Alberto Montanari, MD & CEO, Fiat India: Stepping on the pedal

At a fiat auto dealership in Goregaon, Mumbai, the staff is busy with customer-orientation programmes. Unlike in the past, the dealership today sends reminders to its customers on service due. Another dealership (Fort Point) in south Mumbai has even started a service club, whose members get a discount on car servicing. The scene is not very different at the company's plant in Kurla, where an all-new A-team is putting together a blueprint for the battle ahead. MD & CEO Alberto Montanari is less than three months into the job. A new Director (Commercial), Ananda Mohan Gupta, has come in from Honda Siel, and Ravi Bharadwaj (ex-Orix, a financial services JV between IL&Fs and Orix Corp. Japan) is the new man in charge of marketing and sales.

The item right on top of Montanari's to-do list is rather obvious. He must change popular perception that Fiat is on its way to winding up India operations. And that's some task. With accumulated losses of Rs 1,280 crore for the year ended December 31, 2001 (Fiat did not make its 2002 balance sheet available to BT, although a spokesperson said that the accumulated losses have come down substantially), and a parent that's saddled with $6.6 billion (Rs 31,680 crore) of debt and in dire need of a government bail-out, Fiat India's outlook is bleak.

Even as the 46-year-old Montanari makes over the brand, he must address a far more fundamental issue: Of the falling marketshare of Fiat's flagship B-segment car, the Palio. Launched in September 2001, the Palio was supposed to turn things around at the company. And for the first eight months, it did seem that it would. Unit sales climbed from 1,100 in the first month to a record 3,985 in April 2002, claiming more than a fifth of the B-segment market.

Then, almost suddenly, Palio's sales began to drop. By August 2002, Fiat was selling a little over 2,100 Palios a month, and in December it was down to 550. While the calendar fag-end is typically bad for all car-makers (a lot of buyers put off purchase until the new year), Fiat had it worse. For one, Palio was perceived as a fuel-guzzler. For another, the news of trouble at the headquarters in Turin may have begun to unsettle some car buyers in India. Today, a lot of them who otherwise would prefer a Palio are opting for other brands simply because of the question mark over the company's future in the country. "Since its balance sheet is weak, it would be difficult to sustain such a business over the long term," reckons a Mumbai-based analyst.

New CEO, New Plans

Unsurprisingly, Montanari isn't fazed by the dire predictions of his critics. "We are not concerned about the accumulated losses," says he. "But, yes, we haven't been aggressive enough." In retrospect, that's proved to be a costly mistake. Fiat's association with Premier Auto iron-cast its (untrue) image as a maker of stodgy vehicles. Then, when the Fiat Uno was launched by the then joint venture, Ind Auto, more than 50,000 bookings were accepted but deliveries were marred by delays. "As a result," says the analyst, "Fiat's brand image took a beating, even though it launched contemporary products."

"We did not have the requisite infrastructure, equipment and manpower to cope with the increased demand for Palio" Ananda Mohan Gupta/ Director (Commercial)/Fiat

The lack of aggression is something that Montanari may have changed already. When he arrived in Mumbai to take up his new job, Montanari spent the first four weeks travelling the length and breadth of India, meeting dealers, suppliers, and customers. The idea, of course, was to get a first-hand feel of the issues facing the company. As a result, Fiat plans to increase in 2003 its dealer base from 67 to 78, add 20 service stations to the existing 100, improve availability of spare parts, and target corporates and fleet-owners for new sales. And in the three months to March, Fiat had tied up with 11 banks and financial institutions to help finance its cars.

Although the company launched a 1,900-cc diesel variant of the Palio early March, it is in no hurry to launch more models. Montanari says there are two reasons for that. One, rolling out a new vehicle requires a lot of investment both in terms of plant equipment and marketing. With nearly Rs 2,000 crore invested in India operations, Montanari says his priority is to make that money pay. Two, Fiat believes that Palio's sales fell not because of any product-related issues, but due to support shortcomings. Says Mohan Gupta: "We did not have the requisite infrastructure, equipment, and manpower to cope with the increased demand."

A stronger servicing network, Mohan Gupta is hoping, will help push Palio sales back up. Last year, Fiat sold about 32,000-odd units, of which around 28,535 were Palio (the others were 1,146 Unos, and 2,677 Sienas). This year, the overall target is 42,000, with 80 per cent being Palios. As for the diesel variant, targets are modest. In the first week of the launch, Fiat sold 500 diesel Palios. Gupta's target for 2003: a modest 8,000-10,000 units. Part of the reason is that the diesel segment is a relatively small part of the overall B-market. For instance, of the 299,000-odd B-cars sold last year, only 67,000 were diesel.

The GM Connection

Going by Montanari's plans, it's obvious that he first wants to stabilise things at Fiat, without making any expensive capital commitment. This is where Fiat's global alliance with General Motors could come in handy. GM, which owns a 20 per cent stake in Fiat, is stepping on the gas in India. After it launched luxury, D-segment Opel Vectra, it quickly rolled out the Subaru Forester under the Chevrolet brand. Globally too, gm is in a much better shape than traditional rival Ford Motor, and that could be critical to succeeding in the fiercely competitive market that is India.

There have been reports of Fiat and gm striking a strategic alliance (along with Suzuki, which is also 20 per cent owned by gm) for investing $100 million (or Rs 480 crore) in a facility in Ranjangaon, near Pune. The facility, currently being used as training centre for dealers and suppliers, is owned by Fiat. According to Montanari, the two companies are globally working on a new platform that would be used in the Fiat Punto and Opel Corsa, both due for launch in 2005. Fiat of Italy alone plans to launch 21 new models by the end of 2005. Says Hormazd Sorabjee, Editor, AutoCar India: "It's important to see how quickly Fiat India is able to revamp its dealer network and marketing team."

Yet, Fiat's growing problems may soon become gm's own. As per its $2.4-billion deal with Fiat in early 2000, gm is liable to buy the rest of Fiat in January 2004-at the then market value. But Fiat's losses have forced gm to write off more than $2 billion of its initial investment. Even if gm manages to convince Fiat to sell its better brands such as Alfa Romeo, the Detroit giant may have to pay millions of dollars to get Fiat to drop its put option. In any case, as far as India is concerned, Fiat brings little to the table.

By putting a freeze on new launches, Montanari may be making it easier for competitors like Hyundai Motor and Suzuki to consolidate their positions in the B-segment. The Korean car-maker, for instance, is lining up another car, the Getz, in mid-2004. Maruti Udyog, now with Suzuki firmly in the driver's seat, has lined up a Zen upgrade and may also launch the Ignis. Coupled with the two companies' superior distribution and servicing network, the new cars could make Fiat's Palio look like a dated option.

Besides, with its parent bleeding, Fiat India is no position to enter a price war, should a bigger player decide to trigger one. How likely is that? Hard to say, but the conditions seem ripe. At 28,138, February sales of B-cars were marginally lower than that of January. A prolonged war in the Gulf is bound to create a fresh round of uncertainty in the market.

For Fiat, a downturn could prove disastrous. As noted by its auditor Farokh Balsara, Partner, Arthur Andersen, in its 2001 annual report, poor sales of its 178 series cars (including the Siena, Siena Weekend, Palio, and Palio Adventure) could "raise substantial doubts about Fiat India's ability to continue as a going concern". In other words, unfortunately for Fiat India-and its newly enthusiast dealers-Montanari's aggression may have come a little too late.