Italian carmaker Fiat SpAs decision to invest close to $1 billion in India over the next five year may not be enough to put it in a position of strength in the countrys automobile industry, analysts said on Monday.
The company announced that its investment would go into ventures to make cars, trucks, automobile components and robotic production equipment. Fiat sold its first car in India more than 90 years ago, and local versions of its 1100 and 124 models continue to be made by Bombay-based Premier Automobiles Ltd (PAL).
But Fiat has not been very successful with its recent initiatives in India. PAL launched the Fiat Uno in India last year, but labour unrest at its plant near Mumbai caused poor production, unsatisfied demand, and a rash of cancelled bookings.
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Two years ago, Indias second largest commercial vehicle manufacturer, Ashok Leyland Ltd introduced Fiats Iveco truck units Cargo series in India. Fewer than 5,000 were sold in 1996/97 (April-March).
There is nothing wrong with Fiats products. But both the Uno and the Cargo trucks have suffered as Fiats partners did not have the wherewithal to promote and push its products as required, Rohit Rana, automobile analyst at SocGen Crosby said.
He said Fiat would have done much better if it had decided to come in on its own two years ago. Fiats $1 billion investment plan involves several minority Indian partners in different projects.
Fiat is betting largely on its Palio world car to bring home the bacon in India, and to repeat the success it had in Brazil, where it has sold 300,000 Palios in the year since they were launched.
The Italian group recently received approval from the Indian government to set up a $558 million joint venture with PAL to make the Palio in India, in which it will own 74 percent equity.
Paolo Cantarella, Fiats chief executive officer, expects the venture to start production by late 1999, and make 100,000 cars at full capacity. But it may well be too late by then. Rana estimates that the market for mid-size cars will be about 120,000 by 2000, while local production will total over 500,000. Its going to be a cut-throat market, and the later you launch your products, the tougher it is to make a mark, he said.
Fiat has to contend with the fact that some of its competitors are already in India in strength, and have their cars on the market.
South Koreas Daewoo Corp, Ford Motor Co and General Motors Corp have already launched their cars in India, and Honda Motor Co, Mitsubishi Motor Co, and Hyundai Motor Co are all in the process of doing so. The giant in the field is Maruti Udyog Ltd, an equal joint venture between Suzuki Motor Corp and the Indian government, which has 70 percent of the Indian car market.
Fiats products until now had not been cost competitive in India. The Cargo trucks are 10 to 12 percent more costly than the competition. And for about the same price, the Uno is an old car in comparison with the Maruti Zen, said Jardine Flemings automobile analyst K N Srinivasan. He said it was unlikely that Fiat would make a dent in this market in the short term.
It will have to invest heavily in product promotion and distribution to make any headway when it launches its car in late 1999. It is still low on aggression when it comes to India as compared to companies like Daewoo, Srinivasan said. (Reuter)