“Repairing the damage”: Jonathan Neale on McLaren’s future after Honda

Please allow me to open my first column for F1 Fanatic with a few words of thank you for the incredible support and words of praise we received from fans across the world after Keith announced that I had to joined F1 Fanatic after a 25-year relationship with my previous media platforms. Of course, included in all the welcome messages was the inevitable question: “Why?”

In order to best illustrate the reasons I would like to draw an F1 analogy: The last two seasons have seen Force India, one of the last remaining truly independent teams, take on and embarrass the established order such that in 2016/7 this archetypical independent team placed fourth in the constructors’ classification.

Cynics view Force India’s classification as third of the losers, but this overlooks a salient factor: the team not only survives on one of F1’s most modest budgets, but punches well above its weight through a combination of enthusiasm, commitment, working both hard and smart, and by taking the correct management decisions in order to best deploy its extremely restricted resources – all in the face of considerable odds.

Sauber – the other only truly independent on the grid – faces the same challenges. What marks these teams out is their survival as independents despite not having the commercial / technical firepower of corporate teams. True, Sauber underwent a change of ownership to survive, but it is back. Force India and Sauber compete in F1 because they love F1, not because it suits some corporate agenda.

F1’s playing field has never been totally smooth – nor should it be in a true meritocracy – but in recent times that angle has been tilted by (alleged) abuse of the dominant position enjoyed by Formula One Management, epitomised by an inequitable payments structure and governance structure that excludes both teams.

Hence their EU Commission complaints on both counts, alleging monopolistic practice. While the matters may soon be resolved, there is no doubt both teams suffered massive injustices, but have survived against almost steep odds.

I have made no secret of my professional admiration for Force India’s achievements – and, to a lesser degree, those of Sauber – and harbour similar sympathies for F1’s media underdogs, those platforms that battle against the odds to survive in a crowded marketplace on extremely restricted resources, oft in the face of the (questionable) practices of media giants. Interpret that as you wish…

Thus I increasingly (re)considered my position in the sport, and began exploring my options. Keith and I held tentative talks some time back, and I promised to give him first call if I ever cast about. I did so shortly before Christmas, and the more we spoke, the more it became clear we shared a similar vision, one driven by a deep-rooted and shared passion for F1.

That vision is to ensure not only the survival of independent F1 media outlets but their growth in a rapidly changing F1 media landscape – for the ultimate benefit of F1’s fan base. Once I recognised Keith’s commitment to F1 Fanatic – and by extension, the sport, the teams, and, crucially, you, the F1 fan – the rest fell into place surprisingly quickly: quicker even than the landscape keeps changing…

Keith has truly exciting plans for F1 Fanatic’s future, including a name change and a structured expansion into other motorsport genre, and I am delighted to be part of those plans. These will be announced during the course of 2018 in line with our shared goal to make this already great website even better.

As such I will contribute not only weekly columns, but report directly from grands prix on your behalf. I am relishing this new challenge!

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Jonathan Neale on McLaren’s life after Honda

The saying “tip of an iceberg” applies perfectly to Formula 1 team’s manning structures: For every race-going employee there are at least five, possibly as many ten, employees back at base. Despite not having “starring” roles, they are every bit as vital – more so in some instances – to team performance – as the “front of house” folk one sees on television every fortnight or so during the racing season.

They design and develop cars to winning pitch, build them to exacting standards, obtain (enormous) funding, pay the bills and generally undertake all the “boring” jobs that enable “stars” to do all the high profile stuff. One of F1’s most capable “backroom” people is Jonathan Neale, Chief Operating Officer and acting CEO of McLaren Group Limited, as the newly-integrated operation is now known.

The Group consists of three pillars: Racing (effectively the F1 operation), Automotive (self-explanatory, but with its own GT racing operation) and McLaren Applied Technologies (which provides McLaren-developed technologies to other industries), and while various group companies were separate legal entities with different shareholders, they are converging into one group with one set of shareholders.

An indicator of Neale’s acumen is that he is the only remaining member of the troika that ran the team during those mercurial noughties: Ron Dennis, Martin Whitmarsh, Neale. Thus he survived various upheavals over the years – including “Gates” and the oustings of Dennis, Whitmarsh, other key people and the disappointment that is the Honda era, yet remains very much in charge of McLaren’s nuts and bolts.

Jonathan and I meet up once a year to review the team, and discuss planned progress for the incoming season. The latest agenda has some additional lines: Group structure, Honda/Renault and future strategies. He alludes occasionally to Automotive, but makes clear the car side is the responsibility of divisional CEO Mike Flewitt. Still, Neale can’t hide his pride at McLaren’s success in the sector.

We move straight into Group structure. Has the convergence been completed, and what are the shareholdings? Who actually runs the Group?

“Bringing two groups of shareholders (Automotive and Racing/MAT, the latter previously known as McLaren Technology Group) together back into one company, is great for us,” he says. “There was a good reason why the company separated – to drive additional funding into Automotive – and now to bring it back to one brand, one pillar again. It’s tremendously exciting.

Then Neale gets as close to talking about the Dennis situation as will during the 25-minute interview: “Certainly very painful and very public, unfortunately, but sometimes you don’t get to choose the way these transitions happen. You don’t flick a switch and integrate overnight, but whereas it was expanding, it’s now converging under one strategy. Mike, Zak (Brown) and I are very close.”

And the shareholdings then and now?

“Seventy per cent of equity in Automotive was owned by the same people (the Bahraini royal family, via its investment fund Mumtalakat) that owned 50 per cent of McLaren Technology group. But now it’s all one set of investors, one board, and three operating companies.”

Was this achieved via a share exchange?

“Yes, because Ron was bought out.”

And the Bahraini shareholding now is?

“It’s slightly less than 70 per cent, but it’s a majority shareholding.”

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He immediately refutes rumours that McLaren plans to list, but admits that the Group recently raised £500m in the City.

“There’s no internal discussion at the moment about IPO or public; it’s all about continuing the growth in Automotive, about getting behind in gearing for growth in Applied Technologies that we see as an exciting play going forwards, but we’ve got to be focussed about what that is because it’s not all things to all people,” explains Neale, who graduated from Nottingham University in 1984 with an honours degree in physics before joining BAE Systems ahead of a move to McLaren in 2001.

“Then [it’s] repairing the damage that we’ve done in Racing over the next two or three years. That means getting [ourselves] out of P9 in the Constructors’, and getting ourselves back up the front of the grid. The reason we’ve brought Zak on-board is to help restore the commerciality of our motorsport.”

The comment eases to the next question: The structure of the Group, now effectively headed by Sheikh Mohammed bin Essa Al Khalifa as chairman, supported by long-time McLaren shareholder Mansour Ojjeh of Saudi Arabia.

“Myself, Zak and Mike are the senior executives running the company, reporting to the board. Between Zak, myself and Eric we’ve got Racing. I’m Chief Operating Officer. There’s Zak, who’s one of the directors…

Eric reports to you, predominantly to you, because on some stuff he reports to Zak…

“Yeah, exactly, but if it’s commercial it’s to Zak.”

I detect a weighting in favour of Racing, given Automotive larger contribution to revenues.

“Only because [Racing] requires a lot of repair work over the next two or three years. In the overall scheme of changing management of the company, we’re going through that restructuring. We want to make synergy savings as well. One of the reasons for bringing the companies back together is to de-duplicate where we can. There’s a lot of management work to drive our businesses forward, and also to take that synergy step.”

That dispensed with, the next touch point is Honda/Renault:

“In Formula 1 the key thing has been working out whether we could find a way of restoring our competitiveness, making that happen with Honda,” he says, then pausing slightly before adding, “After the difficulties of winter testing…We concluded, together with Honda, that…” (unsaid).

So, if that’s not the answer, what is the answer? We went through all the various permutations and combinations through the middle of this year, and now we’re looking forward to racing with Renault next year.”

The team’s stated objective with Renault power is to regularly challenge the established order for podiums; indeed, Brown’s commercial strategy is based on such performances. Is that feasible given that to do so McLaren would need to beat various permutations of one or both Mercedes and/or Ferraris – to finish third…

“Well, Red Bull proved it’s capable this year.”

True, but only when others faltered…

“But that’s the nature of motorsport. We’re under no illusion.”

But you aim to consistently be on the podium?

“Of course we do, but that’s a journey. Nobody thinks we’re going to snap back in the space of a few critical months. The competition out there is good, it’s tough, but we can rebuild our business next year, fighting for podiums. But you’re right: It’ll be tough on current form and on current trajectory to consistently be anywhere near beating the Mercedes or the Ferraris.”

A year ago Neale had stated the target for 2017 would be to finish “better than fifth” in the constructors’ classification. I remind him of this, stressing P9, than add that I would be ‘very surprised, indeed very complimentary’ if McLaren placed better than fourth in 2018 – which would require (at least) regular podiums to achieve.

“Yeah, I think I would be the same. Let’s suppose that we just pick P4 as a marker. From where we are at the moment, P9, that is a step. Is that enough? Absolutely not!

“That isn’t where McLaren should be, but in terms of a trajectory going forwards, it is upwards. We’ve had great conversations with Renault about what kind of contribution we can make to the programme in its broader sense, and we want to be a good technology partner. We don’t want to be a passive customer, and I don’t think Renault wants us to be a passive customer either.”

With all the recent talk about F1’s post-2020 engine regulations, I fly a kite about McLaren doing its own power units in order to mesh with the road car division. After all, what sort of message does it send to its supercar clientele that McLaren F1 cars run Renault?

“Clearly our primary objective is to restore our competitiveness in the Formula 1 arena. We did the (2017) Indy 500; that was good, it gave us better brand exposure, it was good for Fernando, it was good to shine a brighter light on something that was a difficult season. That was more tactical than strategic.

“When you look at what our company does… then we’re not quite – you and I wouldn’t call it ‘entry level’ – but we’ve got sports cars coming in at the sort of 140-ish Euros with bits attached… which will then take you through the Sports Series all the way up to the Ultimate Series.

“I don’t know how much chance you’ve had to look at what’s under the hood in top-end sports cars these days, but you can get pretty much 1,000bhp out of a turbocharged engine, before you hybridise. You can get that for maybe £10,000 or something, and you’ll have 50,000 mile service intervals.

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“For about the same kind of power – yes, a lot lighter, yes there’s a lot of other things about it, but going to pay, whatever it is, millions a year for this thing. The technologies are quite different. You’re right in terms of us stopping and thinking strategically what do we need to do.

“Automotive, and Mike can talk for Automotive, has a clear power train strategy at the moment. You’d expect it to, because it’s got a series of products coming out in the next few years and the emission regulations will drive electrification or hybridisation, so you’ve got to be in there right now. I think in Formula One McLaren hasn’t historically done its own engine.”

So no chance, then, of McLaren joining the expanding list of post-2020 wannabe engine suppliers?

“We’ve just signed a deal with Renault. The regulations are all changing, and only 50 per cent of the map has been released so far, so we don’t know the [exact] direction of travel. But the commerciality of it for us?

“At the moment it’s not clear. You’ve got big teams like Mercedes who are spending significant amounts of money on a large organisation and an embedded infrastructure. If you’re selling – Ferrari make 35,000 engines a year for Maserati, as well as their own, 8 000 – when you look at the kind of return on sales you get, we’re still a niche manufacturer, even though we’re making the thick end of 4,000 cars a year.

“We have a Formula 1 programme. We’re still not scaled, we’re not a scale manufacturer yet. But we are keeping an open mind, and look at this next phase of where Formula 1 is going, and whether there is a chance to use our capital more wisely. But we don’t have any immediate plans to do anything other than getting ourselves back into health by working well with Renault.”

In the final analysis, does Jonathan believe that the long-term solution is to run with Renault; for Mighty McLaren to remain a customer team?

“I’d go back to what Ron said. Ron is on record as saying that the right model under the current rules in Formula 1 is to be works-engine team, because you’ve got the strength and the power and the muscle of an OEM that has a strong marketing budget, and you have access to deep technology and capital investment.

“Then you have the agility of a team to keep that thing nimble and keep it motorsport minded. I still believe that’s true and that’s the ideal situation. The last few years haven’t delivered that for us and we needed a break-out strategy so we can repair our business. So we’ll see. Ask me that at the end of [this] year…”

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