3 titles and Merc is still losing millions?

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Reports this week show that Mercedes, while presenting a loss for the 2015 of £22.3million, made significant improvement from the year previous when it reported a loss of £76.1m.

It does make you wonder about the overall expense the team incur to reach this level of performance. One could argue that they are making a massive amount from the prize money that Formula One Management pays out, and they are, but in order to have dominance over the past three years, lock up the titles in those years and still show a loss is quite staggering.

Toto Wolff explained the better performance and loss:

“In any business, you need a clear-sighted analysis of what makes you successful,” said Wolff.

“In Formula 1, there are a number of key factors: the drivers, the chassis, the power unit, the right technology, the necessary budget and the best people.

“You need to make the right decisions in these areas and make sure they are all aligned.

“But there is one factor that money cannot buy: time. Our key stakeholders have given us the time for the building blocks to come together and gel. That has been a vital factor in our success.”

“We are in a very fortunate position because our key stakeholders understand our business.

“They know that if you try and run an F1 team like a corporate multi-national, it doesn’t go.

“You need to be independent, agile and capable of taking quick decisions. The board of Daimler, led by Dieter Zetsche, understood that.”

This means that for some investors/stakeholders—and here is speaking of Mercedes mainly—you have to be in for the long term and forget any notion of making a quick Pound. IT takes time and serious commitment of resources to hire, gel and coagulate as a team in order to win titles.

There is a complete balance sheet that Mercedes looks at and if you consider the increase in sales of Mercedes road cars, it becomes a slightly grey area as to if the F1 program has, in theory, been a loss at all given the recent sales performance of their consumer products.

There is the other side of the comprehensive program to consider as well as Christian Sylt pointed out at City A.M. The fact is, this program employs hundreds of people and infuses significant capital into the British economy.

The Mercedes V6 hybrid power unit development alone contributes £130m to the British economy from the Northamptonshire’s Motorsport Valley.

“the company now employs 550 staff members and contributes over 90 per cent of its expenditure within the United Kingdom”.

It may be easy to question a 20 million Pound loss but you have to take the entirety of the business plan, employees, healthcare provided, prize money awarded, cars sold, and titles won into account. This is why I have been vocal about one driver, be it Nico or Lewis, placing their personal interests above all else. When doing so, you are impacting hundreds of people that work tirelessly to deliver the best car they can. The system is bigger than any one driver and yet that driver can be key to the system succeeding so it’s a symbiotic relationship that needs to work and this translates to sponsor sensitivities, press management, PR and brand building.

Nico’s world is his entire world, if you will, but it isn’t the entirety of Paddy Lowes world and both Lewis and Nico would do well to remember that. Nor is Toto Wolff’s world the entirety of every employee at Mercedes working to build the best car they can. It’s all about perspective and context. If you consider Ferrari’s current issues, Sergio Marchionne has made his position and actions the entirety of the organization in some ways and that’s having an impact, albeit not a very positive one according to news reports.

If you look to the alleged boardroom battles over control of McLaren, you can piece together a scenario where the rank and file at Woking are struggling to navigate the politics as much as they are the prickly Honda engine in a chassis that is temperamental.

I’m sure Red Bull Racing are not above the intra-team issues but they do have a singular goal and commitment from the stakeholders and some of that was called in to question last year over the engine row and threat to leave as well as Adrian Newey’s desire to step back from the program. All these challenges are additive and it’s clear, after securing their third constructor’s title this week, that right now Mercedes is doing it better than anyone else…even while losing money.

Hat Tip: City AM and AUTOSPORT

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MIE
Editor

It just reinforces how much these power units cost to develop, and even with customer teams paying in excess of twenty million a year for them they still make a loss. Still next season we will have unlimited development of these complex and expensive components, so I am sure that will help keep costs under control. After all both Ferrari and Renault asked for it… If Mercedes are prepared to make a loss of tens of millions per year to win the title, what resources will the other manufacturers have to throw at the problem to even catch them let… Read more »

MIE
Editor

OK, I should have checked some facts before posting the comment above. The high performance engine division at Brixworth actually made a profit (£6.1 million) in 2015, so it is the chassis development and the race team in Brackley that is making the loss. I still think that the costs will escalate next year (for both chassis and power unit).

longshot
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longshot

Indeed, with a new chassis/aero spec and unlimited PU development, next year is going to be very costly for many teams. Do we still have the reduced allowance of PU components next year? From my vague memory isn’t it dropping to only 3 components before penalties start being imposed? That was supposed to be driven by the need to save costs, but I can’t see it having any impact in that regard as the costs are mostly in R&D rather than building new units, and anyway if a new unit is required the teams will still have to pay for… Read more »

meine
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meine

Joe Saward has a very nice piece about it.

Not such a bad deal…

jakobusvdl
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jakobusvdl

Thanks Meine, that is an interesting read and perspective. So effectively Mercedes is using F1 to run a whole technology R&D programme and brand changing advertising campaign for just a few million. I guess that, the few million , becomes tens to hundreds of millions if you’re not winning (or Ferrari).
And the F1 hybrid, aero and chassis technology must be road relevant after all….

jakobusvdl
Guest
jakobusvdl

Is there a link to the financial breakdown for Mercedes? I’d be fascinated to know what their outgoings are, and how much they’ve received in prize money, sponsorship, and whereever else their income comes from. I’ll bet the cost of being first is epic, and the cost of being 2nd, 3rd, or McLaren is no different, and their prize money will be far less. The financial model for F1 looks unsustainable, the world’s fastest game of ‘beggar my neighbour’?