F1 engines: May the force be with them

Last week's column - on progress made by Magneti-Marelli over 2014 energy-recovery systems - ended with the sentence: "Yes, [the team principals] did express reservations about the cost of the new power units - and these will certainly be more expensive than the antiquated V8s, whose roots stretch back to the past millennium, but that is a story for another day."

No sooner had that sentence been published than the 'day' arrived, with the main non-sporting discussion in the Montreal paddock being just that: the cost to teams of the 2014 V6 turbocharged units. The matter is of considerable concern to the independents, most of whom have managed to survive recent times thanks to bargain-basement - if such a term can be applied to a commodity currently coming in at around £7m per annum for a two-car-team supply - pricing levels on customer engines.

While the figure fluctuates between engine suppliers and is further influenced by the level of on-car branding (where applicable) and ancillaries, this excludes the cost of KERS, which adds anything from £1.5m to three times that to the bottom line.

To place that in perspective: the average annual budget of a customer team is guesstimated to be around £70m; thus engines account for 10-15 per cent. Recently Alain Prost told this column that at the turn of the century his eponymous outfit had a budget of £32m, with engine costs making up around 75 per cent of that. Without KERS, that is, for F1 had not yet gone 'green'.

"And we had to pay upfront," he recalled with a grimace. In fact, the four-time world champion is adamant Prost Grand Prix would still be competing had cut-price engines been available at the time.

The 2014 powertrain units, with single turbocharger, ramped-up electronics and two energy-recovery systems (ERS-Kinetic and ERS-Heat), will come in at a considerably higher price, with one source in the loop suggesting the three motor manufacturers currently in the sport - Renault, Ferrari and Mercedes - have spent a combined £400m on development to date. Spread over five years, that requires each to recover £26.5m per annum purely to amortise initial development costs.

Given that current engine regulations forbid engine suppliers from servicing more than two teams over and above in-house usage (Renault is currently exempt as it no longer owns a team), it is clear that amortisation alone comes in higher than current engine-supply pricing levels. Add manufacture, servicing and continuous development costs, and engine prices could explode. In fact, pessimistic sources suggest a year's supply at the top end could come in at £25m per team come 2014, resulting in levels dangerously close to those in the Prost GP era - when the global economy was booming.

While manufacturers are able to underwrite development costs via research and development - and subsidise engine prices via road-car marketing campaigns - this avenue is closed to independents Cosworth (should the company undertake a 2014 engine programme, which seems increasingly unlikely) and newcomer PURE, headed up by founding BAR team principal Craig Pollock.

Obviously, the more teams supplied by a manufacturer the lower per-unit cost. Here, Renault is believed to be aiming to increase its base from four teams to five or even six. All well and good, but if Mercedes and Ferrari are restricted to three each, that leaves PURE and Cosworth with zilch to squabble over - a far from healthy (both sporting and commercial) situation.

PURE headquarters

In Montreal there was talk that the prices of 2014 power units would decrease over a five-year glide-path as development costs are amortised, but cynics suggest this to be no more than the perfuming of the pig to avoid the real issue. It's easy to be cynical about the suggestion: given that, in accounting terms, there is little difference between road-car and F1-engine amortisation. On that basis logic dictates a similar glide-path for road-car prices. And, of course, precisely the opposite occurs...

While some in the paddock speak of engine price caps or resource-restriction agreements, legal sources in the paddock are adamant such concepts run counter to Article 81 (Competition) of the EC Treaty, which prohibits market fixing (see sidebar). The irony is, of course, that legislation passed to protect consumers from price fixing applies equally even where collusion results in lower prices...

By the same token, restrictions on the number of teams the individual suppliers may service could run counter to clause b) of the Article by limiting production and/or markets, and the last thing the sport needs at this point is an EU investigation.

Then there is the alternative: scrap or delay the 'green' power units and retain the current V8s. While the FIA and the engine suppliers are utterly opposed to this path of action, particularly in view of the latter group's spend in this regard, this option suits the commercial rights holder for two reasons. The independents are under financial pressure at a time when he is forging ahead with an extension to the Concorde Agreement (which governs F1's sporting, regulatory and financial matters), and there are fears that fans will be turned off by the turbo V6's throttled acoustics.

To this end the Formula One Promoters' Association has been formed - no doubt with Bernie Ecclestone's blessing if not direct support, for his dear Australian friend of many years, Ronald J Walker AC CBE, is FOPA's founder, and would no doubt have needed clearance to include 'Formula One' in the body's title.

It has emerged that the Australian Grand Prix Corporation is funding FOPA (fee-paying members could not be persuaded to join?), and given that AGPC is effectively a statutory corporation established by an act of the Victorian Parliament and subject to the control and direction of the Minister for major events, one wonders how Victorian taxpayers feel about their hard-earned dollars subsidising the membership of the likes of Monaco and Abu Dhabi....

While the promoters collectively credit themselves (as propagated by some misguided souls) with having pressured the FIA into dropping the original in-line-four 1600cc engine format in favour of V6 units of the same capacity, they would do well to cease the chest-thumping and acknowledge that the manufacturers first and foremost pushed for a change of configuration.

Ron Walker © LAT

Renault, Ferrari and Mercedes all had (or had plans for) high-performance V6 road-car engines, and thus expressed a desire for visible and aural links between road and racing. In fact, Ferrari just this week announced plans for a £70m V6 road-car engine factory.

By the same token FOPA could do well to consider that not one of its members is signatory to Concorde, while every one of the 12 teams is.

Equally, teams have 12 seats on the 26-member Formula 1 Commission which passes all F1 regulations, while promoters collectively have just eight voices, with two of them appointed to the Commission by the teams, effectively boosting the latter's share of vote to 14. A vote of 18 is required to pass any motion. Thus it is clear: while the promoters have input into matters F1, they are far from being the omnipotent force their disciples suggest.

Another concern is the different 'development trajectories' of the various suppliers. In Montreal, Renault Sport F1's joint Managing Director Jean-Francois Caubet disclosed that the operation's V6 will undergo full bench-testing this week, while a Mercedes unit first ran a while back. Ferrari is believed to be close to bench-testing, while PURE, which elected to skip the usual single-cylinder test route, will have a full unit for testing in September. No news on Cosworth...

However, simulations and track tests are two totally different issues, and here FOTA is planning to schedule two four-day power unit test sessions in late 2013/early. These would be over and above the usual pre-season test quota, and likely be scheduled for Jerez.

Another issue is the number of different factions, each with vested interests: Renault, the dominant engine supplier of the past five years, but one no longer with its own team; two engine suppliers with their own teams, one of which is Ferrari with all accompanying trappings, the other Mercedes with ditto. Cosworth, an independent that has supported F1 through thick and thin, but lacks funding to develop 2014 units; newcomer PURE, which has political connections at both FIA and FOM levels; double champion Red Bull Racing, which relies on customer engines; five mid-ranking teams able to keep head above water at current pricing levels; three back-gridders battling on despite cut-rate engines; a CRH run by an 81-year-old desirous of retaining ancient technology; a promoter body with close connections to the CRH. And last but not least: a governing body aiming to mould world motoring's agenda for the next two decades through 'green' technology showcased by Formula 1.

Thus the FIA has a major dilemma, and has tabled F1 engines on its Friday World Motorsport Council agenda. Where F1 normally enjoys top billing in WMSC meets, this time it takes a back seat to a World Rally Championship currently in a desperate fight for survival after its commercial rights' holder headed due south. Still, a lively discussion is expected.

The FIA is facing a dilemma © XPB

Somehow the FIA needs to formulate a strategy that ensures acceptable (to the independents) price levels for 2014 technology while ensuring that any agreement struck between up to five engine suppliers does not fall foul of Article 81 - all while thwarting the attempts of the CRH and cohorts to derail the 'green' initiative and stick to old iron. The problem, though, is that the WMSC cannot make any decisions - the F1 Commission approves regulatory issues, which are escalated to the WMSC for ratification, and there has been no full sitting of the F1 Commission.

Oh wait - that governance procedure applies under the current Concorde, which expires on December 31 2012, whereas the contentious point is 2014 engines. Oh to be a fly on the walls of 8, Place de la Concorde on Friday...

Sidebar

Article 81 (Competition) of the EC Treaty

The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.