Q&A with Barnhart, Angstadt & Berkman on engines
MODERATOR: Good afternoon, everyone. Thank you for joining us for today's Indy Racing League teleconference. We're joined by three guests today to discuss the automotive manufacturers roundtable that the IndyCar Series initiated last June. Those roundtables continue to include five automotive manufacturers and six special race engine design companies. All of the details are available in the press release that went out early this afternoon.
Good afternoon, gentlemen. I'm going to ask each of you a question to open the call, and then we'll go ahead and open it up for questions from the media.
Brian, let's start with you. We've had a series now of these roundtable discussions. Tell us a little about what the next steps in the process will be?
BRIAN BARNHART: Well, we've been really pleased with the progress that's been made through the series of roundtable discussions that have taken place. We're a little bit in a waiting game right now. We're at a point where we have engaged as the press release says, we've engaged multiple manufacturers. We're at a point where at least one of them in the next 60 days should be seeking board approval for participation in the IndyCar Series in the future.
We're waiting a little bit on that. It's exciting times for us. We're waiting for that information to be made public. Then proceeding from there it will be a matter of further refining the direction and more in depth detail on the specifications and materials for what the new engine would be.
MODERATOR: Terry, maybe you can tell us about the process itself what the league specifically has learned?
TERRY ANGSTADT: I think it's been a very open and engaging process. You can see the comments in the press release. We just could not be more pleased with the reaction we received on really beginning the process with let's solicit information from the manufacturers prior to going off and setting rules and hoping people participate.
So I think we kind of flipped it around a little bit. I think we've received a lot of compliments on the process. So from that perspective, we feel really good about it. I would also encourage everyone to keep in mind that the world has certainly changed since we started this process.
So we really are working through all kinds of economic challenges. Not only in our business, but our partners and our future partners, hopefully our future partners' businesses.
So that's why we're just staying very close to the process and trying to work through those details and issues, and hopefully get some increased competition.
MODERATOR: Erik, maybe you can address it from a manufacturer's perspective about the process and maybe some of the things you've learned and maybe what surprised you about the process?
ERIK BERKMAN: I think back at Carb Day this past year when we made our announcement to extend our relationship with the league and continue on as necessary and sole supplier. But really wanting to get back to a new era of competition.
So working with the league as noted in the press release, we've encouraged the league to embrace this idea, and we don't want to create any instabilities or any of those kinds of things. But in going to this roundtable process, my eyes were as open as they could be. The amount that was mentioned, the engagement or the willingness or level of interest or the actual deep‑seeded feelings about open wheel racing and all of that. And I was very encouraged from the first meeting.
So I think this is precious, and that we need to hold this together and find a way to get through and resolve any differences and broker a deal here.
MODERATOR: Thank you. Let's go ahead and open it up for questions.
Q. This is probably for all three of you. With the big three up in Detroit facing economic issues at the moment, even needing to get government loans to keep things going, are we looking at a period where it's going to be in the future highly unlikely that we'll ever see an American automotive manufacturer involved in IndyCar racing? Because I see that everybody that wants to get involved with the exception of HPD, which has strong tie to the United States, is basically a new and international automotive manufacturer.
TERRY ANGSTADT: We would love to see an American manufacturer involved. I think you're right. I think that those companies are more challenged than some of the others, and it's pretty well documented as to why. But you're right, I do think we, at this stage as you saw from the comments, we really do not have one of the American OEMs engaged at this point.
Again, I think for probably pretty good reasons, it appears that those companies need to right themselves and get in the right size and produce the right products and all that kind of stuff. So, it's a fair point and one I think you're right on.
BRIAN BARNHART: As Terry said, I don't think there's any surprise to that given the current economic climate surrounding the big three and where they're at.
But I think it is an opportunity for us with our specifications as the release talks about in creating a relevant platform that, while we may not have them in the short term, if we're successful with the specs that we develop and get competition moving forward with this, perhaps it can create a platform that, if and when they right themselves and they're ready to reactively engage the motorsports community, we will already have in play a platform that is relevant technology for the direction that they have moved as a company, and we would be an attractive option for them at that time.
ERIK BERKMAN: I think it would be great if we could have one of the traditional big three manufacturers involved. But it doesn't look likely. I kind of want to echo what Brian mentioned there. At the beginning of the roundtable process, everybody was invited, and those who could come did, and those who showed interest have stuck around.
The basic tenets are sticking together is that we want to create a socially or environmentally responsible platform. We talk about relevance, and then the connection for the manufacturers to the products that they sell the road cars.
So we need to have a production technology linkage to the racing so that people have the marketing message and communication there.
And then cost consciousness. There is no reason racing has to be so expensive all the time. We want to make it stable for everyone. We want to have competition, but there has to be some controls put in place.
So as we gain consensus on these major points and talk about it further, I think there is a chance in the future, maybe when things settle down, that one of our American manufacturers could decide that this is a good place to go racing. We'd welcome them.
Q. I also know that the U.S. economy impacts the global economy, but just talk about how these five companies that you've mentioned today have all shown a high degree of willingness and interest in becoming part of the IndyCar Series beginning in 2011?
BRIAN BARNHART: I know certainly in a couple of cases that the groups manufacture in the United States. So, I think for the most part, some of the larger consumer markets are represented here in the U.S. for most of these companies.
So there certainly is that linkage and that opportunity to associate with hopefully a high-profile platform that IndyCar racing can offer these companies as we kind of work through these challenging times.
Q. Brian, is it just the wording in the press conference, turbos will be permitted. Is it only going to be turbos or will normal engines still have a chance? Are they looking at an equivalency? Is it majority will rule or have you gotten that far?
BRIAN BARNHART: We haven't gotten that far yet. But we from a series standpoint really prefer the turbo charger option as we talked about. I think it has so many benefits, including just a more appealing sound and a more pleasant sound than our current car has. But also the power adjustability that it gives us is really important for the versatile schedule that we run. So that we can tune down and maybe adjust the aerodynamic package at places like Texas and Chicago.
What we've really asked the manufacturers to create for us is in terms of performance, we broke our schedule down into basically three areas. And the new package, we'd like to see similar performance at Indianapolis as a stand alone event.
We really are proud of the package that we have at Indy and think that the package in terms of power, downforce and raceability, the entertainment aspect of it, we feel the last four Indianapolis 500's have been among the best with on-track product, reliability. The overtaking, the passing for the lead, all that aspect.
So we want similar performance at Indy. We want some power adjustability at places like Texas and Chicagos where we can turn the power down and make it less drag limited. We think that's an important aspect for the nature of those types of tracks that are on our schedule. Then we'd like to improve the performance on our road course and street circuits a little bit.
So we've taxed them with the versatility of our schedule and broke it down into those categories. Similar performance at Indy, detune the power so we can have aerodynamic adjustability at the high banks, and improved performance on the roads and streets.
I really think it's quite a challenge to create a package that can address all of those situations. Especially when you take, as the release says, the move is going to be for smaller, lighter, more efficient engines, reduced capacity. It's going to stretch those engines in terms of performance and really create an engineering challenge for the manufacturers.
Q. A quick follow‑up. The other thing is it says it releases as early as 2011. Could it be pushed back a year because you're waiting on more people to jump in or to give them more time to react? Do you still envision 2011 being the day?
BRIAN BARNHART: As much as we'd like 2011, to be honest with you, if I had to say while I mentioned we're waiting on a manufacturer in the next 60 days, and that is perhaps for 2011, my gut tells me in this economic environment and situation, we're probably looking more toward 2012 now. I wouldn't rule out 2011. But it most certainly and likely could be pushed back to 2012.
Q. We've heard that maybe Honda was hoping more for a V6 than a four cylinder. Is that four-stroke fine with you guys as long as it's competition?
ERIK BERKMAN: Well, I tell you, of all the things that we've talked about in this roundtable, it always comes down to where are we at? Why don't we have an announcement today instead of in 60 days or whatever? There are a couple of issues that are still outstanding.
I'll admit that what we all agreed to, from day one as a group of manufacturers, was it should be downsized from the current - maybe V8's not the way to go. Take Honda for example, we don't even have a V8 in our lineup. But in terms of displacement and specific output, horsepower per liter, we ought to try to boost the performance.
Now for various technical reasons, we'd prefer a V6, we would. And we think it makes the right choice. We haven't said it's a deal breaker yet. I'm not going to use such language and try to run anybody off. We're trying to encourage competition here.
Now some of the other manufacturers are in favor of a 4‑cylinder. And they have their reasons. We both, all manufacturers want to have a lineup, a linkage to the road cars - of course down sizing is coming. Even though we've only got $2 gas, when it was $5, it was scaring everybody to death, right?
But I think the situation was we were still debating 4 versus 6. Or could we entertain both 4 and 6 and have an equivalency formula like in other racing series. We're still talking about fuel. You know? We're still talking about what that should be. But we've narrowed the list of issues down to a pretty short list. And we're still talking, so that's the good thing.
Q. Brian talked about five manufacturers and six ancillary programs like Cosworth and Ilmor. Can you give us a ballpark figure of how many you think are going to step up when all is said and done?
BRIAN BARNHART: That is kind of a tough call. I know we'd love to see three. But we'll see where that leads us. There are a couple very engaged right now, aside and on top of our partners at Honda. So we're encouraged at this point.
Q. One of my spies saw a guy from Cosworth walking across the parking lot the other day at the IRL office.
BRIAN BARNHART: We've included the manufacturers, the Cosworths, the Ilmor’s, the AER's. The specialized race engine builders are important to us even with manufacturer involvement. We've thrown that on the table since day one, and they've all appreciated and understood and been open to competing against Cosworth's and Ilmor’s as well.
So they're very much still in play. Obviously, that's an important aspect of what's happened historically around racing. I think they provide additional opportunities for competition in the future as well.
Q. Honda's done a good job over the years in terms of providing marketing support for the series, so I suppose this should go to Terry. Is strong marketing support from the incoming manufacturer going to be a prerequisite for involvement?
TERRY ANGSTADT: We've had open dialogue about that. It's been very encouraging. I think everyone at the table understands that the end game is certainly not just to provide an engine and not tell people about it or try to lever your investment in what you get back in hopefully selling more cars. So, absolutely. People understand that and have embraced that.
Q. Brian and Erik, given that Honda and Toyota, and Ilmor and Cosworth have existing 2.6 liter turbo V8s, has any thought been given to maybe a modified version of that with spec electronics to sort of have a lower cost alternative to getting a turbo formula back implemented given the tough times we're going through right now?
BRIAN BARNHART: From a league standpoint, I think our first priority and preference would be addressing the issues our current partner has been looking for and that is increased competition for all the reasons that have been stated.
Our number one priority would be to do that with the auto manufacturer industry. I think that's a good priority. We've always known the direction you just talked about is a potential direction or a fall back or insurance policy. As Terry mentioned earlier, the world is a different world than when we even sat down and held our first roundtable back in June. And it's a vastly different world in the last three months alone.
So while this is still the direction we're hoping and planning for, by no means have any guarantees, and we're trying to cover all bases in the best case scenarios and fall back insurance plans. We're having conversations and talking to anybody about all kinds of options.
Q. Is retooling the 2.6 a possibility?
ERIK BERKMAN: I suppose you could say technically, yes. But that's a more expensive engine. I don't think that does anybody any good here. You can take a production engine, and if you go back to the roots of the IRL, and try to take a production engine and turn them into a race engine.
It's not always the easiest thing to do. Depending on how much output you're trying on get out of it and so on. I think our preference is trying to get a new competition, to create a clean sheet of paper approach. We have to put some controls in place so that the competitors aren't allowed to go and create a cost escalation that benefits no one.
The reason is not just marketing, private labeling somebody else's design or something like that. But at least in Honda, my colleagues and the other car makers are talking the same, is that we can't allow the technical pursuit to die out. So we need the challenge, and we need a clean sheet so that nobody has the advantage from the beginning.
We need to establish the rules with the sanctioning body with the league, so that we don't allow the costs to get out of control. That can be done through the rules-making process what can and cannot be allowed and so on.
So I think we have to have a target, and we're not going to talk about this here in great detail. But we have to have some kind of what is the end goal here? What is the price that we're trying to bring the product in for?
We don't want to go back to the days where engines were coming out of cars in crashes. We don't want to go back to the good old days where engines were expiring before the end of the race though sometimes the competition would cause you to cut your margins pretty thin.
We do want to have some unknown results. And we want to have close finishes. Like the last couple of years we've taken it down to the last race and the last turn, and so on to find out who our champion is going to be. We want that kind of excitement to stay in the league.
Q. Can somebody update us on how many engine leases have been reserved for this upcoming season?
BRIAN BARNHART: I think we're going to be surprised there. We did our meeting Jan. 13. I think we were all absolutely floored at the attendance level and the interest level of what's going on.
I think in this economic environment we've been anticipating perhaps a significant down turn. And I've come to the conclusion in talking with Terry about it, I think we might be better positioned from a league standpoint to be less affected by the economic climate than perhaps other racing series.
And we're really, while we may not match the full numbers of what we had with the first year of unification last year, indications are we may not be down too much. We've got a couple of them that look like they might be down. A couple look like they're coming on board to the point where I think anywhere from 22 to 24 could show up on the grid at St. Petersburg for our season opener. I think that would be a strong statement.
Q. For Brian, and perhaps Erik could comment from Honda's point of view. What kind of discussions have gone on with the green elements for the future, whether it's fuel or things like KERS (Kinetic Energy Recovery System). What kind of discussions have gone back and forth and if there is any long‑term approach to introducing some green elements?
BRIAN BARNHART: I think we do pride ourselves with the green initiatives we've had and our positioning with ethanol, and we've just done a deal with Apex - and the deal that continues that position. And as the statement puts out there, it's important for us to maintain the series' position as an innovation leader. It's vitally important to us.
KERS has been talked about since the first roundtable, specifically getting with regards to that, it's a real challenge with regards to oval track racing and the lack of braking, and the lack of the ability to regenerate power. And in fact, the manufacturers are the ones that steered us as a sanctioning body away from that in the short term or the next generation of specifications that we're going to create.
I think in general as we talked about the relevant technology environmentally and socially responsible platform that's important. That's a direction we're going to be moving, most likely without KERS in the next generation because of the oval track challenges. But Erik probably has more to address from that standpoint as well.
ERIK BERKMAN: Well, as Brian mentioned, we have talked about it a little bit. And I think the consensus of the group was though in trying to deliver on the cost conscious the introduction timing, I think we should keep an open mind and keep an eye to the evolving technologies related to KERS or other energy recovery, thermal energy recovery or what have you for possible introduction or application beyond this initial new formula.
So kind of think of it as a minor model change, we could add it at some point. We wouldn't want to do anything that would prevent us from adding KERS or another kind of energy recovery or recovery type system.
But as Brian pointed out, what's the right thing to do related to ovals? We've got a diverse type of racing here now with the road courses being such prominent parts of the schedule. Maybe there will be a creative solution put forth. But right now we've tabled it for something that we can add as kind of a step two.
TERRY ANGSTADT: Our commitment to ethanol and when we made it there was more to it than plopping a renewable fuel in our cars. So we feel good about the positioning that that has given us. And in fact was certainly the driver behind securing a major sponsorship, and broadcast, and mobile marketing element, and hospitality element that Apex Brazil is going to bring us.
Q. Just wondered if ‑‑ I suppose primarily this is addressed to Brian, if you could talk a little about the sort of the last three elements on the 3,750 mile engine life, and the five year containment issues, and particularly the license is going to be ‑‑ basically is going to be policed and all that sort of stuff. It sounds like it would require a fairly extensive commitment to the part of the series to get a handle on that sort of stuff.
BRIAN BARNHART. Well, I think it would. And all three of those easily can be rolled into one. The purpose of all three is obviously for cost containment - reduction of cost on participation levels. The five‑year period is to help protect the manufacturers from continuing R&D budgets that just skyrocket out. It helps keep the playing field as level as possible.
That's all dependent on making sure you come out of the box with a pretty level playing field, and that one doesn't have an advantage over the other.
They're all very much works in progress. But the most important aspect among all three of them is extended engine life is less rebuilds. Less rebuilds cost less money. Anything with cost containment - if that reduces their prices, then we can reduce the lease price to the participants.
Looking at all of those, the period from an R&D standpoint, it is an important aspect to create a successful business model for a manufacturer to get involved with the series. You don't want the manufacturer to be outspending what the value of the series is because they won't stay in long at that point regardless of competition or not.
You really have got to have a successful and sound business model put in place for the manufacturers when they make the commitment to come and join. I think all three of those are meant to address that.
Q. Forgive me if this is in the press release which I haven't had time to digest. But is there an ideal number of manufacturers you'd like to see in the sport at one time?
BRIAN BARNHART: As Terry said, we don't know where we're going to end up with this process. It's a different world than it was when we first did the roundtable. While we're hopeful and continue, we may not get any of them.
The fact that we've got five of them involved in this global economy, I think it speaks volumes. And I think it's a really good indicator about the interest in the future of the IndyCar Series in this economy that we have five this engaged this far down the path.
That being said, how many of those five are we going to get? We're not going to get all five of them. As Terry mentioned earlier, if we can get two to join Honda, and we came out of this deal with three manufacturers, it would be absolute pure happiness on our side.
Q. Is it your understanding that more involved means more the merrier in terms of cost, or does increased competition lead to increased cost?
BRIAN BARNHART: Any time you have increased competition, it's very, very lucky or a given that you're going to increase cost for somebody. That is kind of the nature of the competitive environment.
But the trick is going to be, again, trying to learn from previous scenarios that have taken place under competitive environments. And that is the reason for really the roundtable being created, the atmosphere and attitude.
A lot of the manufacturers participating is you've got to help us protect us from ourselves. I think they're looking for that. And again it kind of circles back to we've got to create a sound business model in a competitive environment, or we won't be in a competitive environment very long.
MODERATOR: Thank you for joining us. We appreciate you taking the time out to update us on the process and good luck as it continues.
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