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Impact to FCA after Tata-VW JV

Discussion in 'Fiat India News' started by prabhjot, Feb 23, 2017.

  1. prabhjot

    prabhjot Esperto

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    It is strongly rumoured that tata motors is on the verge of striking a sweeping partnership with the vw group for sourcing/contract manufacturing/(?) with Tata platforms and engineering, presumably very much also including vw-badged exports of emerging-market-type, cost/price-competitive cars. So reports the Economic Times. A pr and gossip infested news group, but still usually au fait of such concrete news.

    Another rumour by moneycontrol tv18, a totally pr infested news portal (formerly cnbc tv18, now owned by Ambani ;-), categoriaclly denied by Tata motors is that Ford is looking to buyout/equity-deal with Tata's local pv business. Remember who Tata bought Jaguar-landRover from during the 2008 epic financial crisis that saw Ford nearly bankrupted: Ford.

    These may well be rumours, but like all such in economic matters there's always an a priori deep plausibility in the background, based on which stock markets, investment bankers, brokerages etc 'bet' and 'play'. Lots of inside news and insider trading occurs, hence the gossip.

    What is that a priori plausibility to such rumours and how does it affect the Ranjangaon manufacturing- and technology-only jv?

    Tata Motors is in deep financial crisis on the domestic side of the business: from heavycommercial vehicles to Tata branded pv-s. They're spending a budget of 3000crores (or they say) revamping the firm, downsizing the workforce, revamping dealerships, a slew of new premiumised but still very cheap/'more car per car' models from the tiago, Bolt and Zest to the Hexa and the upcoming 2 suv-s built with FCA/Jeep-Fiat tech (partly, esp engines) alongside the new compass.

    Their losses are intensifying on the domestic side, and has now dipped hugely even at jlr (though that is partly temporary?) Their last quarter's net profits including jlr was down by more than 90%! JLR has a heavy investment load and will suffer a lot due to BREXIT, after all, and from heavy margin pressure in hyper-competitive and ruthlessly open China.

    The VW brand is losing money deeply: in europe, in latin america and of course in india as well though not in china. Depending entirely on porsche and audi for the bulk of its current bare return-on-invested-capital. Dieselgate is not the main reason. The reasons are: an expensive cost structure due to over-manning in europe, a slow new-model cadence, the financially failed UP! small car platform and the uneconomical yet expensive so-called 'modular' platform mqb, etc.

    Apart from its large losses in europe it has a special issue in emerging markets, esp India and latam+asean+n-africa/etc: their cars are inapt and too pricey with expensive spares and service too, not to mention some unreliability skepticism about them in these regions as well. It does well only in semi-european-taste markets like China and Turkey, not in india or in brazil, etc.

    Enter Tata: a champion at low cost but very high-quality engineering (its strength) + design but with its own over-manning and profitability dysfunctions (now being very expensively addressed slowly.)

    In India: just 3 firms + fca make money in any meaningful and consistent way via India, rather than via exports. MarutiS, Hy and Mahindra, mainly the first 2 who control a rising share of nearly 70% marketshare just among them.

    The financial scale and muscle of MS, HY and partly-though-declingly Mahindra and their suppliers, dealers=aftersales centres+spread, their PR and marketing spread, their dominance of the ola/uber/taxi market, their dominance of the used car market including their own used-car firms (very large), their specially aggressive and large finance arms/financing-offers AND, finally, the tremendous special extra support they recieve from state AND central governments over other firms

    means that TATA Motors has imo no option but to consider a sale or at least a scale-boosting strategic deal with say...VW, provided that extends beyond the Indian market to include vw-branded exports from India of Tata-made and engineered cars to other 'third world'-type markets like India's. i.e., VW purchasing what it completely lacks: the ability to make cost-competitive yet profitable cars for emerging markets ex-china, not that they don't lose big money in Europe nowadays.

    The 2 firms are set, apparently, to announce their 'deal' of whatever description at the upcoming Geneva motor show.

    This bears watching as far as the Ranjangaon jv goes, where Tata is set to launch the Q501 and 502 suv-s after the Compass with the latter's localized 2litre mjd2+9-speed powertrains in 2018.

    As a preliminary guess: the mjd, maybe even the 1.3, may be about to be adopted by VW at least in India?

    Will FCA buyout tata if the latter sells out to VW in India? Or if its not an outright sale: will there be ranjangaon manufacture of VW avatars of the Tata suv-s as well, based largely on fca manufacturing technology and engines+transmissions?

    Thus begines the shakeout of the indian auto industry! Mergers, sales, factory closures (eg.., gm/chevy at halol gujrat), etc! This IS inevitable, and has indeed already been occuring at the level of dealerships and service centres of several brands/firms (the tiny sales ones.)

    MarutiS and Hy+ mahindra have just financially defeated several firms, many of whose global managements (not least and the latest being Ford, preceded by Toyota and also now honda) are puzzled at the Indian market's un-crack-ability and their accumulated/ing losses, plus the failure of the IMAGINED so-called 'India Growth story=India is China with a decade or two's lag: look how big China now is, imagine India in the future, etc' to progress much at all since 2012.

    Toyota has helped itself here by indulgently taking big-daddy-only-in-India Suzuki under its wing, which is consolidation i.e., cost cutting and scale economics by other means really.

    Meanwhile, rumours in the Italian business press continue that FCA and VW are working on plant/tech/platform/engines etc sharing large global 'deal', earlier (confirmed) discussions that had been interrupted by dieselgate.

    @asimpleson @SwifttoPunto
     
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  2. ramjn

    ramjn Staff Member Janitor

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    The thread title was so confusing and hence changed it. :)

    I think Auto industry is now going through another round of consolidation. It would be interesting to see if FCA manages to get another partner. If Tata-VW JV materializes, Tata would surely have to break its relationship with Fiat.
     
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  3. prabhjot

    prabhjot Esperto

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    Depends on how the Tata-VW deal is structured, since this would be an India-specific deal. It will likely be a sort of tech, capacity outsourcing/sharing deal, centered on exports under the VW brand of Tata developed, costed and made models. If so, this will have no impact on the Ranjangaon jv, other than to confirm yet again that Ranjangaon will only be making higher-priced, bigger suv-type models in the future (at least 2 jeeps, at least 2 Tata suv-s) and NOT mass market hatches or sedans anymore. i.e., no Fiats. With Tata making its Bolt/Zest etc replacements presumably shared in some way with VW, at its own plants?

    Fiat diesel engines, and/or MM amt-s, though, may well end up also on Indian tata-related 'vw' models in the future, as well as on Tata ones? ;-)

    @ramjn
     
  4. prabhjot

    prabhjot Esperto

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    http://auto.economictimes.indiatime...tie-up-to-produce-passenger-vehicles/57440970

    What this might mean for Tata, FCA and the Tata-FCA jv: who knows? Possibly this could entail bringing Ssangyong models here, also perhaps to be offered to Ford (esp for export under their own brand, to emerging markets?) Or Ford making its large-capacity diesels in India, and offering them to Mahindra, given the latter's emissions etc bs6 (or bs4! ;-)) non-compliant, badly obsolete engines, just like FCA with and for Tata with the 2 litre mjd2?

    And/Orr Ford being interested, with its own engines, in Mahindra's low-cost, 'third world' platforms for the kuv100+/- the tuv300+500+/-the xuv500? Including especially for exports to other 'third world' markets? An alliance extending to the very influential-in-periurban-and-tier2/3 cities Mahindra Finance, and to (some) dealership and aftersales sharing, M's used car business, etc?

    Point is, again: Mahindra despite several all-new and refreshed models has recently lost both overall marketshare and has seen its returns on investment plummet (partly) as a result.

    Ford has, despite such large exports of its India (i.e., 'third world special', the entriest of entry level in the OneFord range globally, including in say Brazil and China) models poor capacity utilization and has large accumulated, and still accumulating, losses in india. The new Sanand plant, like Tata's there, has been a financial burden so far and foreseeably for Ford India (despite the massive and disproportionate Gujarat state govt subsidies), given the flopping of the Figo+Aspire combine (nevermind that both models were specifically designed and engineered as inexpensive entries in and for markets like, precisely, India and Brazil (where the Figo/Ka made there is selling well enough.)
     
  5. Barani

    Barani Amatore

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  6. prabhjot

    prabhjot Esperto

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    The Ranjangaon JV continues would be my guess: but exclusively for at-least-2 Jeeps and 2 Tata suv-s, with export volumes of the former being sizeable, as also of the 2 litre mjd2 engines and/or 9-speed transmissions.

    Tata have committed themselves to their new, low cost, scalable AMP 'platform'. The very one said to be of such interest (contract manufacturing?) to VW. ERGO: Tata will not be adopting the 'new Punto x6h/s'/LatAm platform, as they had been discussing 2 years ago with FCA India.

    THAT to my mind confirms finally that there will be no 'new Punto', 'new Grand Sienna' or 'new Avventura'. i.e., no all-new Fiats come say 2018 or 2019, since Fiat just does not even-begin to stand a chance of achieving scale of sales, with suppliers etc without Tata (say) 'next Bolt+Zest' volumes, such as those are or will have been.

    The new Compass and especially the b-suv (sub-Renegade) will see surprisingly large export volumes imo, potentially beyond rhd ones, even to lhd markets like Europe+Turkey and/or several in ASEAN+middle east? Mike Manley has just confirmed it for Europe as well: at the ongoing Geneva Auto Show. A well-priced-but-at-some-premium JEEP sibling-in-spirit of the glorious and singular Panda Cross 4x4. The all-new huge-selling Panda/Cross launches in 2019/2020 in europe, made in Poland.

    In any case the prospective Tata-VW large tie-up is best for both these firms (vw will likely use Tata to export to LatAm where they're doing so badly in sales and financially because of their dated models and technology there and/or too-expensive cost structures.) FIAT is very strong financially and in terms of Brazilian+Argentinian+Mexican manufacturing footprint in LatAm, and so clearly could be of no assistance to a financially desperate (losses from domestic Indian operations) TataMotors in very very deep restructuring mode.

    imo This only confirms that FCA is all Jeep+engines+transmissions+MM in and from India henceforth, alongwith Tata suv-s. FCA is, rightly imo, leaving the Fiat spaces entirely to Tata, since unlike VW (which needs the low cost Indian exports, possibly via tata, to LatAm, FCA has no such meaningfully large export-from-India demand for India-made FIATs (as opposed to: India-developed and made Jeeps.)

    Meanwhile, as i've been posting, MUCH bigger merger/consolidation/strategic-global-alliance-type global-level deals will very likely also be occuring soon enough (by 2018/19?) Between the likes of Tata-JLR (which has the very severe problem of brexit to confront even with jlr, nevermind the financial sinkhole that is Tata Motors domestically) and vw (in deep and unending financial etc strain for many reasons esp dieselgate) AND the likes of FCA globally.

    Marchionne just 3 days ago said explicitly that he 'expects' VW to 'come have a chat' about a global 'merger'-scale deal: soon enough! ;-)

    Let's see.
     
  7. prabhjot

    prabhjot Esperto

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    In the spirit of mere gossip! ;) :-

    Unless the Tata and vw badge engineered models are to be built at ranjangaon?! With fiat manufacturing tech and engines etc?

    Is the Tata amp platform similar to or the same as the fiat LatAm one, just rebadged? The one the 'new punto' x6h and 'new grand sienna' (x6s) are on? It was true, after all, that Tata and fca India were discussing use by Tata of the new punto platform/architecture family, which is so what modular and scalable too, just like the Tata amp one purportedly is.

    Fits in nicely with the possibility (probability??) of a GLOBAL merger or large scale strategic tie up 'big deal' between vw group and fca.

    If so: the new punto etc may be able to cost effectively be brought here, and not just the jeeps, due to cost efficiencies borne of scale/sharing with Tata and vw?....

    Just speculating, we'll know soon enough once the very very strong reports of a vw-fca 'big deal' are confirmed, or not.

    @asimpleson
     
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  8. asimpleson

    asimpleson Esperto

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    There's officially a denial from both parties and VW also posing to not need FCA as such after followup questions by automotive press. The deals should materialise (atleast for customer benefit) in technology sharing and plant and model and vendor sharing mixing platforms and drivetrains etc. to offer the best of both firms to compete globally.
     
  9. carl_jhonson

    carl_jhonson Amatore

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  10. prabhjot

    prabhjot Esperto

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    Ironically, considering that Tata and FCA have a thriving jv in India, an fca-vw tie-up on a larger global basis may be still in the works (Marchionne retires in 2019, with one last fully redemptive large 'merger' still avowed loudly by him, with fca now with soaring profitability while vw group remains in a pickle, including Audi, and including in latam, the usa and now even for the first time increasingly in China.)

    Tata Motors+JLR are NOT in healthy financial shape either, foreseeably (not just the Indian businesses but also jlr post-BREXIT etc.)

    Perhaps the latter are now open to a 'marger' type 'big deal' with, say, an FCA, although imo fca would prefer a larger partner without all the large and lingering liabilities, deficits etc of TataMotors-in-India (including commercial vehicles, not just the heavily loss making PV business.)
     
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