Fiat back to square one in India

It is back to the drawing board for Fiat in India. The Italian automaker has decided to pursue its own retail strategy after a six-year partnership with Tata Motors failed to yield any results.

To that extent, the divorce was not entirely unexpected. The initial doubts on brand dilution were followed by reports that dealers were not promoting Fiat products in the showrooms. Sales were also plummeting by the day and Wednesday's announcement was a clear admission that the joint retail business model had fallen flat on its face.

The unanswered question, though, is where does all this leave Fiat in India? After all, creating a new dealer network takes time and there would be no takers unless there are many products on offer to ensure some business and protect margins. The Linea and Punto barely average 1,500 cars each month and such numbers would hardly encourage dealers to commit investments.

Fiat had, of course, made it known that it would be launching a new model in the B segment towards the end of this year which would be priced under Rs 4-lakh. It was expected to do the trick in the numbers game and bring the company back to a better standing in the Indian market. Does that plan stand shelved now without a retail base?

And while the company insists that it just cannot afford to ignore this market, this parting of ways with the Tatas will give it time to review its strategy. For the moment, its top concern would logically be Europe which is tottering right now.

The company has also made it clear that its emerging economy strategy will focus on Brazil, a happy hunting ground for years now, along with Russia and China. Each of these markets will receive products from Chrysler (now a Fiat-owned company) till 2014 as indicated in an investor presentation. India was way down the pecking order with just one small car from the Fiat stable slated for launch in 2012. There was absolutely nothing from Chrysler.

Till the crisis in Europe blows over, the company will, logically, take one thing at a time before it settles for an India business model that will hold it in good stead for the future. It may even opt for a partner like Suzuki, to whom it supplies diesel engines, for a bigger play in Asia.

A PLAN GONE WRONG

Fiat had everything going in its favour when it first decided to invest in India in the mid-1990s. Its association with the country went back many decades earlier thanks to its tie-up with Premier Automobiles. Fiat was a brand everyone was familiar with in India and this was enough to assure a flying start.

This would have been the ideal script if only it had gone according to plan. Fiat had opted for a new facility near Pune to kick off its innings here. The idea was to produce the Palio range while the Uno would be assembled first at Premier Auto's plant in Kurla, Mumbai. Things started off on the right note with the Uno, touted as the first challenger to the Maruti Zen, garnering nearly three lakh bookings.

The stage was set for a robust India story till things went completely out of control. Premier's other joint venture with Peugeot was floundering while the Uno operations were hit by a labour strife and consequent liquidity problems.

Fiat decided to shelve its Pune project and take charge of the Premier plant in Kurla. This would help it meet the huge order book for the Uno but this was easier said than done. Customers were tired of waiting and as the cancellations mounted, Fiat realised there was precious little it could do to salvage the situation.

Even today, the Uno will be remembered as an opportunity which was frittered away. In the process, it also dented Fiat's image in the market but it wasn't as if all was lost either. The company realised that it had lost the initial momentum but was still trying to put its house in order.

The waiting period saw other big automobile brands enter India but Fiat was now ready with its next big launch, the Palio. A lot of hard work went into making the car a reality, especially from the viewpoint of localisation of parts. The Palio took off with a bang and it looked as if Fiat had finally got things sorted out.

INDIA OVERLOOKED

Sadly though, this was only a brief respite. Headquarters in Turin had its own issues to deal with which resulted in little attention paid to India. By then, Fiat's dealers were a disgruntled lot because nobody was picking up the cars. The problems in Turin were spooking Indian customers who were not sure if the company was in the best of shape.

It was only after Sergio Marchionne took over as the new CEO of Fiat did things finally begin to fall in shape. The tie-up with Tata Motors in 2006 also saw the curtains fall on Kurla and the relocation to the originally planned site at Ranjangaon near Pune.

Fiat has stated that the manufacturing alliance will continue. Apart from Tata Motors, its other customers for the 1.3 diesel engine include Maruti Suzuki and former ally, Premier. Fiat could even use the plant as a base for supply of engines to its operations in China.

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