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Fiat increases exposure to India - Views on News from Equitymaster
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  • Sep 30, 1999

    Fiat increases exposure to India

    Italian auto major, Fiat, has firmed up plans to invest another US$ 280 m in its Indian operations. With this, Fiat's total investments in the country will stand at US$ 500 m. This was disclosed in news reports of a leading financial daily.

    Fiat India Automobiles Ltd. (FIAL), is a wholly-owned subsidiary of Fiat, Italy. Currently, Its presence in the country is limited to just two brands - Uno (small car) and Siena (mid-car). It has a plant at Kurla, Bombay, with a manufacturing capacity of 60,000 units.

    Small car market share as on July 31, 1999

    Fiat's increasing exposure to Indian operations underscores its commitment to the country. The latest round of investments will fund a state-of-the-art of welding shop at Kurla and its greenfield plant at Ranjangoan, Maharashtra (85,000 units). It will also enhance its dealer network, which currently stands at 50 dealers.

    Both its current brands 'Uno' and the 'Siena' are competing with companies that are well-entrenched in their segments. While the Uno (the biggest, small car) has received lukewarm response, Siena's sales have been encouraging.

    Over the next twelve months, Fiat plans to launch the Palio and the Station Wagon, which will enhance the number of brands in its stable, from two to four. But if Fiat wants to increase market share, it will have to introduce more brands, with several variants, targeted at different price segments. For instance, Maruti is finding it difficult to protect its marketshare despite having seven models with 31 variants, and an extensive distribution to boot.

    Apart from Maruti, Fiat will have to contend with other global auto majors like General Motors (GM) and Hyundai who have outlined plans to establish India as their base for exports. These two companies will be an even match for Fiat as far as financial muscle and technology are concerned. However, Fiat's insight into the Indian market from its alliance with Premier Auto Limited (PAL) will stand it in good stead.

    Another matter of concern for Fiat will be the looming threat of over-capacity in the auto segment. As per a study undertaken by the Association of Indian Automobile Manufacturers (AIAM), by FY2000, thirteen companies will be operating in the car segment at a combined capacity of 1.3 m cars. However, demand will be much lower at 500,000-700,000 m cars, implying that around half the capacity will be idle. However, Fiat seems to have factored this into its plans and will use the Ranjangoan facility to outsource vehicles for exports.



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