Fiat India's Palio is likely to soon start rolling out of Tata Motors' [Get Quote] manufacturing facility at Pune as part of an alliance being forged between the two companies.

The Palio, along with Fiat India's other models, is currently manufactured at the company's plant in Mumbai's Bandra-Kurla complex.

The shift of the Palio to the Tata stable will create a unique situation by bringing together the two models -- the other being the Tata Indica -- that had first opened the premium hatchback segment. This segment has just started to boom with Maruti Udyog's [Get Quote] Swift and Hyundai Motors India Ltd's Getz.

The addition of the Palio range will be a shot in the arm for Tata Motors, whose Indica, in spite of having spawned a sedan (the Indigo) and a station wagon (the Marina), is perceived as catering mainly to those looking for a diesel vehicle. The sales of its petrol variants are a small percentage of the total sales.

The Palio, too, has yielded two station wagons (the Weekend and the Adventure) and a diesel variant. However, crucially, it will add to the Tata portfolio through its petrol appeal. A Tata Motors spokesperson declined to comment on this.

As Maruti, setting up a diesel engine plant, hopes to roll out its first diesel car from the new facility by the end of next year, the Palio's move to Tata Motors will provide it with the much-needed petrol capability.

Besides, one issue that all Fiat products (the other being the Sienna, reborn as the Petra) have suffered from is inadequate after-sales support. Tata Motors' vast network will effectively address that.

The Palio, when introduced, had made quite a splash in the market with its aggressive pricing, appealing looks and roominess. However, word spread about its dismal fuel efficiency -- something the company attributes to miscommunication -- affecting sales.

In August this year, Palio sales were just 120, down from 438 in August 2004. The Indica, on the other hand, sold over 8,000, with the Indigo and the Marina pooling in another 3,200 during the month.