End of the road for Fiat-Tata Motors distribution tie-up

Six years after Fiat agreed to sell its cars through Tata Motors dealers, the Italian auto maker has decided to call off its distribution and commercial alliance and go solo in India.

Despite the alliance, the Italian car maker failed to push its sagging sales in the country. It has only 0.6 per cent share of the domestic car market. The company currently sells only two vehicles: Grande Punto in the hatchback and Linea in the sedan segment. Last financial year, the company’s sales saw a slide of 24 per cent at 16,073 units as against industry growth of five per cent.

Fiat will now set up a new subsidiary company in India to look after sales, distribution and service of its own cars. This company will be directly controlled by the Fiat Group. Till now, the distribution and after-sale service responsibility of Fiat-branded cars was in the hands of Tata Motors, India’s largest auto maker.

Fiat, which currently sells cars through 178 franchised Tata Motors dealers, will encourage them to form the foundation of its future network. The dealers will be encouraged to join the Fiat fold. A Fiat India spokesperson clarified that though no stand-alone outlet selling Fiat cars was currently operational in India, the development of the new Fiat dealer network would start progressively.

In September last year, the two partners had made the first rejig in their distribution alliance. Under that, Fiat identified 20 cities in which its cars would be sold independently.

Rajeev Kapoor, CEO and president, Fiat India, had told Business Standard at that time, “The joint-venture agreement with Tata Motors stands. We are altering our marketing strategy. We have identified 20 cities. Fiat cars will now be sold separately and independently in these places."

Under that agreement, the dealers engaged by the Tata Motors-Fiat joint venture were to open separate showrooms for Tata Motors and Fiat cars.

The two companies had initially signed the sales and distribution arrangement in March 2006. In December 2006, the agreement was brought under a new joint venture Fiat India Automobiles (FIAPL), controlled by Tata Motors and Fiat with equal equity. It was agreed the company would also manufacture cars, engines and transmissions for both Fiat and Tata Motors at the Ranjangaon factory near Pune, earlier controlled only by Fiat.

"Fiat and Tata Motors have agreed that, in order to further develop the Fiat brand in India, management control of Fiat’s commercial and distribution activities will be handed over to a separate Fiat Group-owned company. Currently, Tata Motors has been managing the distribution responsibility of Fiat-branded products in India through joint Tata Motors-Fiat dealerships," stated a joint release from both companies.

However, Tata Motors and Fiat spokespersons clarified there would be no structural changes made to the joint venture company, FIAPL, and it would continue to manufacture cars, engines and transmissions for Fiat, Tata Motors and Suzuki.

FIAPL owns the Rs 4,000-crore plant in Ranjangaon, having capacity in excess of 200,000 cars, 300,000 engines and 300,000 parts and accessories.

"It (the JV company) will continue with these manufacturing activities as they are outside of the new distribution agreement and will supply cars and powertrains to Fiat and Tata Motors. Fiat will establish a new, separate, company which will assume responsibility for all commercial and service-related activities from the current Tata Motors dedicated team assigned to manage the Fiat brand," added the release.

Analysts doubt whether Tata Motors dealers would like to continue with Fiat. V G Ramakrishnan, senior director, automotive, Frost and Sullivan, says, "Fiat products never got their due. Dealers will ask more than just commitment from Fiat, as they will be extremely cautious. They will not settle for the argument that Fiat has strong plans for the Indian market. Fiat will have to reignite consumer belief in its brand."

A Mumbai-based Tata Motors dealer said, "We are yet to take a call on this. The cost of real estate in a city like Mumbai is not so affordable."