Fiat CEO Sergio Marchionne said this week that the Italian carmaker is set to become involved in Tata Motor's ambitious plans to develop a new low cost car. The project - to build a new entry-level vehicle that will cost no more than Rs 1 lakh - is the dream of Ratan Tata, the Chairman of Tata Motors. If realised at his targeted costing it would tear the established pricing structures apart and offer two-wheel transportation users a price-viable four-wheel option. The comments from the Fiat Auto boss came during a gala dinner held in Venice earlier this week which took place during the 100th anniversary celebrations of Fiat's Lancia brand. He suggested that Fiat Auto could provide technical input and "perhaps also money" in order to produce the car with Tata.

For Fiat to join the project would greatly expand the scope of the "Memorandum of Understanding" which was signed between Fiat and Tata Motors almost exactly a year ago. Already this has seen a joint dealership network of 25 outlets set up across India, which has proved to be an instant success with Fiat India's first quarter sales up 50 percent year-on-year to 673 units, although the agreement only got underway in March. Another development has been talks between the two companies over using Fiat's factory at Cordoba in Argentina to build a range of light vehicles and pick-ups for the Latin American markets. The two companies are also set to jointly produce cars in India while Tata Chairman Ratan Tata was co-opted onto the Fiat Group board this spring.

Tata Motors themselves have downplayed any talk about a link up with Fiat on the small car project: "The two companies are always looking at synergising operations under the agreement that we have. However, I cannot comment on the small car project," Ravi Kant, the Managing Director of Tata Motors was reported to have commented this week. The Indian business press has feverishly speculated this week that the Fiat Group could buy a stake in Tata Motors the money which could them be used to develop the proposed small car, but also commented that the input of Fiat technology could raise the the car's cost to well above Tata's avowed target of around R 1 lakh.
 

To keep costs down all the project's design and development work has been carried out in India, unlike that of their current small car, the Indica, which used an Italian design. “Tata Motors now have the expertise to design a car completely," commented Ranojoy Mukerji, Editor of national car magazine Auto India. "Since they would be using the "Ace" engine, the technology is also pretty much in place. They are doing everything in-house and indigenously to keep costs low. Technological co-operation with Fiat is going to increase the cost."

Tata Motors took a major step in its small car project earlier this summer when it announced the setting up of its first factory in West Bengal. The plant is set to be constructed in Singur block of the Chandannagar sub-division located in the Hooghly district. Speaking during the announcement Ratan Tata said, "This investment is a reflection of the confidence that the Tata Group has in the investment climate and the Government of West Bengal. We look forward to the opportunity of revitalising the automotive industry in the state."

The plant will be spread over an area of 700 acres, with additional facilities to be put in place for a supplier park in the area. The total investment is likely to be over Rs 1,000 crores, including direct investment by Tata Motors and that by its suppliers. The plant will initially directly employ 2,000 staff and is expected to create employment in excess of 10,000 jobs amongst the suppliers and service providers in the vicinity of the new plant. The construction work is set to commence shortly, and the plant will be commissioned in 2008, when the new small car project is set to come to fruition.