India media reports this week have quoted Tata Motors sources as saying that Fiat's new low-cost small car, which is set to replace the ageing Palio range, is to be developed by the Fiat-Tata joint venture.

Fiat and Tata are developing a new small car to be launched by 2010, a possible replacement for the Palio, sources close to the development said, reported leading Indian business newspaper, The Economic Times. The recently-announced 50:50 JV will initially focus on Fiat’s B and C segment cars, Grande Punto and Linea, to be launched next year and the production of 1.3 litre Multijet diesel engine, 1.2 and 1.4 litre fire gasoline engine and transmissions.

The Ranjangaon facility will have a capacity to produce 100,000 cars and 200,000 engines and transmission. “The Palio will need a replacement and the JV has already started work on the development of the new small car, “ informed sources said.

The Tata-Fiat JV is currently producing and marketing only the Palio petrol versions (1.1 and 1.6 litre). The other Fiat models — Palio diesel and the mid-size car Petra/Siena — have been discontinued. In the last one year, the JV has progressed in line with expectations, officials said. While the JV has focussed largely on improving marketing and distribution, Palio sales have climbed, nearly doubling to 1,702 units in April-September 2007 as against 923 units in the previous year. Palio has been a slow mover among the pack of small cars. Tata Indica sold 68,468 units and Hyundai Santro and Getz sales stood at 80,604 units in April-September. The compact segment has grown 16% in this period.
 

The JV will manufacture passenger cars, engines and transmission with an overall investment of 650 million euros for the Indian and overseas markets. Out of the total investment which will have an equal proportion of debt and equity, only around 20-25% has been brought in and the rest will be invested in a phased manner, company officials said. The name of the JV is expected to be announced at the end of this month.

The JV will have an equal representation of five members from the two partners. While Tata Motors MD Ravi Kant will be the JV chairman, the vice-chairman will be Alfredo Altavilla, the CEO of Fiat Powertrain Technologies and senior VP (business development) of Fiat Group Automobiles. Rajeev Kapoor, brought in from Hero Honda, has been appointed as the president and chief executive officer of the JV and is in charge of the operations of the new entity, and reports to the board of directors of the joint venture.

The distribution and service of Fiat-branded cars in India will continue to be managed by Tata Motors in line with the agreement signed in March 2006. The Tata-Fiat network, which is distributing and servicing Fiat Palio, has 65 dealers and is expected to grow to 100 by mid-2008, when the new Fiat models are launched. The assembly of the new Fiat Palio at Ranjangaon has already commenced.

report courtesy of The Economic Times