F1’s most powerful investment

Lewis Hamilton’s move from McLaren to the less-successful Mercedes team may seem hard to fathom but, as is often the case in F1, it came down to business.

Formula One has been a playground for car manufacturers from its very first race in 1950. The early years of the sport were dominated by glamorous Italian manufacturers such as Ferrari, Alfa Romeo and Maserati but it took around 50 years for the real arms race between them to begin.

In the late 1990s car manufacturers saw the marketing potential of being involved with F1. They realised that winning in the sport would bring huge exposure to their cars, and would hopefully translate into increased sales, so several manufacturers bought stakes in F1 teams. This led to an acceleration in investment in the sport as the car manufacturers tried to outspend each other in a bid for victory. The focus of their attention was the engines.

Along with the quality of the aerodynamics and the driver, the engines are the most significant factor in determining whether a car will win or lose races. They are also one of the few common factors between F1 cars and road cars so not only can manufacturers use the marketing line that their engines win races, but they can also use them as high speed research and development labs.

The car manufacturers’ race to outspend each other led to their investment costs soaring and in turn, it left them exposed during the economic downturn. In 2009 BMW, Honda and Toyota all pulled out of F1 and to prevent further departures, the sport’s governing body the Fédération Internationale de l’Automobile (FIA) introduced measures to cut costs.

Historically, the development of race engines has followed the theory of the great automotive engineer Ferdinand Porsche that the perfect car crosses the finish line in first place and then falls to pieces. This is no longer strictly true as the FIA’s regulations limit drivers to eight engines per season with race penalties for anyone breaking the rule. Although no car manufacturers have left F1 since, costs have not fallen dramatically.

According to the latest financial statements for Mercedes’ engine department, in the year to 31 December 2010 total costs came to £75.5m compared to £83.3m in 2006. Perhaps surprisingly, the engines’ material costs only represent a small portion of this expense.

In 2010 Mercedes spent £23.1m on paying the 424 staff in its engine department with a further £35.1m invested in F1 engine research and development. The raw materials for the engines, amongst other things, were bought with the remaining £17.3m.

F1’s engine specification of 2.4 litre V8s is fixed until 2014 when it is due to switch to a greener 1.6 litre V6 turbo and this is understood to be the moment Hamilton is waiting for. Hamilton became world champion with McLaren in 2008 and the team has won five races alone this year. In contrast, Mercedes has only won one race since it took over its team at the end of 2009. It was reported to be on the verge of quitting F1 this year after the lacklustre performance of seven-time world champion Michael Schumacher but the prospect of victory with Hamilton has kept it in the sport.

Mercedes has offered Hamilton a salary increase of around 50% to an estimated £18.6m annually along with greater freedom to take on personal sponsors. It was still seen as a gamble for him due to Mercedes’ poor track record. The change in engine regulations would give it an opportunity to improve performance as it would be a fresh start for all teams and Mercedes was expected to throw everything behind it. However, no sooner had Hamilton announced his move than F1’s boss Bernie Ecclestone had cast doubt on Mercedes’ window of opportunity.

“I listened to the noise of the engines in [Ferrari’s headquarters at] Maranello the other day, the new engine and the old engine, and even [Ferrari’s chairman] Luca di Montezemolo said it sounded terrible and didn’t like it,” says Ecclestone. He adds that he thinks FIA president Jean Todt “will get rid of it. I think Luca is also saying we should suspend it for two or three years. I think it is sensible to get rid of it and stick with what we have got. It is much cheaper than the new one. It probably could be 30% of the price.”

A total of 9 of the 12 F1 teams buy engines from the manufacturers – Cosworth, Ferrari, Mercedes and Renault – and each pays around £8m per year. However, the price is expected to soar several times under the new regulations and whilst this may be a benefit for the manufacturers, the teams which buy the engines could do without it. Ecclestone isn’t just looking out for them but for the fans too as he believes that the new engines will lose the distinctive howl that attracted 3.4m spectators to F1 races last year according to the sport’s industry monitor Formula Money (www.formulamoney.com).

The majority of F1 circuits last year threatened to drop the sport over fears that the new engines could make the cars could sound so different that it would drive spectators away.

The circuits dropped their threat after the FIA agreed to raise the power of the engines from its original proposal of 1.6-litre V4s. However, Ron Walker, chairman of the circuits’ organisation the Formula One Promoters Association (FOPA), says “the circuits would be appalled if [the FIA] went ahead with that new engine now, particularly if there is no guarantee the sound will be the same. The circuits will all support Bernie in his quest to keep the same engine because it will mean great savings in the cost burden of running the sport.”

Some observers have suggested that the FIA would not consent to dropping the engines now because the manufacturers have invested a great deal in developing them so this money would be wasted. However, there is plenty of precedent for the FIA proposing technology which is never introduced. In 2005 it announced that it had developed a radical rear wing which was split in the middle in order to improve overtaking. This was due to be introduced to F1 cars in 2008 but was put back a year and never saw the light of day.

Likewise, all the F1 manufacturers were working on V4 engines which were ditched following the switch to V6s. After the change was announced last year the FIA admitted that the manufacturers “will all need to adapt their project and this will surely involve some additional costs, depending on how advanced each project was.”

As Ecclestone and Walker point out, the teams would ultimately make savings from the new regulations being dropped because the cost of buying in engines would not increase. There is also a question over how much money has already been invested by the manufacturers in developing the V6 engines. They usually start developing new engines around four years before they are introduced and costs tend to increase accordingly. However in both 2009 and 2010 the total costs and research and development spending of Mercedes’ engine department decreased.

Nevertheless, it still spent £75.5m purely to develop engines which were ultimately used in just six cars. It is an extraordinary sum but keeping F1 engines at the cutting edge of automotive performance and reliability requires it.

The engines epitomise engineering expertise. They rev to 18,000rpm and come close to 1,000bhp with race fuel consumption typically around the 4mpg mark. Revving at such great speed puts an accelerative force on the pistons of more than 8,000 times gravity. It means that engine-related failures are a common cause of retirements in races. Despite the manufacturer’s marketing intentions, modern F1 engines owe little, apart from their fundamental design of cylinders, pistons and valves, to road-car engines.

The engine is a put under such stress that it needs to be bolted to the carbon fibre body and have the transmission and rear suspension bolted to it in turn. It therefore has to be extremely strong but also as light and compact as possible. Adding to the complication, the engine needs to be to be mounted in as low a position as possible to help reduce the car’s centre of gravity and to enable the height of rear bodywork to be minimised which in turn cuts drag.

Maintaining the balance between engine strength and weight at the same time as optimising its location in the car is ultimately why F1 engines are so expensive to produce. There is no sign that this cost is going to go down though, if Ecclestone’s forecast comes true, at least it won’t be rising. It could be an early Christmas present for most of the teams but is likely to keep Hamilton on the edge of his seat.

Christian Sylt is author of Formula Money