How Mercedes has bucked the trend and reaped rewards

Until recently it was received wisdom that Formula 1 teams owned by car manufacturers tend to be unsuccessful. Ask anyone who worked for Jaguar, Toyota, Honda and BMW back in the noughties.

Big company systems and structures do not sit well in F1. Agility, preparedness to take risks and the relentless pursuit of high performance don't come naturally. They also lack patience, which is why all four of the above mentioned were here today, gone tomorrow.

It is interesting therefore that two of the teams, when freed from their corporate shackles, proceeded to win world championships. It took Red Bull five years after taking over from Jaguar, but Brawn GP did it in one season post-Honda. Which brings us neatly to Mercedes-Benz, the company which acquired Brawn a decade ago, and is now Formula 1's dominant team.

The on-track success is there, of course - witness the six consecutive double world championship titles, the 93 wins and 103 poles. Yet invariably questions arise about Mercedes' commitment to the category at a time when the teams and F1's owner Liberty Media are yet to finalise new commercial agreements.

Furthermore, the global car industry is facing headwinds thanks to the combined effects of 'dieselgate' and climate change, rapidly investing in a costly but necessary clean energy future.

Every car manufacturer is pursuing strategies to cope with this intense period of change. Renault, for example, has been rethinking its entire global business.

Faced with the trials and tribulations of former CEO Carlos Ghosn - who stands accused of financial misconduct, has escaped custody in Japan and fled to Lebanon - the French firm is enduring a difficult period, with interim CEO Clotilde Delbos admitting that F1 was included in its business review.

A new Renault CEO takes office in July. Fifty-two-year-old Italian Luca de Meo must like a challenge, not least in plotting the future of a Renault Nissan alliance which has been deeply wounded by the Ghosn affair.

Global consultancy Interbrand has estimated that the value of the Mercedes-Benz brand has doubled from $25billion in 2010 to $50billion today. F1 has played its part in that trajectory

For Renault F1, the future remains hopeful but no more than that. The team operates to a more traditional manufacturer model; dependent on the parent, working hard to find third party funding, but so far lacking the success necessary to achieve top-tier prize money and sponsorship.

Honda, too, faces battles for its Formula 1 future, for having returned to the world championship as an engine supplier only, it can never share in the financial success of a championship-winning programme - you need to own a team to do that.

As one former Honda executive said, "The in-out-in-out strategy seldom works in motorsport, particularly in F1 where you have high set-up costs. You lose momentum, and you lose knowledge, as we saw with the early engine debacle at McLaren."

Given Honda's track record, its commitment to Red Bull's teams until the end of 2021 seems a limited horizon. Perhaps it is understandable, given the challenges facing every player in the automotive sector.

Mercedes is no exception, and with a multi-billion pound investment in vehicle electrification underway, some have pondered whether its commitment to F1 is wavering. But Mercedes-Benz does Formula 1 today rather differently to the car companies of old, having long ago made the decision to let someone else drive it. Toto Wolff may be a minority shareholder but, as chief executive, he runs the team in the fashion of an entrepreneur-led privateer.

Daimler has calculated that last year F1 generated $1.5billion worth of advertising value for Mercedes-Benz. Meanwhile global consultancy Interbrand has estimated that the value of the Mercedes-Benz brand has doubled from $25billion in 2010 to $50billion today. F1 has played its part in that trajectory.

Attending a corporate event at the Nurburgring earlier this year, former Mercedes motorsport boss Norbert Haug looked fit and healthy chatting to David Coulthard about their time together at McLaren. It was Haug, of course, who vaulted Mercedes from sportscar racing into Formula 1 in 1994, commencing an uninterrupted 26-year journey for Daimler's three-pointed star, including world championship successes with McLaren at the end of the 1990s and 2008, plus that unexpected triumph with Brawn in 2009.

The decision to acquire Brawn was taken under Haug's direction. That Mercedes increased its involvement in F1 at precisely the time when BMW, Toyota and Honda ran out the exit door is a credit to him, and worth remembering when discussing Mercedes' current position.

The initial structure, with Haug as CEO and Ross Brawn running the team, had all the ingredients to work - on paper. By the end of 2012, however, change was afoot, with Haug departing, Niki Lauda arriving and Wolff reversing out of Williams to join Mercedes. Hardened entrepreneurs, Wolff and Lauda took on a 40% ownership of the team in a 30/10 split, and in their roles as executive director and non-executive chairman they set about giving Mercedes-Benz robust sporting and business outcomes.

Consider that in 2012, Haug's final year, Mercedes' Formula 1 team saw £114million come in and £145million go out. As any economics student will tell you that's not good; losses of £31.5million tend to raise eyebrows.

But by the end of 2018, Wolff and Lauda had tripled income to £338million, achieving a pre-tax profit of £15.4million. Daimler was contributing around 15% of the team's budget, while the share of F1's prize monies stood at a chunky £130million.

The success of the team's sponsorship department under commercial director Richard Sanders is crucial. Always supposing racing does get underway this year, the cars, drivers and team will display the brands of 14 partners, with eight suppliers providing additional support.

Off the back of its F1 success the Mercedes team is closer than ever to achieving nirvana for its Daimler parent - an entirely self-funding, entrepreneurially successful business which adds value through its own technological, commercial and financial success

The Petronas title sponsorship has a decade under its belt while the addition of the chemicals giant Ineos as 'principal sponsor' in 2020 develops a previously announced partnership whereby the F1 team has aided Ineos's cycling and sailing teams. Owned by Sir Jim Ratcliffe, often described as Britain's richest man with a fortune estimated at £20billion, Ineos brings with it a significant tranche of funding.

This five-year deal is a significant coup, and perhaps not just for reasons of sponsorship. Ratcliffe is soon to enter the automotive world with the Grenadier, initially a BMW-powered competitor to the Land Rover Defender. Powertrain technology may well become a discussion point during the term of the F1 deal.

Which brings us to the Mercedes-AMG High Performance Powertrain division in Brixworth, the wholly owned subsidiary of Daimler responsible for the hybrid F1 engine, alongside supplying the powertrain to both the Formula E entry and the Mercedes-AMG One hypercar.

Run by Andy Cowell, HPP is pivotal in terms of the potential for technology transfer from F1 and FE back into the mainstream Daimler business, and there can seldom have been a more opportune time to have an R&D facility of this kind. The speed of development and use of digital, connected technologies in motorsport is more relevant than ever to the car industry.

On 3 March, Mercedes-Benz made a key announcement about its sustainability strategy in motorsport, including the news that the F1 team aimed to achieve a net-zero carbon footprint this year. The F1 and FE projects will also support Daimler's strategy of ensuring that 50% of its car sales are from hybrid and fully electric vehicles by 2030.

That alone is an indication of Mercedes' long term commitment to F1, but page four of the press statement mentioned the other important form of sustainability - financial. The forthcoming $175million F1 budget cap will further reduce the team's need for parental support. Meanwhile, the creation of Mercedes-Benz Applied Science promises the kind of profitable business diversification already witnessed at McLaren Applied Technologies and Williams Advanced Engineering.

Simply put, off the back of its F1 success the Mercedes team is closer than ever to achieving nirvana for its Daimler parent - an entirely self-funding, entrepreneurially successful business which adds value through its own technological, commercial and financial success.

Although separate businesses, the Brackley and Brixworth companies had, by the end of 2018, combined revenues just shy of £534million, profits before tax of £23.5million and around 1700 employees. These are truly meaty numbers from a strong business built entirely around the success that Mercedes-Benz has achieved in Formula 1.

Suddenly we have a manufacturer showing how it can be done, on and off the track.