Tata Motors and Fiat are exploring the possibility of cooperation in other areas following the launch of joint retailing of passenger cars. The two companies had signed an agreement last year and had appointed a joint team to identify potential areas.

The two auto majors may look at sharing technologies, joint production of select models and joint sourcing of components. They may also consider extending the joint retailing model to some overseas markets as well.

Fiat has been struggling in the Indian market ever since its entry in the '90s with the hatchback Uno, followed by the sedan model Sienna. The only model to achieve some market acceptance was the hatchback Palio, which suffered later on because of poor fuel efficiency.

Fiat India has an assembly line in Kurla, Mumbai, which was acquired from its original JV partner Premier Auto. The company had also built a new plant in Ranjangaon, Maharashtra, which is lying idle.

It is speculated that Fiat is looking at handing over the Ranjangaon plant to Tata Motors, which needs to augment its capacity. Fiat may also hand over the assembly of its cars in India to Tata Motors. Given the low volumes of Fiat cars, it makes sense for the Italian company to outsource its assembly.

Last year, while signing of the agreement with Tata Motors, Fiat had indicated that the company is planning increased sourcing of components from India. Fiat needs to significantly reduce costs to nurse back its global passenger car business to better health. Components would be one area which could offer significant cost reduction possibilities, especially when sourced from low-cost locations like India.

Since the Tata group is the largest supplier of the auto component with a large number of manufacturing companies under the Tata Auto Components (TACO) umbrella, this could be a significant area of cooperation for both groups.

On the other hand, Tata Motors needs better technology to realise its global ambitions. So far its strength in the domestic passenger car market has been the diesel models. Other manufacturers like Maruti and Hyundai are gearing up to launch diesel-powered cars within the next year, which could cause major problems for Tata Motors considering the less than adequate quality and finish of its cars.

It is widely expected that the next generation Indica hatchback and Indigo sedan from Tata Motors would be powered by the 1.3-litre multi-jet diesel engine from Fiat. This engine, which won the Engine of the Year Award 2005, is reportedly among the best in the world and superior to the Suzuki and Hyundai engines.

Joint dealerships
Under the joint-dealership programme launched today, Tata Motors and Fiat India would share a network of 44 outlets owned by 28 dealers across 11 cities in the country. Of these 28 dealers, 25 were Tata dealers and 3 were Fiat dealers earlier.

The joint-network will sell the Palio and Fiat's Palio Adventure models apart from the full range of Tata passenger vehicles. The Petra model from Fiat will not be sold through the joint network. The network will also offer full after-sales service support to Fiat vehicles.

Other existing Fiat dealers will continue to sell the full range of Fiat passenger cars.