ATLAS F1   Volume 6, Issue 50 Email to Friend   Printable Version

Atlas F1   'Blue Chip' Troubles

  by Roger Horton, England

While most Formula One fans are paying attention to the time sheets from the testing sessions in Spain, others are looking at the red ink that is surfing up on financial reports of automotive giants. Roger Horton reviews the current financial (and legal) troubles clouding two of F1's big players, Bridgestone and DaimlerChrysler, and how their current tangles affect the future of Formula One

The opening shots in the battle for the 2001 titles were exchanged last week, as the teams started testing again after their one-month enforced break. All the teams were keen to once again get back to what racing teams do best - run their cars out on the track, and make them go faster than anyone else's.

But, whilst most F1 personnel are once again fully focused on the business of testing, financial clouds have been gathering around a couple of 'blue chip' Formula One names, and these troubles have the potential to fundamentally change the current balance of power in Grand Prix racing. A reminder that, out in the real world, there are things happening that can disturb even the tightly controlled and well-ordered life of the F1 paddock.

Since Goodyear's withdrawal from F1 at the end of the '98 season, Bridgestone has been the only supplier of tyres to all the teams. The arrival of the French giant Michelin is going to pose a huge threat to Bridgestone's continued success, and the only way they can be sure of continued success is to conduct yet more research and development, and more testing - and that, of course, means spending more and more money.

Six months ago that would have been no problem. Bridgestone, which owns the American Firestone brand, is the world's largest tyre company, with 1999 sales of more than $20 billion. How come, then, that the company's management was forced to hold an emergency press conference last week in Japan, to deny claims that its American subsidiary was about to go into bankruptcy?

The problem has been the huge recall of its tyres that were mostly fitted to the Ford Explorer range of vehicles, mainly in the U.S. but also in several other countries. So far the company has replaced some 5.5 million tyres, and it still has around another million to go before the recall is complete.

According to the National Highway Traffic Safety Administration, the number of deaths so far blamed on crashes associated with Firestone's allegedly faulty tyres now stands at 148, with over 500 more injured. Over 4,000 complaints have been lodged, and dozens of lawsuits have already been started. Bridgestone/Firestone are investigating what causes the tread to peel off the tyre, and are reportedly looking into design and manufacturing problems at its Decatur, Illinois, plant.

What is making things worse for the beleaguered company is the claim that they had data on the problem as long ago as 1997, which, if proven, could greatly increase the damages the company is liable for in successful compensation claims. Little wonder that the company's share price has been in free fall since June, when the problems started to come to light, falling from a high of $250 to just $98 in recent trading.

So far Bridgestone has been tight lipped as to whether these problems will force the company to reassess its racing programmes, either as Firestone in the USA or as Bridgestone in Formula One. Bridgestone has contracts extending to the end of next season with most of its contracted teams, and so it has little room to manoeuvre even if it wanted to. But, with vehicle sales already dropping in America due to the slowing economy, and the costs associated with the recall rising daily, the racing budget is an easy way to cut costs and appease angry shareholders.

Should Bridgestone indeed withdraw from Formula One, it would not necessarily be good news for newcomers Michelin. "It's going to be a challenge and at Michelin we love challenges!" stated Edouard Michelin, their Chief Executive, when he announced his company's return to the sport back in December 1998. Being F1's sole tyre supplier, though, is hardly likely to provide much of a challenge, with just hollow victories to brag about, and more often than not, only getting a mention of your company's name when your product fails.

If Bridgestone's troubles end up being traced back to relatively low level employees in one of its plants, the current financial storm surrounding that bluest of blue chip motor manufacturers - DaimlerChrysler - is circulating around the head of its chairman, Jurgen Schrempp.

Back in 1998, the German based company Daimler-Benz entered into a "merger of equals" with America's third largest carmaker Chrysler. At the time of the merger Chrysler was worth some $29 billion, whilst Schrempp's German company was valued at $61 billion, making the total entity worth around $90 billion.

The merger, though, has been dogged with difficulties almost from the start, and things recently came to a head after Chrysler lost over $500 million in its third quarter, with reports circulating that the fourth quarter loss could be as high as one billion dollars.

Schrempp reacted by sacking the Chrysler CEO Jim Holden along with most of the senior management team - a move that reportedly sent shock waves through the American company's Michigan headquarters.

None of this has helped the DaimlerChrysler share price, which has been dropping steadily almost since the merger was implemented. It recently dropped to below €48 in Frankfurt, which effectively values the company at just over $43 billion, or less than half the value that the newly formed company was worth just over two years ago.

Now Jurgen Schrempp himself is under pressure from disillusioned shareholders desperate for him to turn around the company's fortunes. Some insiders are predicting that he may be removed as early as the New Year unless he can convince his board that he can solve Chrysler's problems.

So what does all this mean for DaimlerChrysler's continued commitment to Formula One? Hopefully, not a lot. But, once a boardroom shake-up starts, it's often hard to know just where they will end. Schrempp is credited with being the driving force behind his company's F1 efforts and was instrumental in them taking a 40 percent holding in McLaren. A new Board, charged with a 'back to basics' approach, might view Grand Prix racing as an extravagance it can no longer afford.

The company could, after all, leave Formula One with its head held high, especially if, with their partners McLaren, they were to win the titles again next year. Just how many races and titles do you have to win before the laws of diminishing returns kick in?

Eddie Jordan has been one of the most vocal team owners warning of the dangers of too much involvement in the sport by the major motor companies. He is worried that F1 will suffer the same way as Sports Car racing did when the manufacturers decided it was time to move on. This may not be about to happen in a big way in the near future, but he is well aware that nothing stays the same forever.

It is clearly not a coincidence that the FIA has suddenly shown interest in introducing new safety rules that have applications in a wide range of general motoring situations. Their proposal to look into introducing an "adaptive speed control system," for use under yellow flag conditions, and a device to alert drivers that they closing up on another driver, whilst driving in heavy spray with reduced visibility, are sure to be of interest to all the major carmakers currently in F1. This will greatly assist these companies trying to convince their shareholders that racing really does 'improve the breed'.

So whilst most race fans have their attention firmly focused on the next round of testing times coming out of Spain, keep an eye on the financial pages as well. Racing is great for listed companies that are making money and have healthy balance sheets, but too much red ink and the cutbacks will come.

Roger Horton© 2000 Kaizar.Com, Incorporated.
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