Team-BHP - Fiat may get an Indian partner -Automobile Landscape In For Makeover

This is from TOI- 2nd Sept 2005 ( Bangalore Edition front Page)

Mumbai: Italian car maker Fiat is said to be in talks with an Indian automobile giant for striking a broader strategic alliance that holds the potential to dramatically alter the Indian automobile landscape.
Sources familiar with the development said the two companies are planning to float a special purpose vehicle (SPV), into which the Italian giant’s Indian assets will be parked. As for the SPV itself, it will be owned jointly by the two companies. Two private equity investors may hold minority stakes in the SPV.
The proposal is believed to have been first presented to the Indian company, which is part of a very large business group, by a consortium of lenders led by ICICI Bank. The lenders promised, in the event of an agreement, to write off 35-40% of the debts Fiat’s beleagured Indian arm owed them.
The consortium had first initiated talks with the Hindujas, but negotiations fell through after the NRI business group shelved plans to get into the passenger car market.
When asked for confirmation, Gualberto Ranieri, vice president, Fiat Auto SpA gave nothing away. In an email reply, he said, “Our company’s policy is not to comment on rumours and speculations.... We have renewed our brand strategy for the Indian market to be focused at the premium end of the growing automobile sector.” Paolo Castagna, managing director of Fiat India, was equally non-committal. “Any discussion on strategic alliances or joint venture is not the mandate of the local management.”
But those close to the deal appear bullish about the synegies such an alliance would offer. Fiat can bring to the table its design expertise and un-utilised manufacturing capacities in the country. Since Fiat stopped producing the Sienna and the Uno, only a part of its production capacities are actually being used. As for the Indian company, it can pitch in with its marketing and distribution capabilities.
This, they say, will help both companies immensely. For instance, to stay in the limelight, car makers have to introduce new models every year, and that’s a fairly intense thing. For the Indian company, which is formidable in the commercial vehicles segment but is a relatively new entrant in the passenger cars business, this has been a chink in the armour. Unfortunately for Fiat, many of their new car launches have been less than roaring successes despite its long-standing pedigree. For both companies, it could be a win-win situation: for the Indian company, a tie-up with Fiat would fill a gap in its product strategy, while it would allow the Italians a greater hedge against risks.
Fiat has been ailing ever since its foray into India in 1998 with Fiat Uno. Castagna’s entry has heralded the fifth makeover for the company. After exiting from a joint venture with the Doshis, who owned Premier Automobiles, in 1997, it has struggled to get its distribution, product, service and communication strategy right.
The company had, in late 2004, put in place a financial restructuring plan that envisaged writing off losses of Rs 1,300 crore from its equity capital of Rs 1,368 crore.
The Italian parent, itself in trouble then, had plans to infuse around Rs 470 crore into the Indian subsidiary to back new product launches as well as to work capital needs.
But the Indian arm got into a vicious cycle of not being able to support either the product or the dealer — its link to the consumer — adequately.
The larger problem for the company was that each of its products was launched with a bang, but then sales whimpered and the product had to be finally phased out. Today, 90% of the company’s revenue comes from domestic sales of the Palio and 1% from exports.
Traditionally, Fiat has been a very conservative company, fiercely protective about its designs and its branding. If this deal comes through, Fiat will have to concede ground and share the stage with a company that sells only one-fiftieth the number of cars Fiat sells worldwide.