Buoyed by the initial customer response to its midsize sedan Fiat Linea, Fiat India Automobiles Pvt. Ltd is set to launch two more models
this year and achieve cash break-even by 2011-12, president and chief
executive officer Rajeev Kapoor said.
The company, a 50:50
joint venture between Italian automaker Fiat SpA and Tata Motors Ltd,
is readying to launch the Grande Punto, a compact car, in the third
quarter of the fiscal year. The second model will be Tata Motors’ new
three-box offering, code-named X1.
Together with the Linea,
the products would be instrumental in steering the joint venture into
profitability, said Kapoor, adding that the planned launch of the Fiat
Bravo was being delayed because of the economic slowdown.
Driving profits: Fiat India Automobiles president and chief executive Rajeev Kapoor.
As
part of the joint venture agreement, signed in December 2007, Fiat and
Tata Motors had set aside an investment of Rs 4,000 crore for a new
facility in Ranjangaon, near Pune, to make Fiat and Tata cars and
engines.
The Ranjangaon unit, which has the capacity to
make 160,000 cars and 300,000 engines, is producing the Fiat Palio,
Stile and Linea models and select Tata Indica models. The X1, which
would compete with Maruti Suzuki India Ltd’s Dzire, would be the first
so-called new generation car from Tata Motors that would be
manufactured in the facility.
Sales volumes would be pivotal for the success of the venture.
Tata’s
X1, the new Tata Indigo that would also come off the same platform and
Fiat’s new models could bring substantial volumes, helping the company
reach break-even, says Neeraj Bandhu, director of the India office at
automotive forecaster CSM Worldwide.
“Though the success of
the new models from Tata Motors would depend on the powertrain (engine)
options that are offered and other factors, going by the good past
record of the Indigo, if the trend continues with the newer volumes,
the target is achievable,” Bandhu said.
He is, however,
cautious on the Grande Punto’s prospects. “None of the bigger
hatchbacks—be it the Skoda Fabia or the Hyundai i20 that are priced in
the Rs5-7 lakh range—has been too much of a success in the Indian
market,” he said, adding that pricing will be key to the success of the
car.
The compact car, or hatchback, segment, which made up
more than 75% of the 1.2 million cars sold in India in fiscal 2009, may
see many more launches in the coming months, among them the Maruti
Suzuki Ritz and Honda Jazz.
“Typically a JV (joint venture)
of this magnitude takes four to five years to break even,” said
Mahantesh Sabarad, an auto analyst with Centrum Broking Pvt. Ltd. He, however, added that just two to three products would not help; Fiat needs multiple offerings across segments.
Fiat’s
Ranjangaon manufacturing facility is benchmarked against the global car
manufacturer’s units in Turkey and Brazil. Kapoor says it compares well
as the lowest-cost manufacturer, and Fiat will eventually source
right-hand drive Linea cars from here for the UK and Australia.
“We have a cost advantage of 14-17% over Brazil and Turkey due to localisation of parts and labour costs,” he said. Fiat
sold 4,600 units of the Linea in January-March. While saying his firm
was not surprised by the response, Kapoor admitted that it was
confounded by the demand for the top-end variant of the car which
accounted for almost 80% of total sales. However he expects the ratio
to dip to 25% once demand stabilizes.
Sabarad of Centrum
attributes the initial success of the Linea to Fiat’s strategy of
pricing and styling. “The company decided to deliberately have a
predatory pricing strategy for its new model,” he said. “To my mind the
price will keep moving up; getting the same volume then would not be
possible.”
Fiat has been known in India more for the
Premier Padmini, based on the Fiat 1100, that the Doshis of Premier
Automobiles Ltd manufactured for four decades starting in the 1950s. In
Mumbai, black-and-yellow Premier Padminis are still the most popular
taxis.
Fiat, which has had a chequered history in India, had
almost decided to quit the market but for Fiat chief executive officer
Sergio Marchionne and Tata group chairman Ratan Tata coming together in
2005, Kapoor said.
“Such was the level of confidence among
both the partners that investments began at least two years before even
a formal agreement was signed,” he said.