Editorial

Honda and Toyota's Billion Dollar Hissy Fit
 by Jim Allen
July 17, 2002

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It's hard to pick up a newspaper these days and not find a story about goodwill, or more precisely, the loss of it. Already in 2002 this ethereal notion has snared such venerable institutions as the FBI, the Catholic Church and Corporate America. In each case, a series of high-profile scandals eventually erased in months the reputations it took decades, or, in at least one case, millennia to build.

With such issues on everyone's mind these days, it is curious why companies with solid reputations like Honda and Toyota would fail to consider the fragility of the goodwill they have created with CART fans before deciding where to put their motorsports dollars. Yet by deciding to switch to the IRL-and, worse, by trying to bribe selective CART teams to go with them, trying to force the remaining CART teams and fans to subsidize those efforts and prohibit existing teams from purchase their chassis-both companies have put themselves directly in the line of fire. By doing so, they also may have destroyed whatever goodwill CART fans may have had for them.

This is no small matter, particularly for two companies in the highly competitive global auto marketplace. If just 15,000 devoted, hardcore CART fans are angry enough to boycott the companies' products, then the duo have put an awful lot at risk. If, over the course of their lives, those fans buy an average of 10 cars at an average cost of $25,000 and are just 33% more likely to buy the cars of series supporters than the 10% in the general public already buying Toyotas and the 6.9% buying Hondas, then the companies could potentially miss out on nearly $2 billion worth (on a present-value basis) of future car sales-$1.1 billion from Toyota and about $800 million from Honda. That turns a seemingly minor decision on which open-wheel series to support in the U.S. into a very expensive strategic blunder.

It is particularly difficult to understand why the companies took the actions they did given their first-hand, up-close-and-personal experience with open-wheel racing in the United States. Surely someone in each camp noticed that race fans in general are a prickly bunch prone to holding grudges and fighting to the end. More to the point, someone had to realize that fans of CART and the IRL despise everything the other series represents. To put a company and its financial health into the line of this fire is sure to alienate a large chunk of a very profitable market.

Honda's actions are the most surprising given their history. Those who support CART no doubt regretted last year's decision to leave the series. The regret was based, in part, on the embarrassment many felt last summer when CART's former administration screwed Honda in the pop-off valve controversy. That salt later was thrown into the wound when the same administration decided to go normally aspirated against Honda's wishes-and those of most CART fans-further justified Honda's sense of betrayal in the eyes of its fans. While those fans were sorry to see Honda leave the series, they certainly understood.

However, you would think Honda, still stinging from its own betrayal, would not turn around and do the same thing to the people who supported it for so long. Yet, that is exactly what the company is doing by turning its back on CART in favor of the IRL.

And for what?

Yes, Honda and Toyota will get to race at the Indy 500, still a giant of a race. But these days, the Daytona 500 and CART's race in Mexico City-the world's largest market-are nearly as big.

And yes, the companies also will get to race in front of a good crowd in Kansas City, Kan., the number 24 MSA in the United States. In Fort Worth the series draws enough fans to fill about one-third of Texas Motor Speedway's massive facility.

Beyond that, though, there is little value in the series. In fact, most of the IRL's 11 other races struggle to get 15,000 people interested enough to accept free tickets. Again, it looks like people in charge of both companies' motorsports operations were in a total fog in recent years. Surely somebody at the companies noticed all the empty seats at IRL events, even after six years of "controlled growth." In Miami, Phoenix, Fontana, combined-the number 14, 12 and 2 markets in the United States-the series drew fewer than CART drew for its Cleveland race last weekend. Didn't anyone pay attention as attendance at Phoenix continued to slide?

Perhaps the companies' representatives believed Tony George's drunken boast that the IRL would dominate global motorsports in a few years. Un, huh. If they fell for that one then they deserve to have every huckster from around the globe banging on their doors.

Perhaps they concluded that CART fans would suddenly change course and support the IRL if Toyota and Honda were there. It's hard to imagine this is the case because CART fans are the same people who have resisted a decade of NASCAR marketing. And after six years, they are as bitterly opposed to the IRL and its core beliefs as they were when the lamebrain idea for the series was hatched. In fact, given no other choice, they will likely look to F1 or even NASCAR before accepting the IRL.

In effect, both Honda and Toyota have decided that they would rather spend an awful lot of money trying to create new engines and fans in the IRL than to milk the investment they've already made by racing in front of existing crowds at CART events-save for its domestic oval races. It is a lesson that any 19-year-old marketing student could recite: it is far easier and profitable to sell to existing customers than to go out and create new ones.

The sad part of it all is that neither company had to take such a risk. Had either chosen to stay away from open-wheel racing in the United States they would not have lost support from CART fans. They wouldn't have alienated IRL fans by leaving, either. Nor would either have lost much had they chosen to participate equally in both series in 2003 and beyond-charging both groups the same price for the same equipment. In fact, such a strategy might have added another, though demonstrably smaller, base of potentially loyal customers to their customer rolls without alienating existing fans.

By deciding to go exclusively with the IRL, however, the two companies have angered a lot of CART fans who, like Honda, will no doubt feel betrayed and hold a grudge. What else can those fans do, after all? They couldn't stop Tony George from splitting the sport. And they didn't have anything to do with the pop-off valve controversy or the decision to go NA next year that sent Honda over the edge. Yet in every case, they are the ones that have paid the price for the inane decisions of others. And now, having been betrayed now by both Honda and Toyota, that grudge is likely to seethe for some time.

By getting mad at CART's former administration, Honda and Toyota have neglected an important pool of existing customers. And in the end, then, it seems these two reputable companies are well on their way toward joining that ignominious group of institutions that have learned too late that it doesn't take much to ruin the goodwill it takes years of careful work to create.
 

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Others by Jim

Open Wheel racing needs win by OWRS - Part 1

Analyzing the CART/OWRS/ISC situation

Honda and Toyota's Billion Dollar Hissy Fit

We need a good grudge match

Inundated with NASCAR

Now I'm confused

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