Honda Red Flags Formula One Team
By YOSHIO TAKAHASHI
TOKYO -- Disappointing results off the track have forced Honda Motor Co. to quit Formula One racing.
With auto demand tumbling, pressure has built on the Japanese car maker to cut costs. Even so, closing the doors on its team in the high-profile auto sport, which costs it hundreds of millions of dollars annually, was still a tough decision for a company that takes pride in its involvement in motor sports.
"We want to continue [Formula One] even now. But the situation doesn't allow for it," Honda President Takeo Fukui said at a press conference.
http://s.wsj.net/public/resources/images/MI-AT874_WHONDA_D_20081205165813.jpg European Pressphoto Agency Honda, which displayed this Formula One car Friday in Italy, will pull out of the sport in a bid to reduce costs.
Around 400 engineers engaged in Formula One will be transferred to research and development of mass-production vehicles and will seek to establish a new way of manufacturing that will insulate the company better from the problems it currently faces, he said.
It is the third withdrawal from Formula One for Honda, which first entered the auto-racing championship in 1964 and was last season racing under the slogan "powering dreams one lap at a time." It re-entered the sport in 2000 after a seven-year absence, but it earned just 14 points in this year's season, finishing near the bottom of the standings.
The high-profile withdrawal highlights the severe business conditions in the auto industry.
Japan's second-biggest car maker by volume after Toyota Motor Corp. is striving to reduce production and cut jobs, as its rivals are doing, because the economic slowdown is cutting into auto sales in major markets such as the U.S. and, more recently, emerging markets.
Reflecting the deteriorating market conditions, Honda reduced its earnings forecast in October. It expects its net profit to fall 19% in the current fiscal year ending in March.
Mr. Fukui cited the costs of running the Formula One team amid the tough earnings environment as a reason for the exit.
The Fédération Internationale de l'Automobile, which operates the Formula One championship, said the move "confirmed the FIA's long-standing concern that the cost of competing in the World Championship is unsustainable...the global economic downturn has only exacerbated an already critical situation."
The decision presages a fundamental change in the auto industry in the long term, Mr. Fukui said.
"The auto industry had prospered in the past 100 years, and we are in a time of change, entering another 100-year period," he said.
Although raw-material costs and oil prices have fallen recently, they will pick up again once the global economy recovers, he said. A strong yen -- which deflates profits Japanese companies earn overseas when they are repatriated -- is also likely to continue, hurting Japanese exporters such as Honda.
The pullout won't likely have a major impact on Honda's earnings forecast for this year, said Hiroshi Oshima, a managing operating officer.