Wheels Of Change - The FIAT Story

Published by MBA Skool Team, Published on October 29, 2014

In the 20th century, the Indian automobile industry was a different place. The market was barely nascent then and a handful of companies co-existed and fought over the low volumes of car sales that each passing year witnessed. Fiat and Hindustan Motors ruled the roads for several decades and in 1983, Maruti muscled its way into the market. However, prior to the Maruti Suzuki era, Fiat reigned supreme over the Indian roads, not entirely unlike the way in which the Mafia ruled Italy. The Italian company, which had forayed into India through a joint venture with Premier Automobiles (PAL), first made its mark in the Mumbai taxi market. And then there was no looking in the rear view mirror. The fact that Fiat was an Italian brand soon ensured that the Premier Padmini became the car of choice and it went head-to-head with the Ambassador, from the stables of Hindustan Motors. Fiat was a force to reckon with and it even gave Maruti a drive for its money in the 1980s. In early 1991, in a liberalization – privatization – globalization drive, India opened up its economy and automobile industry to the world. And then, somewhere along the way, Fiat lost its mojo.

At that time, Fiat was cruising along quite smoothly, even as it kept pace with the trends in the Indian market, which had taken a fancy for small cars, with an engine capacity under 1200cc. Fiat had the Uno and the Palio to offer to the Indian customer and both models were clocking healthy numbers. Fiat had also signed on Sachin Tendulkar as its brand ambassador and its marketing campaigns seemed to be having a strong connect with the masses. The late 1990s, however, witnessed the entry of South Korean automobile major, Hyundai. The Santro was an instant hit and Hyundai’s marketing campaigns with its brand ambassador Shahrukh Khan began to draw customers in large numbers. The Little Master was no match for the Bollywood Badshah and Fiat’s sales were easily outpaced by those of Hyundai. Even though Maruti was firmly at the top of the market, Hyundai zoomed past all the other players in the Indian market and snatched the No. 2 spot from Tata Motors. Fiat, however, continued its dual model strategy, with the Palio and the Uno and while it was still clocking decent numbers, it no longer enjoyed the virtual monopoly of the pre-1980s.

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During the course of the first decade of the twenty-first century, Fiat continued to survive in the Indian market but did little else. The Siena and the Petra were inducted into its portfolio but sales continued to remain lacklustre. In the meantime, global auto giants such as Toyota, General Motors, Honda and Ford had entered the Indian market and Fiat was left biting the dust. The Indian market was growing at around 17% each year but Fiat was lagging behind. The Italian giant, which was in the habit of commanding a global market share of around 5%, just couldn’t seem to match that in India. What the company really needed was a blockbuster product offering and a marketing network that spanned the length and the breadth of the country. And Fiat wasn’t about to go down without a fight.

In 2007, Fiat unveiled the Linea. It seemed to be the perfect sedan, one that offered all the features du jour and most importantly, with a sub-Rs. 10 lakh price tag, it was positioned and priced to perfection. Sales numbers began to roar once again and a new hatchback, the Grande Punto (riding on the star power of Yuvraj Singh) only bumped sales up further. But Fiat still lacked a pan-India dealership and service network that would enable it to compete in the big leagues. With its sales figures now clocking a commendable growth rate, the company decided to plug that loophole. However, what Fiat didn’t know back then was that its bold move would soon backfire and its sales would soon careen out of control.

Instead of setting up its own dealership network, Fiat decided to hitch a ride with Tata Motors. The latter already had a nationwide dealership network and it signed a marketing joint venture with Fiat to sell the Italian automaker’s cars in its showrooms. Fiat had managed to save itself the enormous capital expenditure and long gestation period that the establishment of its own showrooms would have entailed and Tata Motors was all set to earn a part of Fiat’s sales revenues. It certainly appeared to be a win-win situation at the get-go and Fiat’s sales figures, which almost doubled over 2 years, bore testimony to that. But all that was soon about to change for the worse. After two reasonably good years with Tata Motors, Fiat’s sales slumped to half of what it had managed to notch up in the previous year, even as the Indian automobile industry tailed its global counterpart into a painful recession. And now, slowly but surely, the Fiat-Tata Motors JV had begun to crumble.

Apparently, Tata Motors, in a bid to save its own skin following an expensive acquisition of Jaguar - Land Rover (JLR) that had saddled its balance sheet with a choking pile of debt, had ordered its dealers to push and hard - sell its own cars over those of Fiat and it began to offer heftier margins for the same. Moreover, the mere presence of Fiat’s globally-reputed cars in Tata Motors’ showrooms certainly didn’t help boost the premium image that Fiat wanted to portray. The fact that Tata Motors’ service quality and standards were far below its own wasn’t helping its cause either. And Fiat’s sales numbers had just fallen off a cliff.

As far as Fiat’s Indian ambitions were concerned, the marketing JV with Tata Motors had virtually succeeded in setting them back by a good 3 years. The dissolution of the JV by Fiat seems to be a turn in the right direction, one that Fiat needed after a long and bumpy ride. After all, even today, Tata Motors is struggling with its domestic cars business and JLR, which was hailed a disastrous acquisition in 2008, is ironically the saving grace for the company. In fiscal 2013, Tata Motors’ domestic cars business ran up a significant loss and the entire chunk of the company’s profits came from JLR. Fiat’s sales have more or less bottomed out and now, the company is in the process of making its own road.

Fiat has embarked on a drive to set up its own network of dealerships. That, however, is just the beginning. The company has already launched its new marketing and advertisement campaign called ‘Make The Move’, in a bid to burnish its brand and image. In an Indian car market that seems to be showing a degrowth of close to 10% this year, Fiat continues to operate a dual-model strategy, with a Linea - Grande Punto offering. But what Fiat really needs is that one new car that could set its engine roaring again. The Duster did it for Renault and Volkswagen got twice lucky with the Polo and the Vento. The Linea served that purpose for Fiat a few years ago and what the company desperately needs is an encore. The Fiat 500, with its outrageous pricing, was nothing more than a damp squib but this time, Fiat might just get its formula right.

The source for the company’s new launches is the portfolio of Chrysler. After Chrysler filed for bankruptcy in the aftermath of the recession, it was snapped up by Fiat, which usurped management control of the American automaker. Fiat is all set to enter the burgeoning SUV market with the Jeep. The Dodges and the Rams might just add some extra pizzazz. And when it comes to sedans, Chrysler is no weak link. Fiat can easily zoom into the premium car market as well, which happens to be the only segment of the Indian car market that is still growing at double digits. The Alfa Romeos, Maseratis, Ferraris and Abarths could pose a serious threat at the upper end of the market and Maserati’s newest baby, the Ghibli, could easily kick up a storm in India with its aggressive pricing. That, however, hinges on Fiat’s willingness to roll in its global power brands into the Indian market. All in all, a combination of offerings from Chrysler and its luxury brands might just be the driving force that would put Fiat back in the fast lane again.

For now, Fiat happens to command less than 1% of the Indian automobile market but that could soon change for the better. The Italian giant has envisioned a doubling of its market share each year, for the next 3 years at least but that may seem to be an audacious target for now. However, great cars is one thing that Italy is known for and if Fiat has its way, all that Italian muscle could soon be unleashed on India’s roads. On a lighter note, Fiat happens to sponsor a show on Comedy Central that goes by the title ‘Are We There Yet?’. Indeed, with its ambitious plans for the Indian market and many obstacles to plough through in the near future, you can definitely bet that that would be the same rhetorical question that Fiat would be asking itself over the course of the next few years.

This article has been authored by Ronak Ravindran from SPJIMR

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