Why is F1 flatlining in Japan?

I posted the other day on Kamui Kobayashi and his chances of moving up the grid to a top team and made the point that Japan could do with it as the sport is in decline in Japan.

Several readers asked why this is the case, so here's an overview of the situation, as I see it.

It's a slightly misleading picture to look only at the fans who come to Suzuka each year as they are some of the most dedicated fans on the planet. Their consumption of team merchandise and willingness to queue the night before the race, if necessary, to secure the best seats, are legendary. So the hardcore support is just as strong as ever. But it's not as widespread as before.

Part of this is because there are no real rallying points any more, beyond Kobayashi. Young people aren't really engaging with the sport. Ayrton Senna driving a Honda engined McLaren was the high water mark of Japanese passion for F1 and the whole thing became self promoting.

F1 is on Fuji TV in Japan, as it has been for many years. But the live coverage is only available on a pay channel. The audience for the pay TV show is around 2 million, each paying £12 a month, so it earns plenty of money for F1 and for Fuji. The terrestrial audience is around 5 million. This is well down on the Senna days when around 17 million watched F1 in Japan.

Japanese business involvement in F1 is cyclical and although there have been periods in the last 20 years when Japanese companies were heavily engaged in the sport, currently the high value of the Yen and the impact of the financial crisis on Japanese car manufacturers means that Japanese corporate involvement is quite low.

Japanese enthusiasm for the sport tends to be driven by the manufacturers. There is no Japanese manufacturer currently competing and only one driver, Kamui Kobayashi and his team’s main sponsor is Mexican! At Suzuka last season, for the first time in almost 30 years, not a single car had a Japanese engine in the back of it.

Bridgestone, the world’s leading tyre company, which was the sole tyre supplier in the sport since 2007, pulled out at the end of last season, to be replaced by Pirelli, whose global market share has flatlined for the past few years, while Bridgestone’s has increased to almost 17%, partly due to F1.

Bridgestone entered the sport in 1997 with the specific objective of raising awareness and market share in Europe. At the time it was lagging well behind Michelin. Between 1997 and 2002 it’s European market share almost doubled from 8% to 15%, much of that attributed by the company to it’s F1 involvement.

Japanese sponsor engagement in F1 also tends to be led by the manufacturers. They engage Japanese sponsors via their advertising agency in Tokyo, typically the giant Dentsu, leading to extensive business to business opportunities. Japanese sponsors in the sport at the moment include Casio, a sponsor on the Red Bull car and Kenwood, a small sponsor on the McLaren.

Toyota competed in the sport for eight seasons from 2002. Starting from scratch in a huge factory in Cologne, Germany, the team struggled to match success with investment. The team never won a race, took just two pole positions and in its best season, 2005, managed to finish fourth in the championship. They were sponsored by electronics giant Panasonic, which quit the sport at the same time as the team.

Honda has a much more proud history, winning three Grands Prix as a team in its own right and 72 as an engine builder. Honda’s involvement in F1 happened in three phases; the 1960s, where it entered a team, building both chassis and engine and won two races, the 1980s when it came back to supply engines only , first to Williams and then to McLaren. These years were when Japan’s passion for F1 really ignited as Honda engines dominated F1 for almost a decade, driven by some of the greatest names – Ayrton Senna, Alain Prost, Nigel Mansell and Nelson Piquet. Honda powered all of them, except Mansell, to world championship success.

Honda withdrew in 1992 to focus resources on the US car market, but they couldn’t stay away for long and reappeared for their third participation in 2000, initially as an engine supplier to the BAR and Jordan teams.

This was a period of manufacturer teams in F1 and Honda acquired the BAR team in 2006, winning a race with Jenson Button that year. They made a huge investment in the team, but then withdrew abruptly at the end of 2008 at the onset of the Global Financial Crisis, after weak global car sales figures,

But the costs were out of control. At the peak of the last business cycle, Toyota and Honda were investing an estimated $700 million a year into their Formula 1 teams. This contributed to the decision to withdraw once the financial crisis hit.

In response the teams brought in a radical cost reduction agreement, legally binding among all the tems, with a glidepath over several years to take team staff numbers and budgets down to around a third of what they were at the peak. Had this been in place before the crisis, on wonders whether one of the manufacturers might still be in today.

The economic picture continues to be difficult. Car sales in Japan went through a positive phase, with 12 successive months of growth, but that came to a halt in September when many of the government backed incentive programmes around the world such as scrappage schemes, came to an end.

In Japan domestic car sales have fallen as the government stopped accepting applications to green car subsidy programmes. This has had a particularly strong impact on Toyota.

There was hope that the new engine formula for 2014 might bring Honda back in, but there are no clear signs of that at the moment. While Toyota looks set to target the FIA's new EV racing series rather than come back to F1.