Indian automobile major Tata Motors and Italy's Fiat S.p.A today announced the signing of a Memorandum of Understanding (MoU) to analyse the feasibility of co-operation, across markets, in the area of passenger cars that would encompass development, manufacturing, sourcing and distribution of products, aggregates and components.
Following the MoU, a joint team would be set up to determine the feasibility, both in the short and long-term. If found feasible, the two companies will enter into definitive agreements in the course of the coming months, the statement said.

This will be the first instance of an Indian automobile company joining hands with a foreign peer in global markets. This type of co-operation, although new in the Indian context, is fast catching up among car makers in the overseas markets, says Rajeev Chabba, MD of General Motors India.

In his statement, Ratan Tata, chairman of the Tata Group and the Company, said, "We are delighted to be in dialogue with the Fiat Group on the range of possibilities between the two corporations. Fiat is a globally respected corporation, with a long standing presence in automobiles. Both companies will benefit from this alliance in terms of possible joint product development, shared platforms and aggregates."
"The understanding we have reached with Tata Group represents another step in our strategy of looking for specific partnerships in the auto sector," Fiat CEO Sergio Marchionne said in the statement

Fiat, emerging from the worst crisis in its history, has always said it wants to work with other car makers on specific projects to reduce risks and cut costs, part of a plan to return to profit by 2007 from 2002's record loss.

It recently entered an alliance with Ford Motor to develop two small vehicles for the European market, after ending a strategic alliance with General Motors earlier this year. Fiat also has a joint venture with PSA Peugeot Citroen to make vans, and together the two have a deal to make the vehicles in Turkey with car maker Tofas.

Fiat has invested about Rs 2,000 crore in its Indian operations and recently made a fresh infusion of Rs 200 crore. It has a plant in Kurla, a Mumbai suburb, with an installed capacity of 60,000 cars a year and another plant in Ranjangaon(75,000 unit capacity), also in Maharashtra state.

Fiat has been struggling to make a dent in the 1-million units a year Indian market as its Palio hatchback faces competition from Swift and the Getz. In August this year, Palio sales were just 120, down from 438 in August 2004. The Indica, on the other hand, sold over 8,000, with the Indigo and the Marina pooling in another 3,200 during the month.
Fiat India's new head, Dr Paulo Castagna has said the company would look at introducing new models after restoring consumer confidence in the brand and improving its dealer and service networks.