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Why Tata is worried about Fiat in India
When Ratan Tata said in an interview earlier this week that the four-year-old Tata Motors-Fiat joint venture "has not been as active as we had thought", he finally confirmed what the market has been quite vocal about for the past few months.
At the heart of the problem is Fiat's failure to bring in more models to India -- a fact the Tata Group chairman didn't forget to mention.
While the Tata Group still says it accords great importance to the strategic alliance with Fiat, analysts feel the main reason for the joint venture's indifferent performance (Rs 260 crore -- or Rs 2.60 billion -- loss in 2009-10 which is expected to increase for 2010-11), is its inability to improve its product portfolio.
Fiat's market share was less than 1 per cent last fiscal. In contrast, even Volkswagen, which entered India only in 2007, commands a share of 2.04 per cent.
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Why Tata is worried about Fiat in India
Due to gross underutilisation of its assets (50 per cent capacity utilisation), mainly the mega car, engine and transmission manufacturing plant at Ranjangaon near Pune, Fiat India posted a staggering cumulative loss of Rs 970 crore (Rs 9.70 billion), in a little more than two years.
Eight months ago, Fiat India Automobile did try to address the problem by bringing in a new team to revitalize its sales, marketing and distribution network. But buyers are still not impressed with the Italian automotive brand.
Fiat sold 21,066 units in FY11, compared with 24,727 units the previous fiscal -- a decline of 14.81 per cent, and this came in a period of high sales growth for almost all automobile companies.
Since the appointment of the new team, sales of Fiat branded cars have dipped over 15 per cent to 13,446 units as against 15,874 units a year ago.
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Why Tata is worried about Fiat in India
The fall in sales is in sharp contrast to the over 22 per cent sales growth achieved by the car industry in the same period.
Fiat presently sells three models in India, with one of them -- Palio Stile -- not available in the main city markets such as Mumbai, National Capital Region, Bengaluru and Chennai.
Fiat executives say the sales number did not justify the upgradation to BS IV level. Fiat's last model launch, Grande Punto, a premium hatchback, took place two years ago.
While the Punto costing Rs 4.45 lakh, sells an average of around 1,000 units per month, much less than the targeted 2,500 units, the Linea, an upper mid-size sedan costing Rs 661,000, sells an average of 890 units, which is much below the 2,000 units per month targeted mark.
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Why Tata is worried about Fiat in India
Under the 50:50 joint venture inked in 2007, the two companies are jointly working on distribution network and back-end support, besides co-manufacturing products in Ranjangaon. The facility has a capacity to produce 200,000 cars and 300,000 engines a year.
One of the steps that the JV had taken was that it re-approached some of its dealers asking them to change the way they market their cars. The plan included appointing separate man power and showroom space.
The new sales and marketing initiative demands further investments from the dealers. While some of the dealers welcome the change, many of them agree that Fiat suffers from a low brand recall in India leading to the lackluster demand.
"Fiat cars are not in the affordable range, they are at the premium end. Plus consumers also keep in mind the resale value of the car when they buy a vehicle. Fiat cars generally have a poor resale value compared to say a Maruti or a Hyundai", says a Mumbai-based dealer of Tata Fiat cars.
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Why Tata is worried about Fiat in India
But Fiat is hoping that the ace up its sleeve is the small car that will be priced below the Palio. At less than Rs 400,000, it is expected to compete with Maruti Suzuki and Hyundai Motors.
The car, which is currently under development, is expected to be launched by the end of next year and will sport a new 1 litre engine, the same configuration as the Maruti Wagon R and the Hyundai i10.
The new car, Fiat says, will go a long way to allay concerns over mileage of the existing cars in its portfolio.
