Fiat To Float New Venture With Pal

Italian major spurns Peugeot overtures; to pick up 51% in new firm

Fiat Spa of Italy has rejected French giant Peugeots overtures to join the PAL-Peugeot joint venture in India. Instead, Fiat will link up with Premier Automobiles Limited (PAL) to form a new joint venture.

Fiat will hold a majority stake of 51 per cent in the new venture, which will be called PAL Auto Ltd. The remaining 49 per cent will be held by PAL.

The new company will take over production of the Fiat Uno in India, as well as production of PALs old warhorse, the Premier Padmini.

Sources revealed that PALs Kurla factory will be sold as a running business to the new company at a total value of about Rs 501 crore. Along with the assets, liabilities in the form of term loans from financial institutions, working capital facilities from banks and current liabilities such as the Uno bookings, totalling Rs 465 crore, will also be transferred. PALs share holding in PAL Credit and Capital Ltd will also be transferred to the new joint venture. This will enable Fiat Auto to enter the auto finance business in India.

The new venture will strip PAL of most of its major businesses and reduce it to marketing the Padmini and making auto components for Fiat.

The Doshis will be left with minority stakes in two joint ventures and a fledgling auto components business.

The new joint venture has thus overhauled the arrangement proposed earlier, under which Fiat was to pick up only 10 per cent in PAL with a technical collaboration for the Uno.

The Peugeot offer to Fiat to buy only PALs stake in PAL-Peugeot was not acceptable to Fiat, which wanted a controlling stake in the resulting new company.

The multi-model operations which would result from such a move with Peugeot producing the mid-sized Peugeot 309 and Fiat concentrating on entirely different compact passenger platforms also acted as an impediment.

Fiat and Peugeot have a badge engineering pact for a monospace platform in Europe, which facilitates easy operations of a combined plant.

However, Fiat and Peugeot are still talking and a fresh offer from Peugeot may be considered by the Italian major at a later stage.

Fiat is currently negotiating with the government of Maha-rashtra to set up a greenfield site near Pune for its world car project.

The deadline for the project, that will have an installed capacity of 50,000 cars a year, is 1999. The project will be Fiats second venture in India, the first being its proposed joint venture with Premier Automobiles.

Fiat will go it alone on the A 178 world car project under the banner of Fiat Automobiles India Ltd. However, it has offered PAL up to 49 per cent in the venture, which can be availed off within three years.

This project will be only the second 100 per cent passenger car venture in India, after Hyundai.