Tata Motors and Fiat sign MoU for passenger cars
The Economic Times — September 23, 2005

Indian automobile major Tata Motors and Italy's Fiat on Thursday announced the signing of a memorandum of understanding (MoU) to analyse the feasibility of co-operation across markets in the area of passenger cars, that will encompass development, manufacturing, sourcing and distribution of products, aggregates and components. Following the MoU, a joint team will be set up to determine the feasibility, both in the short and long term.

If found feasible, the two companies will enter into definitive agreements in the coming months, a statement said. This will be the first instance of an Indian automobile company joining hands with a foreign peer in global markets. This type of co-operation, although new in the domestic context, is fast catching up among car makers in overseas markets, says Rajeev Chabba, MD of General Motors India.

Ratan Tata, chairman of the Tata group, said, "We are delighted to be in dialogue with the Fiat group on the range of possibilities between the two corporations. Fiat is a globally respected corporation, with a long-standing presence in automobiles. Both companies will benefit from this alliance in terms of possible joint product development, shared platforms and aggregates."

"The understanding we have reached with the Tata group represents another step in our strategy of looking for specific partnerships in the auto sector," Fiat CEO Sergio Marchionne said. Fiat, emerging from the worst crisis in its history, has always said it wants to work with other car makers on specific projects to reduce risks and cut costs, part of a plan to return to profit by '07 from a record loss in '02. It recently entered into an alliance with Ford Motor to develop two small vehicles for the European market, after ending a strategic alliance with GM earlier this year. Fiat also has a JV with PSA Peugeot Citroen to make vans.

Fiat has invested about Rs 2,000 crore in its Indian operations and recently made a fresh infusion of Rs 200 crore. It has a plant in Kurla, with an installed capacity of 60,000 cars a year and another plant in Ranjangaon (75,000 unit capacity), also in Maharashtra.Fiat has been struggling to make a dent in the 1m units a year Indian market as its Palio hatchback faces competition from the Swift and Getz. In August this year, Palio sales were at 120 units, down from 438 in August '04. The Indica, on the other hand, sold over 8,000 units, with the Indigo and the Marina pooling in another 3,200 units during the month. Fiat India's new head, Paulo Castagna said the company will look at introducing new models after restoring consumer confidence and improving its dealer and service networks.

Commenting on the alliance, sources said, "While the Italian car major, which is in the process of turning around, gets a strong Indian ally with global ambitions, Tata Motors will stand to gain from Fiat's retail network, especially in its efforts to accelerate growth by tapping new export markets." Sources said the co-operation will not directly impact Fiat's operations in India. But they did not rule out the possibility of Fiat products being made by Tata Motors later.

Sources say Tata Motors may get the much-needed petrol capability as its Indica petrol contributes to just 5% of total sales. Fiat's Palio is likely to start rolling out of Tata Motors' manufacturing facility at Pune as part of the alliance.