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British engineering firm Xtrac has come a long way in its 25 years. From two tiny offices, the company, which designs and manufactures hi-tech gearboxes for racing cars, now occupies a sleek, 88,000 sq. ft. (8,200 sq m), purpose-built site in Berkshire, a one-hour drive west of London. Xtrac sells its lightweight, high-strength components to the majority of teams competing in Formula One, motor racing's blue-ribbon championship. But the road ahead suddenly seems a lot bumpier. With Formula One teams racing to cut costs amid the economic downturn, Xtrac is selling fewer gearbox parts this year. Cushioned by its interests outside Formula One, Xtrac's future is hardly threatened, but, says technical director Adrian Moore, "any reduction in business makes you concerned."(See pictures of the 50th running of the Daytona 500.)

Eager to stop more teams quitting the sport, and keen to make races far more competitive, international motor-racing bosses have instituted a slew of changes to Formula One for the 2009 season. The overhaul, agreed to by the teams in December, is designed to cut costs in the fantastically expensive sport by at least 30%. The drivers and cars that pull away in the opening Grand Prix in Australia on March 29 will have to make do with fewer engines to get them through the season, cope with a lower limit on engine revs and learn how to handle cars that have undergone fewer hours of wind-tunnel testing than last year's. But the new rules won't just show up on the track. For thousands of high-tech suppliers like Xtrac, many of them clustered around Oxford in southern England, recession-era racing and shrinking budgets are the next big challenge. The industry is typically "very resilient, and very resourceful," says Chris Aylett, head of Britain's Motorsport Industry Association. But for a few, "there will be genuine job losses. And some won't make it through." (See pictures of the history of Formula One.)

Formula One had little option but to trim costs. The sport's leading teams last year had annual budgets of $400 million or more. The huge gap back to the other teams not only created a predictable title fight between just three or four drivers but has forced teams out. Worried by the slump in the global auto market, Japanese carmaker Honda, which spent $350 million in 2008, cut its ties in December. (The team has been bought out by former boss Ross Brawn and will now compete as Brawn GP.)

The new rules should ease financial pressures and make races much closer. From this season the cost of engines sold to independent teams will be slashed by half and in-season car-testing has been banned. Further changes are set for 2010; proposals set out this month by the FIA, world motor sport's governing body, would see teams handed greater technical freedom in exchange for limiting their budgets to just $44 million. Spend more and teams would face tighter technical restrictions.

All that means big shifts for the global industry behind Formula One, and especially for the 3,500 firms specializing in high-performance engineering in England's Motorsport Valley. About a third of those companies, which craft everything from engines for rally cars to brakes for NASCAR racers, service the half-dozen Formula One teams based in the area. "While they play the Marseillaise when Renault win" a Grand Prix, says Aylett, much of the French-owned team's work is "actually done in Oxfordshire."

A couple of hours up the road, in a non-descript industrial estate, Pi Research develops software to run wind-tunnel tests, and collects and scrutinizes the findings for Renault and a handful of other teams. Program manager John Frankham says the new limits on testing are "not necessarily bad for us." Getting as much data as possible in the shorter time available will be increasingly important, he says. But as team budgets are squeezed, "we need to be cleverer" than competitors, says Frankham. "We have to think harder and harder."

Britain's motor-sport industry has a healthy track record of updating and refining technology. More than 30% of its roughly $9 billion in annual revenue is put back into research and development, Aylett says; the wider engineering sector reinvests just 3%. That emphasis on research has helped motor sport cultivate technologies for use in areas outside racing such as aerospace. Pi Research has an eye on growing its share of business in the defense and marine-craft industries. With Grand Prix teams putting the brakes on spending, diversification may be the best chance for survival.

Aerodynamics New regulations reduce downforce in order to limit its role in a car's performance and make it easier for drivers to overtake

Tyres Though the return of slicks should increase a car's grip by 20%, the weaker downforce will make high-speed cornering trickier

Engines Drivers will be limited to eight engines for the season — with teams allowed a further four for testing — and reduced rev levels

Testing In-season testing is out, except during scheduled practice sessions on Formula One's 17 race weekends

See the 50 worst cars of all time.

See pictures of the history of Formula One.

• Adam Smith / Thatcham
• Spending cuts in Formula One will test the racing teams — and their thousands of suppliers