Formula One has grown used to living in its own private dreamland in recent years. Protected by the four walls of its paddock, it has grown into a monster of extravagance that, even in times of record economic growth, was completely out of touch with the real world.

Team budgets have grown from tens of millions of pounds to hundreds of millions, workforces have grown from scores of engineers and designers to hundreds, motorhomes have developed from caravans to portable palaces, team owners have become multimillionares and the top drivers, among them Britain’s new world champion, Lewis Hamilton, are earning ludicrous salaries. The racing, by contrast, has been so-so for much of the time, but the parties have been good, the food excellent, the travel endless and the marketing budgets colossal.

The overwhelming impression made on anyone entering its rarefied environs was that the real world had nothing to do with Formula One, as it chased the dream of motor racing’s highest peaks, whatever the cost. There was nothing, it seemed, that could get in its way and even the voices who gave warning that the sport was living a charmed life were dismissed as scaremongers.

That was until yesterday, when an emotional middle-aged Japanese businessman, who runs one of the biggest car manufacturers in the world, quietly and apologetically confirmed at a press conference in Tokyo what the rumour mill had been predicting. This was not a minor player in the paddock that had suddenly made the connection between the misery of the real lives of its employees in time of recession and the absurdity of spending more than £200 million a year on two racing cars, it was one of the pillars of the sport which was pulling the plug and without warning.

The effect of Honda’s decision to dump Formula One, and to place its 700-strong team at the mercy of the market at the worst time imaginable, was visceral. Many could see the pressures on the smaller teams but no one had expected any of the leading manufacturers to leave. Throughout yesterday there was a palpable sense of unease about who might be next, a sense of foreboding only encouraged by Max Mosley, the FIA president, who admitted that he expects at least one, or maybe even two, more manufacturers to follow Honda’s example in the coming weeks and months.

The real worry for Formula One is that Honda almost certainly did not decide on this drastic course of action because of the money. Even in these straitened times, a total budget of about £300 million is small change for a company of its size. No, the real reason for its attack of Formula One stage fright was that, given that thousands of its workers are being sent home as its car sales slump worldwide, it was no longer morally defensible for it to be spending hard-earned money on what was looking like a particularly frivolous marketing exercise.

Formula One was OK for Honda when everyone was earning big money; with the world economy in retreat, it had begun to feel embarrassing. Those same moral arguments that pushed Honda to the edge and over it apply just as well to Toyota, its rival, about whom there were rumours in Japan yesterday that it, too, has “not ruled out” quitting Formula One.

In the long run — and this is the silver lining — Honda’s withdrawal will be seen as a watershed and the moment that the sport finally woke up to the new realities. In the driving seat to steer Formula One through what promises to be a painful phase of “cold turkey” as it weans itself off its addiction to gross overspending, is none other than Mosley.

The FIA president has been saying for years that Formula One was becoming unsustainable. He said this before the credit crunch started to bite and now he has been proved to be spot on. For much of this year, after winning his battle for professional survival over revelations about his private life, he and Bernie Ecclestone, the sport’s commercial rights-holder, have been fighting with the teams to try to bring them to their senses, but they have struggled.

No longer; the loss of Honda completely changes the ground rules for the debate about cost-cutting and the need to move to standardised parts, including engines and gearboxes, and the requirement to cut drastically team budgets. Up until now the teams have fought a rearguard action against Mosley — they have been aiming for budget cuts of 20 per cent, whereas he has wanted a total budget of just 20 per cent of what the teams are at present spending — but now the two sides can be expected to converge. Mosley has made clear that if his plans for a single and highly affordable standard engine from 2010 are not taken up by the teams, they can either play his game or go elsewhere.

There seems little doubt that Formula One will thus undergo a transformation in the next two years as it becomes slimmer, meaner and fitter. Although Mosley will feel emboldened by recent events, he must not alienate the remaining manufacturers to the extent that they leave the sport, not for financial reasons but because they do not wish to take part in a “standardised” racing series.

It was interesting yesterday how little sympathy there was among opinion-formers for Honda’s plight. As one observer in a rival team put it: “Formula One hasn’t become a bad investment overnight. Honda’s problem is that they weren’t any good. Had they just won eight grands prix and the World Championship, they wouldn’t be pulling out, would they?”

As those sentiments imply, it is going to take time for some in Formula One to accept that there are more important things on the agenda now than winning races. The rather more prosaic business of sorting out the sport’s long-term survival has got to be dealt with first.

The money men

Kimi Raikkonen: Teams: Sauber, McLaren Mercedes and Ferrari. Salary: £35 million. Wins: 17. World Championships: 1. Races: 140.

Lewis Hamilton: Teams: McLaren Mercedes. Salary: £15 million. Wins: 9. World Championships: 1. Races: 35.

Fernando Alonso: Teams: Renault and McLaren Mercedes. Salary: £15 million. Wins: 21. World Championships: 2. Races: 123.

Jenson Button: Teams: Williams, Benetton and Honda. Salary: £12 million. Wins: 1. World Championships: 0. Races: 155.

Rubens Barrichello: Teams: Jordan, Jaguar, Ferrari and Honda. Salary: £8.2 million. Wins: 9. World Championships: 0. Races: 271.