Petronas-Mercedes GP deal is beneficial for the nation

Yesterday, it was announced that Petronas went into the sponsorship of the acclaimed Formula One team Mercedes GP. It was a pleasant surprise after BMW abruptly decided to discontinue with the BMW-Petronas-Sauber Formula One team few months ago.

Reuters has the story:

Petronas to sponsor Mercedes F1 team

 Reuters

 Monday, 21 December 2009

Malaysian state oil and gas company Petronas [PETR.UL] will be title sponsor of the Mercedes Formula One team next season, Mercedes announced today.The team, formerly champions Brawn GP, will become Mercedes GP Petronas with the oil company’s branding across the car and team liveries in what they said was a long-term agreement.  
“The new title partnership also paves the way for future collaborations between the two companies,” Mercedes added in a statement. 
  

It said Petronas would be able to “generate sustainable business growth, particularly in their downstream lubricants market, through the strategic partnership and business alliance with Mercedes-Benz.”   

Mercedes said their 2010 car would be presented in its new livery for the first test of the new season at the Valencia circuit in Spain on Feb. 1.  

 Petronas, who previously sponsored the BMW-Sauber team, will continue to be the title backer of the Malaysian Grand Prix – the third round of the season at Sepang on April 4.  

 “Petronas’s home base in Kuala Lumpur is located in the middle of a fast-growing region for the automotive industry which makes this new partnership even more valuable,” said Mercedes motorsport vice-president Norbert Haug.  

 The deal with Mercedes will be a blow to both Swiss-based Sauber, in urgent need of sponsors after the withdrawal of BMW at the end of the season, as well as the new Malaysian-backed Lotus team.  

 Lotus F1 boss Tony Fernandes, who also runs AirAsia (AIRA.KL), had hoped to bring Petronas on board given that his team have government support and his airline is a major purchaser of aviation fuel.  

 The Lotus car company is also owned by Malaysian state car company Proton (PROT.KL).  

 Mercedes have signed Germany’s Nico Rosberg as one driver and are widely expected to have seven-times world champion Michael Schumacher as the other if he makes a comeback at the age of 41.

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Petronas frustrated AirAsia’s CEO Tony Fernandez’s Lotus 1 Malaysia Formula One team with this sponsorshop deal. Lotus who engaged former failed Minardi drive Alex Yoong, expected to have the state oil corporation backing them up, since AirAsia has been using Petronas JetA1 aviation fuel for their operations. Yoong, expressed his dismay on his twitter and reported widely by the media.

ESPN reports:

December 21, 2009

Yoong speechless at Petronas deal

ESPNF1 Staff
Mercedes’ concept livery with Petronas sponsors © Mercedes

Despite being linked with both Sauber and the Malaysian backed Lotus team, Malaysian oil company Petronas has signed as title sponsor for Mercedes for 2010.

The country’s first – and so far only – Formula One driver Alex Yoong, who is now head of driver development for Lotus, has expressed his despair at the deal on Twitter.

“Petronas signs with Mercedes GP,” he wrote. “Words fail me. Mercedes is a good team, no doubt, but what Lotus is doing is completely ground-breaking and brave and Petronas not seeing that fills me with shame.”

The exact length and value of the Petronas deal has not been announced, but team principal Ross Brawn welcomed the news.

“Everyone at Mercedes GP is delighted to confirm our long-term agreement with Petronas and we look forward to working closely with our new partner in the future,” he said. “Our plans for the new season are progressing well, as is the development of our 2010 challenger, and we look forward to seeing the car run in the new Silver Arrows and Petronas livery at the Valencia test in February.”

The sponsorship is good news for Mercedes, after German consumer goods company Henkel announced it would not be honouring a deal with the team as it was brokered by an unauthorised member of staff. However, Mercedes motorsport boss Norbert Haug said the contract with Petronas would ensure the team’s competitiveness in 2010.

“Within the limits of the new Formula One resource restrictions, the Mercedes GP Petronas Formula One Team will be well positioned to achieve our goals. We will all strive to present efficient success in the future knowing at the same time that the new season, with some fundamental rule changes, will be a particularly challenging one.”

© ESPN EMEA Ltd.

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There is more to meet the eye with these Formula One sponsorships. For starters, it is more strategic for Pertonas to sponsor and partner the Mercedes GP team against the Lotus F1 team. The fact is that the Lotus F1 team is expected not to go very far with their effort. This is because the investment that sponsors like AirAsia willing to commit is far too low to be realistic. AirAsia announced that they are investing RM 300 million within the next three years for the Lotus F1 team, which is effectively less that 55 million Euro. That is by far adequate to be effective for a ful fledge Formula One team, especially the development of the engine has to be dynamic and this will cost a lot of money.

The most important reason is that Petronas will immensely benefit from this Mercedes GP deal. From 2010, all Mercedes Benz cars in China, Turkey and UK markets assembled will be ‘first-filled’ and subsequently serviced using Petronas Synthium lubricants. For the first year alone,  the business is expected to be  in excess of RM 200 million. Within five years, the business will be expected to be in the neighbourhood of RM 1.5 billion, especially when Mercedes open other markets as well for exclusivity with Petronas lubricants. It will make Petronas lubricant products grow into markets previously enjoyed by Helix, Castrol, Agip and Duckhams.

The move to bring back world champion Michael Schumacher back into Formula One will definitely land a big boost for Petronas  branding exercise with this Mercedes GP deal, despite skepticism on the one time world champion to come out of retirement. Mercedes would be expected to place themselves well in the highly viewed race and Petronas would be at par with what Shell is enjoying at the moment in partnership with the Ferrari team. Petronas racing team, which is has been developed progressively the past ten years, will also get technological synergy with this strategic partnership. The ‘brand’ of ‘Ross Brawn’ itself is a boon for Petronas racing team.

 This is far more effective method to ‘sell Malaysia’, as oppose to Fernandes’s non challant effort to be in Formula One and suspiciously intending GLCs to be drawn into the ‘half-baked scheme’, with the “1 Malaysia” tag ‘attached’ to the ‘branding exercise’. It is believed that AirAsia needed the ‘F 1 sponsorship exposure’, along with its intended AirAsia X expansion to the North American west coast. The success of the Lotus team with this what is thought to be ‘inadequate’ AirAsia ‘commitment’ is doubtful. A mitigating point is that Schumacher is expected to be paid 20 million Euro per annum, which itself lesser than AirAsia’s commitment for the same period.

Petronas is expected to gain better branding milage with this new deal as compared to the previous BMW-Sauber partnership. The inclusion of Petronas Synthium products with newly assembled and future cars serviced by Mercedes Benz in the three countries and expected expansion markets if by far better than the deal with BMW.

This is the third success story of Petronas this year under the stewardship of Tan Sri Hassan Merican. The recent announcement of Petronas’s success to land new exploration deals in Iraq drawn a lot of respect to the most progressive ‘New Seven Sisters’. Petronas is involved as a major partner in consortiums of the Majnoon, Halfaya and Badra fields, which has an aggregate reserve of almost 42 billion barrels of crude oil. Petronas is taking the lead in the Garraf field. All these concessions would be finalised and signed by end of next week.

*Updated 1030pm

Note:

Who is Alex Yoong as compared to Ross Brawn and Michael Schumacher? Has Yoong had any success story to come out which such a statement against Petronas’s decision?

 

 

Published in: on December 22, 2009 at 16:06  Comments (37)