Fiat Auto and Tata Motors on Thursday jointly announced the formation of a joint venture between the two companies following a memorandum of understanding signed in July 2006.

The agreement will result in a shared facility at the Fiat plant at Ranjangaon, in the State of Maharashtra with capacities to produce at least 100,000 cars plus 200,000 engines and transmissions yearly.

The plant will manufacture both Fiat and Tata vehicles for India and export markets, setting the stage for the fast-growing country to become an 'export hub' for two more automakers.

India is already a key source for Suzuki and Hyundai small cars sold world-wide.

However, Fiat is both covering the 'emerging market' base and aiming at a larger segment, introducing its B and C segment cars, the Grande Punto hatchback, and the Linea sedan derivative launched at the Istanbul motor show in early November.

An assembly line for Fiat's (emerging market) Palio and Adventure models is already in place and trial production has already commenced.

The first batch of saleable cars will roll out in early 2007.

Fiat branded cars will be distributed by Tata through the Tata-Fiat dealer network under an arrangement in place since March 2006.

The network will progressively increase to 100 outlets for the launch of the new models to cover the entire country. Currently, 42 shops are open.

Manufacturing of Tata cars in the joint venture will supplement the production capacities of the automaker's plant in Pune to meet growing demand and to prepare for new models.

The engine manufacturing facility will make the Fiat 1.3 litre multi-jet diesel engine, the 1.4 litre and a new 1.2 litre petrol engine, both from the 'Fire' family, and Fiat transmissions.

Investments in the joint venture will be made in stages and are expected to exceed INR4,000 crore (EUR665m).

The joint venture will start production of engines and new cars progressively from the beginning of 2008.

Fiat and Tata are also continuing discussions about industrial and commercial co-operation in Latin America, under a joint analysis which began in July 2006.

"These discussions are progressing positively," the two automakers said in a statement.

Sergio Marchionne, Fiat CEO, said: "This announcement further strengthens our strategic alliance with the Tata Group, consolidating discussions which are ongoing at all levels.

"With the start of this project at Ranjangaon we will give a critical boost to Fiat's competitive presence in India and surrounding area. The industrial cooperation with Tata will allow us to bring the flavour and the technology of Fiat's cars and powertrain at costs in line with local demand, leveraging Tata's outstanding market knowledge and positioning. The integration of the Fiat and Tata products is a further step in creating a global scale industrial player in India."

Ratan Tata, Tata Motors chairman, added: "This strategic alliance with Fiat enables the two companies jointly to present a wider range of product offerings to the Indian market.

It enables Tata Motors to access world-class powertrains from Fiat for its next generation car offerings while enhancing the model line at its dealerships."