Daimler’s exec critical of Brawn purchase: “costly and controversial circus”

As the financial woes of the current global economy seep through the myriad industries of commerce and leisure, I was intrigued by three news articles.  The first was a Telegraph piece By Christian Sylt and Caroline Reid.  The second was by our friends at F1-Live (GMM as source and we know how that raises to ire of some people so take it for what it’s worth).  The third was a recap and expansive version of Mr. Sylt’s work at Pitpass.

In the grand scheme of things it seems that the purchase of Brawn GP was not something everyone at Daimler thought of in a positive light.  Operating in a board supervisory role, Eric Klemm (chairman of Daimler’s Corporate Works Council and employee representative) called the sport a “costly and controversial circus” and is quoted as saying by DPA News Agency:

“We cannot understand why the board of directors has immediately started a new Formula One project.

“In the (car) factories, every cent is being turned over three times. The employees are feeling the financial crisis with shorter working hours and loss of income,” he continued. “In these economically difficult times, the company should invest in better marketing of its real cars”.

Mr. Sylt’s story does bring forth many financial challenges Mercedes may face:

“Brawn are understood to have only £9 million of sponsorship committed for 2010 which, combined with their prize money for winning the world championship, gives them total revenues of about £53 million.

This leaves a £113.5 million deficit in covering the costs of mounting a campaign to retain the world championship.

As a 45.1 per cent shareholder Mercedes would cover £51 million of the deficit and it also carries the £96 million cost of designing and building the team’s V8 engines.

This will give Mercedes total annual F1 costs of about £147 million – a 53 per cent increase on the amount it has been spending on McLaren”.

All three articles linked above warn of the costs associated with Mercedes entrance into the series as a complete team and I know Mr. Sylt will have done his math.  Still, I am wondering about Mercedes 45% investment in particular.  As suggested to F1B by veteran F1 car designer Gary Anderson, Mercedes has reached a deal to be bought out of their holding in McLaren.  They own approximately 40%.

One can reasonably assume that McLaren’s stock price is valued higher than Brawn GP’s.  The re-purchase of 40% of their shares from Mercedes represents, as Anderson pointed out, more of a move to Brawn GP than a acquisition as it is most likely a push financially.  Something Anderson did agree with is that it will remain to be seen just how much Mercedes will spend while holding 45% of Brawn GP versus how much they spent while holding 40% of McLaren.

While Mr. Sylt’s logic is sound and his point well taken, I am inclined to agree with Mr. Anderson that Mercedes is being made whole by the sale of their shares in McLaren and that the investment in Brawn GP is a lateral move as well as more telling of the soured relationship between McLaren and the German car company.  It is certainly understandable that Daimler board members who wanted to cut and run from F1 are now voicing their disbelief but in the end game, Mr. Klemm doesn’t make the decision for Daimler any more than I would as a stock holder.

Ultimately the investment seemed sound and as a supplier of engines to the series as well as the reputation Mercedes has in F1 racing, it seems logical that they move now as the relationship with McLaren has run its course.  Can Daimler executives scuttle the deal?  Will the board question the logic of investing when so many car companies are exiting?  There is one thing for sure, signing Michael Schumacher will take a tremendous amount of sting out of the monthly bills as he would generate massive interest and sponsor dollars for the new Mercedes venture.  Somehow I suspect Norbert Haug knows this and Mr. Sylt does as well.

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