cheque we write is not more than €25 million, you can consider this a pretty permanent arrangement.”

In recent years the manufacturer-backed teams, like Honda, BMW, Toyota Mercedes and Renault have fuelled an arms race of costs, but the boards of those car companies take a different view, according to Mosley, especially now that the economic picture has deteriorated.

“We have contacts with the boards other than through the teams. The teams spin to the board. The CEO hasn’t got the time, knowledge or expertise to question it. But now because they are all [short of money] to throw away tens of millions on F1 is not acceptable.

“I hope and think that when a team goes to its board and says, ‘I want to go to war with the FIA, because I want to be able to spend £100 million more than the FIA want me to spend, then the board will say ‘Why can’t you spend £40 million if the other teams can do it?’ ”

Mosley believes that Formula 1 has “gone down the wrong track”, with the emphasis on endless costly developments, rather than genuine innovation.. He believes that the budget cap reverses that trend.

“The cleverest team is going to win, not the richest. It’s manifestly fair because it litterally is the one who makes the best invention who will succeed, Invention is cheap, it’s refinement that is expensive and F1 is now refinement orientated. It’s probably our fault for allowing rules to develop in such a way that refinement is the means of progress rather than invention.“

* Tomorrow I will post the second half of the interview, with some interesting observations from Mosley on Ron Dennis, an explanation of how the cap will be policed and thoughts on how long it will stay in F1.

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Mosley’s response to Montezemolo

In response to the letter Ferrari president Luca di Montezemolo wrote on April 28th to the FIA president expressing concern about having two classes of F1 car and about a possible legal challenge to the budget cap, Max Mosley wrote back the following day.

He quotes FIAT boss Sergio Marchionne, with whom Montezemolo works closely and his belief that in an economic crisis such as we are in at the moment, only an extreme response will do,
“We are just going to slam the brakes on, cut everything back to essentials. It may be painful, it may be ugly. But if we want to do the right thing for this industry let’s do it now. Today my gut instinct is to be truly Draconian.” These are Marchionne’s words.

Mosley's letter to Ferrari

Mosley points out that the car industry is in serious difficulty and that F1, as an extension of it, is extremely vulnerable. Honda’s departure was a wake up call and another manufacturer could leave at any moment.

“If we are to reduce the risk of the Formula 1 world championship collapsing, we have to allow new teams in. We also have to reduce costs drastically. The matter is therefore extremely urgent.”

Responding to Montezemolo’s legal threat over rights that have not been respected Mosley writes,
“The only radical elements are those needed to close the gap that would otherwise exist between a low-budget team and other competitors. Thus if Ferrari chooses to continue with an unrestricted budget, the new regulations will not deprive Ferrari of any rights…I do not accept that these proposed regulation compromise any commitment that has been given to Ferrari in the past, unless Ferrari would somehow argue that it is entitled to prevent new competitors from emerging at a time when the sport itself is in danger.”

He ends with a flourish, “We are confident (as are our accountants and lawyers) that a budget cap will be enforceable. The cleverest team will win and we would eliminate the need for depressing restrictions on technology, which the existing teams are discussing with a view to reducing costs. I hope Ferrari will take the lead in agreeing the cost cap mechanism, thus freeing its engineers to work and preserving its shareholders’ money.”

Mosley has always wanted three things; to see the playing field levelled so small teams can compete with big teams, to have full grids and he has always felt that the costs were out of control, long before the credit crunch hit the global economy.

What he has done here, along with his technical strategy guru Tony Purnell, is to take advantage of the car industry’s troubles to create a window for killing those three birds with one stone. The two class F1 is not ideal for anyone, but Mosley is calculating that no manufacturer will go for the uncapped option it because it would be unjustifiable to shareholders.

Meanwhile the five independent teams, Williams, Red Bull, Toro Rosso, Brawn and Force India all welcome the budget cap at the £40 million level because to them it means survival, profit and the chance to compete against the big boys. It’s Christmas for them.

The teams formed their association, FOTA, to represent their rights, but here FOTA is in big trouble because the five independents are on a collision course with the manufacturers, so Max has also achieved a fourth aim, to undermine FOTA.

Many people dislike his methods, but think about it this way, if F1 didn’t exist and you were Ferrari or any other manufacturer and someone came to you and said, “I’ve got a great idea for a racing series; we’ll have 17 races in key markets around the world, great TV package giving your brand a media value in the hundreds of millions per year and it will cost £40 million and it capped, so you can innovate within that figure and beat the others.”

I’m sure if you started with a clean sheet of paper, in other words, you might well go for it on that basis. But it’s hard to see the Mosley/Purnell vision for F1 because we come from an era of £200 million budgets. But why does it need to cost £200 million to win?

Shouldn’t Ferrari continue to win races? If you have something very good and you distill it to its core strengths, you end up with something sensational. So surely the 350 best people at Ferrari must be the equal or better of the 350 at any of the other teams?

One of my readers, Martin Samm, made this very valid point today,
“What I (as a member of Joe Public) want is a series of interesting/exciting races – I dont care if they spent 40 million or 200 million, as I’m sure they’ll be as cutting edge as ever regardless; engineers tend to be cunning like that!”

Martin also points out this is all happening at a time when races are being won by two independent teams, Brawn and Red Bull. Most people find this very refreshing and a good thing for F1.

It’s really hard to know which way to go on this one, because it represents a huge cultural shift in F1. You can see Ferrari’s point and they believe that they have right – and the law – on their side.

The way is clear for a summer of messy legal challenges, which would throw 2010 into chaos. Ferrari will not go quietly on this one and they have gathered the other manufacturers around them for a council of war. They make the engines, of course, so the independents are dependent on them.

That is why Cosworth is sitting on the sidelines, waiting.

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Letter from Montezemolo to Mosley

Although Ferrari is refusing to comment on yesterday’s budget cap announcement, some letters between its president Luca di Montezemolo and FIA president Max Mosley have come to light.

These show Ferrari’s concerns and hint at arrangements between Ferrari and the governing body, which Ferrari feel have not been honoured.

Montezemolo ; Legal challenge to cost cap?

On April 28th Montezemolo wrote to Mosley and other world council members,
unhappy that budget caps had been put on the agenda of a meeting which was called to hear the McLaren case.

He wrote, ” I have always been concerned about its introduction (cost cap) mainly because I consider that there are serious technical difficulties in making sure that any cap can realistically be monitored.

“There are..doubts as to whether or not two categories of teams should be created which will inevitably mean that one category will have an advantage over the other and that the championship will be fundamentally unfaor and perhaps even biased. In any event this would create confusion in the public’s mind, which would seriously lower the value of Formula 1.”

This is a view shared by all the F1 teams, that having capped and uncapped teams operating to two different sets of rules is unworkable. FOTA will discuss this at its May 6th meeting.

But Montezemolo then goes on to remind Mosley about the deal, which he signed in 2005 to commit Ferrari to F1 until 2012, the one which broke the idea of a manufacturers’ breakaway series and for which Ferrari allegedly received €100 million.

Montezemolo’s point is that under the Concorde Agreement the FIA “cannot pass or amend any regulation without it being approved by the F1 commission.”

When Ferrari did its secret deal and signed up to 2012, it demanded and was granted “all rights under the previous Concorde Agreement will continue to apply until 31 December 2010, exactly as if the Agreement itself remained in place.”

The language then gets quite legal, and Montezemolo says he ‘insists’ that the FIA respect the agreement they made.

Presumably this is a coded message that Ferrari would launch a legal challenge against the cost cap. The problem there is time. It would take months and that would delay the 2010 rules being published, which would throw the series into chaos.

Ferrari would only launch an action like that with FOTA backing, but that will be hard because half of the teams in FOTA agree with the cost cap, which guarantees not just their survival but that they will be able to compete with the big boys and make a profit at the same time!

I’ll post on Mosley’s response separately.

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Mosley admits budget cap can be raised

In an interview with the Sunday Telegraph, FIA president Max Mosley has said that the £30 million figure, which was announced on Tuesday as the level for the budget cap due to be introduced next season, is merely the first round in a negotiation.

“It is provisional. I actually think it could be done for £25 million but that’s just my opinion. All my advisers think it should be more. When people calm down a little bit they will see that all of this is brilliant for Formula One. It won’t hurt the DNA of the sport – £30 million is still vastly more than any other series.”

Team bosses I have spoken to say that at that level the cars will not be the same as they are now and that no team would be able to employ more than 250 staff, roughly a quarter of the staff Toyota employs, a third of Ferrari’s and half of Williams’ staff.

It would bring every team down to around the staffing level of Toro Rosso.

He has gone for an extreme figure, when what he really wants is for the teams to accept the principle of budget caps. Mosley says that the response of the FOTA teams to Tuesday’s announcement was ‘weak’ and suggests that the teams are not as united as they claimed to be at the FOTA press conference in Geneva recently, where the famous “Road map for F1′ was unveiled.

Mischievously, where up until now it was believed that the teams were not consulted on the budget cap plans, he now says that he discussed them with some of the independents who stood to benefit the most, like Williams and Force India. His implication is clear, FOTA is an alliance that cannot survive because competitive animals are not designed to form unions with each other. Their individual desire for a competitive edge will always undermine their collective sense.

“They knew we were considering a budget cap, but I don’t think they expected us just to do it like that. The complaint was that we didn’t consult them. Well, we’ve been talking a lot to Force India and Williams, both of whom were very supportive. I’ve not spoken recently to [Red Bull owner Dietrich] Mateschitz but I would have thought it might appeal to him too.

“In any case, we had to do something. All we’ve had from the teams so far is ‘We’ve done a fantastic job, we’ve reduced costs by 50 per cent’. So what? It has come down from $300-$400 million to $150-$200 million? Well, that’s admirable, but I’m dubious as to whether they will still have $150-$200 million in 2010 and 2011.”

“The thing is; it’s just an option. If I’m wrong it doesn’t matter. If I’m right it will be the salvation of Formula One.”

Thought-provoking words to end on.

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Teams react badly to Mosley’s £30m cost cap

I nearly choked on my Rich Tea biscuit when the news came through about the £30 million budget cap voted through today by the FIA world motor sport council.

The teams did likewise. They did not expect this after presenting such a unanimous front the other week in Geneva. Their confidence that their unified voice would be taken into account by the FIA, when deciding rules and policy, was misplaced. Instead Max Mosley has gone much further than the teams wanted to in stripping costs out of the sport. FOTA has just put a statement out which makes clear how annoyed they are with this move,

“With regard to the decisions taken today by the FIA World Council, FOTA would like to express its disappointment and concern at the fact that these have been taken in a unilateral manner, “ said FOTA president Luca di Montezemolo. “The framework of the regulations as defined by the FIA, to be applicable as from 2010, runs the risk of turning on its head the very essence of Formula 1 and the principles that make it one of the most popular and appealing sports.

“Given the timeframe and the way in which these modifications were decided upon, we feel it is necessary to study closely the new situation and to do everything, especially in these difficult times, to maintain a stable framework for the regulations without continuous upheaval, that can be perplexing and confusing for car manufacturers, teams, the public and sponsors.”

This has the potential to open up a dangerous rift between the Formula 1 teams and the FIA just as the new season starts. It is likely that Mosley has done this to get teams to accept the general idea that there will be a budget cap system in F1, much as he did with standard Electronic Control Units, engine freezes and so on.

He has to lead them kicking and screaming to things which then get accepted. A £30 million budget cap will never be accepted, but once the teams have gone over the hurdle of the cap, Mosley probably reckons they will meet somewhere in the middle on the numbers, so around £50-60 million, which let’s face it, should be enough to run an F1 team on. But the road ahead will be rocky and this is a real test of the mettle of FOTA as an organisation.

In Geneva I asked Montezemolo whether he thought Max would feel the FOTA proposals went far enough and he said that they would put them to him and have a dialogue. It’s fairly clear that there hasn’t been that much dialogue this time around, not like in December when the FOTA engine package was agreed by the FIA in the days following Honda’s shock withdrawal.

What’s behind this? Max wants to keep the smaller independent teams in the sport and encourage new ones to come in. He hates the idea that there are two empty franchises. But the budget cap puts manufacturer-backed teams like Ferrari, McLaren Mercedes and BMW in a difficult position. They are to be given the option of spending as much as they like, but the budget capped teams will get more technical freedom, more engine power and better aerodynamics, to make them competitive. The boards of the big car firms will never accept this and you’d have a two class F1, which never worked in the turbo/non-turbo days.

The eye catching Mosley quote is the one where he dismisses suggestions that the budget cap would be impossible to police,

“We went into all this very carefully some time ago,” he said. “We involved forensic accountants from Deloitte and Touche as well as financial experts from the current teams. The vast majority of payments are traceable and any benefits in kind can be valued. There were a number of meetings. It became clear we could do it. The problem was getting the current teams to agree a figure. Also, the majority wanted a lot of exclusions such as land and buildings, the team principal’s salary and the drivers. We would also need the right to carry out very intrusive audits and impose severe penalties for overspend. However these difficulties no longer arise because each team will now be able to choose whether or not to run under the cost cap.”

The other little gem is this one,
“We will make sure these advantages do no more than balance the disadvantages the cost-capped teams will have because of their very restricted budgets. As said, we will balance the median performances by adjusting the cost-capped cars should this prove necessary. The other cars will have stable technical regulations in return for which we understand FOTA intend to provide guarantees of continuing participation until 2012, underwritten by the major car manufacturers.”

Mosley has leapt on the guarantee given in Geneva by the manufacturers to stay in until 2012 and thereby cut their wriggle room on this. On top of that he’s saying that the FIA may adjust the equivalence between capped and non-capped teams’ performance, possibly even from race to race, which he knows is not F1, but it’s a strong position from which they will eventually have to agree something.

What makes this a particularly big play is the fact that these things have been voted through, so they aren’t proposals, they are now rules which will need to be ‘unmade’ once the negotiation has taken place.

Expect more from FOTA on this…

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Lunch with Max Mosley…a busy year ahead

Today I went along to a lunch thrown by Max Mosley for a small group of journalists at the Poissonerie de l’Avenue, in South Kensington, London.

The talk was, predictably, about the need for urgent cost cuts, the medals system, prospects for the season ahead, the future of the British Grand Prix, evidence of who set him up in last year’s sex scandal and his own future.

On this last point I got the clear impression that he intends to stay on for another term. He has to make his decision by June and as he explained, they have a complicated system whereby prospective candidates have to draw up a list of people for the key jobs. This is a system he initiated in 2005 as it would give him early warning of anyone plotting to stand against him. Wily old fox.

Anyway as he talked about it and was saying that he wasn’t sure whether he wanted to do it all again, he made it clear that all the key people want him to run for another term.

I would have thought that he is most unlikely to walk away from the job now as the next three years are absolutely critical to the future of F1, with the Formula One Teams Association providing a strong united front for the first time ever and Bernie Ecclestone and CVC very anxious to get everyone signed up beyond 2012 to protect their income stream.

Mosley: In 2010 costs will really come down

He looked very fit and full of energy, much more so than at times last year. He’s going deaf, though and clearly had problems hearing some of the questions. He wasn’t playing for thinking time by asking for a repeat, he was genuinely straining to hear. As always he was bitingly sardonic in some of his answers and particularly scathing about the stories put about last week that former RBS chief exec Sir Fred Goodwin might stand for FIA president this summer.

On cost cutting and the rules for 2010, he was very firm. He said the target is to get budget right down, as I wrote in my posting on Honda this morning, to around £50 million. He added that it is regrettable that people will have to lose their jobs in that process, but F1 teams are not in the social service business, employing people for the sake of it. To get budgets down from £300 million to under £100 million cannot be achieved by continuing to employ 1000 people in a team.

He wants to see costs come down so much that a team can run for £50 million and be competitive. He feels that the boards of the main car companies are keen to see costs brought down dramatically and that it needs the FIA to do this because the people who manage the teams on behalf of the manufacturers would not go far enough fast enough.

What he did not say, but I have gleaned privately, is that the FIA has a package to present to FOTA of areas of non-compete, which are very extensive, along the lines I wrote about in my Honda story this morning. Ideally the FIA would like FOTA’s agreement on this package, but they do have the option of ramming it through the world council in March or June under the force majeur rule – in other words arguing that the situation is so desperate in the motor industry that these measures must be taken now or else the whole survival of F1 will be threatened. That will be a major flash point with FOTA.

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A Very Big Day Indeed

Today could turn out to be a day, which will stand out in the history books of Formula 1. At the FIA World Council meeting in Monaco some huge decisions will be taken, which reflect a sea change in attitude within the F1 teams compared to recent years and which will herald the start of a move towards a totally new F1 concept, certainly as far as engines are concerned.

Following the surprise withdrawal of Honda a week ago, a fresh mood of realism has finally crept in and the remaining nine teams met with FIA president Max Mosley on Wednesday and presented a package of proposals to drastically cut costs. All parties described the meeting as a ‘breakthrough’ and we wait with baited breath to see what shape our sport will take in the future.

The cornerstone of the proposal is a standard engine and drivetrain. Currently the costs of developing and producing the engine and gearbox are considered to be roughly half a Formula One operating budget for some teams, or £30 million per year. The FIA wants to remove the drivetrain as an area in which teams compete with each other, thus eliminating the need to spend such sums on it.

Under the plans before the World Council today, the standard engine will be supplied by Cosworth and the gearbox by Xtrac/Ricardo, costing around £5 million per season. It remains to be seen how many teams will sign up for this in 2010. Teams have the option of building their own engine but it must be to the exact Cosworth design and therefore equivalent in performance. I fancy that many of the big names will do this, including Ferrari. However, I’m told that one of the breakthroughs at the meeting on Wednesday was that this option has been made ‘sexier’, hence why the top names were happy to agree to it. We’ll see what that entails later today.

The idea behind the standard engine is simple – to calm down the excessive spending of recent times and get things under control. But the intention thereafter is to reintroduce competitive engines to a completely new design in 2013. These are likely to be turbocharged, probably V6 and the competition element will be reintroduced, probably based on fuel efficiency, rather than outright performance.

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Austerity comes to Formula One

Just arrived in a rainy and chilly Monaco for what will be a momentous couple of days for the sport.

It’s weirdly appropriate that this humbling of F1, the death knell of the era of decadence and excess, should happen in Monaco, which has long symbolised the wealth and glamour, with which F1 is synonymous.

This will be a strange journey for all of us, coming to terms with the new ‘austerity F1’, but here are a few notes at this early stage.

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F1 moves on

Amazing day today. Been flat out writing about the Honda withdrawal and where it leaves F1. Took part in the Max Mosley teleconference this afternoon and spoke to many figures within the sport. The main points I’ve come across are these:

Honda is very serious about selling the team but it will be a streamlined outfit they sell, with no more than 200 employees ( current figure is over 650) and capable of running on £40-50 million per year (current figure more like three times that)

There is no engine supply in the package because next year F1 moves to three race engines and Honda doesn’t have enough of these ready yet, so it is likely to be a customer supply of Ferraris and the car will have to be re-optimised around this, which will take a bit of work.

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