Another False Start Or A Real Comeback?

42 (4)Failure is always a light to success, as the wags say. The aphorism seems to have found its way to become an inseparable part of Fiat’s playbook in India. Despite stumbling time and again in the Indian automobile market over the past two decades, the Italian auto major, instead of calling it quits, is looking to bury its past failures and move ahead, taking its lessons and learnings of the past to try and script a fresh comeback. Will it get lucky the third time around?

As an automobile company that supplies more than 4.5 million engines for various hatchbacks and power sedans under different brands across the globe, Fiat is an acknowledged leader in engine technology. In India, the company’s much acclaimed 1.3-litre multijet engine is the toast of Motown and has been successfully paired with top-selling car models. The likes of Maruti Swift, Maruti Dzire, SX4, Ertiga, Tata Indica Vista and Tata Indigo Manza sport one while upcoming models such as GM’s utility vehicle Enjoy, its small car Sail, and Premier’s SUV Rio will also come kitted with the coveted Fiat engine. Over the years, it has sold in the millions and has been plonked on to cars of various shapes and sizes across continents.

But Fiat itself, as the main developer of the engine, has failed to make the best possible use of it in its own cars. Example: Fiat’s latest models in India, the Punto and Linea, have not had even moderate success in sparking consumer interest and gaining market traction. The reason is that engine alone is not responsible for the success of a car company. So while Fiat makes some of the best engines for powering cars across the world, it has been overrun by many upstarts and new players in the Indian car market. With sales of just under 600 cars every month, Fiat lies at the botton heap of the market even though it is the seventh-largest car company in the world. Players like Volkswagen and Renault-Nissan, which came to India much later, sell over five times Fiat’s volumes.

The Turin, Italy-based engine and automobile manufacturer started its journey in India way back in 1905. At that time, it imported the vehicles and sold them through its sales agent – Bombay Motor Cars Agency. Later in 1951, Fiat entered into a licence and service agreement with Premier Automobiles Limited (currently known for its compact utility vehicle Rio). The alliance got off to a flying start with the production of Premier Padmini cars, which debuted on Indian roads in 1964. Based on the Fiat 1200 GranLuce Berlina model, the cars hit off well with Indian consumers and became a runaway success. But the good run slowed down considerably by the mid-1980s with Maruti Suzuki starting operations in India. The Maruti Suzuki 800 model not only became a monster hit on Indian roads for the company, it also spoiled the party for dowdy carmakers like Fiat. After the liberalisation of the Indian economy, Fiat made a valiant attempt to revive its sagging fortunes. In 1995, the company once again opted for a collaboration with PAL, to launch it small car “Uno”, which generated good sales volume. But Fiat and PAL were unable to fulfill the demand after labour issues cropped up at their Kurla manufacturing factory in Mumbai. The plant had to be shut down and the image of Uno and subsequently that of Fiat took a knocking soon after.

43 (5)The Uno came a cropper in logging sufficient sales and could sell only 29,000 units over five years. Auto analyst Abdul Majeed attributes Fiat’s Uno failure to garner sufficent numbers to the company’s poor product and distribution strategy. “Even though Fiat is a well known and respected brand and had a good product in Uno, it failed to make an impact and perform in the market because of inconsistency in the company’s distribution strategy and due to its lack of a long-term product strategy.” In fact, Fiat’s failure to understand market reality and its inability to put together a robust distribution and sales & service network for its products have long proved to be its Achilees’ heel in India.

With Uno failing to live up to its initial promise, Fiat introduced another car in 2001. The Palio was launched as a substitute to Uno and looked like Fiat’s best bet so far in India. It was a sleekly designed car that came along with a sensible price tag, and Fiat went all out to ensure that the Palio became a winner in the Indian market from day one. Brand positioning for the Palio was geared towards the youth and the company pulled out all the stops to emphasise the lifestyle aspects of the car — stylish looks, funky colours and endorsements by Sachin Tendulkar. Fiat also ensured that the car achieved a level of 75% localisation and offered consistency in quality and service. True to expectations, the Palio seemed to hit all the right buttons from the first day of its debut itself. Within two days of its launch Fiat sold 1,100 cars. By March 2002, six months after its trailblazing debut, 17,067 Palios had been sold — out of the total 21,277 cars that Fiat India sold over the previous 12 months. Palio closed its first year with impressive sales figures of 33,000 units, catapulting Fiat to the top of the auto league in the Indian market. By September 2002, Fiat’s market share in the overall car market had increased to nearly 10% from under 2% in the previous year. From being an also-ran Fiat became a formidable opponent in the B-segment (small cars over 1,000 cc), forcing well-entrenched players like Maruti Suzuki (Zen, Alto and Wagon R) and Hyundai (Santro) to sit up and rethink their strategies.

44 (4)But as with the Uno, the dream run for Palio did not last long. From sales of 23,000 in April-March 2002-03, the figure declined to just 9,000 cars for April-March 2003-04. What went wrong? Auto analysts feel that the reason for the Palio hitting a speed bump was the media speculation at the time, which sparked rumours of a possible wipe-out of Fiat India’s capital. Prospective buyers of the Palio now shied away from actual purchase, since they feared that Fiat India would go the Daewoo India way and they would be left holding cars with practically no re-sale value. Around the time sales of Palio began tapering, Fiat went for three quickfire launches — Fiat Siena, Palio Adventure and Palio Weekend — between January and April 2002. Unfortunately, none of these models succeeded in reviving its flagging fortunes.

Having burnt its fingers badly in the Indian auto market, Fiat decided to adopt a different tack. In 2005, it entered into a distribution and service alliance with Tata Motors, which later went on to become a 50:50 industrial joint venture (named Fiat India Automobiles Limited) in 2007. Both the companies agreed to a joint distribution network, a back-end support system, and co-manufacturing of products including engine and technology sharing at Fiat’s facility at Ranjangaon in Pune, Maharashtra. However, contrary to the expectations that the alliance would help improve Fiat’s competitive position in India, the arrangement failed to deliver and both Fiat and Tata Motors suffered losses. The JV failed to pump life in both the companies and it made a whooping loss of Rs.2.89 billion in 2009-10, which was later brought down to Rs.2.27 billion in 2010-11 by ramping up export of components. The alliance finally came unstuck last year with Fiat deciding to go it alone after it sensed the step-motherly treatment faced by prospective Fiat car buyers at Tata-Fiat showrooms. The company now plans to open its standalone showrooms and service centres in India in the hope that it may help increase the revenue and pull the company out of the morass. However, the breakup of the JV has been only at the dealership level and the overall alliance for technology sharing continues to be in place.

45 (3)Auto analysts like Majeed point out that when Fiat entered India as a standalone company with the launch of Palio, it should have gone about establishing its own sales & service network just like Volkswagen did when it set up shop in India. That would have helped Fiat to establish and entrench its brand identity in the Indian market. Another good strategy could have been for Fiat to partner with any automobile company for manufacturing its cars, similar to the strategy adopted by Nissan-Renault in India. In this context, it could have worked for Fiat had it taken its collaboration with Tata Motors to the next level. This would have meant jointly developing cars and platforms, selling them as Tata-Fiat or Fiat-Tata depending upon how both the companies worked out the finer details of the alliance. For Fiat, having such a manufacturing arrangement would have helped it to deploy different cars in different price bands without there being an overlap. The question of competitive selling between both the brands on the same floor space would also have been solved. Tata would have benefitted by getting the strength of quality while Fiat would have got the numbers. For Fiat, it would also have resulted in significant cost benefits as well as reaping the advantage of economies of scale, something that has been put to good use by Nissan-Renault at their Chennai plant where both the companies are manufacturing cars on the same platform.

Fiat’s mis-steps and miscues have cost it dearly and its market share in India has shrivelled to a point of irrelevance. Even players like Nissan, which entered India much later, now have a stronger grip on the Indian market with a market share of 1.90%, much better than Fiat’s 0.4% market share currently. The severity of Fiat’s plight in India comes across more painfully in the fact that even at a time when the auto industry in India was at its peak and growing at a rate of 25% a couple of years ago, its sales remained in the doldrums. In FY 2010-11, its sales declined by 15% and the company could sell only 21,086 units (3,661 units less compared to the previous fiscal). According to the data given out by the Society of Indian Automobile Manufacturers, Fiat continues to see declining sales and was able to sell only 5,924 units (Punto & Linea) in the period between April and December 2012, showing negative growth of -43.25% when compared with its sales figure of the same period a year ago. Obviously, the launch of its most recent small car model Punto in July 2010 and the Linea sedan in October 2010 have failed to draw in the buyers. Reports of engine problems faced by the Linea have further spoiled any chances that the company may have had of springing a comeback. The Linea model could barely sell 1,266 units during April-December 2012, even as its competitors in the segment like Hyundai Verna sold as many as 43,537 units (April-December).

41 (4)Like the Linea, Fiat’s hatchback Punto too has failed to impress. What is ironical is that though home-grown brands like the Vista and Manza from Tata Motors come fitted with the same Fiat engines that are in use in the Linea and Punto, still the Tata Motors brands far outsell the Fiat brands. Analysts say that the Tata cars are more spacious and cost significantly less than the Linea and the Punto, making the Fiat brands look like not being value for money cars. Clearly, in a price sensitive market like India, Fiat, in pricing its Linea and Punto models, overlooked a cardinal principle: pricing your products higher than your competitors can prove to be bad strategy if it’s done to burnish the brand image.

By all accounts, Fiat finds itself at the deep end in the Indian market today. But it is not about to throw in the towel yet even if it can be argued that exiting India would still be the best option open to it. With a string of failed alliances in the past and a raft of dud models to show for, any automobile giant would have cut loose and bolted. Interestingly, though it finds itself sputtering for want of commercial success, Fiat believes it still has life in it to charge ahead. Also, at a time when most global automobile players have set up base in India, enamoured by its seeming potential and promise, it would seem foolhardy for Fiat to give up on the Indian car market, currently the fifth-largest in the world and the ninth-largest market for the Fiat group.

However, Fiat is barely scratching the surface as it currently covers only 22% of the Indian market with just two extant models in Punto and Linea. According to Enrico Atanasio, Managing Director at Fiat Group India Automobiles Private Limited, Fiat’s average market share in places where it has a manufacturing base is 6%. So it may be a stiff challenge to come by close to such numbers in India, but Atanasio says the company is straining its sinews to double its miniscule share in India to about 1.5% in the next couple of years.

Unfazed by what doomsayers say, Atanasio, who is leading the third comeback for Fiat in India, says: “We will develop a broad range of cars. We are investing in the right products and segments that could be developed for the Indian market.” First on the company’s to-do list are plans to open 120 dealership covering 126 cities by the end of this year from under 10 presently. These will cover 80% of the Indian market. In terms of launching new products, the company is looking at the mix of manufacturing or assembling its new lineup in India as well as importing fully-built cars and SUVs for the local market. “B & C are the best growing segments in India right now. We are seeing customers today who are more mature, highly demanding and are moving towards the SUV and MPV in the market. So these are segments which offer great potential,” says Atanasio. With increased activity in the B and C segments of the market, Fiat is looking to bring in the Cherokee and Wrangler Jeep models to India by the latter half of this year. These products will be marketed as directly imported vehicles while the SUVs will be assembled at the Tata-Fiat Ranjangaon plant in Pune. Fiat’s optimism in the face of repeated reverses may appear admirable but that cannot be a substitute for an iron-clad strategy that can propel the company back into the game again. Fiat has had several false starts in India in the previous two decades. Quite naturally, it would be looking to make up for its past mistakes by ensuring that its third comeback in India turns out to be a thumping success. But it will have to ensure that it can successfully build the product portfolio for the future. That calls for having India-specific products not just in the B & C car segments but also in the SUV category as well, which are the fastest growing.

As it is Fiat is scrambling to put in place the different pieces of its strategy that could help it claw back from its current precipice. But time seems to be running out for the company even as the message is clear: failure to strike it on target this time around could well become its last curtain call in India.