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Fiat Snaps Distribution Ties With Tata Motors

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Italian carmaker Fiat is to set up its own car dealer network in India to grow sluggish sales, ending a six-year distribution agreement with Tata Motors.

Fiat which has seen falling numbers for the last year, selling only 10,351 cars in 2011-12 when compared to the 14,956 cars sold in 2010-11 between April-November.

Fiat sales were down 15 per cent last fiscal at a paltry 21,066 units, alarmingly in a year when the overall car market had expanded 30 per cent. In the April-November period of 2011-12, the company's car sales are down a massive 31 per cent (at 10,351 units) even though the overall market is lower by just 3.5 per cent. There were a total of 67 Tata-Fiat joint-branded showrooms in the top 20 cities.

Fiat said on Wednesday the move should help build its business in India, a booming market where foreign producers Ford, Honda and Nissan have recently acted to take more control of their own operations.

The company did not say how much it would invest in developing its dealer network there, is far behind European and US competitors in high-growth Asian markets, with scant presence in China, the world's biggest market.

Fiat, which will set up a new company to sell its models and build on the network of Fiat-Tata dealerships, has a fair amount of brand recognition - its 1100 sedan was sold under licence in India from the mid-1950s to 1997, first as the Fiat 1100 Delight and then as the Padmini. The car is commonly used as a taxi.

It currently sells the Linea, Palio and Punto models in India, and aims to introduce more brands from a portfolio which includes Alfa Romeo, Chrysler, Dodge and Jeep.

"Development of the new Fiat dealer network for India will start progressively and the 178 existing Fiat-franchised Tata dealers in 129 cities will be encouraged to form the foundation of the future network," the companies said in a statement.

A partnership producing Fiat and Tata cars and also engines and powertrains at a plant in Ranjangaon, remains in place, the two companies said. In its five years of operation, the joint venture has produced 190,000 cars and 337,000 power trains.

Both partners have indicated that changes were in the works.

Tata Motors chief financial officer C.R. Ramakrishnan said in February the joint venture with Fiat was not producing expected results or sales.

Fiat chief Executive Sergio Marchionne said in March the partnership "has tried to do too much".

Tata group chief Ratan Tata had said last year the Fiat joint venture needed to be critically examined. Tata, in a recent interview, said his good personal rapport with Fiat Chief Executive Officer Sergio Marchionne had not translated at the working level of the two firms. "...I have to admit that so far, the venture with Fiat has not been as active as we had thought," he had said.

Strained Marriages
As sales and their confidence rises, overseas manufacturers are tearing up local partnerships and pumping billions of dollars into wholly-owned Indian units, encouraged by the government's hands-off policy that gives it an edge over Asian rival China.

With more foreign car makers choosing to have complete control of their Indian businesses, investment is increasing, capacity is rising, and Asia's third-largest economy is fast challenging Thailand and China as an automobile export hub.

"Carmakers now want to do further value addition and bring in proprietary technology, and want to run it on their own ... So they determine the fortunes," said Chandresh Ruparel, managing director of the Indian unit of Rothschild, who has advised Indian automakers on partnerships with foreign companies.