Dissatisfied with monthly sales for its car line in India, Italian car maker Fiat SpA is doing a serious rethink on its India strategy. While the company had initially aimed at sales of over 4000 units combined of its Linea and Grande Punto, it is barely reaching even half that number.
So now, Fiat has hired an independent consultant to rework its sales strategy in the Indian market. The point of contention is the shared dealer network between Fiat and Tata that is not delivering on targets.
Fiat’s short term objective is to increase sales of its existing car lines and also incorporate future variants and new models that are planned over the next 12-18 month period.
This also means a series of discussions with its joint venture partner Tata Motors. Tata is also involved in the new model rollout and positioning strategy.
So at this stage – it would be impractical for Fiat to think of going it alone in India.
"Creating distribution network from a scratch will entail huge investments. The company will also lose a lot of time in building the required infrastructure," said Kapil Arora, partner- advisory services at Ernst & Young.
It would also mean reversing the grand merger of the two retail networks that was carried out in 2007 when Fiat's 40 dealers and Tata's dealer network of over 100 were gradually combined. Today the total joint-dealership strength stands at 175 which will hit 200 dealers by the end of 2010.
Splitting dealer network may create complications for Fiat, which will have to make huge investments in re building distribution network. On the other hand, Tata's Indica Vista and Indigo Manza use Fiat powertrains.
Fiat has a joint venture with Tata Motors through which they share production facility at Ranjangaon in Maharashtra and distribution network as well.
Over Rs. 4000 crore have been invested in Ranjangaon – on land already with Tata Motors. Ranjangaon has the capacity to make 200,000 cars and 300,000 engines, some of which are also exported to Fiat plants overseas.
Tata also has a supply contract for its Xenon pickup to Fiat in the Latin American market.
Both companies strongly deny any friction between them but analysts believe that eventually the two will have to explore separate retail networks while maintaining a joint sourcing and manufacturing operation.
Any decision by the two companies will also have to keep global implications in mind. After all Tata Motors is still keen on exploring synergies with Fiat group CV-maker Iveco in the commercial vehicle segment.
