Tatas, Fiat in pact for sales, manufacture

The two companies will have agreements based on the feasibility report.

Tata Motors and Fiat SpA today signed a memorandum of understanding (MoU) for exploring a global alliance for developing, manufacturing and distributing passenger cars across markets.

A joint team would be set up shortly to determine the feasibility and the nature of cooperation, Tata Motors and Fiat said in a release.

The two companies will have agreements based on the feasibility report. Business Standard had reported the proposed tie-up on September 20.

Automobile sector analysts said the alliance would help Fiat in reducing its manufacturing cost in India and Tata Motors in gaining access to latest designs and technology from the Fiat stable.

"In another two to three years, the Tata firm will face intense competition from leading automobile players like Toyota, Renault, Nissan and General Motors. In addition, the Maruti-Suzuki combine is all set to enter the diesel market, which is the mainstay of Tata Motors today. The proposed alliance will be more intense on the technology front, especially in the area of diesel engines. An alliance with Fiat will really come handy, especially since Maruti-Suzuki is set to start production of Fiat's common-rail diesel engines from a new plant near Manesar in Haryana," said an analyst.

Fiat already has a technical tie-up with Suzuki through GM which till recently was partnering Fiat.

The alliance opens many doors for the two companies. Analysts said Fiat India might set up the Ranjangaon facility near Pune with the help of Tata Motors. Tata Motors, on the other hand, would try and enhance its presence in developing markets using Fiat's global distribution and retail network, the analysts said.

Land meant for the facility at Ranjangaon has been lying vacant since 1999. Once up and running, this facility may become Fiat's sourcing hub for the southeast Asian markets.

"We are delighted to be in dialogue with the Fiat group on a range of possibilities. Both companies will benefit from this alliance in terms of possible joint product development, shared platforms and aggregates," Ratan Tata, the chairman of the Tata group and Tata Motors, said.

"The possible strategic cooperative agreement with the Tata group represents another step in our clearly defined strategy that calls for targeted alliances across the automobile value chain," said Sergio Marchionne, the CEO of Fiat SpA.

Fiat has tie-ups with PSA Peugeot Citroen and Suzuki, and has recently signed an MoU with Ford Motor Co. These alliances are strategic to Fiat's plans of becoming a profitable carmaker once again after suffering losses for the past few years.

Fiat has produced more than 85 million passenger cars and light commercial vehicles, including 400 models, since 1899, when the company was founded in Turin, Italy. Some of these models have been perceived as milestones in the automotive industry.

Tata Motors, with revenues of $4.7 billion, is the world's fifth largest medium and heavy commercial vehicle manufacturer. Tata Motors vehicles are being marketed in Europe, Africa, West Asia, Southeast Asia, South Asia and Australia.

The company acquired Daewoo Commercial Vehicles Company, South Korea's second largest truck maker, in 2004. This year, it acquired a 21 per cent stake in Hispano Carrocera, the Spanish bus and coach manufacturer.