Fiat in India: Realigning the Joint Venture with Tata Motors




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Introduction

In September 2011, Fiat India Automobiles Limited (FIAL) announced that Fiat SpA, the Italian automotive major, would exit the joint-branded dealership agreement with its Indian partner, Tata Motors Limited (Tata Motors). The sales of Fiat cars in the Indian market had been poor despite the formation of FIAL – a Joint Venture between Fiat SpA and Tata Motors. The slump in its sales and its perception that this was due to prospective Fiat car buyers receiving step-motherly treatment at the Tata-Fiat showrooms spurred Fiat’s decision to go it alone.

The Tata-Fiat relationship began in 2005 with a distribution and service alliance whereby Tata Motors was responsible for the sales and service of Fiat cars in India. The relationship was then scaled up to form a 50:50 JV, FIAL, in October 2007, under which both the companies agreed to a joint distribution network, a back-end support system, and co-manufacturing of products including engine and technology sharing at Fiat’s facility at Ranjangaon. In its five years of operations, the industrial JV produced around 190,000 cars and 337,000 powertrains.

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The distribution arrangement, however, did not live up to expectations and both Fiat and Tata Motors suffered losses in the JV (See Exhibit I). The break-up of the JV was only at the dealership level; the companies decided to continue with the overall alliance. Even as the Italian company was making efforts to establish its brand in the Indian market through a separate Fiat Group-owned company in India in early 2012, analysts wondered whether this move would help Fiat in improving its standing in the Indian market. In 2011, India was the 12th largest in the world with gross domestic product of $1.217 trillion. However, despite being one of the world’s fastest growing economies, its annual per capita income was $1,070. India had only 18 cars per 1000 citizens, compared to 53 in China and 687 in US.

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