Monday, August 15, 2011

Fiat India to supply engine parts to China unit from March

Fiat India Automobiles Ltd, an equal joint venture between Italy's Fiat Group Automobiles SpA and Tata Motors Ltd, will use unutilized capacity at its factory near Pune to supply engine parts to Fiat China starting March.

The Ranjangaon factory has been saddled with excess capacity, owing to poor demand for Tataand Fiat models and engine export orders from Fiat Italy drying up.

Besides supplying engine parts to China, Fiat India is also in talks with several local auto makers to supply engines that can power their cars and sports utility vehicles (SUVs), Rajeev Kapoor, president and chief executive at Fiat India said. "We are in the process of signing the agreement." Fiat India makes Tata and Fiat passenger cars, engines, components and aggregates. A Fiat spokesman said the factory, which supplied engines to Fiat in Italy till last year, hasn't received any export orders this year.

Exports to China, Kapoor said, will lead to better capacity utilization. It will also help Fiat China meet its requirement without making additional investments in a line that makes such parts, he said. Fiat India's Ranjangaon factory has a capacity to make 250,000 engines a year. With car sales at both Fiat and Tata Motors dropping month-on-month, the factory has been operating at one-third of its capacity.

In July, for instance, sales at Fiat, which sells the Linea, Punto and Palio Stile brands, halved to 1,102 units as new models from rival car makers Volkswagen Group Sales India Pvt. Ltd and Hyundai Motor India Ltd, among others, became more popular with local buyers. Tata Motors' passenger car sales also dropped 38% to 17,192 units.

Kapoor declined to comment on the volume or value of the contract and other details. Fiat China has a requirement of 150,000 engines a year and the engine part supplies will be commensurate with that demand, according to a person familiar with the development, who declined to be identified.

"It's a new trend where China will import," said Yezdi Nagporewalla, executive director at KPMG, adding that there haven't been too many cases where India has exported to China. With demand in the domestic market declining suddenly, companies will look at alternative methods for capacity utilization. "We may see what we saw two-three years ago, when firms had started diversifying into areas like defence and aerospace to use idle capacities." Meanwhile, in a bid to ramp up the volumes of engines, which currently power Fiat and Tata Motors cars, Fiat is in talks with passenger car makers to supply diesel engines. Fiat India has already got a contract from Premier Ltd to supply a 1.3 litre multi-jet diesel engine for the firm's compact SUV Rio.

Making a comeback in the Indian passenger car market after the failed partnership with Fiat in the 1990s, Premier (earlier known as Premier Automobiles Ltd), which made the Premier Padmini model, unveiled its first new compact SUV in Mumbai in October 2009. The company has since then been launching the model in phases in select regions and has received a positive response, said Premier's spokesperson, without providing more details.

Priced at '5.25 lakh, (ex-showroom, Pune) the Rio currently sports a Peugeot TUD5 diesel engine. Kapoor said Fiat has already developed the engine. "It's in integration stage," said the Premier spokesperson, adding that the current engine is a BS III and, hence, Premier is looking at the BS IV option from Fiat. BS III and BS IV refer to Bharat Stage emission standards instituted by the government to regulate air pollution.

Fiat and Tata Motors also have an agreement to distribute and sell Tata and Fiat cars. The model of selling both the brands under the same roof, however, has not taken off and efforts are under way to revisit their plan. Touching upon the initiatives, Kapoor said Fiat, which had asked some of the select Tata-Fiat dealers, to set up separate sales outlets for the company has received a favourable response and some of these will be up and running shortly. Formed in 2007, the Tata-Fiat joint venture (JV) has been incurring losses.

Addressing Tata Motors shareholders' during company's 66th annual general meeting on Friday in Mumbai, chairman Ratan Tata said, "Yes, the Fiat JV is showing losses. Assumptions (made while starting the venture) in terms of volumes didn't work out, more so for Fiat than for us because there was a downturn and they made an assumption on off-take, which did not materialize. Well, as we are 50% owners, we have had to share in losses of the company. Both Fiat and we are having a relook at the whole contractual undertaking to see whether we can make it more realistic. So, I hope we will be able to resolve that in course of time." PTI contributed to this story.

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