The Hindu Business Line : Tata-Fiat alliance takes shape

THURSDAY'S announcement of cooperation between Tata Motors and Fiat follows months of speculation, first in the Italian media and later in India, of a likely understanding between the two companies. Amidst the growing consolidation happening in the global auto industry, Fiat had been one big name that was getting squeezed. Its heavy losses convinced General Motors (GM), which had acquired a stake in Fiat and was supposed to buy the company, to exit the deal.

Fiat split with GM, netting $2 billion in the process, but reports of the period also pegged the company's debt at four times that amount. There was a dire need for an aggressive product strategy and cost reduction. Reports of a possible Tata-Fiat alliance began against this backdrop (Tata Motors has a proven ability to develop products at a low cost; it is also an emerging small car player, traditionally Fiat's forte), but more in the context of Fiat's ailing Indian operations.

Years ago when Fiat was selling the Uno here and its world car — Palio — was just an exhibit at Delhi's Auto Expo, officials of Fiat's Indian arm had been shocked to see a Palio-like Indica debut at the exhibition. Both products had been styled at the same design house, but the similarity ended there. Tata Motors went on to sell huge volumes of the Indica, while the Palio sold poorly in India.

Fiat's plans for a second manufacturing facility at Ranjangaon never took off and two months ago, its Kurla plant suffered water logging in the Mumbai floods. Coupled with a weak market image, its fortunes here seemed jinxed. Soon after reports appeared in Italy of talks with Tata, the range of potential suitors cited in the media for its Indian arm grew to include the Hindujas (Fiat-owned Iveco has equity in Ashok Leyland) and ICICI.

In March, when Mr Paolo Castagna became the Managing Director of Fiat India, he told newspersons that it was for the headquarters to respond on this subject. Around then, a senior Tata Motors official said that the chiefs of the two companies had indeed met, but such discussions were universal in the auto industry where the basic product had matured and become akin to an FMCG item. Tata Motors itself had at one time explored the possibility of joint product development with Peugeot.

Beyond a study, that project did not fructify into real work. Thereafter, in a bid to take the Indica to Europe and ensure volumes at its plant, Tata Motors had signed up with MG Rover to sell the car in the UK and Europe. That deal collapsed with the British company shutting down. Fiat, on the other hand, has been Europe's true small car player with a presence in regions where such cars are favoured.

(Incidentally, Dr V. Sumantran, until mid-August an Executive Director with Tata Motors, had before his joining Tatas been the Director (Advanced Engineering) at GM-owned SAAB in Sweden and the "single voice" for the GM-Fiat New Technology Development.)

Also of likely interest to anyone desiring to partner the Indian company, would be its project to make a car that sells at or around Rs 1 lakh. Tata officials had always maintained that while project success remained important, the learning gained was even more critical, contributing directly to low cost product development abilities. "I want to thank the Tata team, especially its Chairman Mr Ratan Tata, for the outstanding work shared with us," Mr Marchionne has said in the statement.

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