Mclaren

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Discussion

ralphrj

2,728 posts

127 months

Saturday 1st December
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Fortitude said:
I haven't read the investor update, from which you have obtained those figures, BUT from what you have written, I do wonder how long McLaren can keep burning cash at the rate that they do.

Do you think that McLaren will be able to survive, at this current rate of cash burn?
If investors like Latifi keep putting cash in then they could go on indefinitely.

However, I think that in the next 5 years one of three things will happen.

1. The financial performance of Automotive and/or Racing will improve so that the company ceases to burn cash,
2. The results carry on at the current level and current investors continue to pour cash in/new investors join to keep it afloat,
3. The results carry on at the current level and no investors will be prepared to put cash in resulting in collapse.

The business plan is presumably 1. followed by a public flotation on the stock market.

Looking at the trading price of the bond they issued last summer it looks like investors are losing confidence that McLaren will succeed (with the business plan, I don't think they are abandoning all hope, yet).

Fortitude

258 posts

128 months

Saturday 1st December
quotequote all
ralphrj said:
If investors like Latifi keep putting cash in then they could go on indefinitely.

However, I think that in the next 5 years one of three things will happen.

1. The financial performance of Automotive and/or Racing will improve so that the company ceases to burn cash,
2. The results carry on at the current level and current investors continue to pour cash in/new investors join to keep it afloat,
3. The results carry on at the current level and no investors will be prepared to put cash in resulting in collapse.

The business plan is presumably 1. followed by a public flotation on the stock market.

Looking at the trading price of the bond they issued last summer it looks like investors are losing confidence that McLaren will succeed (with the business plan, I don't think they are abandoning all hope, yet).
Thank you for replying and adding your thoughts.

TWO observations;

[1] McLaren is now NOT the destination for top F1 drivers and that is REVEALING, in the loss of confidence or prestige, surrounding the McLaren team.

[2] Ron Dennis MADE the RIGHT decision to sell ALL of his McLaren shares when he left McLaren, after a ‘reshuffle’, which 'in effect’ OUSTED Ron from the McLaren Board.

The decline in McLarens F1 fortunes has been remarkable. TWO early indicators to that decline in 20/20 hindsight and retrospective thought, were the switch away from the Mercedes engine and the loss of Lewis Hamilton.

glazbagun

9,120 posts

133 months

Saturday 1st December
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Fortitude said:
The decline in McLarens F1 fortunes has been remarkable. TWO early indicators to that decline in 20/20 hindsight and retrospective thought, were the switch away from the Mercedes engine and the loss of Lewis Hamilton.
The one which set alarm bells ringing for me was 2014, where a Merc engined Williams was third in the wcc, but McLaren were 5th. Their podium in the first race flattered them, and they blamed their oil supplier and lack of Works status.

In fairness I think the switch to Honda was philosophically sound, but their veto over sharing the engine both betrayed a lack of confidence and hid their own/their engines deficiencies.

ralphrj

2,728 posts

127 months

Sunday 2nd December
quotequote all
Fortitude said:
Thank you for replying and adding your thoughts.

TWO observations;

[1] McLaren is now NOT the destination for top F1 drivers and that is REVEALING, in the loss of confidence or prestige, surrounding the McLaren team.

[2] Ron Dennis MADE the RIGHT decision to sell ALL of his McLaren shares when he left McLaren, after a ‘reshuffle’, which 'in effect’ OUSTED Ron from the McLaren Board.

The decline in McLarens F1 fortunes has been remarkable. TWO early indicators to that decline in 20/20 hindsight and retrospective thought, were the switch away from the Mercedes engine and the loss of Lewis Hamilton.
You're welcome.

I agree with both of your observations. Until they show signs of competiveness drivers McLaren won't be top choice of any driver. McLaren very publically offered Danny Ric $20m over the Monaco weekend and he opted to go to Renault, most likely for less money. My gut feel is that neither Sainz or Norris really want to be there next year. Sainz had no other options and I think it was Norris (or his manager) that was pushing for the Toro Rosso seat instead. McLaren's history of discarding young drivers for not performing when the team have been producing dogs to drive must cause Norris deep concern.

Beyond the drivers we must also consider how much harder it will get for McLaren to attract or retain top Engineering staff. They have managed to sign James Key although it is still unclear when he will join the team. The latest comment is that he will join "in 2019 but not early enough to contribute to the 2019 car" but given that he was under contract with STR until late 2019 that might not be saying much. I always understood that design work on an F1 began in the previous summer so it is possible that Key won't even be at McLaren in time to properly contribute to their 2020 car. Pat Fry has joined but he was out of work since the collapse of Manor and was let go by Ferrari 4 years ago so can't really be considered a major coup.

Ron Dennis was absolutely right to cash in completely. In order to buy him out and repay their debts McLaren issued £560m of bonds. Since then they have had a cash injection of £100m from Latifi and yet they still only have £6m in the bank. How will they repay the bondholders in 2022 if they can't generate cash? If they have to do another bond issue the chances are it will have to be at an even higher rate than the current 5% (Ferrari's must recent bond was at 1.5% and trades at 101.5, their debt is considered less risky than the Italian Government's).

Lewis Hamilton is, in my opinion, Nostradamus for making the decision to leave McLaren for Mercedes! In 2012 they were competitive (3rd in WCC, 82 points behind Red Bull) but even with the loss of works status who could have predicted that McLaren would have their worst season for 33 years (5th in WCC, 474 points behind Red Bull, 193 points behind 4th placed Lotus)?

TobyTR

230 posts

82 months

Monday 3rd December
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I think times were very different in F1 pre-2013.

From the mid-1990s to 2009, McLaren had Mercedes' sole focus and backing, plus they had huge sponsorship $$$$ coming in from West, Johnnie Walker, Vodafone etc to compliment their massive top-three spending budget.

From 2010 onwards they were no longer Mercedes main priority and lost Vodafone from 2012 onwards. I think Hamilton saw the writing on the wall, Ross Brawn's genius and focus on the 2014 regs, more key personnel joining Mercedes and their insanely high budget going into the hybrid era. To succeed in this hybrid era you need to be in a Manufacturer team

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ralphrj

2,728 posts

127 months

Monday 3rd December
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TobyTR said:
I think times were very different in F1 pre-2013.

From the mid-1990s to 2009, McLaren had Mercedes' sole focus and backing, plus they had huge sponsorship $$$$ coming in from West, Johnnie Walker, Vodafone etc to compliment their massive top-three spending budget.

From 2010 onwards they were no longer Mercedes main priority and lost Vodafone from 2012 onwards. I think Hamilton saw the writing on the wall, Ross Brawn's genius and focus on the 2014 regs, more key personnel joining Mercedes and their insanely high budget going into the hybrid era. To succeed in this hybrid era you need to be in a Manufacturer team
Minor point but McLaren still had Vodafone sponsorship in 2013. Their income that year (£191.8m) was only surpassed last year. They made a comfortable profit that year, actually spending less than they did in 2012.

From memory, 2013 was around the time that the Automotive company was performing badly. It may be that the cash requirement of the Automotive business meant that there was insufficient cash available to spend on developing the F1 cars.

Then add the costs of:

Paying off Martin Whitmarsh.
Developing a car to the new hybrid regulations.
Paying off Mercedes to exit their engine contract.
Developing a special version of your car to run the Honda engine in the end of season test.
Paying off Honda to exit their engine contract.

You can start to see how much of a hole they have dug themselves into.

FourWheelDrift

75,524 posts

220 months

Monday 3rd December
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When anyone denies anything in F1 they are usually not telling the truth, maybe they have they done a Brawn and spent this year (from May) on next years car. - https://www.crash.net/f1/news/911535/1/brown-denie...

DanielSan

13,596 posts

103 months

Monday 3rd December
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I don't doubt they were doing development in October and even putting those bits on this year's car, but I'd be willing to put money on those parts being a development for next year.

FourWheelDrift

75,524 posts

220 months

Tuesday 4th December
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McLaren have confirmed Chevrolet power for Alonso's Indianapolis 500 next year - https://www.crash.net/indycar/news/911551/1/chevro...

Fortitude

258 posts

128 months

Yesterday (14:10)
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I have quoted two relevant sections of your last two posts;

ralphrj said:
Ron Dennis was absolutely right to cash in completely. In order to buy him out and repay their debts McLaren issued £560m of bonds. Since then they have had a cash injection of £100m from Latifi and yet they still only have £6m in the bank. How will they repay the bondholders in 2022 if they can't generate cash? If they have to do another bond issue the chances are it will have to be at an even higher rate than the current 5% (Ferrari's must recent bond was at 1.5% and trades at 101.5, their debt is considered less risky than the Italian Government's).
ralphrj said:
From memory, 2013 was around the time that the Automotive company was performing badly. It may be that the cash requirement of the Automotive business meant that there was insufficient cash available to spend on developing the F1 cars.

Then add the costs of:

Paying off Martin Whitmarsh.
Developing a car to the new hybrid regulations.
Paying off Mercedes to exit their engine contract.
Developing a special version of your car to run the Honda engine in the end of season test.
Paying off Honda to exit their engine contract.

You can start to see how much of a hole they have dug themselves into.
IMHO, you have succinctly explained HOW the ‘once mighty’ McLaren have fallen from pre-eminence.

I do wonder, how much leeway they have now got in terms of;

[1] Maintaining their cash flow?

[2] Increased Expenditure compared with their reduced income?

With regards to your point in our discussion, “Lewis Hamilton is, in my opinion, Nostradamus for making the decision to leave McLaren for Mercedes!”

Having given it some thought, there have been other moments too, that have, IMHO, been cumulative in that decline;

[1] Adrian Newey leaving McLaren.

[2] $100 million fine, imposed by the FIA over the 2007 Formula One espionage controversy.

https://en.wikipedia.org/wiki/2007_Formula_One_esp...

max mosely after the F.I.A. decision to fine mclren

https://www.youtube.com/watch?v=vpGttlNAgcc

rdjohn

3,009 posts

131 months

Yesterday (17:48)
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IMHO I think Adrian Newey leaving was much bigger at the time.

The $100million was effectively shared with Mercedes and was relatively small beer to them, then. Finding non-racers to buy-out Mercedes, was a mistake, but buying out Ron has had the biggest recent impact on their cash flow at a time when their income stream has collapsed.

Paddy Lowe taking over from Newey was Ron’s perception of strength in depth - but he did well to get the Mercedes job, and has not shown any great skill in turning around the fortunes of Williams. He is an analyst, rather that inspirational leader.

The Newey DNA was leaving the McLaren car by the time Lewis won his first title. Someone like Ross Brawn reading him his fortune cookies probably made his decision to switch not as difficult as we believed, at the time.