INDYCAR: Engine Supply And Demand Still A Concern

IndyCar

INDYCAR: Engine Supply And Demand Still A Concern

It’s a great problem to have: More IndyCar entries are expected for the season opener than anyone expected. But are there enough engines to go around?

Marshall Pruett | Posted January 21, 2012

Some teams without leases heave been trying to get contracts done for months, and with the first race right around the corner, INDYCAR has now stepped in try and find a solution. (Paul Webb/LAT)

It’s a great problem to have: More IndyCar entries are expected to make the grid at St. Petersburg than anyone expected.

At present, this writer’s list of solid entries for St. Pete sits at 25, with five existing and open seats still in play that could bring the total to 30.

Throw in in the efforts by three single-car teams to add a second entry, and if the stars align in their favor, the potential of 33 cars—an Indy 500’s worth of entries—could load into the paddock for Round 1.

It’s easy to get caught up in dream scenarios of 33 cars taking part in the first IndyCar race of 2012, but the more pressing question is whether all the entries will have engines to power their cars.

IndyCar’s latest issue is part Catch-22 and part Mexican Standoff, and tensions are building as the series works feverishly behind the scenes to keep the problem from escalating.

What’s Wrong?

For the series, an open approach to letting its teams and engine manufacturers do business has led to the majority of the top teams being signed, while the smaller teams and new entrants continue to struggle to get engine leases.

In simple terms, the “haves” have engines and some of the remaining “have nots” are left wondering what they need to do to acquire an engine—any engine—with St. Pete barely two months away.

The early birds have also been taken care of, for the most part, but there are also a few teams that have been trying for quite some time to come to terms with Chevrolet, Honda or Lotus, the “Indy 3.”

One entrant recently offered to go well beyond the asking price for a lease and was turned down, while another, who has been going in circles with Indy 3, summed up the situation perfectly: “I don’t know what they expect me to do. I’ve tried to give all of them my money, and they either don’t want it, won’t take it or refuse to call me back. I don’t know what else to do at this point.”

So, is it a case of the Indy 3 playing hardball, or just being incredibly uncooperative?

Are the entrants without leases being unreasonable--maybe complaining too much about their troubles in a competitive market?

Do both sides have legitimate gripes about each other, and the IndyCar Series?

Does the series have just cause to be frustrated with both parties?

The answer is yes to all of the above.

How do they fix things before car counts begin to diminish?

Let’s work through the roots of the problems before arriving at the answer to that question.

Costs & Acceptable Exposure

Rather than repeat what I wrote here, it’s easier to state a fact that has governed the willingness and desire for the Indy 3 to sign leases for all those who’ve asked: The 2012 engine formula is damn expensive for them to fulfill because the lease price for IndyCar entrants is so incredibly cheap—an all-time low of $690,000 per year.

Each member of the Indy 3 is losing millions of dollars per year to supply its teams, effectively subsidizing every lease by a substantial amount. That’s not meant to paint the Indy 3 as victims; they chose to sign IndyCar supply contracts with full knowledge that making a profit was never an option.

While Honda’s sole engine supplier status eventually generated a profit, in the greater scheme, the budgets needed for the 2012 project—an eight-figure proposition for some of the Indy 3—would be considered a marketing expense.

Although the Indy 3 obviously succeeded in getting budgets approved, there would be none of the old school slush funds or petty cash drawers to draw from if their IndyCar budgets went haywire.

Within their contracts, each manufacturer agreed to provide engine leases up to 40 percent of the field—somewhere in the neighborhood of 25 cars, they thought. There’s nothing written to stop them from trying to go over that 40 percent share, but with the current economy in mind, it wasn’t going to happen.

As for the rest of what their contracts stipulate--at least as it pertains to how the engines should be divvied up, awarded or assigned—there’s a gaping hole.

For those who are wondering where the S.S IndyCar hits the first iceberg in this tale, you just felt a big thud against the hull.

The Lotus Clause & Free Market

With all due respect to Lotus and the quick turnaround they’ve made over the past few months, when the series was working out how to fairly and equally distribute engine leases, no one wanted to get stuck with the British marque’s powerplant. Dress it up however you want, but it’s a fact.

This was long before the first engine had even been assembled, and came during a period where the brand was all but silent. In terms of PR, Lotus had plenty of it at the time, and it wasn’t the good kind.

INDYCAR’s plans to hold an engine contract lottery was universally panned by its team owners who either feared getting a Lotus, or, in some cases, being forced to sever ties with Chevrolet or Honda.

While there were contingencies in place by the series to try and handle some of those concerns, the owners were vocal about not wanting the “everybody gets an engine, even if it isn’t your first or second choice” plan and, eventually, the series relented.

At the other end of the table, Chevrolet and Honda were keen to partner with specific teams, and with pressure eventually coming from both sides, INDYCAR adopted the free market approach that’s currently being practiced.

It was now up to the teams and manufacturers to come to their own agreements without any formal policies or structures in place by the series.

If you’re old enough to recall the CART engine wars, what happened next was anything but a surprise.

Budget Rehab

During the 1990s, Chevrolet, Ford, Honda, Toyota, Mercedes-Benz and others spent money freely and subsidized a large portion of the CART grid. Leases could run in excess of $2 million, although very few teams actually paid that sum. And the engines--which made ridiculous power--seemed disposable, requiring rebuilds after a few hundred miles—a practice and qualifying session—before a new unit was installed.

Cash flowed, engine deals were lucrative and manufacturers engaged in bidding wars to sign the teams and drivers they wanted.

Fast forward to 2012 and two of the Indy 3 will be providing Indy car engines once again, but the largesse that defined their CART activities is long gone.

Giving engines away—or even offering them at a lesser rate—is now forbidden, and the traditional concept of signing factory teams has also changed in the new rules, meaning manufacturers are not allowed to give money or trick components to their preferred partners.

Despite a lack of defined manufacturer-to-team engine lease procedures, INDYCAR did its best with the 2012 supply contracts to keep some of the problems that plagued CART (and eventually led to its financial ruin) from happening again. As a result, the dynamic between manufacturers and teams has been fundamentally changed.

From A Surplus To A Deficit

It’s important to understand that the mindset of the Indy 3 is all about managing losses.

During CART’s glory days, its engine manufacturers were like a group of high rollers who served as the lifeblood of the series. The money offered by those manufacturers often represented a major chunk of a team’s budget, and as one might expect, the engine providers were very careful in choosing who received their bounties.

Today, every new engine lease creates a bigger financial hole, and a manufacturer’s desire to dig deeper--at least right now--is based on how close they are to the 40 percent mark and who they’re digging it for.

For the teams that have been wondering why they can’t get an engine lease signed, there’s the answer.

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