Honda right to quit Formula One

Confirming news reports that broke in the UK on Thursday, Honda CEO Takeo Fukui today said that the Japanese car maker is pulling out of Formula One, blaming the appalling outlook for the auto sector. In a statement, Fukui said that with the global economy bleak it needs to focus on its core business activities. “A recovery is expected to take some time,” he said. Honda will look for a buyer for its UK-based F1 racing operations, which employs 700. If one isn’t found, it will be closed down.

While a shock to the racing world, it’s hard to quibble with the logic. So far, Honda has fared reasonably well during the downturn compared to rivals, but there are clear signs that its prospects are also deteriorating. In Japan, Honda is cutting 760 temporary jobs at four plants, including a motorcycle plant, due to falling demand in the U.S. In Britain, the company will shutter production at its Swindon plant for 50 days in early 2009 and is offering workers an undisclosed number of early retirement packages. And Honda sales in the important U.S. market are now plummeting almost as quickly as rivals. While only down about 6% year-to-date, Honda’s U.S. sales fell 31.6% last month, compared with an industry average of 36.7%.

Against that backdrop, spending $500 million a year to race two cars seems crazy. For one thing, the benefits of participation are limited. From an R&D point of view, very few technologies employed in F1 cars make it into Accords and Civics. When asked about the benefits of F1 participation Honda insiders usually explain it in terms of motivating engineers. There are probably more efficient ways of doing that. And from a marketing viewpoint resource guzzling F1 cars and Honda’s wish for an eco-friendly image don’t sit together easily.

Then there’s F1 itself. In the eyes of many F1 fans the sport isn’t what it used to be. For years, they have have complained about the lack of overtaking—something which is still a big problem. In the last couple of seasons off-the-track shenanigans have made matters worse. In 2007, the McLaren team was fined $100 million for its part in a spying scandal. This year, Honda was one of several teams that put its name to a statement attacking Max Mosley, the chairman of the sport’s governing body after he became embroiled in an embarrassing sex scandal. Mosley remains in his post. And if all that isn’t enough, Honda’s race performance hasn’t been up to snuff—the season just ended it finished 9th of the ten teams that finished the year. Quitting now looks a wise move.

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