Thursday, August 17, 2006

Buying Power in the FIA

Toyota announced the other day its decision to leave the GPMA (Grand Prix Manufacturer’s Association) thus leaving BMW, Mercedes-Benz, Honda, and Renault to continue the bargaining efforts made with the FIA and Bernie Ecclestone.

Essentially these deliberations manifest themselves into the Concorde Agreements (the latest being agreed upon in 1998, and due to expire at the end of 2007). A lot of the bargaining chips for the GPMA came from their threats to start a racing series that would rival Formula 1. Those threats and the possibilities of the GPWC (Grand Prix World Championship) came to naught when Ferrari extended its 1997 Concord Agreement to 2012.

While I have no personal way of confirming this, it seems as though Toyota thinks the GPMA has done everything it set out to do. The GPMA, and the agreements that these manufacturers make are -- in part -- for share of the revenues that Formula 1 receives. I do not know if this matters, but now that Toyota is gone, the manufacturers in the GMPA run on Michelin tires, whereas the rest of the manufacturers in Formula One are Bridgestone runners. And since the GPMA most likely deals with some debate over the technical regulations of the sport, I would venture that the fact that next year Bridgestone will be the sole tire supplier of Formula One may lead the rest of the teams in the GPMA to argue that they may need some kind of help in the off season for testing of the new tires.

From an economic standpoint, the GPMA was an interesting tool. None of the smaller teams really had a say, yet the interests the GPMA take are legitimate. So, some good questions to ask, if not now, later: Do the rules imposed by the FIA to slow the cars down help the sport? Is there any way to gauge if such regulations help the motor sport’s appeal? Do the regulations also help control costs (i.e. a sole tire supplier after the ’06 season), or actually elevate costs due to the R&D money that teams put in trying to circumnavigate the effects of the regulations that slow the cars down?

However those questions are answered, the GPMA may have lost some its market power now that Toyota left the association. For Toyota, maybe they saw it as further requests that would probably never have been fulfilled.
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