Tata Motors and Fiat SpA have signed a memorandum of understanding (MOU) to analyse the feasibility of co-operation.

The two companies are eyeing development, manufacturing, sourcing, and distribution of products and components.

While the MoU remain a basic understanding, whereby Fiat would share Tata Motors’ sales and service network, those close to the deal have hinted at greater possibilities including Fiat making a substantial reduction in its Indian operations.

This is likely to result in the shifting of production of the Fiat Palio to the Tata Motors plant in Pimpri in west India while Fiat India sells its plant in Kurla, near Mumbai.

The plant suffered some damage when Mumbai was flooded in July and is reportedly closed for some time. Fiat India dealers have been clearing inventory and last month the company reportedly sold all of 80 cars.

Later, Tata may use Fiat India’s Ranjangaon facility. The factory has been lying vacant for years and Tata will need to make a substantial investment to get it going again.

In return, Tata will bargain for access to Fiat’s fabled small car expertise and diesel technology. Tata ambitions of being a global automobile manufacturer have often been hampered by a slow R&D process which has resulted in delays to the Indica replacement platform.

Fiat, for its part, would be able to significantly reduce its operating costs in India. The company has already lost INR22.0 billion here with no hope of recovery in the short term.

The companies have set up a joint team of 15 to determine the long- and short-term feasibility of the partnership.

Deepesh Rathore