Wavelength overlap

Rivals, keep watch: Tata Motors and Fiat are actually beginning to work like strategic allies.

The Fiat 500 Cinquecento, when launched in 1957 as the Nuova, redefined the "small car". A cheap and practical means of transport, it sold and sold and sold.

Whether Tata Motors will take a leaf out of the Fiat technology book for its "one lakh rupee car" is unknown, but this much can be said: the partners' wavelengths are slowly coming to overlap.

The Tata-Fiat agreement to share a plant at Ranjangaon in Maharashtra, for one, would bring technology heads together in a joint mission to crank out 1,00,000 cars "" apart from 2,50,000 engines and transmissions "" every year.

The Fiat infusion is expected to show on the sales graph of Tata's Indigo and Indica. While both have done well, Tata could do with a big boost beyond the diesel-happy segment of taxi/fleet buyers.

Sure, the Indica has been gaining among yuppies since its engine went turbo "" sales in Q1 of FY07 are up a hearty 33 per cent at 33,173 units "" but the Indigo seems to be flagging slightly, its Q1 sales down a bit at 8,316 units.

Moreover, competition is set to intensify as Maruti rolls out its diesel Swift (with a Fiat engine) later this year. As one consultant puts it, Tata is "vulnerable because the Fiat diesel technology is top class".

True, Tata Motors has been working on upgrading its technology. And Rajiv Dube, senior vice-president, passenger cars unit, believes that the Common Rail Diesel Injection (CRDi) engine, which will go into the Indica and Indigo "very soon", should make a big difference.

"The mileage will improve, and there will be less noise and vibration," he says. The price, though, will be higher.

Says Yezdi Nagporewala, executive director, KPMG, "With CRDi, Tata Motors will have an edge. Even earlier, it faced competition from the Zen and Palio diesel models, but it survived. Now with Fiat technology, they will have an advantage for petrol vehicles too."

Adds a consultant, "We always felt it would have been better if the Tatas had made just the car rather than both the car and engine, like Daewoo which used the GM engine or Hyundai which used the Mitsubishi engine "" that will happen now."

Dube says that the cars made by Fiat and Tata Motors would be mutually complementary. Says he, "We will address the market together, but we will not waste our time, money and resources on similar products."

Fiat hopes to sell the Grande Punto and a new sedan, while Tata Motors is thinking of a new platform altogether.

According to Arindam Bhattacharya, director, Boston Consulting Group, "Alliances between firms who collaborate and compete are not new "" there's Nissan and Suzuki, or GM and Toyota. So, this could be win-win for both. Moreover, there can be several price points within a segment, so if they come up with different products, the strategy can work."

Both Tata and Fiat are sub-scale players in the global context, and need to leverage each other's strengths "" globally too. In fact, what Nagporewala believes could be the biggest upside of the deal for Tata is the joint approach in Latin American markets.

"That development is worth watching, and could set a new trend," he says, hoping that auto partnerships in general (such as M&M's deal with Renault, other than this one) score better odds of survival in an era of heightened competition than they did in the past (what with TVS having snapped with Suzuki and M&M trailing off with Ford). After all, there does come a time that the strategic advantage of mutually met needs far outweighs the rough parts.