Fiat is also creating a new segment between Zen and Esteem by pricing its 1242cc `luxury hatchback' Palio model around Rs 4 lakh, according to company sources. The company hopes to target potential customers who wish to upgrade from the 993-cc Zen (priced at Rs 3.45 lakh) and the 999-cc Hyundai Santro by offering a more powerful car at a slightly higher price.

The diesel version of Siena will have 1698cc turbo engine and is likely to be priced around Rs 6 lakh, which is much lower than the diesel Opel Astra and Ford Escort. In fact, Fiat sources said that Siena diesel model would give even petrol versions of Mitsubishi Lancer, Opel Astra and Ford Escort a run for their money. These cars are priced above Rs 7 lakh.

Even Honda City, Daewoo Cielo and Maruti Esteem are likely to feel theheat from the diesel version of Fiat Siena.

Indications are that the company will price Siena's base model around Rs 4.5 lakh in order to capture a sizeable chunk of the market dominated by the Esteem. On the lower side of the mid-size market is the Esteem and Cielo and on the upper end are Honda City, Opel Astra and Mahindra Ford.

The Palio is expected to be priced around Rs 4 lakh and would compete with the Opel Corsa. "The Palio will create a niche segment of a luxury hatchback and offer world-class safety features, a stylish design, trendy looks and a sturdy body", company officials said.

Fiat India Automobiles (Fial) managing director Gianni Ravina said "the Palio will not compete with Fiat Uno".

Logically this also means that the Palio will be priced over the petrol Uno which is around Rs 3.2 lakh in Delhi.

The company expects the Zen segment to expand with the launch of cars in the lower and upper segment.

Fiat's strategy is to capture a sizeable chunk of the mid-size segment bylaunching the Siena, and then launch the Palio in the second half of 1999 when it is properly established in the country. It decided against making the Palio its entry model as there are too many hatchbacks in the Indian market with the Zen, Santro and Matiz.

The company apparently realised that there is enough capacity in the Kurla plant which can be put to good use instead of waiting for the new facility at Ranjangaon to be commissioned in 2000. Therefore, it advanced the launch by a year.

"The strong point of the Siena is an executive class car with an engine option and a car which is much more modern than Esteem", sources said.

It is likely to pull out potential customers of Zen and Esteem.