Tatas explore greater bonding with Fiat

Tata Motors is exploring the possibility of joint manufacture of cars at Fiat’s greenfield facility in Ranjangaon. This is one of the many options the two companies were considering as part of their “strategic alignment”. Addressing shareholders at the company’s annual meeting recently, Ratan Tata, chairman, Tata Motors, said that a number of alternatives were open before the two partners. These included joint development, exchange and cross-badging of products. The two companies have already launched a joint dealership programme with select Fiat dealers selling the Tata Indica.

“It is a broadbased agreement which will develop based on needs, rather than contractual obligations. We intend to retain our individual identities, and it is not inconceivable that there will be joint development, and even joint manufacture in Ranjangaon,” said Tata. The alliance gives Tata Motors access to a range of advanced products and technologies from Fiat’s stable. “This will enable us to get to the market with technologically-relevant products in a much quicker time than if were to do it all by ourselves,” he said.

As the agreement includes access to engines, transmissions and other aggregates, it is conceivable that the 1.2-litre petrol engine which powers the Palio in India could be shoehorned into the Tata Indica enabling it to avail of the 16 percent excise duty on small cars. Currently, it does not qualify for this excise rate as it is powered by a 1.4-litre petrol engine. Fiat’s plant in Kurla, with an installed capacity of 60,000 cars, has practically been idle since July last year. The company’s India head had said in March that the Ranjangaon facility, which has an installed capacity of 100,000 units, would be activated if a ramp-up was required.

Industry experts feel that Tata Motors and Fiat may be eyeing an arrangement similar to the one between Suzuki and Nissan, which entails production of a new compact car by Suzuki for Nissan in India for sale in Europe. Nissan also separately plans to produce a car at one of Maruti’s plants in India. Besides the Fiat alliance, Tata Motors is also exploring the possible use of engineered plastic, supplied by GE Plastics, on its ambitious Rs-1 lakh car which it plans to launch in 2008.

India's passenger vehicle market is forecast to nearly double to two million units annually by 2010. Small cars make up more than three-quarters of the overall market. Prototypes of the small car – steel-bodied, four-door, petrol-driven – are already being tested at the company’s plant in Pune, but Tata is keen to use engineered plastics as this could reduce time to market, not necessarily cut the cost of the car.

##### Current plans call for the car to be manufactured in Pantnagar, Uttaranchal, and Hooghly district of West Bengal. The company has not indicated what the capacity of the plants will be but Tata said the "addressable market" for such a car would be at least one million units a year in a "mature market". He acknowledged that time had been lost on the small-car project but was hopeful of meeting its cost, despite a rise in the input costs of steel, tyres, aluminium and copper.

He agreed that rising oil costs were a concern and could dampen demand for all cars, including the one-lakh car. “But this could well spur automakers into developing more fuel-efficient cars. Hybrids and flex-fuel cars are very much in the future because no technology is as cost-effective as the internal combustion engine for the moment,” said Tata.

The company has set aside Rs 10,000 crore plans for its capex programmes over three years. Of this, Rs 8,000 crore has been earmarked for sustenance and product development while the rest will go into capacity expansion including the sub-one tonne pickup, Ace. The successful Ace, which largely drove the 10.1 percent growth in commercial vehicles in 2005-06, sold more than 30,000 units in 2005-06. The company estimates demand between 50,000 and 60,000 units in 2007 and production is accordingly being increased to 60,000 units.

Tata Motors, meanwhile, strengthened its exports in 2005-06, with 50,000 units being shipped out. This included 20,000 passenger cars. It now plans to sell its light commercial vehicles in South Korea through its 100 percent subsidiary Tata Daewoo Commercial Vehicles (TDCV). Independently, TDCV exported 1850 units of the Novus truck out of South Korea. This is two-thirds of that country’s heavy truck exports.