Impact of Honda's withdrawal from F1

In the wake of the announcement by Honda to withdraw from Formula 1, Professor Simon Chadwick, one of the leading academics in the business of sport, on behalf of Weber Shandwick Sport, assesses the impact of that decision on the rest of the industry.

“It’s worth starting by reminding ourselves of the size of the motor sports industry: directly or indirectly it provides 50,000+ jobs and 2,500 businesses and it generates £5bn+ of annual turnover.

One of the biggest immediate impacts of Honda’s withdrawal is likely to be felt in terms of the number of teams. Honda’s exit means that there will only be 18 cars in play and the consequent reduction in excitement is likely to affect the appeal of the sport for spectators, broadcasters, sponsors, circuits and other commercial partners.

There is speculation that other manufacturers may follow suit but my sense is that even this would not mean a full-blown crisis for F1 – though it would clearly present a problem. F1 bosses would have to think carefully and quickly about how they could attract new teams into the sport. They would need to make sure that they don’t miss out on the growing interest in China, Dubai and the newer markets. One route forward would be for them to look for major investment from these countries to sustain them through this difficult period. If so, we might see football-style buy-outs of F1 teams by wealthy individuals, in the manner of the recent Manchester City take-over. There might even be some synergies between F1 and the new generation of oil-rich billionaires.

It was significant that the problems at Honda were compounded by the fact that they didn’t have a title sponsor and so were at a strategic financial disadvantage by comparison with teams like McLaren, something that would only have been heightened by the recent rule changes which are going to impose new costs on teams. Moreover they seemed to be struggling to get to grips with how they might use F1 to their commercial advantage.

We should not forget the overall context in which Honda were struggling to operate. An event like the British Grand Prix generates somewhere in the region of £50m in local and national economic activity. Any diminution in race quality, following pull-outs, starts to erode these kinds of values. Across 17 races, that’s approximately £850m just in economic activity. Add in the industrial activity generally associated with motor sport and you have to be looking at a sport that generates up to £6billion worth of economic activity each year. 

And all this is without major involvement from the US where many observers, including Joie Chitwood, president and COO of the Indianapolis Motor Speedway, feel that F1 will struggle to re-establish itself following the debacle of 2005 when only 3 teams raced in the US Grand Prix.

It’s also worth pointing out that Britain has a global competitive advantage in the development, organisation, and management of motor sport, particularly F1. British designers and engineers are among the most respected in the world.
While Honda’s withdrawal won’t be a disaster for Britain’s motor sport industry, it may well result in up to 1000 jobs being affected in some way and represents a hit that the industry could do without during these difficult times. “
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Professor Simon Chadwick is the Founder and Director of the Centre for the International Business of Sport (CIBS) at Coventry University.