Fiat, Padmini close to signing pact to source 1.3 litre multijet diesel engine for Rio
Source: Economic Times, 22nd Nov 2011MUMBAI: Fifteen years after they parted ways, Premier Ltd
, run by Walchand Hirachand Group, and its erstwhile partner Fiat, may soon kiss and make up.
Premier, the maker of the iconic car Padmini which ruled Indian roads for three long decades - between 1955 and 1985 - has turned to Fiat
to make a mark in the ferociously competitive Indian passenger vehicle market. It is very close to signing a commercial agreement with its former partner for the 1.3 litre multijet diesel engine - the one that drives Maruti's Swift
and Tata Motors' Vista
- for its compact sports utility vehicle (SUV) Rio.
Having re-entered the passenger vehicle space with Rio
in 2009, Premier plans to source 6,000 to 8,000 engine units from Fiat, which conform to Bharat Stage IV
emission standards and caters to top 13 cities, including Mumbai, Delhi, Chennai, Kolkata, Bangalore.
"We have been in talks with Fiat for quite some time. There are a couple of vehicles in Italy right now which are being tested; once the technical integration is ready, we will enter into a component supply agreement with Fiat," Chairman and Managing Director of Premier, Maitreya Doshi, told ET. And for Fiat, which has been struggling to post decent sales numbers of its own cars, any sourcing business will help reduce losses. Rajeev Kapoor, MD, Fiat India
, said: "Yes we are in talks.
The engine is under final calibration, once it's over, it will take another two to three months to be used. Though it is not a big volume, it will definitely offer additional revenues to Fiat India." Premier had fallen out of its joint venture with Fiat in 1997 due to recurrent labour problems at its Kurla plant, which were causing heavy losses.
Premier has managed to sell just 2,000 Rios since its launch, which is miniscule in the annual SUV market of over 3-4 lakh units. Doshi attributes this to the lack of a BS IV engine which restricted the sale of Rio to Tier-II and Tier-III cities, but with BS IV, it could be a different game altogether.
The company, however, used the opportunity to introduce a few improvements like better NVH (Noise Vibration & Harshness), improved interiors and well-tuned engines. Premier has entered into a formal component supply agreement with Zotye Auto of China to source 15,000 CKD kits per annum for Rio. These kits are assembled at the company's plant in Chinchwad, Pune.
Apart from the tieup with Fiat, Premier has also worked with engine design experts, AVL, to develop a 1.2 litre BS IV petrol engine. Well aware of the highly-competitive environment, Premier is eyeing a very conservative volume of 8,000 to 9,000 units and wants to be a niche player.
"Unlike other established automakers that have running businesses, for us, it is a restart after a decade. We have decided to let capacity chase demand, rather than create capacity and then wait for demand," says Doshi. Premier is also planning to expand the dealership to around 100 locations from its current 50 in the next 12-18 months.
Experts say Premier had the first mover advantage in the compact SUV market, but it failed to capitalise on it. The largest SUV maker in the country, M&M, is very close to launching its own compact SUV Xylo and it won't be easy for Premier to do the catching up. "The smart thing would be to keep expectations low. The fact that they have tied up with Fiat and have come out with improved interiors is a step in the right direction.
Premier will continue to be a niche and marginal player but they have done the best they can," said Hormazd Sorabjee
, editor, Autocar India. The automotive business is still a very small part for the Rs 300-cr Premier, with over 90% of its business coming from heavy engineering and machine tools division.
The engine tie-up is crucial, as it will help the carmaker reach out to big cities and help in building volumes. "Our engineering & machine tool business is growing at a good pace and even if I manage to touch a volume of 8,000 to 9,000 in a year, our turnover can triple to almost Rs 1,000 crore in the next few years," said Doshi.
Premier may be marginal player, but the company still has a land bank of 218 acres at Kalyan, in the outskirts of Mumbai, which it plans to monetise soon and it may use the proceeds to expand the automotive division. Established in 1944, Premier (formerly know as Premier Automobiles) went on to become one of the pioneers of automobile manufacturing in India.
Being a leading player for decades, Premier Auto had got into a tie-up with Peuguot and Fiat, post liberalisation, but both the ventures were fraught with legal hassles and labour issues which pushed the company into losses. The company made a comeback of sorts into the automotive sector by launching a diesel van and a pick-up in 2004, but it is still an inconsequential player in the fast growing van and pickup market.