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Tuesday, November 30, 2010

Who will be the Lotus F1 team in 2011?


The Independent on Sunday recently reported that Lotus made a $23 million loss in 2009. The same report claimed that Proton relied on bank loans and Malaysian tax payer’s money to ensure the survival of the brand through the year. This has prompted many people to question whether Proton can afford to invest $30 million per year into an F1 team.

By Mark Martin

Two of Malaysia’s biggest companies are in the midst of a high profile and expensive legal battle over the rights to the use of a car name. Air Asia boss Tony Fernandez and Proton CEO Dany Bahar both claim to have a legal right to use the name Lotus in 2011 for their respective F1 teams. So, how did they get into the situation and what is the solution?


The origins of Lotus

The Lotus Company was set up by British entrepreneur Colin Chapman in the 1950s. Initially the company was established as an F1 team and achieved massive success with the likes of Jim Clark, Emerson Fittipaldi and Mario Andretti. The team also had
a reputation for nurturing young talented drivers such as Jochen Rindt, Ayrton Senna and Nigel Mansell before the latter went on to become the star of Money Supermarket advertisements in the UK.

On the back of the success of the racing team, Chapman decided to start producing road cars and therefore established a group called ‘Lotus Engineering’. This is where the legal battle in 2010 stems. The man who owned the Lotus F1 team in 1994 (David Hunt) when the team folded in huge debt claims that Chapman set up ‘Lotus Engineering’ as a separate company from the F1 team which was called ‘Team Lotus’. Hunt claims that Chapman did this in order to protect the reputation of the road car company in the event of a driver being killed or injured while driving a ‘Team Lotus’ F1 car. Hunt claims that this is proven by the fact that the road car company continued to operate following the demise of the racing team. However, while Dany Bahar admits that ‘Team Lotus’ and ‘Lotus Engineering’ operated as separate companies he claims that they were both separate divisions of the same company called ‘Group Lotus’. Bahar claims that it is ‘Group Lotus’ which is
now owned by Proton and not just ‘Lotus Engineering’.


Why does it matter to them?

Fernandez utilised the Lotus name with the permission of Proton this year. He believed that using a recognisable brand name like Lotus would help attract high quality staff to his racing team. The strategy worked as the team hired highly rated designer Mike Gascoyne as well as race winning drivers Jarno Trulli and Heikki Kovalainen. This allowed the team to become the most competitive of the new teams for 2010 and endeared them to F1 fans. This was helped by Fernandez organising
events for fans such as the celebration of the original Lotus team’s first victory which featured a demonstration run of Fernandez’s F1 car in order to strengthen the links between the old Lotus team and Fernandez’s. David Hunt who claims to still own the rights to the name ‘Team Lotus’ then offered Fernandez the opportunity to buy the rights to the name off him. This would allow Fernandez to run the team with exactly the same name as Chapman’s team and without the need to rely on Proton giving him permission each year.

Bahar had planned a new marketing strategy for Lotus. He basically planned to adopt the same strategy as the one used by Ferrari when he was brand manager there. This would see Lotus funding an F1 team and relying on the press and television
coverage of the sport alone to market the brand to the world. The annual fee being paid by Fernandez to use the Lotus name allowed Bahar to do this at a profit. However, Fernandez’s plans to use the Lotus name without Bahar’s permission would mean that Bahar would have no control over how the brand was presented which prompted him to take legal action against Fernandez’s plans.


The Renault factor

Proton already has a strong relationship with the Renault car manufacturer, as the two companies have collaborated on road cars in the past. However, Renault was also planning on altering its motorsport marketing strategy. Instead of funding its own
F1 team, Renault felt that it would get just as much publicity by paying a substantially lowerr amount to put Renault logos on the championship winning Red Bull cars in 2011. Renault was therefore looking to sell its remaining 25% stake in the Renault F1 team. Bahar is believed to have signed a deal to purchase this 25% stake and agreed with majority stakeholder Genii capital that the team will be renamed “Lotus Renault” in 2011, with Proton contributing $30 million per year towards the team’s budget.

At this point Fernandez was in advanced talks with Renault about using their engines on his F1 cars in 2011. When Bahar came along with his offer it is alleged by an F1 insider that he told Renault he would only purchase the 25% stake of their F1
team if they forced Fernandez to abandon the Lotus name for 2011. This additional contractual clause is believed to have come late in the day when Fernandez’s team had already started designing their 2011 car around the Renault engines. If this is true it would suggest that Bahar doubted that his legal action would be successful.


Proton’s finances

The Independent on Sunday recently reported that Lotus made a $23 million loss in 2009. The same report claimed that Proton relied on bank loans and Malaysian tax payer’s money to ensure the survival of the brand through the year. This has prompted many people to question whether Proton can afford to invest $30 million per year into an F1 team. This viewpoint was supported by Fernandez’s F1 team’s technical director Mike Gascoyne who stated in the German publication Auto Motor Und Sport “If they want to advertise their road cars, why spend so much money on it? With us, they could do it free of charge.”

However, Bahar is alleged to believe that an increased motorsport presence will help Lotus achieve its target of quadrupling sales within the next couple of years.

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