Interesting Item on New Chassis in Indy Star (Merged)

[climb]

Originally Posted by bjohnsonsmith

The problem with the Italian economy is, it's tied to the Euro, Britain's isn't, it still uses the pound.

...
I don't think you realise how bad it is in Europe.

...

And the US? Do you think they're better?

Wouldn't like to seem going off topic, but a country with an usual Deficit/GDP rate round 10% cannot be held as the best option

[bjohnsonsmith]

Originally Posted by climb

And the US? Do you think they're better?

Wouldn't like to seem going off topic, but a country with an usual Deficit/GDP rate round 10% cannot be held as the best option

I agree it's very bad in the US as well but from the point of view of IndyCar manufacturers, I think Dallara is potentially in the worst predicament.

[Flyin Ryan]

Originally Posted by bjohnsonsmith

The problem with the Italian economy is, it's tied to the Euro, Britain's isn't, it still uses the pound.

Dallara has a lot to fear. If there is another crisis like the Greek one in the Eurozone, there will be a run on the Euro, which will be catastrophic and neither France nor Germany will be in a position to afford to bail out yet another country; they too have debts and have just come out of recession. Also there was a lot of internal opposition to the Greek bailout in Germany. As for Italy's debt being only domestic, they are financing their economy/debt through further borrowing.

I don't think you realise how bad it is in Europe.

No, I read Ambrose Evans-Pritchard too. I've been watching the world financial crisis since 2005-6 when I became aware of what was going on in U.S. housing at the time.

(edit: speaking of AEP: http://www.telegraph.co.uk/finance/c...-meltdown.html )

In all seriousness though, all the jawboning in the world hasn't fixed the world's structural problems when it comes to finances, either public, private, or bank. We'll muddle through and all imbalances will eventually correct one way or another. If it happens in Europe, so be it, it happens. If it happens in the U.S., so be it, it happens. It's in the interest of the people with the money to run the game a little longer, such as the Chinese who don't want to appreciate the yuan and depreciate their dollar holdings. It looks like the world is going to duplicate what the Japanese did in the '90s.

The only real issue concerning Dallara here is they're wanting to build a low-volume, high-value car to sell to customers currently only based in Indiana, Illinois, Ohio, and Charlotte. From a geography and customer service standpoint, it'd make far more sense to have that manufacturing be in the Midwest instead of northern Italy. If the European economy collapses, Dallara's in trouble anyway regardless as is the entire racing industry just because that means less rich people are going to have the money to put into auto racing. That'll be true if Dallara gets the contract or if Lola or Swift got it.

[bjohnsonsmith]

Originally Posted by Flyin Ryan

The only real issue concerning Dallara here is they're wanting to build a low-volume, high-value car to sell to customers currently only based in Indiana, Illinois, Ohio, and Charlotte. From a geography and customer service standpoint, it'd make far more sense to have that manufacturing be in the Midwest instead of northern Italy. If the European economy collapses, Dallara's in trouble anyway regardless as is the entire racing industry just because that means less rich people are going to have the money to put into auto racing. That'll be true if Dallara gets the contract or if Lola or Swift got it.

If the Euro continues to fall, it will make building the factory more expensive for Dallara, which is why they are looking for funding in the US.

As for the entire motor racing industry it will be particularly hard for the lower Formula series that rely on manufacturers like Dallara to supply them with chassis. Those manufacturers will have to ramp up their prices to compensate for a weak Euro. Though I think you'll find F1 will fair a little better considering 99% of the teams are based in the UK and won't be effected quite as badly as if they were based in the Eurozone.

[Flyin Ryan]

Originally Posted by bjohnsonsmith

If the Euro continues to fall, it will make building the factory more expensive for Dallara, which is why they are looking for funding in the US.

It also makes it less expensive to build in Europe.

As for the entire motor racing industry it will be particularly hard for the lower Formula series that rely on manufacturers like Dallara to supply them with chassis. Those manufacturers will have to ramp up their prices to compensate for a weak Euro.

You're thinking backward here. A weak currency is good for manufacturing, it's bad for consuming. That's why the Chinese pegged their currency to the dollar and do not want it to appreciate; if they allowed it to appreciate their manufacturing would suffer because the price of the goods for the end consumer would go up meaning less of it would be bought. A strong currency is good for consuming, bad for manufacturing. Your goods cannot be exported abroad but things can be brought into the country and you can buy them for a lower amount than you otherwise could if they were built domestically.

Say Dallara built a Formula 3 car in northern Italy. Dallara runs the numbers and determines the break even point for their car is 80000 euros. So they decide to sell the car for 88000 euros. At today's exchange rate, 88000 euros comes out to 73114 pounds.

Now say there was a competing British company, say Lola, that built a competing Formula 3 car. They run the numbers and let's say they sell their car for the roughly equivalent price of 73000 pounds.

Say the European economy collapsed and the euro fell 5% against the pound. The price that Lola charged would stay the same: 73000 pounds. The price in euros that Dallara would charge would stay the same as their work rates stayed the same (for the sake of this simple argument, we're ignoring continental European demand dropping due to said European economy collapse which would probably drive the price of the Dallara in euros downward to drive business). However, that 88000 euros is now only worth 69458 pounds.

So the drop in the euro against the pound gave Dallara a further advantage against the Lola of the Dallara car could be sold for 3600 pounds cheaper. Good for Dallara, bad for Lola, good for the British consumer buying the car.

Likewise, the price of the Lola would go up in Europe; and consumption there would also move toward Dallara.

Though I think you'll find F1 will fair a little better considering 99% of the teams are based in the UK and won't be effected quite as badly as if they were based in the Eurozone.

And where do those UK teams get their sponsorship from? None of them get any money from the Eurozone? If there's a big fall in the euro, what's that mean? The European economy has collapsed or heavily declined. What does that mean for all those continental European sponsorships in F1? You're focusing on 1-2% of the costs for a team and ignoring the 50%: rich benefactors whose businesses are global and will be significantly affected by any downturn anywhere (e.g. Roger Penske, who is still mega-rich beyond all reason but in the past two years ceased his Belle Isle Indycar race and this past offseason cut all employee salaries at Penske Racing by 10% per the Bear) and the multinational corporations that heavily sponsor auto racing.

[bjohnsonsmith]

Originally Posted by Flyin Ryan

You're thinking backward here...... Likewise, the price of the Lola would go up in Europe; and consumption there would also move toward Dallara.

I'm not thinking backwards at all. A weak currency is good for exports as it makes them cheaper and more affordable for the buyer but it's not so good if you have to import as it makes things more expensive and can further fuel your balance of payments deficit.

If your currency becomes too weak, your exports are now even cheaper so you won't be able to make enough money to cover your imports, which in turn are now more expensive. It's about striking a balance.

So in Dallara's case, their cars will be cheaper than Lola's if the Euro falls further against the Dollar than the Pound does. However Dallara don't want the Euro to fall to the extent their cars are so cheap they can no longer balance their books, also they are selling to a limited customer base; though having said that, it's good for the teams as they can buy extra chassis and components for less.

Originally Posted by Flyin Ryan

And where do those UK teams get their sponsorship from?

If you look at the sponsors in F1 the vast majority are multi-nationals, with assets all over the world. I think the largest European company involved in F1 is Shell but it's a multi-national. The Santander banking group is another large European concern but again it has assets outside of Europe and the Eurozone.

[Flyin Ryan]

Originally Posted by bjohnsonsmith

I'm not thinking backwards at all. A weak currency is good for exports as it makes them cheaper and more affordable for the buyer but it's not so good if you have to import as it makes things more expensive and can further fuel your balance of payments deficit.

If your currency becomes too weak, your exports are now even cheaper so you won't be able to make enough money to cover your imports, which in turn are now more expensive. It's about striking a balance.

So in Dallara's case, their cars will be cheaper than Lola's if the Euro falls further against the Dollar than the Pound does. However Dallara don't want the Euro to fall to the extent their cars are so cheap they can no longer balance their books...

All the workers would get paid the same in euros. The overhead costs of the shop and equipment remain the same unless the equipment is imported. Any systems they import would go up (like a gearbox), but there are eurozone-domestic alternatives they could always go with if need be. Raw material costs and shipping may go up an amount but that's really about it - I imagine you're talking a float of 10% either way in the end. The costs of your cars are pretty static.

Read up on the Japanese carry trade and its effect on Japanese export manufacturers.

And if the cars do get really cheaper, that means the barrier of entry is less and more people can afford a car, which increases sales.

If you look at the sponsors in F1 the vast majority are multi-nationals, with assets all over the world.

And Europe is a key driver for the global economy and consumption, just like the U.S. is. If Europe is down, that hits everywhere.

[bjohnsonsmith]

Originally Posted by Flyin Ryan

All the workers would get paid the same in euros. The overhead costs of the shop and equipment remain the same unless the equipment is imported. Any systems they import would go up (like a gearbox), but there are eurozone-domestic alternatives they could always go with if need be. Raw material costs and shipping may go up an amount but that's really about it - I imagine you're talking a float of 10% either way in the end. The costs of your cars are pretty static.

Read up on the Japanese carry trade and its effect on Japanese export manufacturers.

And if the cars do get really cheaper, that means the barrier of entry is less and more people can afford a car, which increases sales.

That's all well and good if your economy is fine but if there's a run on the currency, raw materials and shipping costs go up as the value of your currency has fallen.

By barrier of entry do you mean trade tarriffs? The problem with exporting cheap products, is that you can run into the problem of dumping. Dumping is selling goods lower than the cost of producing them. There looks like there's the beginning of a tarriff war with China and the US, as each accusses the other of dumping cheap exports.

China is launching an anti-dumping investigation into American chicken and auto products, due to complaints that these products are being sold in China at below-market prices due to huge subsidies received from the US government. This is in retaliation to the US decision to impose sanctions against cheap Chinese tyre imports.

Originally Posted by Flyin Ryan

And Europe is a key driver for the global economy and consumption, just like the U.S. is. If Europe is down, that hits everywhere.

But not all of Europe is in the EC and not all EC countries are in the Eurozone.

[Flyin Ryan]

Originally Posted by bjohnsonsmith

That's all well and good if your economy is fine but if there's a run on the currency, raw materials and shipping costs go up as the value of your currency has fallen.

If there's a run on the euro and it's gone to where it's a major serious issue, none of the sh*t we're discussing in relation to Dallara would matter because we'll be in the middle of a global depression at which case all racing is hosed regardless.

By barrier of entry do you mean trade tarriffs?

No I mean consumer base. More people will buy a good at $40000 than will at $50000. When F1 was under its old economic model, no one wanted to buy in and teams were leaving. When the FIA put in place their cost reductions (like a semi-spec engine in the Cosworth), various groups were jumping to join in. That's what a lower barrier of entry can create.

But not all of Europe is in the EC and not all EC countries are in the Eurozone.

Yes, I know. Non-euro European economies though are heavily integrated with the eurozone and vice versa. If Italy catches a cold and declines as you're hypothesizing in relation to Dallara, damn skippy it'll affect Britain too even though the two don't share the same currency.

[bjohnsonsmith]

Originally Posted by Flyin Ryan

If there's a run on the euro and it's gone to where it's a major serious issue, none of the sh*t we're discussing in relation to Dallara would matter because we'll be in the middle of a global depression at which case all racing is hosed regardless.

That is possible but a run on the Euro doesn't necessarily mean there will be a global depression, that depends on how severe the run is, it could be bad enough just to cripple the EC.

Originally Posted by Flyin Ryan

No I mean consumer base. More people will buy a good at $40000 than will at $50000. When F1 was under its old economic model, no one wanted to buy in and teams were leaving. When the FIA put in place their cost reductions (like a semi-spec engine in the Cosworth), various groups were jumping to join in. That's what a lower barrier of entry can create.

Ok consumer base; people will always opt for the cheaper price. Well yes F1 was becoming very expensive and a budget cap was necessary. However the problem with that is new teams can't test in the off season, so car development takes place during GPs, which is not ideal.

Originally Posted by Flyin Ryan

Yes, I know. Non-euro European economies though are heavily integrated with the eurozone and vice versa. If Italy catches a cold and declines as you're hypothesizing in relation to Dallara, damn skippy it'll affect Britain too even though the two don't share the same currency.

Indeed non EC countries in Europe will be effected, though the UK is in a different situation as it does alot of trade outside the EC, namely with Commonwealth countries; those are the countries that once were part of the British Empire like Australia, New Zealand, Canada, India, Kenya, Nigeria etc., so there are trading alternatives to the EC.

[JagtechOhio]

Is there a wind tunnel used for testing Eurodynamic adjustments?

[mountainstar]

Originally Posted by Flyin Ryan

If there's a run on the euro and it's gone to where it's a major serious issue, none of the sh*t we're discussing in relation to Dallara would matter because we'll be in the middle of a global depression at which case all racing is hosed regardless.

Without getting into a play by play, as someone who stays up on economics and business, my own personal belief is that we are in a 10 year minimum economic depression. There will be times where things will look better, but I think we are in for a long haul of not so good times.

Motor racing had a bubble just like the financial and real estate business. I would say just about everyone I know is probably underemployed, on contract or unemployed and if they are full time, no comfort of likely job security.

The only way out I think for indycar is to open it up to all comers with chassis, engines and tires. That's the only way you are going to bring money, competition and interest into this tough environment.

[bjohnsonsmith]

Originally Posted by mountainstar

Without getting into a play by play, as someone who stays up on economics and business, my own personal belief is that we are in a 10 year minimum economic depression. There will be times where things will look better, but I think we are in for a long haul of not so good times.

Motor racing had a bubble just like the financial and real estate business. I would say just about everyone I know is probably underemployed, on contract or unemployed and if they are full time, no comfort of likely job security.

The only way out I think for indycar is to open it up to all comers with chassis, engines and tires. That's the only way you are going to bring money, competition and interest into this tough environment.

I hope you're not right about 10 years but we are all in for a long one, which ever economic zone you live in.

I totally agree open it up to all, so competition, interest and money are generated but is that sustainable under with the current economic crisis?

[JagtechOhio]

Once again in a radio interview tonight, Mark Page of Swift reiterated that his compny's bid is based on sole supplier status. All of the designers made this clear except Delta, who hasn't made clear they can build a chassis at all.

And no public mention by anyone in the IRL of permitting existing equipment of any vintage to participate.

If the new chassis is mandated for 2012, and using Delta's cost estimate of the chassis price ONLY, Andretti Autosports would have to come up with $2.66M in new investment to put four cars on the grid, and have a spare chassis for each as they do today.

That figure is adjusted to include the best possible scenario of the Honda engine lease reduction, from $935K down to $700K per car.

Today, AA can't find funding to run Ryan Hunter-Reay or Adam Carroll. They already own the chassis.

[bjohnsonsmith]

This is going to sound lame but we are just going to have to wait until ICONIC reach their decision.

As much as I would like to see Lola get the deal, if one chassis is chosen, Swift might be the best option as it is a homegrown operation and therefore will be a little less susceptible to outside economic factors.

[JagtechOhio]

Nope, not lame...even if you're still limping.

But it's only gonna be one, and Lola and Dallara would have to have big stones, access to big loans, and be in one hell of a hurry.

BAT wants to use existing Indy subcontractors. Ashmore already builds sprint cars there. Swift has one local sub on board, but they are not a large facility.

If Dallara's commitments and financial health are guaranteed, they get the deal. BAT is my second choice. But we'll soon find out...

[bjohnsonsmith]

Originally Posted by JagtechOhio

Nope, not lame...even if you're still limping.

But it's only gonna be one, and Lola and Dallara would have to have big stones, access to big loans, and be in one hell of a hurry.

BAT wants to use existing Indy subcontractors. Ashcroft already builds sprint cars there. Swift has one local sub on board, but they are not a large facility.

If Dallara's commitments and financial health are guaranteed, they get the deal. BAT is my second choice. But we'll soon find out...

Yep still limping but I'm on one crutch now; had to go to the Embassy today to hand my 1040 in to the IRS; what a mission. No more strange looking RC race cars, to trip over.

So you reckon BAT?

[JagtechOhio]

It still will come down to money, and how IMS/ IRL will benefit most.

That's why I was sure from the beginning that Dallara was in like flint. But Bernard now says 70% chance that the car will be ready for 2012, and the delays have been continuous so far. As climb reminded us, that's not much time.

So either offshore constructor would have to be very solvent, and very quick about producing a facility. Local jobs and tax revenue are the payoff: Local and State government will be pleased, and share the love with IMS.

That means manufacturing in Speedway, and Swift can't. BAT claims that they have based their whole proposal on Indy subcontractors.

[bjohnsonsmith]

Is decision day 30th June?

[mountainstar]

Originally Posted by bjohnsonsmith

I hope you're not right about 10 years but we are all in for a long one, which ever economic zone you live in.

I totally agree open it up to all, so competition, interest and money are generated but is that sustainable under with the current economic crisis?

The way to win sometimes is go against convention and let er rip. The only way to get money back in the sport is to open it up to all comers and get money flowing again from tire companies, car manufacturers, sponsors, etc. and get some public interest back to give them something fun to watch. People LIKE competition. They don't like one make boredom.

I watched a few minutes of some video of the indy 500 from this year, horrific is all I can say. I'm right in staying away and I hope others do as well. It's a crap product run by crap people.

[mountainstar]

Originally Posted by JagtechOhio

Once again in a radio interview tonight, Mark Page of Swift reiterated that his compny's bid is based on sole supplier status. All of the designers made this clear except Delta, who hasn't made clear they can build a chassis at all.

And no public mention by anyone in the IRL of permitting existing equipment of any vintage to participate.

Of course. All these chassis guys are going to bring in a chassis on price and then you are going to be grabbing your ankles on the parts prices(no matter what they say). Get the vaseline out. All of the chassis companies are obviously salivating over winning a one make bid cause they know how bad the driving talent is in the irl and combine that with ovals and it's $$$$ Dallara has made a raging fortune off the irl.

THEY don't want competition, they have a business to run. They don't care about what fans or drivers have to deal with or what they want. They are not in that business. Their business is cranking cars and parts out the door to whoever. Of course these guys are going to give you a sob story about how rough it would be to have competition.

[JagtechOhio]

The other thing is that now the realization is sinking in, that there will be only one chassis constructor to cap costs, the same logic has not entered into the discussion about the engines.

IF Honda continues to play as indicated, there isn't much sense in guessing who will pay for the privilege of splitting the market with them.

Another engine would likely not appear until 2013: so all the 2012 chassis will be built to accept a Honda V6. If you eventually have an option of fitting a 4 cyl, you have to build or buy the conversion components and gamble on the fortunes of an untested package. Other engines are only going to come from a full blown manufacturer development and lease program, according to Barnhart.

The Iconic decision is promised for June 30, no telling what or when announcements will be made. It goes to Bernard and then the IMS Board. Any engine manufacturer must submit a proposal by Homestead (October) to be considered for competition in 2012.

[bjohnsonsmith]

I thought multiple engines had been agreed, or did I miss something?

[JagtechOhio]

Yup. Thanks for the cartoon show, though.

That was where I was going with the thought on currency exchange. If you are selling chassis and parts at a contracted price, and exchange rates still stand between the two parties, you have a problem. Like your sole supplier saying "we're raising the price 20%, or we're not building any more tubs".

Kevin and Cavin followed the logic through in their discussion tonight, and got back to the real world. If you build new cars, and they're all the same too, does it get you any viewers? Will all the people who don't watch now give a squat?

Right back to where I came in. Make the current cars more competitve, enable variety, put on a better show. Then add more variety when teams can afford it.

[JagtechOhio]

Multiple engines are invited. Same as two years ago, only now it's public.

Barnhart wants a competitive entry from an auto manufacturer with a lease program. I believe that falls under the definition of "Badging rights", which manufacturers also have to pay the IRL for . Not a definition I am familiar with, though.

If it's not done that way, how is it an equal playing field for Honda's participaton?

Independent builders are not invited. That's based on Barnhart's answer to the question at the press conference in Texas.