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Tata Fiat Essay

1340 words - 6 pages

Running head: TATA FIAT

Tata Motors and the Fiat Auto: Joining Forces

Tata Motors and the Fiat Auto: Joining Forces
Tata Motors (TM) and Fiat Auto S.p.A (Fiat) are large auto manufacturers. It is described as the transformation of TM from a commercial vehicle manufacturing company to a leading passenger car company in India, and its forays into global markets. The case details the growth of Fiat, the problems the company faced, and the strategies it adopted to tackle these problems. It discusses the alliance between the two companies, and the benefits and costs from the alliance for each company.
India
The fiat Group’s association with the Indian automobile market began in 1905 ...view middle of the document...

p.A. By the late 1980s, Fiat Auto was facing severe competition from Japanese auto manufacturers in several markets. During this period, Fiat Auto withdrew from the American and Australian markets. By the late 1990s, Fiat Auto was in deep trouble. Its problems had been building up for years. One of the main reasons for its problems was that, over the years, it had failed to move beyond the small car segment to the segments for bigger cars, where margins were higher. Italy‘s adoption of the Euro, the common currency of the European Union, also had an adverse effect on Fiat Auto. The Italian government‘s decisions to withdraw the concessions and subsidies given to the company, and at the same time, give foreign auto companies free access to the Italian market, severely affected the company‘s revenues and profitability.
The crisis at Fiat Auto prompted the Italian government to consider buying a stake in the company. However, private banks, which were the major creditors of the Fiat Group, preferred a market- guided restructuring for the company. The Fiat Group received about € 3 billion in credit from the private banks with a requirement to either sell or turn around its auto business. The Group also transferred a major share in Fidis Retail Italia (FRI), a subsidiary in the auto finance business, to the banks. In an effort to cut costs, Fiat Auto announced its intention to trim its workforce. The proposal met with stiff resistance not only from the labor unions but also from the Italian government. However, the company went ahead and in 2002, cut more than 8,100 jobs at its factories in Italy. It also increased investment in R&D and new product development. On September 22, 2005, TM announced that it was signing a Memorandum of Understanding (MoU) with Fiat Auto to explore the possibility of cooperation across different areas in the passenger car market. The two auto makers were examining the possibility of joint product development, manufacturing, sourcing, and distribution of products, aggregates, and components.
Tata and Fiat
Even though Fiat India had been present in India for close to a decade, it had the lowest market share among the 11 players, 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. Through the alliance, Fiat India also planned to source spare parts for its vehicles from TM. The Tata Group was a cost effective supplier of auto components and had several manufacturing companies under the TACO Group63. Fiat Auto also had plans to...

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