People are getting a little ahead of themselves about Volkswagen and Formula 1. Just because Ferdinand Piech has resigned does not mean that the company will instantly be planning an F1 programme next week. The top management may have similar reservations to Piech about the sport, but whatever the case, it will take time before things begin to move and the first step in that process is to decide who will take over as head of the supervisory board. That decision may mean that there is a need for a new chairman of the management board. It seems that Piech was trying to lobby for Porsche CEO Matthias Mueller to replace Martin Winterkorn in this job and that this did not go down well with the board members and they held a second meeting and then informed Piech that he must either stand down or face being fired by the company. No-one is admitting that this is what happened, but that would make sense as the resignation was not expected at all.

It remains to be seen what the supervisory board now does with regard to the role of chairman. Winterkorn (67) is one possibility as he seems to be have solid support from the board, but there is talk too of Ulrich Hackenberg (65), the company’s head of technical development, who could be a compromise candidate. Given that Piech was 78, age does not appear to be a problem for the role of supervisory chairman. The chairmanship of the management board may stay with Winterkorn, but there are plenty of others who are considered possible for the job, including Muller (61), Andreas Renschler (56), the head of VW commercial vehicles, Wolfgang Dürheimer (56), the boss of Bentley and Bugatti, and Rupert Stadler (51), the man in charge of Audi. There is also 50-year-old Stephan Winkelmann, head of Lamborghini, although he has been with the Italian firm for 10 years and may not be deemed to have sufficient experience for the bigger job. Another man who may play a role in the years ahead is Herbert Diess (58) who is joining as head of the Volkswagen brand in July. He comes from BMW. Before any big decisions are made about the sport the firm must go through a number of other decision-making processes, so don’t expect too much too soon.

In 2012 Durheimer publicly proposed an F1 programme. Another man who may be pushing for the idea is Wolfgang Hatz, Porsche’s head of research and development, who was involved in F1 with BMW in the glory years of the early 1980s and then was involved with Porsche’s ill-fated V12 in the early 1990s. He later became head of motorsport at Opel before returning to VW in 2001.

Many older Formula 1 fans remember “the good old days” when F1 teams would turn up each season with cars featuring wildly new ideas: there were fan cars, surface-cooling, ground-effect, “skateboards”, twin-chassis and so on. In those days aerodynamic development was still exciting. The teams all invested in wind tunnels but slowly the excitement faded away. The aerodynamicists would work night and day looking for advantages, but over time that simply meant that the cars began to look more and more alike because good aero is good aero and one solution is usually better than another. As a result everyone ends up with the same thing, while pushing into tiny detail to gain further advantage. There are occasional break throughs, such as the double-floor concept and later the blown-exhaust but these are exceptions to the rule. The problem with near-identical aero packages is that once cars are running nose to tail those behind become less stable and so overtaking becomes almost impossible. Thus, it is fair to say that aerodynamics, while being the key to performance, are firstly of no use at all to the world at large and secondly, not good for racing. The FIA twigged this and so the DRS was developed to create the same basic effect as slip-streaming in the old days. This helped, but the important thing was to shift the focus away from aero, which was what happened with the new engine formula last year. Wind tunnel work was also restricted, hoping to push F1 toward developing better computational fluid dynamics (CFD) systems, which do have a use outside the sport.

The conclusion from all of this is that while the big teams still spend fortunes on their aerodynamic programmes, with as much running as they are allowed and huge sums being spent on building exquisite scale model F1 cars that accurately predict how a car will behave, it is all rather pointless for everyone apart from the men in the wind tunnels. Most people cannot afford to buy supercars and in an awful lot of societies it is a pointless exercise as traffic (and traffic laws) mean that they cannot use them. If you buy a super car, it is largely for show these days, because you need to go to race track to use its performance.

If Formula 1 is to remain the top motor racing series in the world, it must look to new technology. That is what gets fans excited, what makes the sport different. Some argue that the best way forward is to give everyone the same machinery, but we have seen that happen in various championships and the result is usually that the biggest teams dominate and the opposition slowly dies out. The sport does need to be a balance between technology and show, but going too much one way or the other messes things up. At the start of the sport, more than 100 years ago, the manufacturers went racing for two reasons: to develop their products, and to sell them. And that has not really changed. If you give manufacturers what they want, they will come racing. F1’s new engines were a step in the right direction, but some manufacturers were put off by the way the sport is run. If one looks at the product lines of Mercedes and Ferrari, both are incorporating the latest technology into their road cars and intend to use more in the future. Energy recovery is important, to reduce the consumption and CO2 emissions of the vehicles and to meet the stringent standards that are coming. Renault is going through a period of angst, realising that it has not been very successful in using its on-track success to its advantage. The success of the Vettel/Red Bull years was not used by the Renault marketing people. Nonetheless, it makes no sense to leave the sport given the huge investment that has been made in the new engines. Renault’s strategy is to sell premium cars in the stagnant European markets, while developing mass market machinery in the developing markets of Brazil, China, India and Russia, where F1 is a useful marketing tool. If you are trying to sell aspirational machines to the public one needs to tap into the passion of the fans of the marque, which means that Renault should be concentrating on two things: making better F1 engines and finding some better marketing people. Going back to old engines might keep some teams alive for a while but it would be bad for the sport.

One interesting suggestion in recent weeks has been the idea that wind tunnels should be banned completely, thus lopping off a huge chunk of budget. Obviously, the big teams would find new ways to spend their money if they are allowed to do so, but it would mean that more investment would go into CFD, which might be useful for the world at large. For those who do not know, CFD is the simulation of fluid flows around objects, using complex calculations and algorithms, to predict what happens. By analysing the results one can come up with more efficient ways of doing things, without the need to build expensive models and run them in vast wind tunnels. CFD is faster and cheaper, if one has the computing capacity required.

As Williams has proved this week, CFD can be used in lot of different areas, notably air flow in refrigerators to reduce cold air leakage.

Cutting back on aerodynamic development and forcing engine manufacturers to find more and more efficient engines is a logical way for the sport to go forward. Formula E is another choice and perhaps one day it will find that it has become the answer. Perhaps a Formula N will come along to showcase and help develop hydrogen fuel cell vehicles. Toyota last weekend showcased the 2016 Mirai at the NASCAR Sprint Cup race in Richmond, the first hydrogen-powered pace car to be seen in the sport.

For the moment we don’t really know which form of fuel will be the future, just as at the start of the sport there was a discussion over whether the future was the internal combustion engine, steam or electricity. At the time all three competed against one another until the answer became clear. That might be a rather radical step for F1, but the sport needs to follow the industry trends (and predictions) if it is to remain relevant. The owners of the commercial rights want to squeeze every drop of money from the sport, but if they go on pushing the sport into becoming more of a show, they will kill it.

The news that Williams Grand Prix Holdings, the parent group of the Williams F1 team, has announced a loss for 2014 of £34.3 million ($52 million) should not be seen as the disaster that it might, at first appear. Accounting is on complicated world and for example the company’s sponsorship for 2014 from Pastor Maldonado was deemed to be part of the 2013 accounts, while the prize money won in 2014 will not be included until the 2015 accounts. The team also has new sponsorship revenues from Unilever, Avenade, BT and others coming that may have been agree in 2014 but will not be booked until 2015. Thus the results do not mean that Williams has a $52 million hole in its bank account, but rather that the numbers have been split between the financial years. This is often advantageous from the point of view of taxation, although it is very hard to know what the accountants set out to achieve.

“Our much improved performance in the 2014 Championship will be seen in higher commercial rights and sponsorship income in 2015, coupled with improved performance from our Advanced Engineering division,” says Mike O’Driscoll, the group CEO. “Our ambition in 2015 is to consolidate the progress we made last year, continue building the necessary foundations for future sporting and commercial success, and consequently to materially improve our financial results for the coming years.”

Williams is unusual in F1 in that it has to publish its accounts in a clear and timely fashion because it is listed on the Frankfurt stock exchange. Other teams are able to obscure their results by different means, notably the use of parent or sister companies to confuse the numbers.

Williams is still not a rich team but the turnaround is moving forwards after a decade in which there was a general slide backwards. The decision to go with Mercedes engines was obviously a good choice and there is little doubt that in the longer term the team will be looking to partner with a manufacturer, as used to be the case from the 1980s onwards when the team paired successfully with Honda, Renault and ultimately BMW. Attracting more manufacturers to F1 at the moment is not an easy task but the sport is in a period of change and new car companies may come in once things have calmed down – if they do.

There is big news from Volkswagen today with the announcement that supervisory board Chairman Ferdinand Piech has resigned on Saturday after losing a boardroom fight that he had provoked with Chief Executive Martin Winterkorn. Piech has been the major figure in VW for more than 20 years and has been the block to the company coming into Formula 1. The 78-year-old lost a 5-1 vote of the executive committee of the supervisory board last week. Deputy Chairman Berthold Huber will take over until a new chairman is picked. Piech’s wife, who was also on the supervisory board, has also quit.

At 67 years of age, Luca Montezemolo is “old school” F1, his involvement in the sport dating back to the early 1970s, when Enzo Ferrari took a shine to the youngster and put him in charge of his Formula 1 operation. There was an upturn in the team’s fortunes, with Niki Lauda as the lead driver. Montezemolo then floated off into other Fiat enterprises – leading an Italian America’s Cup project and overseeing the 1990 soccer World Cup. He then returned to Ferrari to revive the team a second time, which led to Michael Schumacher’s successes at the turn of the century. This in turn led to Montezemolo being elevated to the leading role in the Fiat empire, and to become the head of Confindustria, the employers’ federation in Italy. A failed political career led to another full time return to Ferrari, but last year he was ousted by Sergio Marchionne, obviously supported by the Fiat-owning Agnelli Family, albeit with a golden parachute of Dantesque proportions. He has since become not only the chairman of Alitalia, but also a non-executive director of the Formula One group.

In an interview published today in the German magazine Manager Montezemolo has joined in the calls for something to be done for the sport, following on from similar comments made about F1 by Max Mosley, the 75-year-old former FIA President. Mosley attacked the non-role being played by the FIA, which seems to be focussed on other matters. There is a school of thought that suggests that it would be better for everyone to support the soon-to-be 70-year-old Jean Todt’s desire to become a big cheese in international road safety, as this would mean he would depart the FIA and no longer have time to do whatever he is doing. The federation could use someone with a little more vim and vigour in relation to Formula 1, which – lest we forget – is the primary source of all FIA revenues.

Montezemolo has now zeroed in on CVC Capital Partners, the private equity group that controls the Formula One group. He has supported Bernie Ecclestone (no surprise there) but has made it very clear that he believes F1 needs some serious care and attention from CVC  – and if they don’t want to invest, they should sell up and leave.

This is not an unusual view in the F1 world where CVC is viewed as an opportunistic bunch which Ecclestone allowed into the sport, which has since sucked every possible penny out of the business, loading it with debt and not putting anything back in. CVC’s co-chairman Donald Mackenzie argues that the company has added value to the business,  and that F1 people do not understand, but you would be hard-pressed to find anyone in F1 who thinks that the current trends are positive.

“They must decide now: do we want to sell or not?” Montezemolo says. “If they do not, they must change their business philosophy and finally invest in the sport. They must set clear priorities, and they need to engage a management team that is fully focused on those new objectives.” This does not mean Bernie has to go, but rather that the 84-year-old needs “top people and experts for finance, marketing and the digital world.” Montezemolo said that the priority of the sport should be to slash costs for the struggling teams and to find a way to push up race attendance and TV viewing figures. It is all rather sensible, compared to his ill-considered rants last year about engines and “taxi racing”, which did much to damage his reputation.

CVC does not have to listen to anyone (and is probably arrogant enough not to), but when a non-executive director comes after the company, in public, it is a sign that things must be getting serious. CVC has pretty much let Ecclestone do as he wishes and accepted all manner of things that one would not have expected a private equity company to accept in relation to its employees, notably the messy legal actions in Britain and Germany. The conclusion therefore has been that either CVC cannot remove him, or does not want to take a risk of trying to run F1 without him.

It is worth noting, by the way, that Mackenzie, one of the remaining founders of the business, which was spun off from the Citigroup in 1993 in order to free the venture capital operations from US banking regulations, is a mere stripling compared to other F1 figures, but that he recently turned 58. The last two of the founders to retire (Michael Smith and Hardy McLain) both went in their 60th years in 2013 and 2012 respectively, which means that Mackenzie will probably be on the move soon after he hits 60 in March 2017 – less than two years away.

One wonders whether the F1 shares will be sold before that happens or whether his successor (whoever that may be) will be as in the thrall of Ecclestone as Mackenzie has been.

US media mogul John Malone was interested in buying the Formula One shares last year, but CVC asked too much money and Malone went off and bought a chunk of Formula E instead. He may still be interested in F1, but only at the right price…

Engine politics

There is much talk going on at the moment in F1 circles about engine regulations for the future, with a suggestion that there might be a compromise with different engines being used by different teams in 2017. This would mean a revival of the old pre-2014 normally-aspirated V8 engines, with their KERS systems, for the smaller teams, while the bigger teams would go on using the newer and more interesting V6 hybrid turbos. Getting such a change through the decision-making process would not be easy because the engine manufacturers are not going to agree to anything that would lead to them being beaten by older engines, but there is no doubt that this could be a way to provide the struggling small teams with cheaper engines.

In reality, it is also probably a way to try to get the manufacturers to agree to cut their engine prices to allow the small teams to use the existing engines, but at a much more affordable price. There is no doubt that the manufacturers can afford to do that if they want to, but obviously they are keen to make their F1 activities as cost-effective as possible and having customers to offset the expenditure is therefore a good idea for them. Logically, they should be arguing for the small teams to get more money from the Commercial Rights Holder, although no doubt he will be saying that that is fine, as long as the big teams provide the cash from their shares.

All of this remains something of a sideshow because the major conversation is actually about the way in which revenues will be divided up after the current deals end in 2020. A new Concorde Agreement, or its equivalent will be needed but it is clear that the manufacturers are keen for CVC Capital Partners to reduce the amount of money that they take from the sport. Having said that Bernie Ecclestone will still be working to divide and conquer the teams, as he has always done, and will no doubt be offering better deals to the big players. The only problem is that CVC may not be willing to reduce its shares of the take, in which case, it will need to sell the business, although that will be at a price that is far less than they want.

Having said all that of that, the costs of the new engines will be reducing in the years ahead as the research and development will slow as gains become more difficult to find and the level of competitiveness between the teams closes up again. This is a normal cycle in any new formula.

It would not be the first time that F1 has split its engine regulations to help smaller teams. In 1987 the big teams were running wildly-expensive turbos and the small teams were struggling with normally aspirated engines. In order to help them the FIA introduced two sub-championships: the Jim Clark Trophy for drivers of cars with normally-aspirated engines and the Colin Chapman Trophy for teams without turbo engines. Turbos were going to be banned in 1989 and with restrictions on them increasing in 1988, the sub-championships disappeared.

Such arguments are going to go on happening until the sport finds a long-term solution to its financing and that can only happen when the commercial rights holders agree to accept less, the big teams agree to reduce the amount they take and there is a solid structure in place with regard to the rewards. Debts will need to be looked after as well as CVC has taken a huge amount out of the sport, but if the commercial rights holder was to spend more time generating revenues from other sources and less quibbling with the teams, the sport might be able to move forward with everyone working together and everyone taking a fair share. That would be the sensible solution, but perhaps it is not achievable until a new generation arrives.

Reviving Valencia

The Singapore-based ARC Resorts has announced plans to build a six-star hotel, casino, golf course and a museum for glass artists in the marina area of Valencia. The project would also include a second hotel and a number of luxury homes.  The area was revamped in 2003 in preparation for the America’s Cup yacht races in 2007. The work included a metro line to the city and the local airport. After the America’s Cup teams departed Formula 1 moved into Valencia but the local government did not have the money to keep the European Grand Prix going. ARC Resorts says that it would be willing to invest $600 million to revive the Grand Prix, arguing that the investment would pay off if they were allowed to build the new complex, which they say would be “the best urban resort in Europe” and which would create 8,000 permanent new jobs. For the city of Valencia this would be a godsend as the area is now neglected and unused. The City Council of Valencia would need to change its rules relating to gambling in order for the project to go ahead, but it would breath life into the city, as the facilities would include a concert area, an indoor shopping centre and an arts centre in the iconic Veles e Vents building in the centre of the harbour, plus a yacht club in the old Team Alinghi base.

ARC has been involved in some of the development that has been going on in Singapore’s Marina Bay. The company is owned by Mark Vlassopulos, the son of Tony Vlassopulos, who ran the Token F1 team in the 1970s, after taking over Ron Dennis’s Rondel Racing. The Spanish see the idea as a way to revive the local economy and to provide money for infrastructure changes such as the long-awaited high-speed train link between the cities of Castellón, Valencia and Alicante and the development of the Castellón airport, which has been mothballed since its official opening.

The plan is to bid for a bi-annual Grand Prix and alternate with Formula E. This sounds a rather unlikely deal. The other element that will be difficult is the title of the race as Azerbaijan is expected to get the European GP tag in the years to comne. The good news is that Formula One Licensing registered the name “Formula 1 Mediterranean Grand Prix” as a trademark last year.

The Formula One group is very keen to create new European races because its contracts with the team require at least half the races (10 events) to be held in Europe. With Germany, Belgium, Italy and even the UK struggling to pay the bills, Ecclestone needs all the options he can find.


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