Posted on January 27, 2009
Why Renault is right to be scared | James Allen on F1 – The official James Allen website on F1

There have been some worried noises coming out of Renault staff in recent weeks and delving around it’s not hard to see why. The staff have had to take a pay cut, they have acknowledged that there will be a round of redundancies and the title sponsor, Dutch banking and insurance group ING is laying off 7,000 people.

Although the sponsorship has been brilliantly effective for ING and has been exploited very well by its marketing team, it is hard to see how that deal can be renewed when it expires at the end of this season. That could leave Renault looking for a new title sponsor in a super tough environment.

And find a sponsor it must because the Renault parent company is living a nightmare at the moment. At the peak of the business cycle in July 2007 the Renault share price was 120 euros per share, valuing the company at €34 billion. In September 2008 it had fallen to €57 per share and today the share price stands at just €14, valuing the company at just €4 billion. In other words it has lost virtually 90% of its value in 18 months or so.

Last week the French government weighed in with a €6 billion bailout for the French car industry, after a meeting with Renault chairman and CEO Carlos Ghosn, who had warned them that the European car industry was about to fall off a cliff.

Ghosn said yesterday that “It may take more than seven years for car sales to return to 2007 levels.”

Against that backdrop, the company has to be thinking of its F1 programme with the same affection as Honda had for theirs. The cost saving package agreed before Christmas was vital, but given that Renault’s estimated spend on F1 was around €300 million last year, you can see that FOTA and the FIA are going to have to cut the costs of competing a bit more seriously still if Renault are to have any chance of carrying on as a competitor in 2010. Hence the rumours about the customer engine deals not carrying on next year. And hence the reason Alonso has done his Ferrari deal, with a potential 2010 start date.

I’m one of life’s optimists, not at all partial to the doom-mongers, who are having such a field day at the moment. But it’s not hard to see where this story is headed.

And then what? I don’t think that the team would be lost to the sport. Seasoned F1 watchers expect veteran Renault F1 boss Flavio Briatore to pick up the team if Renault pull out. The model the FIA has in mind will make the future viable for independents operating on a budget of around £50 million per year so there is plenty to play for there. And knowing Flavio, he’d be able to sell it on again once the business cycle starts picking up. Let’s not forget that the last time Renault pulled out, in 1997, Flavio took on the customer engine supply business through his Supertec concern, which supplied engines to Williams.

Let’s hope we are wrong, but the numbers are definitely right and very worrying.

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Why Renault is right to be scared
8 Responses

  1.   1. Posted By: Si
        Date: January 27th, 2009 @ 10:55 am 

    [ Thanks for the tip, Moderator ]

    [Reply]


  2.   2. Posted By: rpaco
        Date: January 27th, 2009 @ 1:06 pm 

    Having lived through hard times in the motor industry myself I can sympathise with the Renault staff.

    You have to remember where some (a lot) of the money comes from ie the Motor Manufacturers (MMs)
    It is somewhat ironic that the actions of Mr Ghosn have put many tens of thousands of workers in the supply chain in dire peril. His renowned aggressive cost cutting and pressurising of suppliers to do more and more with less and less margin, gave Renault and his other previous employers much greater margins but at the expense of leaving their suppliers on a knife edge of profit so thin that even the smallest reduction in volume would tip them into a loss. Now that they have cuts of 40 – 50% in production or dead stops in delivery, many have gone and many more of them will fold in the next few weeks.

    Of the major Motor Manufacturers in Europe I would anticipate the weakest one or two disappearing within a year or maybe as long as two. (Neither have F1 teams) They will take a lot of suppliers down with them. The remaining market size is simply far to small to support all of the MMs operating in Europe. In this context you have to consider the value of having an F1 team; is it worthwhile?
    Yes to us obviously it is, but the attitude of those made redundant by the Reggie might be somewhat different.

    So to sponsors, are Elf still around? They were joined at the hip to the Reggie for many years in the history of the sport.

    [Reply]


  3.   3. Posted By: Chris
        Date: January 27th, 2009 @ 1:26 pm 

    I really hope all the issues around costs in F1 get sorted out and soon. If it carries on the way it is going we will end up watching Mclaren v Ferrari with a four car grid every two weeks as it seems in the current climate they are the only two teams who can sustain the cost and development.

    I would love the sport to be open to more independant teams. Bring back the times like the late 80′s and early 90′s. The grid was so full you had to qualify to qualify and we had great names like Lotus, Williams, Tyrell, March, Fondmetal, Jordan, Ligier. Rather than just a few corporate tems with really really long names like “Vodafone santandare IBM Boss Tag Heuer And anyone else mclaren mercedes”. I know the names is over inflated but I think you get my point.

    I know it sounds like i’m moaning and I do realise that times change and costs do go up. But I just don’t want to see the soul of the sport that I love ripped out and on Sunday afternoon I’m watching a small grid of cars in some faraway country that up until five years ago didn’t know what Formula 1 was on a track that may as well be Heathrow airport with a few traffic cones to mark out the track.

    [Reply]


  4.   4. Posted By: ozzy
        Date: January 27th, 2009 @ 10:10 pm 

    There is one thing i could not figure out with alonso’s ferrari deal… why they are waiting for 2 more years…. raikkonen contract was going to expire this year had they not renewed it… and if you are going to get alonso on board anyway, why you want to wait… they wanted to wait more that they have even renewed raikkonen’s contract for one more year…is it the logic behind this…because that did not seem to me to be logical..

    [Reply]


  5.   5. Posted By: Adam Brinkley
        Date: January 28th, 2009 @ 11:21 am 

    With the F1 coverage going to the BBC this year where does this leave other coverage of motorsports on ITV, such as the BTCC rounds and all there support races that recived such great air time in the last few seasons on ITV-Sport. Also i believe ITV showed a highlights programe of WTCC from Brands Hatch in the last couple of years will this still be screened on ITV channels as well? PS: Great read as ever!

    [Reply]


  6.   6. Posted By: Over the white line: a sign of the times for Bentley buyers | Brits on Pole
        Date: January 30th, 2009 @ 11:12 am 

    [...] More worrying news for the British motorsport industry from James Allen. What if Honda isn’t the only F1 team in trouble? What if Oxfordshire-based Renault is going the same way, with redundancies on the cards and its major sponsor wavering? He describes the appalling financial outlook for the French car industry and says: “the company has to be thinking of its F1 programme with the same affection as Honda had for theirs. The cost saving package agreed before Christmas was vital, but given that Renault’s estimated spend on F1 was around €300 million last year, you can see that FOTA and the FIA are going to have to cut the costs of competing a bit more seriously still if Renault are to have any chance of carrying on as a competitor in 2010.” Sobering stuff, which you can read in full here. [...]


  7.   7. Posted By: RaiulBaztepo
        Date: March 28th, 2009 @ 10:03 pm 

    Hello!
    Very Interesting post! Thank you for such interesting resource!
    PS: Sorry for my bad english, I’v just started to learn this language ;)
    See you!
    Your, Raiul Baztepo

    [Reply]


  8.   8. Posted By: PiterKokoniz
        Date: April 7th, 2009 @ 11:01 pm 

    Hi ! :)
    My name is Piter Kokoniz. oOnly want to tell, that I’v found your blog very interesting
    And want to ask you: is this blog your hobby?
    Sorry for my bad english:)
    Thank you:)
    Piter Kokoniz, from Latvia

    [Reply]

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