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Before Punto, Linea, Avventura - Fiat Indian Journey (Case Study)

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  1. asimpleson

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    The case explores reasons for the poor performance of the Italian automobile company Fiat in India. It examines in detail the company's efforts to make its Uno and Siena cars a success. The case also takes a look at the changes made by the company for ensuring the success of its new car, the Palio, launched in September 2001. The case is so structured as to enable students to understand how certain mistakes on the marketing, product development and the strategic alliance fronts resulted in Fiat's poor performance over the years in the Indian car market. The students should also understand the rationale behind the measures taken by the company for ensuring the success of the Palio. The case is aimed at MBA/PGDBA students, and is intended to be a part of the Business Strategy curriculum.

    "We will show what Fiat means, in terms of technology, service, deliver, cost, finance, mobility solution to the customer."
    - Maurizio Paolo Bianchi, Managing Director (Fiat India), in October 2001.

    The Launch of Palio
    In September 2001, Fiat India Automobiles Limited (Fiat) held a lavish function in the Indian coastal state of Goa. The function, featuring performances by leading Indian musicians Louis Banks and Sivamani, who had composed music especially for this event, was held to celebrate the launch of Fiat's much-awaited car, the Palio. Designed by well-known Italian automobile designer Giorgetto Giugiaro,1 the Palio was already a huge success in countries like Brazil and Argentina.

    The media termed the high-profile launch of Palio, backed by a Rs 120 million endorsement deal with leading Indian cricket player Sachin Tendulkar (Tendulkar), as a desperate attempt by the Italian automobile giant to establish itself as a serious contender in the Indian car market. The Palio was expected to boost the company's sales, which had been declining for the past few years. Known as the Fiat Group's 'world car', the Palio was being seen as Fiat's last chance to tackle its accumulated losses of Rs 10 billion.2 Fiat did appear to be taking a 'last chance' with this new car. It had dedicated more than 83% of its total installed capacity for the production of the Palio. The company had invested an additional $ 250 million at its Kurla, Maharashtra, plant for the new car.

    Unlike some of the other small cars that had been adapted to suit tough driving conditions in India, the Palio had been designed from scratch with these conditions in mind. Fiat had even decided to reduce the combined production of its other models - Uno, Siena and Siena Weekend - to 10,000 per year. Instead, the company planned to build 50,000 Palios during the first year of its launch.

    It was reported that the company was ready to stop producing the Uno completely, if necessary. Company sources revealed, "The decision regarding whether the Uno should be continued will be taken after the Palio is launched and after observing the performance of the former car." Fiat had also postponed the launch of the Multipla (part van, part car) for the time being. Fiat India's Managing Director Maurizio Bianchi was extremely optimistic regarding Palio's prospects, "With the Palio we plan to give the widest range possible in the B-segment.3 We will launch with the 1.2 and 1.6-liter petrol (versions) and by 2003 offer a 1.9 diesel (version). We will also try to give a wide range of options to suit every pocket and taste. In this way we will be able to span the complete spectrum of the B-segment which today accounts for 40% of the Indian market."

    Although Bianchi was optimistic, his skeptics far outnumbered his supporters. The reasons were not difficult to understand, as the company's five decade long existence in the Indian automobile market had only produced failures. In spite of having invested over Rs 30.1 billion since 1996 in the country, Fiat's market share in 2001 was only 1.3%.

    Background Note
    Credited as one of the founders of the European automobile industry, Fabbrica Italiana Automobili Torino (FIAT) SpA was established in 1899 in Turin, Italy by a group of individual investors. FIAT's automobiles achieved instant popularity, not only in Italy, but also internationally.

    Over the next century, FIAT consistently followed a two-pronged growth strategy: penetration of foreign markets and focus on innovation. The innovation strategy fuelled the company's diversification plans into agricultural and construction equipment, commercial vehicles, metallurgical products, components, production systems, aviation, publishing and communications and insurance.

    Some of the company's famous car models include the Balilla (1932), the Fiat 500 and the Topolino (1936), the Fiat 500 B two-door sedan and station wagon, the 10 B and 1500 D (1948), the 500 C, 1100 E and 1500 E (1949), the 1400 (1950), the 1100/103 sedan and the multipurpose 103 TV, Seicentos, Cinquecentos (mid 1950s), the 850, 128, 130, 127 and 126 (in the 1960s), Ritmo (1978), Uno (1983) and the Punto (1993).

    FIAT also acquired the Autobianchi, Lancia, Alfa 164 and Alfa 156 brands over the years. The company also owned a host of popular brands in its other businesses. By 2001, with revenues around 57 billion Euro, FIAT emerged as one of the world's biggest industrial groups, operating in 61 countries with 1,063 companies involved in automobiles. The group ran 242 production facilities and 131 research centers, with almost half of them located outside Italy. As part of its globalization effort, FIAT entered India in 1951 through a technical collaboration with Premier Automobiles Limited (PAL) to manufacture the 'Fiat 500' car. PAL was one of India's first automobile manufacturing companies, established in 1944 by the Walchand Hirachand family...

    The Failed Resuscitation Attempts

    In March 1996, Fiat signed an agreement with PAL to import and assemble CKD kits of the 999-cc car 'Uno.' Uno, launched by FIAT in 1983, was the most successful car in the company's history.

    Uno was launched in 1996, amidst much fanfare and acquired around 3,00,000 bookings in just three months. However, in June 1996, just when the company had closed the bookings, the employee union at the Kurla plant forced a lockout. The lockout was the result of a go-slow agitation led by militant trade union leader, late Datta Samant, started in April 1996. The lockout was lifted in November 1996, after a majority of the workforce defied the Datta Samant-led union and opted to go back to work. As a result of the lockout, production suffered greatly and the company could not deliver the booked vehicles in time - only 617 cars were delivered by the end of 1996. The non-delivery of the vehicles upset many consumers and around three-fourths of the orders were cancelled...

    The Last Hope?
    Four versions of the Palio were launched in September 2001; the prices ranged from Rs 0.349 million to Rs 0.499 million. Analysts remarked that these models were priced competitively against the Santro and the Zen.

    The entry-level models of the Palio (EL) and the Santro cost Rs 0.349 million and Rs 0.334 million respectively. Fiat claimed that it offered a net Rs 26,000 worth of content more than the Santro. The market seemed to agree with Fiat as the car was received rather well. In just two days, over 1100 cars were sold. This prompted Fiat to increase the daily production at its Kurla plant in October 2001. Bianchi said, "While daily production at the Kurla plant has already been increased from 50 to 70 cars a day, we plan to increase it further to 100 cars a day by mid-October and 150 by November-December." The company was also planning to add a third shift and produce 220 cars a day. Some analysts remarked that the market's initial excitement over the Palio seemed to be a repetition of the Uno and Siena episodes...

    Case Study Credits to original authors. Shared from here.

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