04.08.2010 FIAT INDIA'S LOSSES JUMP SIGNIFICANTLY AS NEW MODELS FAIL TO MAKE EXPECTED IMPACT

FIAT GRANDE PUNTO (INDIA)
FIAT LINEA (INDIA)

Production of Fiat products in India such as the Grande Punto (top) and the Linea (bottom) has been on a much lower level than earlier anticipated by the market.

Fiat India Automobiles Pvt Ltd (FIAPL), the three-year old joint venture company formed through the association of Tata Motors and Fiat Auto SpA, is facing rough weather, as it posted record losses last year, reports India's Business Standard. The 50:50 JV company posted a loss of Rs 970.7 crore for 2009-10, an increase of 39 per cent over the Rs 698.4-crore loss in the year before.

Tata Motors, India's largest automobile company, has published the financial details of its various subsidiaries and associate companies in the annual report for last year, released on Monday. The company publishes financial records pertaining to its own share in the entity.

FIAPL, which owns the Rs 4,000-crore Ranjangaon facility near Pune, is the company responsible for manufacturing cars, engines and transmissions for both Fiat, one of Italy's largest carmakers, and Tata Motors’ brands. While neither company commented on the reason for the losses, analysts said it was primarily due to under-utilised plant and high material costs.

Production of Fiat products such as the Grande Punto and the Linea has been on a much lower level than earlier anticipated by the market. The company had discontinued the Palio model recently due to muted response and increased competition. At present, Fiat makes less than 2,300 units per month at the plant, whose capacity is 16,500 per month. The Italian company utilised less than 15 per cent of the installed capacity of the plant last year, producing just 26,180 units for both domestic and export markets.

Tata Motors produces the Indica Vista and Indigo Manza at the plant, which has flexible production lines. The models of both Fiat and Tata produced at the plant share engines and transmission. Production of Tata branded products from Ranjangaon was not to be ascertained.

Fiat sales have been sliding for two months, with a drop of 14 per cent seen in domestic sales last month, at 2,301 units. As a result of an agreement between Tata and Fiat in 2006, both companies sell their products through joint outlets, making use of a single distribution channel. This has resulted in increased instances of product cannibalisation, according to some sales representatives employed at various showrooms.

Further, according to the report, Tata Motors has cut on finance provided to FIAPL substantially to Rs 197.50 crore during the reporting year, against Rs 291.47 crore given in the previous one. Tata had an investment of Rs 999.54 crore as on March 31, representing 50 per cent of the holding. Tata Motors has also given a letter of comfort to certain banks and other lenders against credit facilities extended to FIAPL. This is, however, restricted to 50 per cent of the value of credit facilities extended, Rs 1,193.8 crore as of March 31.

Report courtesy of Business Standard
 

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