Analysis: FIA face off against Ferrari in cut-price Formula 1 engine battle

The champagne bottles lie upturned in the bins, the voices of those who partied into Sunday night at Pete's Piano Bar in Austin are still hoarse and now with a world championship celebrated and consigned to history it's time for another F1 political battle.

We wrote some months ago that it was becoming clear that the unintended consequence of the 2014 F1 rule change to hybrid turbo engines in F1 was to make the two main engine manufacturers, Ferrari and Mercedes, too powerful. This has been illustrated by the Red Bull engine crisis and an even bigger tsunami is now approaching.

The FIA last night issued a statement (in full below), confirming what was reported last week about the fall-out from the engine manufacturers' and F1 Strategy Group meetings: the FIA wants a ceiling on engine costs of €12m for new engines and €8m for year old units. They managed to get a majority vote in favour of this in the F1 Strategy Group.

But Ferrari has used the 'nuclear option' of invoking its right of veto over the regulations and blocked it. It is a unique situation, negotiated into Ferrari's contract with F1, that as longest standing team it has the right to veto any rule it doesn't like. It uses this veto very sparingly. The last time we nearly went down this road was in 2009 when then FIA president Max Mosley tried to impose a budget cap on F1 teams to allow three new teams to enter at £50m a year fixed budgets.

In response to Ferrari's stance the FIA, backed by Bernie Ecclestone, has decided to raise the bar by suggesting that it might initiate a 'tender process' for a customer F1 engine from 2017 onwards.

In and of itself this is no major threat to Ferrari and Mercedes, the two dominant engine builders. If you consider that Honda's hybrid turbo engine is as uncompetitive as it is after almost three years of work already, then a customer engine rushed through for the start of the 2017 season, with limited development budget, appointed after a tender process that has yet take place, is not much of a threat.

But the FIA are not stupid and the technical details of the engine that is being tendered for have not yet become clear. It will be possible to specify an engine which is much simpler than the current hybrid turbo and possibly based on something already existing, with around 850hp, which will be cheaper but also competitive with the top teams, possibly by working with the minimum weight of the two classes of cars. One suggestion is a 2.2 litre twin turbo.

F1 will then look to head off down the avenue of a two-class system, which would not be a good thing.

Ferrari will have its finger on the veto trigger throughout the process and heaven knows where the rules might end up for 2017 if neither side backs down. Meanwhile the EU Competition Commissioner will be watching closely, wondering how one competitor can be allowed to decide the rules of a global sport and at the same time insist on financially crippling the smaller competitors.

Meanwhile the American investors RSE Ventures, who were present in Austin at the weekend with CVC's Donald Mackenzie and still very keen to buy the commercial rights to the sport for $8.5 billion from CVC, are going to be left increasingly wondering whether this really is a business they want to get into, with all this uncertainty around. There's nothing financiers hate more than uncertainty.

One leading paddock observer put it at the weekend that this deal was now looking '50-50 at best' to go through.

So what is the end game here? Clearly the 'big two' Ferrari and Mercedes are being pressured by the combined forces of the rest. The priority for F1 has to be: 1) To close up the performance of the four engine makes in F1 as quickly as possible and 2) To reduce the cost of the engines to the smaller teams, significantly and 3) to have a functioning and competitive internal market for engines.

There is clearly a strong argument for F1 having a 'default' engine that teams could buy - like Cosworth's DFV in the old days - to provide an alternative to the manufacturer units and to keep the manufacturers' power over the sport in check. But these hybrid engines are so complex and expensive to develop that a like-for-like alternative is impossible to imagine. Hence this move.

It also has an agreeable side benefit as a defence move against the possible investigation by the EU Competition Commission into anti-competitive practices in F1. If Ferrari and Mercedes won't sell to Red Bull, it shows that the internal market of F1 engines isn't working properly.

Introducing a commercially available engine available to all, shows that the FIA is getting its house in order and encouraging competition.

Experience of these situations tells you that it is likely that a compromise towards both of the FIA and Ecclestone's objectives will be found, rather than F1 becoming a two-tier championship in 2017.

Additionally the FIA has set great store by placing hybrid technology at the heart of its rules going forward (as with WEC). It cannot be 'essential' to do that one minute, then throw the baby out with the bath water the next.

As FIA president Jean Todt told the Financial Times last Friday, "F1 is the pinnacle of motor sport, and as such, it is something of a standard-bearer for the automotive industry – it must be in line with the concerns of its time.

"(In a world) where the UN is introducing policies such as ‘Sustainable Development Goals’ and the COP21 climate change event, it would be irresponsible for motor sport to ignore this issue. Therefore, significantly greater efficiency was a crucial requirement when devising the current engine specification – as it is for the development of all new engines today."

That's a lot to abandon for the sake of a few million euros on an engine bill to customers.

But this spat is likely to keep F1 in the papers well past the end of this (now decided) championship season. How long it takes to reach the obvious compromise - and whether RSE will wait around to see whether this sport can sort itself out or whether it should go and invest in another sport - we will have to wait and see.

The FIA's statement in Full

The FIA has studied cost reduction measures for teams participating in the FIA Formula 1 World Championship which were not conclusive, including:

- a global cost ceiling,

- a reduction in costs via technical and sporting regulations,

- an increased standardisation for parts.

The FIA, in agreement with FOM, suggested the principle of setting a maximum price for engine and gear box for client teams at the last Strategy Group meeting.

These measures were put to the vote and adopted with a large majority.

However, Ferrari SpA decided to go against this and exercise the right of veto long recognised under agreements governing F1.

In the interest of the Championship, the FIA has decided not to legally challenge Ferrari SpA’s use of its right of veto.

Therefore the FIA will initiate a consultation with all stakeholders regarding the possible introduction of a client engine, which will be available as of 2017. Following this consultation a call for tenders for this client engine, the cost of which would be much lower than the current power unit, could be undertaken.

What do you think of this latest development? Leave your comments in the section below?/strong>