The distribution JV between Tata Motors and Italy’s Fiat could be on the rocks. Fiat India Automobiles, the 50:50 joint venture between the two companies, has asked global consultancy firm Accenture to review its own ?economic viability.?
In this context, senior officials of Tata Motors and Fiat have formed a joint-steering committee (JSC). Accenture would report to the JSC and submit its report shortly.
Apart from reviewing the distribution network of the JV, Accenture would also study the financial health of the Italian subsidiary. As per the company?s profit and loss statement filed with the Registrar of Companies (RoC), in the financial year ended March 2010, Fiat India had posted a loss of approximately Rs 290 crore.
Although the company’s senior management has said that Fiat would be able to break even by 2011-12, it still looks a tall order. Sources said while initially the two companies would set up indigenous dealerships and distribution networks, a complete separation is not ruled out in the future.
When contacted, a Fiat India spokesperson, however, denied any such plans. He said Fiat had not retained Accenture for its India operations. ?Fiat’s joint venture with Tatas is well-established and the two partners are progressing as per plan,? he added. An email sent to Tata Motors did not elicit any response.
The simmering differences between the JV partners started almost a year ago, with Fiat reportedly voicing its disappointment that its prospective customers were not being treated on par with the customers of Tata Motors in the showrooms. This prompted Fiat to explore the feasibility of setting up its own distribution network while continuing its relationship with the Tatas. “The initial plan was that while Fiat-Tata branded retail outlets would continue, Fiat would also simultaneously set up its own units,” sources said.
As per the JV announced in 2006, the two companies merged their respective retail networks which included 40 Fiat dealerships and more than 100 dealerships of Tata Motors. Apart from that, the two companies decided to invest up to Rs 4,000 crore in putting up a unit in the Tata-owned land at Ranjangaon, near Pune to manufacture Fiat and Tata cars and engines. The total capacity for the plant includes 1,60,000 cars and 3,00,000 engines.
Fiat models like Palio and Linea are manufactured here apart from Tata Indica. “It would be difficult for Fiat to completely breakaway immediately from the JV because of the investments involved. Though restructuring the JV is certainly on the anvil,” the source said. He said if a restructuring takes place, then the Italian car maker would have to chart a completely new India strategy.
An auto analyst with a global consultancy firm said that for Fiat to make inroads into the 1.5 million unit passenger car market would be a very difficult task. “Fiat may not have done well so far in the Indian market. But without the Tatas, they may fall further behind,? he said.
During April-December, the passenger car segment grew 32%, while sales of Fiat dipped 15% to 15,231 units compared to 18,087 units sold during the same period in 2009.