Product mix, a crucial factor — Fiat India chief

Alberto Montanari

Alberto Montanari  

The launch of its Palio NV (new version) in India signals Fiat India entering the next phase of its operations. Though the parent company Fiat, Italy, was in financial trouble some time back, Alberto Montanari, Chairman and Managing Director, Fiat India, is confident. On the eve of the Palio NV launch, he spoke to Ramnath Subbu on a range of issues.

QUESTION: What is the scenario in the Indian automobile industry?

ANSWER: The scenario is related to the customer who is becoming more demanding. His needs are confined to certain segments — B and C — and new cars are always coming in. In India, unfortunately, there is not enough concern for safety. People do not care for ABS (anti lock braking system), air bags — things that in other countries are compulsory. But in future, there will be an evolution because the whole world is heading in that direction. From the pollution point of view, cars are catching up with European norms and this will be quick because from the technological point of view there is nothing new.

I am curious to see the market evolving, from the smaller A segment to B and C. The problem is one of infrastructure. All players want to make cars but the basic infrastructure should be improved — roads, parking and the like.

What about Fiat India's operations?

In Kurla, theoretically, we could make up to 60,000 cars annually working three shifts. In one or two shifts, we make about 16,000 vehicles and production is order-driven. We mainly make Palios, equally divided between diesel and petrol versions, but also a small number of Siena, Adventure and Uno.

But we have to improve our numbers. We need to be close to break-even, which is the target for 2004-05 at about 17,000 cars. We are studying everything from rationalisation of stores and operations to flow of materials.

Product mix has a big impact on profitability — if you sell only base models, you die — not only Fiat India but anybody. We are also sensitive to fluctuations in exchange rates. If the exchange rate, from our point of view, worsens, we cannot pass that on to the customer. In diesel versions, because of fewer numbers, the engine comes from Italy, although the gearbox is locally made. In petrol models, depending on the version, localisation is between 70 and 78 per cent while in diesel models it is about 65 per cent. So in effect, on 35 per cent of the value of the car, we depend on the exchange rate and a 10 per cent fluctuation changes so many things.

India is already an export base for the Asian region and supplies components to Fiat in Italy, South Africa and other countries. We are now trying to export completely built units (CBUs) but being in a right hand drive world is our limitation. Although we are talking to some Asian countries, barriers are high.

There was talk of your bringing in other models from the Fiat stable, say, the Alfa Romeo.

For bringing in the Alfa Romeo, the investment would be extremely high but sales would not be commensurate, translating into low localisation levels and high price. So, at the moment, the equation is not feasible.Regarding other models, we are watching what Fiat is doing globally. We have to see what is closest to Indian needs. In Europe, a small car is not necessarily cheaper.

The philosophy of the small car is diverging because in Europe small car owners want the same features as in large cars. You have navigation, ABS, dual zone airconditioning, automatic transmission and ESB (electronic stability control), which is optional although common in the B segment. To put all these together, the cost and fuel consumption increase. In Europe, a small car with all features can cost up to 20,000 euros.

In India, however, fuel consumption and price are sensitive issues. Here the car is more basic but understanding the market is crucial because price is a determining factor.

All Fiat India products emanate from the 178 platform. What about other models from this platform?

This platform could have another 6-7 years still ahead. If we could continue to use this platform even with other models, it could be a big advantage in terms of investment because the cost of the platform, which includes everything, is significant. The basic issue would be whether or not I can use this platform because it changes the investment pattern dramatically.

The parent company Fiat has been in some trouble. What is the situation now?

Things are different now as Fiat is in much better shape. All operations, which were not profitable, were under examination. When you have a lot of money, as we have had for many years, you can absorb losses. But when you are obliged to borrow money and pay interest that is a burden.

Now in fact, Fiat Turin is into recapitalising Fiat India. But the shape and confidence of the company is much better. Fiat is introducing new models in Europe and that means better volumes and profitability. We are now in a less stressful situation than say six months ago.

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