Fiat in India: Realigning the Joint Venture with Tata Motors




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Excerpts

Tata Motors

Tata Motors was a part of the Tata Group, one of India’s largest multinational conglomerates that had a presence in more than 80 countries and garnered total revenue of $83.3 billion (around Rs. 3,796.75 billion) in 2010-11 (See Exhibit III).

Tata Motors, which was established in 1945 as TELCO, was India’s largest automobile company with revenue of Rs. 1,231.33 billion ($27 billion) in 2010-11. In India, Tata Motors commanded the leadership position in the commercial vehicles segment and was among the top three in the passenger vehicles segment. The company was also the world’s fourth largest truck manufacturer, and third largest bus manufacturer.

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Tata-Flat Joint Venture

Despite having been present in the country for more than a century, Fiat’s products just did not have enough takers in India. In 2005, Paulo Castagna became the managing director of Fiat in India and he initiated a 12-month revival plan. The company infused Rs. 2 billion and made efforts to improve the dealer and service networks.....

Rationale Of The Alliance

Fiat, despite a presence in India with a wholly-owned subsidiary, had accumulated huge losses in its ten years of operation and commanded only a miniscule share of the Indian automobile market. Analysts attributed the company’s miserable performance to its inefficiency in managing its dealerships, non-availability of spare parts, bad customer service, and a string of marketing and distribution glitches which had tarnished its image......

Teaming Up

By coming together, Fiat and Tata Motors expected to compete effectively against strong rivals in India like Maruti Suzuki and Hyundai, and grab a larger share of the fast growing Indian automobile market. Fiat, avoiding the overlap of segments with Tata Motors, proposed to produce its premium cars for the Compact and C-plus segments (See Exhibit IV). The JV also manufactured two of Tata Motors’ models, the Indica and the Manza (a sedan).....

Competition

There were several foreign and Indian firms looking out for tie-ups to position themselves better in the fast growing Indian auto market. In 2005, India’s Mahindra & Mahindra tied up with Renault of France to launch the Logan, a sedan. Japanese major Toyota was planning to launch a small car for the Indian market. These models were expected to directly compete with some of Tata Motors’ models. Maruti Suzuki was also planning to enter the diesel segment with an investment of Rs. 32.71 billion. Maruti Suzuki also partnered with Japan’s Nissan to launch Nissan’s small cars in India....

Internal Issues

Internally, within the alliance, there were issues that needed attention from both the companies. Tata Motors felt that some of the products offered by the Fiat stable (the Petra) would hinder the sales of its own product (the Indigo) and therefore omitted the Petra from display and sale through the joint dealerships. Tata Motors officials reasoned that the product’s exclusion was done to achieve a complementary portfolio of products which would help strengthen the Fiat brand in the market.....

The JV Revival Efforts

In 2011, Ratan Tata stated that the JV had not delivered as expected: “I think that Fiat has to launch more models in the market to keep the dealers interested. It also has to look at its cost structure in terms of parts and components. So the joint venture needs to be looked at quite critically and until that happens, it’s not going to be optimized.” The company agreed that Fiat’s engines had played a critical role in the performance and growth of the Vista and the Manza.......

Fiat Drives Alone

The poor sales performance of Fiat through the joint branded showrooms continued through 2011. The company’s car sales were 31% down with 10,351 unit sales during April-November 2011-12, while the overall market was down by only 3.5%. The volume of Fiat cars continued to fall despite heavy discounts of over Rs.50,000- Rs.100,000 on its cars. In January 2012, Fiat announced that the management control of Fiat’s commercial and distribution activities would be handed over to a separate Fiat Group-owned company in India.......

The Road Ahead

Fiat sold a little over 10,000 units in 2011. However, it expected to capture 8% of the estimated 2.5 million unit Indian passenger car market by 2015. In its efforts to achieve the expected numbers, the company, in January 2012, launched upgraded versions of its existing Linea and Punto models. It also planned to launch a small car in the Rs.300,000-400,000 range, which it believed could become the volume driver for the company in India. Further, the company was evaluating the prospects of launching new cars to fill in the gaps in its portfolio in order to suit the Indian market. ......

Exhibit

Exhibit I: Proportionate Share of Tata Motors and Fiat of the Assets and Liabilities and Income and Expenditure in the Joint Venture- Fiat India Automobiles Limited
Exhibit II: Fiat SpA Financials (2007-2011)
Exhibit III: Consolidated Yearly Results of Tata Motors (2007-2011)
Exhibit IV: Classification of Passenger Vehicles as per SIAM
Exhibit V: Tata Motors and Fiat’s Sales Compared to Indian Auto Industry
Exhibit VI: Some Key Statistics Related to the Indian Automobile Market


 

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