Tata Motors and Fiat Auto: Joining Forces
|
Case Code: BSTR248 Case Length: 24 Pages Period: 2006 Pub Date: 2007 Teaching Note: Available |
Price: Rs.400 Organization: Tata Motors, andFiat Auto Industry: Auto and Ancillaries Countries: India Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Growth Strategy
Going Global
In December 2002, Telco signed a manufacturing and supply agreement with the UK-based MG Rover Group . Under the agreement, Telco was to supply the Indica, suitably modified to meet the applicable regulatory standards, to MG Rover, which would then sell it in the UK and in Continental Europe as the City Rover. Telco also planned to simultaneously market the Indica in Europe through its own distribution network. Ratan Tata said, "This agreement will enhance the volume throughput of the Indica plant [at Pune] significantly. More importantly, we look at it as an endorsement by a major international company of Tata Engineering's [Telco] capabilities in general, and the world-class acceptability of the Indica in particular..."
Fiat Auto
Fiat came into existence on July 11, 1899. The company was established by Giovanni Agnelli (Giovanni) together with a group of investors. The first Fiat car manufacturing facility was opened in 1900 in Corso Dante, Italy. Giovanni became the managing director of the company in 1902. In 1908, the company started exporting cars to USA, France, Australia, and the UK. By 1911, the Fiat Group had diversified into the production and marketing of commercial vehicles, marine engines, trucks, and trams and by 1925, it had entered the steel, railways, power, and public transportation businesses. The Fiat Group's auto division used mass production to keep production costs low...
Tata Motors And Fiat Auto: Joining Forces
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. A 15-member joint team consisting of senior officials from both organizations was set up to study the viability and the specifics of the nature of cooperation, both in the short and the long term. "If found feasible, the two companies will enter into definitive agreements in the course of the coming months," said an official statement...
Advantages of the Alliance
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...
Threats
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...
Exhibits
Exhibit I: A. Market Shares in the Indian Medium and Heavy Commercial Vehicles (Goods + Passenger) Segment - Q1 2005-06 (Units Sold)
Exhibit I: A. Market Shares in the Indian Medium and Heavy Commercial Vehicles (Goods + Passenger) Segment - Q1 2006-07 (Units Sold)
Exhibit II: Market Shares in the Passenger Car Market - Q1 2005-06 & 2006-07
Exhibit III: Corporate Structure of the Fiat Group
Exhibit IV: The Grande Punto
Exhibit V: Fiat Group Financials 2004-05
Exhibit VI: New Models of Fiat Auto
Exhibit VII: Tata Motors: Financials
Exhibit VIII: Tata Motors: Sales
Exhibit IX: Fiat Group: Automobile Models
Buy this case study (Please select any one of the payment options)
| Price: Rs.400 |
Price: Rs.400 | PayPal (9 USD) |
