According to sources, the new venture should be operational by mid-2001.
R Seshasayee, managing director, Ashok Leyland, said that Iveco, the truck arm of Fiat, would need to bring in fresh funds to get a majority stake in the venture.
"There are firm plans to spin off our operations with Iveco into a joint venture between the two parties," Seshasayee said.
Ashok Leyland would hold a minority stake in the joint venture. The engine unit in Hosur has a capacity of producing 30,000 engines per annum.
The restructuring exercise is expected to increase the cash flows into Ashok Leyland substantially. Iveco is also likely to shift its global requirements for a category of engines to this joint venture.
Meanwhile, New Holland Tractors (india) Pvt Ltd plans to source engines for its existing range of 50-70 HP tractors from the joint venture company to be formed between Ashok Leyland and Iveco of Italy.
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At present, New Holland Tractors (India) is importing engines for its tractors from Iveco, Italy. The tractor maker hopes to cut down costs substantially by sourcing the engines from the Ashok Leyland-Iveco joint venture.
However, New Holland is not looking at the Ashok Leyland-Iveco joint venture for engines of its 40 and 35 HP tractors which would be launched next year. The company plans to launch a 40 HP tractor in the Rs 2.5 lakh range sometime in January 2001 and a 35 HP tractor by June 2001. By 2004, New Holland India plans to have a range of six tractor models.
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200 opt for VRS
Around 200 employees of Ashok Leyland have opted for the voluntary retirement scheme (VRS) introduced by the company earlier this year.
Seshasayee said that "More employees of Ashok Leyland are likely to opt for the scheme." The VRS was introduced primarily to cut costs and improve productivity. In an earlier exercise, around 140 executives of the company had opted for the VRS scheme.