DSC’s feature series focused on the cost of GT3 racing continues today with Part 3, which looks at the costs involved for the manufacturers. Missed the earlier instalments? Catch up here with Part 1 and Part 2!
Over the other side of the fence, things are seldom easier when it comes to customer racing. For teams and drivers, the balance between controlling cost and staying competitive is a fine one. For manufacturers, it’s a similar battle.
The GT3 marketplace in the past decade has grown significantly, with more manufacturers coming forward, and existing marques updating their products more frequently with new models or the introduction of evo-kits.
It’s made it tough for newer manufacturers into the marketplace such as Honda, and Lexus, as well as the more boutique names such as McLaren, Callaway and Bentley who can’t (or by design, don’t) produce cars in the same level of volume as the more mainstream makes.
The business case for customer racing in GT3 is an intriguing one. Just how do you make money, and how much value does a brand get for such an effort?
It’s not a simple answer. But let’s start with drumming up enthusiasm to get a customer racing programme off the ground, before we move onto the costs involved and value beyond selling race cars.
“Think about it this way,” an industry insider told DSC, when asked to explain the difficulty in convincing automotive-focused staff at a major manufacturer that serious investment is required to make a customer racing programme work.
“At a sales and marketing conference, every quarter we will talk about results and PR will talk about what things look like in the media. But I have to try and explain to automotive people that a road car very rarely spends any time at the limit of its operation. It’s probably sat down there at the bottom five percentile of its potential. A race car meanwhile will spend almost every second at its limit. You are always pushing. So the job of a race car is to basically prolong the time between incidents because inevitably stuff will fail.”
Operating a customer racing division is a hard task, made harder because generating profit, even with ‘the perfect car’, is incredibly difficult.
The level of investment required to ensure your product is good enough to attract a strong customer base comes is significant, especially as you’ll likely need to spend millions in developing the car (anywhere from 3.4 million to more than 10 million was quoted by manufacturers when asked about development costs) before you can even think about selling it and producing spares.
In business terms, developing and selling race cars is a very different prospect to road cars. But there are plenty of different ways to go about it. It’s not simply – develop, make, sell and service all to the highest volume possible and repeat.
“Our company will categorise manufacturers into three areas,” he continued.
“We’ll start with German makes, they probably are the market leaders. What they offer is almost like Amazon, it’s as much about product delivery and a logistics service as it is about the racing and the product.
“We then have the category for ultra specialist and non-commercial customer racing marques like Acura, Lexus, and Bentley back in the day, when they were not looking to sell cars.
“The other category is the luxury brands, genuine thoroughbred road cars where the pedigree is racing and the business model surrounds it, like McLaren, Aston Martin, Ferrari. In that instance it’s about utilising deep pockets like the more mainstream brands, but instead drive enthusiasm from the customers.”
So where do you price a car? We’ll get to that. First you have to forecast how many cars you will sell over a model’s lifespan. If you’re a manufacturer with a long history of customer racing at various levels, it’s easier to start a GT3 project, if you’re completely new to the GT racing scene or have been a way a long time, then prying customers away from your competitors will be tough.
“Look at the WRTs, who run Audis as a commercial operation, they run it well, and are with Audi because it works,” a manufacturer source said. “Whereas a team like maybe Balfe Motorsport, race with McLaren and are very loyal to the brand.” They won’t be easily persuaded to move to a new brand.
There are real politics at play too, as manufacturers attempt to get teams onboard and generate profit. Anything from helping with manufacturer fees in IMSA, to spares discounts, the promise of pro drivers and even giving away free cars (yes, one manufacturer source did tell DSC that it tried incredibly hard once to nail a team down, only to find out another manufacturer “kept throwing free cars at them”) come into play when trying to attract the more sought after teams in the business.
“There are strategies in play,” the head of a GT3 and GT4 manufacturer said. “It’s similar to what BMW used to do at dealers. You see a great ticket price on a 3 Series, and go ‘that’s great I’ll have one of those!’ But then you find out there’s more to it: do you want a stereo, electric windows? Suddenly it becomes expensive, there are teams and manufacturers that do that.
“Brand value comes into it too.” Put simply: Are you a brand like Ferrari? Then you can afford to charge more.
Customer service is also a factor in getting teams on board, they need faith that they will be looked after if things go wrong. It’s an expensive, but vital element of running a successful customer racing programme. If it lapses then you can and will lose teams in droves, especially because it’s a BoP-governed formula and they may in some cases be paying a premium for your brand’s model in the first place.
Teams that have been around a while know what to expect from a major manufacturer. In some instances a bad experience with either the car or the people behind the scenes can go a long way in an outfit choosing to take its business elsewhere.
“We basically quit GT3 racing because we had bad experiences with two manufacturers,” a team owner of a former GT3 team told DSC.
The more customers you have, the more stock and inventory you need to have in reserve to service teams. This is another cost to factor in when working out what price point to go with for your car. A smaller manufacturer in terms of sales numbers such as McLaren or Bentley may only need 5-10 million pounds of spares travelling around in the back of trucks or in shipping containers, but if you’re a mainstream GT3 marque like Audi, naturally, you’ll need more inventory available to send to race tracks around the world.
“For a big manufacturer, I wouldn’t even want to hazard a guess, but I would say you’re talking 15-20 million pounds.” A factory driver said.
You also need to work out whether you ‘need’ to make money from this endeavour. Do you need to sell 50 cars and make money, or just run a select few cars in key markets and justify it all as a marketing exercise.
“When we price up cars and parts, it’s a balance. Customers have to be happy to pay the premium to represent the brand they choose. They’ll pay less if there are more out there, and more if it’s a boutique brand.
Customers have to be happy to pay the premium to represent the brand they choose
“And for us it wasn’t easy to choose where to price our car and parts at,” a manufacturer boss said. “Honestly, at best we just wanted the whole operation to break even. It would be great to make money, not hundreds of thousands, or millions, just turning any sort of profit would make the board happy.
“We reckon we were getting about 20 million dollars a year marketing value from having a GT3 programme. That’s not shown on any paper, and it doesn’t get much recognition, but my job was to find a marketing budget of 10 million, gain marketing benefits and turn a profit.”
So how do you calculate marketing value and come away with a figure? How can you tell if a GT3 programme is justifiable as a branding exercise if the act of selling and servicing customer cars isn’t profitable? Do good results lead to road car sales? Does being involved in a major championship like the Intercontinental GT Challenge or IMSA WeatherTech SportsCar Championship drive sales of customer cars?
The answer, as you’d expect, is that it is extremely hard to quantify just how much value you can place in having customer cars racing around the world. But that doesn’t stop marques trying to come up with an answer to the questions above…
Take the IMSA manufacturers fee for example, which each marque must pay to allow customers to race whether it has 1, 5, 10 or 15 cars on the grid. It is 800 thousand Dollars a year for the Sprint races and 1.2 million for the full season (a third of this, DSC is told, goes to IMSA, a third goes to the TV coverage and a third must be used by a manufacturer to activate its products at events). You may think it’s a no-brainer to get that paid up and allow customers to put cars on the grid, but the figures sometimes don’t add up.
The head of a manufacturer which has no full-season cars on the grid said: “I don’t feel like we should spend 800 thousand dollars a year on the fee. I believe we should have a presence in that championship, but you’re effectively paying a big marketing fee, and are you getting enough value from that?
“Do we think it will sell road cars? Yes or no? If it’s yes then we would do it, it’s the same when we consider taking cars to Geneva or Goodwood. But, for instance, for me to generate the 800 thousand dollars required to spend on that, just for a partial season programme to get a few cars on the grid, is impossible. You will never make the money back.”
What about the value of having cars racing in championships that don’t come with a substantial cost to manufacturers, such as World Challenge the IGTC?
“It’s so hard to work out. Let’s compare to LMP1, back in the day. Say you are Audi, and you’re spending 150 million a year to do Le Mans and the WEC, so eight races or so. You can then turn that on its head, because even if you’re spending 30 million a year to do customer racing globally, as Audi, you’ve got a presence at the Spa 24 Hours, Bathurst, you can do Daytona, Sebring, all of these things. Suddenly that’s value in comparison isn’t it, especially as customers are racing and winning on your behalf?
“So if a small manufacturer is getting 20 million Euros of value, then a big one like Audi is getting 40 million. The way that sponsorship and all this is justified, is that companies produce marketing reports. And while they have to be taken with a pinch of salt, they are important.
“They put a metric to it, and it is logical. They go through all of the cost to advertise at a sporting event. So say the Spa 24 Hours, if you were a company that wanted to sponsor it, and put billboards all around the circuit, there’s a cost to that, it could be 200 grand.
“So what these companies do is analyse the footage of the race, the exposure, the commentary when they discuss your cars. They’ll track all the mentions, name drops, the times the car is spent on screen, and they even put a quality value to that too, so that a car on fire in a wall doesn’t get the same value as a car crossing the line to win a race.
“They’ll say: ‘during Spa you got 38 minutes of marketing value’. If you wanted to pay for 38 minutes of advertising, it would have cost, say 450 thousand euros, so that’s your value for that race. The only thing is you can’t control the marketing message, you can’t guarantee that your brand will look good if there are cars on track. Things may go wrong.”
So having looked at the costs involved, and the potential value of setting up a programme, if you sign off a GT3 programme, where do you price your car?
“It’s about how many do you plan to sell, can you cover the costs of doing that, do you see marketing benefits, is it worth the aggravation because of the number of spares you’ll have to produce. And the lifecycle of a car is challenging to predict,” said an industry source.
“Sometimes regulations can change without warning, like new crash regulations, you can’t predict them. But you still need to dive in, and ensure you make cars and ensure that every car you sell has a good stock of spares behind it. The day that you retire a model, you inevitably end up with a wealth of redundant stock that you have to write off your balance sheet. It’s a real challenge. There is no right or wrong answer. It’s a headache.”
Beyond that when do you decide to create an evo-kit for your car? Do you need one? And will such a change be palatable for your customer base? The basis for the changes, despite it being a BoP formula which in theory prevents performance gains through spending more on development, stems from road car strategies.
“So with a road car, if it’s a sports car, you’ll launch it, then in two years time you’ll launch a new model with more horsepower, racing seats and a wing on the back of it,” a manufacturer head said. “What that does is as the sales curve starts to diminish you have a ‘special sales action’ to boost sales, you encourage people to buy the same car again or upgrade their car because some new tech has been piled in. Evo kits in GT3 exist with every manufacturer for the same reason.
“Technically though, in GT3, you can turn up with your wife’s VW Golf and if it’s homologated, they’ll give you enough weight reductions and increase the power so much that it can produce the same lap times as the other cars out there. Because of this, Evo kits are not used for performance gains, even if they are marketed that way. It’s just a way to change things up and generate sales.
Technically in GT3, you can turn up with your wife’s VW Golf and if it’s homologated, they’ll give you enough weight reductions and increase the power so much that it can produce the same lap times as the other cars out there
“Manufacturers are always having to come up with new initiatives to explain themselves and justify a promise that things will be better next year, because if you go to any paddock and ask teams about their cars all they’ll tell you is how s*it they are, and why the car, or BoP, is preventing them from winning.”
Yet there are drawbacks to success. You may think that manufacturers want to have their cars winning every race, every weekend, but the reality is they don’t.
BoP (which this writer happens to feel is a necessary evil at its core) and the issues it brings has created a situation where the factories involved hope their cars don’t claim standout results outside of the big marquee races. This is because the likelihood is that your car will get pegged back so much as a result of the success that new customers may steer clear and existing ones may be enticed to look elsewhere to gain an advantage.
“The worst thing as a manufacturer that you can have, is a good year,” a manufacturer source said. “If you have a good year, you’re pretty much guaranteed to have a shit year the following year. The BoP is supposed to be fair, but really it is never quite fair.
“One year a car may win everything, and then the following year be off the pace and struggle to get anywhere near podiums in major championships.”