A REPORT

ON

Strategic Outlook for Fiat India Automobiles Ltd.

By
Abhishek Bhardwaj
0901200065

ICFAI Business School

 A REPORT
ON
Strategic Outlook for Fiat India Automobiles Ltd.
By
Abhishek Bhardwaj
0901200065

A report submitted in partial fulfillment of

the requirements of
MBA program of
the ICFAI University, Dehradun

Date of Submission: 7th March, 2011.

SUBMITTED TO:
Prof. Ashwini Sovani,
IBS, Pune
 Acknowledgment

Through this acknowledgement, I express my sincere gratitude towards all those people
who have helped me in the preparation of this project, which has been a learning
experience.

I am highly obliged to Prof. Dhananjay Keskar (Director, IBS Pune) for providing me
an opportunity to study in this esteemed institute and go through the rigorous MBA
program of 2 years. I am highly indebted to him for the all guidance and support.

I wish to thank my Faculty Guide- Prof. Ashwini Sovani (Faculty, IBS PUNE) for her
continuous support and time. He has been a guiding spirit all throughout this project and
has given all the information which made it possible for me to make this project. I
express my sincere thanks to him who guided me throughout the project and gave me
valuable suggestions and encouragement for my continuous improvement.

Finally, I owe my special thanks to my family & friends who are my source of
encouragement and inspiration and without their help and support, this project would
not have shaped up so beautifully. I wish to thank them for the entire morale boost that
they gave in times of need.
 Table of Contents

I. Abstract

II. Introduction

III. Report

IV. References
Abstract
The report explores reasons for the poor performance of the Italian automobile company Fiat in
India. It examines in detail the company's efforts to make its Uno, Sienna, Palio, Grande Punto
and Linea cars a success. The report also takes a look at the changes made by the company for
ensuring the success of its car, the Palio, launched in September 2001. The report is so structured
as to enable one to understand how certain mistakes on the marketing, product development and
the strategic alliance fronts resulted in Fiat's poor performance over the years in the Indian car
market. One should be able to understand the rationale behind the measures taken by the
company for ensuring the success of its various cars.

Credited as one of the founders of the European automobile industry, Fabbrica Italiana
Automobili Torino (FIAT) SpA was established in 1899 in Turin, Italy by a group of individual
investors. FIAT's automobiles achieved instant popularity, not only in Italy, but also
internationally.

Over the next century, FIAT consistently followed a two-pronged growth strategy: penetration of
foreign markets and focus on innovation. The innovation strategy fuelled the company's
diversification plans into agricultural and construction equipment, commercial vehicles,
metallurgical products, components, production systems, aviation, publishing and
communications and insurance.

In March 1996, Fiat signed an agreement with PAL to import and assemble CKD kits of the 999-
cc car 'Uno.' Uno, launched by FIAT in 1983, was the most successful car in the company's
history.

Four versions of the Palio were launched in September 2001; the prices ranged from Rs 0.349
million to Rs 0.499 million. Analysts remarked that these models were priced competitively
against the Santro and the Zen.

The entry-level models of the Palio (EL) and the Santro cost Rs 0.349 million and Rs 0.334
million respectively. Fiat claimed that it offered a net Rs 26,000 worth of content more than the
Santro. The market seemed to agree with Fiat as the car was received rather well. In just two
days, over 1100 cars were sold. This prompted Fiat to increase the daily production at its Kurla
plant in October 2001. Bianchi said, "While daily production at the Kurla plant has already been
increased from 50 to 70 cars a day, we plan to increase it further to 100 cars a day by mid-
October and 150 by November-December." The company was also planning to add a third shift
and produce 220 cars a day.
Introduction
“We will show what Fiat means, in terms of technology, service, deliver, cost,
finance, mobility solution to the customer.”

- Maurizio Paolo Bianchi, Managing Director (Fiat India), in October 2001.

The Launch of Palio

History
 The history of Fiat began many years ago, at the dawn of Italian industrialization.

 Giovanni Agnelli founded Fiat in 1899 with several investors.

 Its first car the 3 ½ CV strongly resembled contemporary Benz, and had a 697 cc boxer
twin engine.

 In 1910, Fiat was the largest automotive company in Italy.

 By the early 1920s, Fiat had a market share in Italy of 80%.

In 1922, Fiat began to build the famous Lingotto car factory the largest in Europe up to that time
which opened in 1923.

In India, the company was established in 1905, as Bombay Motor Cars Agency as its sales agent.

Fiat Automobiles signed a licence and servicing contract with Premier Automobiles Ltd, to
manufacturing and selling of 1100 and 1100D Fiat Padmini cars.

Fiat has achieved a high level of localisation for all its cars, and is making world-class cars
available in India at even more competitive and affordable prices.

Fiat Automobiles owns the most-admired and sought-after models worldwide, including the Fiat
Lancia, the Ferrari, the Maserati and the Alfa Romeo.

Fiat is the only automobile manufacturer in the world that has won the coveted European Car of
the Year award nine times. It is also the only company in the world that manufacturer’s
recyclable car.
Report

Fiat India has been mulling over to adopt a new marketing strategy for the Indian market.
Despite having some highly competitive cars in its India portfolio, the sales figures of the
company remain moderate. Fiat Punto The company currently sells two fairly competitive cars in
India including hatchback Fiat Punto and sedan Fiat Linea but has managed to sell mere 24,806
units in the financial year 2009-10, which is a very small number considering the total industry
sales of 1.5 million units during the same period.

As per the industry experts, the performance of Fiat India during the last one year could have
been better if it would have focused more on the sales and promotions of its under deserving cars
like Fiat Punto and Linea in the Indian market. According to Mr. Rajeev Kapoor, MD of Fiat's
India, that the sales of Fiat India could have been better, considering it has two competitive
products (Linea and Punto), both of which are available in petrol and diesel engine options. He
further reiterated that the numbers could have been better.

The company currently sells its cars in India through 175 Tata Motors dealerships which is a
50:50 joint venture partner of Fiat in India. Where the company had reported a robust growth of
208 percent in the Indian market in FY 09-10, its market share is still mere 1.6 percent in the
country. However, the company is continuously working on reaching more and more customers
in India by enhancing its dealership base and increasing its manufacturing facility in the country.

The new marketing strategy of the company includes, creation of separate sales teams dedicated
to its different car to make sure that a single model can be pin-pointed and sales can be
improved. This would indeed be a trendsetter in the Indian automobile industry.

From the very beginning, the strategy of Fiat Powertrain Technologies has been to unify the
innovation capabilities and technological expertise before spread among Fiat Auto, Iveco, Centro
Ricerche Fiat and Elasis. Through that strategy, FPT is capitalizing on the technological
excellence of Fiat engines and transmissions to approach the open market, gaining and increasing
shares through noncaptive customers.

Of course, the base business and the starting point is "captive," as Iveco, Case New Holland
(CNH) and Fiat Auto are presently the major customers, however, this captive knowledge can
help us to successfully approach and manage new customers.
The open market business is implemented on two parallel channels. One is retail, based mainly
on sales through the company's network of distributors and dealers. Established by Iveco-Aifo
and Iveco Motors, this retail channel is able to sell tailored engines to small OEMs. The second
path to market is through the KA channels, structured to serve global OEMs directly with an
internal sales force, operating in the automotive, industrial and power generation market
segments.

FPT's strategy of doubling its volumes by 2010 has been approached by Sales & Marketing by
focusing its effort on the open market, prioritizing areas that will give the company a global
presence where it will structure the FPT presence by replicating the central structure.

On the KA side, one of the first large contracts of strategic value for the new organization has
been the Daimler/FPT agreement for the supply of 78,000 engines per year for the Canter light
commercial vehicle of Mitsubishi Fuso. This deal has been followed synergistically by Sales &
Marketing, application engineering and manufacturing demonstrating how FPT can work as one
company, thereby giving its global players multifunctional support to cover all their different
needs.

As mentioned, the FPT approach is not restricted to a limited number of large customers, but
with its network tries to gather a portfolio of medium-sized OEMs evenly distributed in the
various areas of the world.

In Europe, the Fiat Group is traditionally present and our strategy now is to consolidate and
extend the former Iveco Motors network, growing the penetration especially in the Eastern
European countries. A special effort is also made in the Mediterranean coastal area where the
current network of local shops will be improved to provide an even better assistance to FPT
marinized engines that are powering both pleasure hulls an professional fishing boats.

North America is another marketplace of strategic interest, given both its size and the number
and importance of its OEMs. FPT North America has already established a network of local
dealers and a decentralized R&D and Engineering Center is going to open in Burr Ridge, near
Chicago, to assist local OEMs. CNH, one of the largest OEMs belonging to the Fiat Group, is
considered the starting point to develop this approach.
In Latin America the situation is different, as the Fiat Group also has a large footprint in Betim,
near Belo Horizonte that enables the group to be a market leader in the automotive sector. FPT is
benefitting from this industrial footprint to produce industrial diesel engines of the Nef and of
Cursor families, while gearboxes and axles are produced in Cordoba. The main challenge in
these countries, protected by high import duties, is to produce engines with high local content in
order to satisfy OEM needs through local production.

China, India and the Far East are the fastest developing countries in the world and FPT decided
to be present there through a joint venture with Tata, the market leader in the Indian
manufacturer for India. That led FPT to produce industrial engines in Pune for both Tata and also
to serve Indian OEMs producing agricultural and construction machinery, as well as generating
sets.

A similar deal was concluded in November 2006, with Iveco, SAIC and Chongching for the
construction of an engine manufacturing plant in the Chongching industrial area. This plant is
sized for the production of 100000 engines per year to be distributed through three different
channels. These include the two Fiat Group companies already well established in China, Iveco
and CNH; a growing group of Chinese OEMs of off-highway machines that are distributed in the
domestic Chinese markets; and for export to the rest of the Far East and Australia, which are
served through the Shanghai hub.

Finally in Russia, a similar deal is in the advanced planning stage with a local player. The engine
production pole will serve the growing group of Russian OEMs mainly dedicated to develop
mobile equipment for the internal Russian marketplace. At the time of writing, the joint venture
is not signed, but the agreement should be concluded within the first half of 2008.

The Launch of Palio

In September 2001, Fiat India Automobiles Limited (Fiat) held a lavish function in the Indian
coastal state of Goa. The function, featuring performances by leading Indian musicians Louis
Banks and Sivamani, who had composed music especially for this event, was held to celebrate
the launch of Fiat's much-awaited car, the Palio. Designed by well-known Italian automobile
designer Giorgetto Giugiaro,1 the Palio was already a huge success in countries like Brazil and
Argentina.
The media termed the high-profile launch of Palio, backed by a Rs 120 million endorsement deal
with leading Indian cricket player Sachin Tendulkar (Tendulkar), as a desperate attempt by the
Italian automobile giant to establish itself as a serious contender in the Indian car market. The
Palio was expected to boost the company's sales, which had been declining for the past few
years. Known as the Fiat Group's 'world car', the Palio was being seen as Fiat's last chance to
tackle its accumulated losses of Rs 10 billion.2 Fiat did appear to be taking a 'last chance' with
this new car. It had dedicated more than 83% of its total installed capacity for the production of
the Palio. The company had invested an additional $ 250 million at its Kurla, Maharashtra, plant
for the new car.

Unlike some of the other small cars that had been adapted to suit tough driving conditions in
India, the Palio had been designed from scratch with these conditions in mind. Fiat had even
decided to reduce the combined production of its other models - Uno, Siena and Siena Weekend
- to 10,000 per year. Instead, the company planned to build 50,000 Palios during the first year of
its launch.

It was reported that the company was ready to stop producing the Uno completely, if necessary.
Company sources revealed, "The decision regarding whether the Uno should be continued will
be taken after the Palio is launched and after observing the performance of the former car." Fiat
had also postponed the launch of the Multipla (part van, part car) for the time being. Fiat India's
Managing Director Maurizio Bianchi was extremely optimistic regarding Palio's prospects,
"With the Palio we plan to give the widest range possible in the B-segment.3 We will launch
with the 1.2 and 1.6-liter petrol (versions) and by 2003 offer a 1.9 diesel (version). We will also
try to give a wide range of options to suit every pocket and taste. In this way we will be able to
span the complete spectrum of the B-segment which today accounts for 40% of the Indian
market."

Although Bianchi was optimistic, his skeptics far outnumbered his supporters. The reasons were
not difficult to understand, as the company's five decade long existence in the Indian automobile
market had only produced failures. In spite of having invested over Rs 30.1 billion since 1996 in
the country, Fiat's market share in 2001 was only 1.3%.
The Failed Resuscitation Attempts
UNO
In March 1996, Fiat signed an agreement with PAL to import and assemble CKD kits of the 999-
cc car 'Uno.' Uno, launched by FIAT in 1983, was the most successful car in the company's
history.

Uno was launched in 1996, amidst much fanfare and acquired around 3,00,000 bookings in just
three months. However, in June 1996, just when the company had closed the bookings, the
employee union at the Kurla plant forced a lockout. The lockout was the result of a go-slow
agitation led by militant trade union leader, late Datta Samant, started in April 1996. The lockout
was lifted in November 1996, after a majority of the workforce defied the Datta Samant-led
union and opted to go back to work. As a result of the lockout, production suffered greatly and
the company could not deliver the booked vehicles in time - only 617 cars were delivered by the
end of 1996. The non-delivery of the vehicles upset many consumers and around three-fourths of
the orders were cancelled.
"This is the beginning of what promises to be a far-reaching, long-term
relationship between Fiat and Tata."
- Ratan Tata, Chairman, Tata Motors, in 2006.

"While Tata Motors will get technology to develop economically priced small
cars and entry-level sedans and an entry into untapped markets, Fiat India
can continue to have a presence in the Indian market without much
investment."

- Kalpesh Parekh, Auto analyst, ASK Raymond James,3 in 2006.

In July 2006, major Italian automaker Fiat Auto S.p.A. (Fiat Auto), and the Indian auto major
Tata Motors (TM), signed a Memorandum of Understanding (MoU) to form a joint venture to
produce passenger cars, engines, and transmissions in India. These products were intended both
for the Indian and the international market. Earlier, in January 2006, the two companies had
signed a marketing and distribution agreement under which TM marketed select models of Fiat
cars through a few of its dealers. The joint venture was seen as a major development in the
Indian automobile industry. Both TM and Fiat Auto had a long history in automobile
manufacturing. Until the 1990s, TM was mostly a manufacturer of commercial vehicles.

It entered the passenger car market in the 1990s with the Indica, a 1400 cc small car44 with a
diesel engine, which went on to become a success and placed TM among the top three passenger
vehicle manufacturers in India. However, in 2002, because of a fall in the demand for
commercial vehicles, TM reported a loss. As a part of its turnaround strategy, it improved its
internal efficiencies and also decided to focus on overseas markets to reduce the impact of
demand fluctuations in the domestic market. In 2003, TM returned to profitability. By 2005, it
had a market presence in Thailand, Senegal, South Africa, Turkey, Europe, and West Asia.

However, in spite of its impressive growth, TM was still a small player at the global level. Fiat
Auto, which built its first car in 1899, also had an illustrious history in the automobile world.
After World War II, it became a major manufacturer of small cars in Italy, and later on in
Europe. Until the 1990s, Fiat Auto dominated the small car market in Europe and other parts of
the world.5 In India, Fiat cars were imported even as far back as 1905. In the 1950s, the Fiat
Group entered into a license agreement with India-based Premier Automobiles Ltd. (PAL)6 to
manufacture its cars. Fiat Auto formally entered the Indian market in 1997 through a joint
venture with PAL. In the early 2000s, Fiat Auto ran into losses as it was slow in adapting to the
changed economic environment7 in Italy in particular and Europe in general.

INITIAL IMPRESSION OF PADMINI

Fiat Padmini and Ambassador were the only cars available in India and the Indian consumers
were really bored of those cars and wanted to be relieved of these cars. That generation dint like
the cars but still used it as there was no other option. The first mistake that fiat made was in those
times, it had the first mover advantage in the Indian market but it did not capitalize on it, in fact
the brand image of fiat kept on deteriorating. The consumers in India were totally fed up by fiat
cars. The impression that it created in those times was that of a high maintenance, ugly cars. this
impression got carried to the next generation of users after 1991 when auto companies rushed
through India and fiat became the un-preferred brand. The impression it created in the early
period carried on till a long period of time.

GENEARATION AHEAD OF ITS TIME

The fiat CEO himself once admitted that they have been ahead of their times in a statement made
“we were generations ahead”. They bet heavily on the success of Palio as a car, which in fact
was a success in the beginning but then couldn’t continue for a longer period of time. After 3-4
years of the Palio’s launch cars like Swift and Getz in the same category were launched and have
been successful.

RUMORS OF CLOSURE DURING

RELAUNCH
After Padmini’s launch fiat didn’t launch any car for years together, but then it introduced cars
under the brand of Peugeot and also launched the UNO. Peugeot faced a lot of problems in its
initial years of launch. Peugeot got thousands of pre launch bookings in those times, but after the
bookings were done a rumor spread that fiat is winding up its operations in India and people’s
money would be lost, this created a panic.
Company Overview

Fiat India Automobiles Private Limited (FIAPL) is a 50-50 Industrial Joint Venture between Fiat
Group Automobiles and Tata Motors Limited originally incorporated on January 02, 1997.

Currently manufacturing the Palio Stile 1.1 and 1.6 models, premium Fiat cars such as the
Grande Punto and Linea are expected to boost sales soon in the B and C segment from the
facility within.

Also owns and controls five internationally renowned brands: - Fiat Automobiles, Alfa Romeo
Automobiles, Lancia Automobiles, Abarth and Fiat Light Commercial Vehicles & Ferrari.

India being a major market for small cars, Fiat Auto decided to revive its operations in the Indian
market. And the joint venture with TM was a step in that direction. Most analysts were of the
opinion that the joint venture would benefit both parties; TM would gain in terms of better
accessibility to technology, design, and global markets, while for Fiat Auto, it would mean a
larger presence in India, one of the world's fastest growing auto markets, without heavy
investments. However, there were others who felt that the joint venture would end in brand
dilution and product cannibalization for both parties. Also, with Honda, Toyota, GM, Mitsubishi,
M&M/Renault, Nissan, Skoda, etc., chalking out plans to enter the small car segment, especially
the premium small car segment, it seemed likely that the TM-Fiat Auto joint venture would face
intense competition in the coming years.
SWOT Analysis
Strengths
 Expansion Of Business

 Services

 Maintain Position

 Understand Market Condition

 Flexible And Powerful Engines

Weakness
 Customer Satisfaction

 Luggage Carrying Capacity

 High Prices

Opportunities
 Enter Into New Line Of Product

 Technology Development And Innovation

Threats
 Country To Country Policy

 Competitors Intention

 Loss Of Key Staff

Advantages of the Alliance with Tata
Motors Ltd.
Even though Fiat India had been present in India for close to a decade, it had the lowest market
share among the 11 players - including later entrants like Skoda India - in the growing car
market. Though the company's cars like the Palio were initially quite successful, Fiat's image
suffered due to its dealers. Fiat customers were reported to have faced problems because of the
non-availability of spare parts and lackadaisical customer service. Such problems had an adverse
impact on the company's image, and it struggled to compete effectively in the Indian automobile
market. The alliance with TM was expected to improve its dealership network and customer
service without the company having to make significant investments. The goodwill enjoyed by
TM, and the company's reach were expected to improve Fiat's image in India.

Even though both firms gained several advantages by co-operating, they also faced significant
threats. The TM-Fiat Auto alliance was expected to face intense competition from other
automobile manufacturers in India, some of who were in the midst of forming their own
alliances. In February 2005, Renault SA formed a 49:51 joint venture with Mahindra &
Mahindra Ltd. The alliance was to launch the Logan, a sedan, which would compete against
TM's Indigo. Toyota Motor Corp. and its subsidiary Daihatsu Motor Co. Ltd., had plans to
launch a new small car for the Indian market. More significantly, MUL was all set to challenge
TM's diesel supremacy, by entering the diesel car market in a big way.

Outlook

India was one of the fastest growing automobile markets in the world, with passenger car sales
forecast to reach two million units per annum by 2010. As of 2006, small cars made up more
than two-thirds of India's passenger car market. Even in the future, at least in the short to
medium term, the small car segment was expected to remain the largest segment of the market.
Therefore, in spite of the intense competition, the TM-Fiat Auto joint venture was aiming to
make an impact in this high-volume segment. "Obviously Tata-Fiat [Auto] JV is entering an
over-crowded and a price sensitive segment. But this [small car] segment which contributes to
more than 60% of the total car sales will remain a key segment in the Indian car market for many
years," said an auto analyst.
References
I. www.fiat.com
II. www.tatamotors.com
III. ICMR case book on Business Strategy
IV. Business Standard Newspaper
V. Economic Times Newspaper
VI. www.team-bhp.com