FIAT TATA ALLIANCE

Fiat India in pact with Tata Motors

Tata Motors will manage marketing and distribution for Fiat in India, and more extensive co-operation is not ruled out by either company. 

OUR AUTOMOBILE CORRESPONDENT

19 January 2006
NEW DELHI, INDIA

Fiat wants to revive its sagging sales while Tata Motors eyes futuristic designs. Italian carmaker Fiat has roped in India’s Tata Motors to salvage its dipping sales in what is being considered as world’s fastest growing automobile market.

The deal begins this March, when Tata Motors will start managing the marketing and distribution of Fiat cars in India. Fiat has been, of late, worried about its plunging sales in India.

Sources say the move is only a fist step in wider collaboration aimed at making forays into product development, manufacturing and sourcing. At first Fiat will use Tata Motors’ significant dealer network presence, according to Sergio Marchionne, the chief executive of Fiat SpA.

Tata Motors and Fiat dismissed speculation about future cooperation as premature, but stopped short of ruling it out.

Tata group chairman Ratan Tata said the group’s ties with Fiat was “an evolving relationship with no barriers, no boundaries.” Tata group has interests in steel, energy, software and hotels also.

The announcement regarding the cooperation was made at the Auto Expo in New Delhi, the national capital, last Friday. The pact is the culmination of a joint exercise initiate last September to identify areas of cooperation between Tatas and Fiat.

Fiat rolls out the Palio hatchback and mid-sized Petra at a factory near Bombay, India’s commercial hub. But it has failed to outsmart rivals including General Motors, Ford and Hyundai in the Indian market. The Palio is believed to be one of the best-built small cars in India or even the world, but comparatively higher fuel efficiency figures as well as the bad reputation of Fiat'sa service network in India as well as prolonged labour breakdowns in their plant dented its sales in India.

The deal also envisages after-sales service by Tata Motors as well as spare parts for the Italian carmaker’s brands in India. Fiat, it may be recalled, had identified bad service and lack of spare parts, as key reasons for its dismal performance in India. With Tata Motors entering the scene with a helping hand, that may change. 
Marchionne said Fiat would use Tata Motors to source spare parts from India. India’s high-skilled low-wage workforce is once of the prime reasons for the country’s emergence as a manufacturing hub.

According to estimates, car sales in India have grown 20 per cent annually in the past five years. Tata Motors manufactured trucks and buses till 1998. In that year, it entered the passenger car market with Tata Indica, a hatchback,. One out of every five small cars sold in India is an Indica. 

Ratan Tata has also announced his intentions to roll out a Rs 1 lakh car. The Fiat alliance would come in handy for Tata Motors to design future models in the highly competitive market, according to sources close to the deal.