Tata Motors and Fiat Group have decided to significantly expand their evolving product, production and marketing partnership for both the domestic and international markets. Both sides have been studying possible areas of cooperation for quite some time now, after announcing the partnership last year.

The two companies would now set up an equal JV to produce passenger cars, engines and transmissions for the domestic market. Fiat's Ranjangaon facility in Maharashtra, which is lying unutilised now, would come under the JV.

The JV would produce passenger cars under both Tata and Fiat brands and would have an annual capacity of 1 lakh cars. It would also produce 2.5 lakh engines, the new generation common rail diesel engines developed by Fiat, and transmissions at the Ranjangaon facility.

It is not clear which the JV would assemble Tata models, though it is likely that part of the production of the next generation Indica hatchback and Indigo sedan would be by this JV. This would ease capacity constraints for Tata Motors when the new models are introduced.

It has been announced that the JV would assemble the Grande Punto and a new sedan from the Fiat stable. Grande Punto is a premium hatchback, which would compete against the likes of Suzuki Swift and Hyundai Getz. The new sedan from Fiat would be a replacement for the existing Siena range.

The diesel engines manufactured by the JV would be used for both Tata and Fiat cars. The small diesel engine by Fiat is touted to be the best in the world and would help Tata Motors to bridge the engine technology gap with competitors. Incidentally, Maruti would start manufacturing the same engine for its own range of cars by the end of this year.

Tata Motors and Fiat have also announced that, over the next 2 months, they would study production and marketing cooperation for the Latin American markets. The study would focus on different vehicles, especially utility vehicles and pickup trucks.

If the study and subsequent talks are successful, models like the Tata Sumo and Tatamobile could be assembled at Fiat's facility in Cordoba, Argentina. These vehicles would be marketed in various South American and even overseas markets. Fiat Argentina assembles and markets a wide range of vehicles, including passenger cars like the Palio and Siena besides pickup trucks.

The alliance between Tata Motors and Fiat is in line with the industry trend of joint development, production and marketing of vehicles to cut down costs and ensure better capacity utilisation. Such alliances are very common in the US, Japan and Europe. GM, Nissan and Renault are now in talks to form the biggest of such alliances.

Ratan Tata, chairman of the Tata Group and Tata Motors, said, "This is the beginning of what promises to be a far-reaching, long-term relationship between Fiat Group and Tata Motors. Both companies have complementary strengths, convergent objectives and shared values. Together, we can meaningfully address markets in India and other select geographies, combining technologies, products and human skills of both organisations."

Sergio Marchionne, CEO of Fiat Group, said, "As we said at the time we signed the distribution agreement in India, this is a strategic partnership which is evolving by leveraging on the respective strengths and continuously identifying new opportunities to be jointly exploited".

Under the distribution agreement signed last year, Fiat passenger car models are being sold and services by select Tata Motors dealerships across the country.