Fiat's Strategic Alliance With Tata: Centre

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Fiat's Strategic Alliance with Tata
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“I like the Tatas. I like the organization and the way they operate.1
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Sergio Marchionne, CEO of Fiat Group
Introduction
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On Oct., 11, 2007, firm handshakes between top executives of Italy’s Fiat
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Group and India’s Tata Motors were exchanged at the official ceremony to
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mark the signing of a joint venture (JV) to manufacture passenger cars,

engines and transmissions for the Indian and overseas markets. Several
executives from both sides had worked tirelessly on securing the agreement
since the initial idea to collaborate had emerged in early 2005. From the
first memorandum of understanding (MoU) signed in September 2005, the
relationship had expanded substantially; in addition to the recently signed
JV, the alliance encompassed an agreement to jointly manufacture pick-up
trucks in Fiat’s Argentinean facility as well as a distribution arrangement
between Fiat’s commercial vehicle subsidiary, Iveco, and Tata’s commercial
division.
1 “Fiat offers technical tie up with Tatas in CV venture,” The Press Trust of India Limited, May., 3, 2007.
This case was prepared by Jordan Mitchell, Research Assistant and Brian Hohl, MBA 2008, under
the supervision of Professors Africa Ariño and Pinar Ozcan, within the joint project between the
Center for Globalization and Strategy of IESE and KPMG on "Strategic Alliances and Joint
Ventures", as a basis for classroom discussion and not an illustration of good or bad management
in a specific situation. March 2008.
The authors would like to thank KPMG for the funding provided.
This case was written with the support of the Center for Globalization and Strategy, IESE.
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Last updated: 6/6/08

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SM-1528-E Fiat's Strategic Alliance with Tata
Observers lauded the tie-in stating that Fiat had the potential for more sales in the
burgeoning Indian market while Tata stood to gain technology and new export
markets. While there was a lot to celebrate, Fiat and Tata executives had been given a
clear directive that all contracts detailing different aspects of the companies’
collaboration such as engineering support were to be wrapped up by the end of the
year. Fiat executives thought about the immediate road ahead of getting the final
agreements in fewer than three months.
As the ceremony was coming to a close, one observer quipped: “You know, in India,
the average joint venture with a foreign firm lasts three and half years.” The
bittersweet remark gave Fiat executives pause to ponder: How could the Fiat team
guarantee long-term success?
Section I: Background
Global Automotive Industry

Valued at US$1.2 trillion (€956bn2) in 2006, the global automobile market encompassed
retail sales of new cars, light commercial vehicles3 and motorcycles.4 Including suppliers,
spare parts and other strata of the auto industry, the entire sector was estimated to be
worth over $2 trillion (€1.6 trillion), which was equivalent to the gross domestic product
(GDP) of the United Kingdom, the world’s sixth largest economy.5 The market had grown
by 5.2% over the previous year and since 2002, the value of the automobiles market
advanced at a compound annual growth rate (CAGR) of 4.7%.
In 2006, 65.7 million automobiles and commercial vehicles (excluding motorcycles)

were sold, representing an increase of 4% over the previous year.6 It was estimated that
there were 900 million cars and light vehicles on the road in 2006; or, one automobile
per seven people on a global basis. 7 Exhibit 1 shows volume and revenue growth
between 2002 and 2006.
The leading revenue-generating region in the auto industry was the U.S. market, with
38.1% of the global value, followed by Europe with 29.3%, Asia-Pacific with 23.3%
and the rest of the world with 9.1%. Much of the growth in recent years had occurred
in the Asia-Oceania region, where production had surged forward by 9%. Other
growing production regions included South America and Central/Eastern Europe.
Exhibit 2 provides a breakdown of automobile production by region and company.
2 Different US Dollar to Euro exchange rates were applied depending on the time period.
3 ‘Light commercial vehicles’ are defined as light goods vehicles and small buses that do not exceed 3.5 tonnes and have capacity for up
to 15 passengers. Source: www.OneMotoring.com, ‘Revised Speed Limit for Light Commercial Vehicles’, 2005.
4 Datamonitor, Automobiles Industry Profile Global Mar2007, March 2007, Reference code 0199-2011, p. 7
5 International Organization of Motor Vehicle Manufacturers, “The Auto Industry – A Key Player in the World”, 2006 Edition of the
World’s Auto Industry Key Figures, p. 5
6 Source: Datamonitor, Automobiles Industry Profile Global March 2007, March 2007, Reference code 0199-2011, p. 3, 7
7 The Automotive Industry in the 21st Century, Toby Procter and John Constable, reference # 307-180-5, p. 5
2 IESE Business School-University of Navarra

Fiat's Strategic Alliance with Tata SM-1528-E
There were 18 manufacturers that produced more than one million vehicles per year.
The top five companies were responsible for almost half of the industry’s output, and
the top 10 represented more than 68%.8 In terms of revenue, General Motors (GM) was
the leader with a 17.3% market share. In volume, Toyota was about to overtake GM as
the largest global player, even outselling GM in the U.S. 9 See Exhibit 3 for global
market shares. Most of the major automakers had been established in the late 1800s
and early 1900s. Of the newer entrants (manufacturers that entered after World War II),
only a handful had subsequently become high-volume producers – the most prominent
were Korean brands: Hyundai and Kia.
In recent years, automotive manufacturers had been plagued by overcapacity. One
estimate suggested that if combined, car makers had the capacity to produce 24 million
more cars than could be sold each year.10 The oversupply caused car makers to engage
in price wars, thus destroying margins and reducing profits.

In an attempt to lower costs, most major automotive makers had set up factories in
emerging markets such as China, India, South America and Eastern Europe. While lower
production costs were one incentive, experts also suggested that car makers could gain
access to growing and fertile marketplaces. 11 For example, retail sales in Asia-Pacific
(excluding the mature Japanese market) increased 11.1%,12 while retail sales in China
heaved forward with 26% growth in 2006.13 According to a 2007 study of the industry,
78% of auto manufacturer executives indicated that they would likely locate or expand
operations in China in the next five years compared with 61% who indicated opening or
expanding in Eastern Europe, 54% in India, and 52% in Latin America.14
All manufacturers with production greater than one million vehicles were involved in
one or more alliances with other producers. Automobile manufacturers formed
alliances for a variety of factors with the primary rationale being an attempt to reduce
labor, energy, and raw material costs. Experts pointed to increased globalization,
industry overcapacity and the rationalization of globally-marketed products as
additional motivations for the formation of alliances.15
Significant capital outlay was required to enter into the automotive industry, such as
the installation of complex and costly manufacturing systems and engineering know-
8 International Organization of Motor Vehicle Manufacturers, “World Ranking of Manufacturers”, OICA Correspondents Survey, 2007
9 Peter Day, “'Mr Toyota' is shy about being No 1,” BBC, June 25, 2007, http://news.bbc.co.uk/2/hi/business/6237110.stm, Accessed Aug., 12, 2007.
10 Gabriel Kahn, Stephen Power, Alessandra Galloni, “Separation Anxiety: Once a Dream Couple, GM, Fiat May Face Messy Breakup…,”
The Wall Street Journal, Jan., 24, 2005, p. A1.
11 Labor costs represent about 9% of wholesale price of the average car in Europe. In Central Europe, for example, the costs are lower,
and labor’s proportion of the wholesale price is trimmed by as much as 40%. [Source: “Global Automotive Review”, Deutsche Bank,
Gaetan Tolemonde and Jochen Gehrke, Dec., 2006, p. 5]
12 International Organization of Motor Vehicle Manufacturers, ”World Motor Vehicle Production by Country”, OICA Correspondents
Survey, 2007
13 Hoovers Online, GM Corporation overview, 2007
14 "Innovation in emerging markets: 2007 annual study", Deloitte Global Manufacturing Industry Group, 2007.
15 Datamonitor, Automobiles Industry Profile Global Mar2007, March 2007, Reference code 0199-2011, p. 8
IESE Business School-University of Navarra 3

how. The cost of the development of new car models was estimated at approximately
$1-2bn. taking between three and five years. Each year thereafter, investments were
required for engineering changes to annual models. Nearly all manufacturers operated
with profit margins of under 3%.16
A vehicle consisted of up to 15,000 separate parts, and the material costs could reach
about 70% (including both suppliers and assemblers) of the automobile’s wholesale
value. The sourcing of parts usually involved 30 direct suppliers as well as 70 or more
indirect suppliers (who served the direct suppliers). Automobile manufacturers usually
established long-term relationships with their suppliers and involved suppliers in the
development of new models. As part of their own initiatives, suppliers sought
opportunities to increase margins by developing proprietary technologies that would
add value to the manufacturer and the automobile. See Exhibit 4 for an approximate
breakdown of the automotive value system.

Automobiles in India
The automobile industry in India was valued at over $23bn (€18bn) in 2006. Unit sales
in the same year exceeded 1.5 million passenger cars (commercial vehicles accounted
for an additional 547,000 vehicles). 17 It was estimated that seven in 1,000 Indians
owned a car; by 2010, this statistic was expected to climb to 11 in 1,000.18 India’s total
population was 1.1 billion people. By means of comparison, the U.S. had the highest
penetration of automotive owners in the world with one out of two people owning a
car. The majority of Indians used motorcycles and three-wheel diesel-powered
rickshaws or non-motorized means such as walking, bicycles and cycle rickshaws.
Public transport such as trams, trains and buses were also commonly used.
The first imported car arrived on Indian soil in the 1920s, and by the 1940s, cars were
being manufactured in the country.19 During the 1950s, the Indian government permitted
only those companies who were manufacturing to operate in the automotive sector
(opposed to those that were solely importing); seven Indian firms were given licenses to
continue (foreign companies were not given licenses), among them, Tata Motors (then
called Telco), Hindustan Motors, Premier Automobiles and Mahindra & Mahindra (M&M).
One of the most symbolic cars of this period became Hindustan Motors’ Ambassador, a
model that had been based on the UK’s Morris Oxford. As of 2007, it was still being built
and was one of the country’s hallmark automobiles, reinforced by the fact that it was the
country’s most common taxi.
The Indian government launched its own company, Maruti Limited, in an effort to
develop and manufacture the “People’s Car.” To bring the “People’s Car” to market, the
government of India entered into a 50:50 JV with Japan’s Suzuki Motors in 1982. The
16 Procter Toby and Constable John, The Automotive Industry in the 21st Century, Reference # 307-180-5, p. 9
17 “New Cars in India,” Datamonitor, October 2006 and “Trucks in India,” Datamonitor, Nov., 2006.
18 Jorn Madslien, “India prepares for automotive boom,” BBC, April, 3, 2007, http://news.bbc.co.uk/2/hi/business/6521909.stm,
Accessed Aug., 11, 2007.
19 Auto India Mart Website, Events and Milestones, Indian car history, http://auto.indiamart.com/cars/events.html, Accessed Aug., 11, 2007.

venture produced the Maruti 800, outselling all other passenger cars. In commercial
vehicles, Tata began producing light commercial vehicles in the 1980s, quickly
becoming the largest commercial vehicle manufacturer in the country (and the fifth
largest in the world). The liberalization policies in 1991 opened up India to new import
and export possibilities.
As of 2007, the top players in the domestic passenger car market were Maruti Udyog
with 48.8% market share, Tata with 20% and Hyundai with 19.0%.20 The market was
divided into four primary segments: compact cars (A), midsize cars (B), premium cars
(C), and sports-utility vehicles (SUVs) (D).
The market for commercial vehicles was dominated by Tata Motors with 65%, followed
by Ashok Leyland with 15.1%, Isuzu with 3.3%, and M&M with 2.2%. See Exhibit 5
for more information on the Indian automotive market.

India’s automotive sector had attracted international attention for both its
manufacturing capabilities and blooming market potential. Nearly all international
automotive players had ownership stakes in a manufacturing facility in India. Over the
past five years, the number of new car sales had grown at a CAGR of 19.2% while the
number of trucks had posted a CAGR of 24.3%.21 Over the next decade, future growth
was expected to exceed 10% year on year. One industry analyst projected that India’s
annual volume would reach 3.5 million cars by 2015.22
To add to the excitement of an explosive marketplace, Tata was in the process of

developing the 1-lakh rupee (US$2,500, €1,750, 1 lakh=100,000 rupees) car for 2008.
Many predicted that the car would dramatically change the Indian automotive
landscape considering that it would cost half as much as the least expensive car
currently available.23 Renault had announced that it too would pursue the development
of an ultra-low cost vehicle to be ready in as little as three years. Renault was planning
a plant to produce 400,000 units in its JV between M&M and Renault’s division,
Nissan.24
Background on the Fiat Group

Established in 1899 by Giovanni Agnelli and a group of investors in Turin, Italy, Fiat
Group was Italy’s largest car maker and one of the country’s dominant industrial
groups. The Fiat Group posted net revenues of €51.8 billion and net profits of €1.1
billion in 2006. The group comprised five business areas:
20 “New Cars in India,” Datamonitor, Oct., 2006.
21 “New Cars in India,” Datamonitor, Oct., 2006 and “Trucks in India,” Datamonitor, Nov., 2006.
22 Source: ‘Tata and Fiat: Small is Big in India’, BusinessWeek Online, Jan., 2007.
23 Thomas Ryard, “Renault Plans New US$3,000 Car,” Global Insight Daily Analysis, June, 14, 2007.
24 Ibid.

• Automobiles (49.3% of net revenues); including Fiat, Lancia, Alfa Romeo,

Maserati and an 85% ownership stake in Ferrari
• Agricultural and Construction Equipment (20.3% of net revenues) under the

company CNH;
• Trucks and Commercial Vehicles (17.6% of net revenues) under the Iveco
brand;
• Components and Production Systems (23.9% of net revenues) under Fiat Power
Train, Magneti Marelli, Teksid and Comau; and,
• Other businesses (3.1% of net revenues) 25 including services, publishing and
communications such as the ownership of Italy’s La Stampa daily newspaper
and holding companies.

Refer to Exhibit 6 for Fiat Group’s financial statements and divisional performance.
Although Fiat had been credited as the first successful automaker to build a “global
car” with the Palio model in the mid-1990s26, most commentators agreed that the past
10 years had been rough for Fiat, especially in its ailing auto division. Market share in
Italy fell from 60% in the mid-1980s to 30% by 2006.27 Within Europe, Fiat’s share
dropped from 13.8% in 1990 to 6.5% in 2005.28 Between 2001 and 2004, the company
overall lost nearly $12 billion (€10 billion).29 Several reasons were seen to contribute to
Fiat’s difficulties including its low-margin mix of smaller cars, languid new product
introductions and the onslaught of more Japanese cars in Italy due to the abolition of
quotas on foreign imports.30
In 2003, the company’s management began taking steps to reduce costs and sell non-
core divisions. The period was also marked by a series of changes in top management.
Long-time chairman, and grandson of Fiat’s founder, Gianni Agnelli died in 2003;
Umberto Agnelli assumed the role of chairman until his death in 2004. Ferrari’s CEO and
long-time Agnelli acquaintance, Luca Cordero di Montezemolo was appointed as the
chairman, John Elkann (Gianni Agnelli’s grandson) as vice-chairman and Sergio
Marchionne as CEO. Marchionne, an Italian-Canadian, had been recruited from the top
post of SGS (Société Générale de Surveillance; a Swiss certification company partially
owned by the Agnelli family). Marchionne set out to perform “radical surgery” by
reducing Fiat’s management, firing underperformers and refinancing the bank debt. He
25 Fiat Annual Report 2006, Dec., 31, 2006, p. 26. Note that eliminations account for the other -14.2%.
26 Lakshman Nandini, “Fiat Makes a New Friend in India,” Dec., 15, 2006.
27 “Working with Fiat: Rising Star ties up with old world Titan,” The Economic Times, Sept., 7, 2006.
28 Edmondson Gail, “Fiat's Comeback—Is It for Real?” Business Week, July, 25, 2006,
http://www.businessweek.com/globalbiz/content/jul2006/gb20060726_749437.htm?chan=search, Accessed Aug., 8, 2007.
29 Edmondson Gail, “Fiat's Turnaround Takes Root,” Nov., 10, 2006,

http://www.businessweek.com/globalbiz/content/nov2006/gb20061110_334864.htm, Accessed Aug., 12, 2007.
30 Edmondson Gail et. al, “Fiat: Running on Empty,” Business Week, May, 13, 2002,
http://www.businessweek.com/magazine/content/02_19/b3782014.htm?chan=search, Accessed Aug., 8, 2007.

continued with the former management’s plan to sell off non-core assets and breathe
new life into the frail auto division through new product introductions.31 The company
recruited a number of high profile auto executives, including top design talent from
Rolls-Royce and BMW to infuse a nimble culture of design and innovation into the
company. 12,000 jobs were shed across the entire group, including a large proportion
outside of Italy; the company chose not to close its national plants to avoid a clash with
Italy’s powerful unions.32 To spur on a change of mindset, Fiat’s management set targets
of growing volume from 1.3 million units in 2006 to 1.9 million units by 2010.33
Alliances at Fiat
The GM-Fiat Alliance
In 2000, GM and Fiat signed an agreement to exchange 20% of Fiat Automobiles
shares with 5.1% of GM shares, both valued at $2.4bn (€2.6bn). The companies formed
two JVs: Fiat-GM Powertrain and GM-Fiat Worldwide Purchasing. The JVs were aimed
at developing engines and transmissions and creating a common purchasing
organization. 34 The intention of the agreement was for GM to gain supply chain
savings with its European operations and Fiat hoped to strengthen its overall position
in light of recent automotive consolidation while not compromising its position within
Italy and Europe. Many observers believed that if Fiat Automobiles were sold to a
European carmaker (in early 2000, DaimlerChrysler had reportedly offered about €12bn
in cash for Fiat Auto), Fiat would be merged into the European operations of the buyer.
The Fiat-GM arrangement included a put option 35 whereby GM could purchase the
other 80% of Fiat at fair market value beginning in 2004.36 To service its high debt
level, Fiat sold a number of assets including its stake in GM. Fiat asked GM for more
cash in a round of financing. When GM refused, Fiat sought additional financing from
other sources (including a capital injection from the Agnelli family).37 GM’s share in
Fiat was subsequently diluted to 10%. With continuing financial troubles at Fiat, GM
wrote down their investment in Fiat to zero.38
31 Kahn Gabriel, “Fiat CEO says major surgery drives revival,” The Wall Street Journal Europe, Nov., 4, 2005.
32 Mackintosh James, “Interview: Sergio Marchionne, Chief Executive of Fiat. The impetus behind a move into higher gear,” Financial
Times, May, 22, 2006.
33 Ciferri Luca, “Marchionne: Fiat will push its rivals,” Auto News Europe, Dec., 11, 2006, p. 17.
34 “GM and Fiat sign separation agreement,” Press Release, Fiat Group, Amsterdam, Detroit, Turin, May, 13, 2005.
35 A put option gives one party the right to sell its shares (or other securities) to another party usually at an agreed-upon price by a
specific date.
36 Edmondson Gail et. al, “Fiat: Running on Empty,” Business Week, May, 13, 2002,
http://www.businessweek.com/magazine/content/02_19/b3782014.htm?chan=search, Accessed Aug., 8, 2007.
37 Kahn Gabriel, Power Stephen, Galloni Alessandra, “Separation Anxiety: Once a Dream Couple, GM, Fiat May Face Messy Breakup…,”
38 Ibid.

Fiat then began negotiating with GM to exercise the put option (something which was
previously seen to be included in the original contract as a type of “insurance”). In early
2005, the two sides negotiated a break-up fee of $2bn (€1.55bn) paid to Fiat by GM.
Both joint ventures were subsequently dissolved. Fiat Powertrain was then formed to
design and produce transmissions and engines for passenger and commercial vehicles.
A Fiat executive gave one viewpoint on the GM-Fiat relationship: “One of the
complications with GM was with mutual ownership participation. We needed to go to
them and ask them when we wanted to do something and vice-versa.” Another Fiat
executive stated: “[GM] did a classic financial due diligence, when in reality, the
situation was much more complicated, and required understanding the strategic,
political and social situation of the company.”39
Other Alliances

Despite the break-up with GM, Fiat sought a number of partnerships in an effort to
increase efficiencies and reduce costs. In 2005, Fiat signed a deal with Ford to
collaborate on the development and manufacturing of a common platform for Fiat’s
retro Cinquecento and the next generation of Ford’s Ka. The building of both cars was
to take place at Fiat’s plant in Poland.40 Later in the year, Fiat reached an agreement to
license its JTDi 1.3 litre diesel engine to Suzuki for production at its Maruti plant in
India.41 It also renewed a contract for a 10-year period to license transmissions from
PSA Peugeot-Citroën to be manufactured in Fiat’s factory in Córdoba, Argentina.42 In
the summer of 2006, Fiat signed three agreements for joint projects: the production of
heavy trucks in China with Chinese firms Saic Motor Corporation and the Chongging
Heavy Vehicle Group; the production of Fiat’s Ducato van line with Russia’s Severstal
Auto; and, the creation of Fiat Auto Financial Services with French bank Credit
Agricole to assume the role of Fiat’s financing arm previously managed by Fiat’s
wholly-owned company, Fidis.43 In the summer of 2007, Fiat agreed to supply 80,000
light-duty diesel engines to Japan’s second largest truck maker, Mitsubishi Fuso
(majority owned by DaimlerChrysler).44 See Exhibit 7 for a list of Fiat’s major joint
ventures as of the end of 2006.
39 Kahn Gabriel, Power Stephen, Galloni Alessandra, “Separation Anxiety: Once a Dream Couple, GM, Fiat May Face Messy Breakup…,”
40 Edmondson Gail, “Fiat's Comeback—Is It for Real?” Business Week, July, 25, 2006,
http://www.businessweek.com/globalbiz/content/jul2006/gb20060726_749437.htm?chan=search, Accessed Aug., 8, 2007.
41 Nandini Sen Gupta, “GM may drive in its small car with Fiat diesel engine,” The Economic Times, Aug., 10, 2006.
42 Newton Paul, “Fiat-Tata Alliance Considers Investing US$100 mil. in Argentine Plant,” Global Insight Daily Analysis, Aug., 7, 2006.
43 VB, “Fiat cements alliance with India’s Tata,” ANSA - English Media Service, July, 25, 2006.
44 Reed John and Michaels Adrian, “FT.com site: Fiat agrees DaimlerChrysler engine deal,” Financial Times (http://ft.com), June, 19, 2007.

Fiat’s Operations in India

Credited as helping to “motorize Mumbai,” Fiat appointed Bombay 45 Motor Cars
Company as its national sales representative in 1905, long before the first car arrived
in the country. By the 1920s, Fiat cars were being imported from Italy. In 1951, Fiat
licensed its passenger car, the Fiat 1100, to the Indian firm Premier Automobiles.
Renamed as the Premier Padmini, the model quickly became a product hit as it was
associated with sturdiness and value for money.46 Premier Automobiles later released a
car with the body of the Fiat 124 and an engine and transmission from Nissan. 47
Premier Automobiles marketed versions of the Padmini until 2000. See Exhibit 8 for a
photo history of Fiat’s major models in India.
The Indian government’s liberalization plan in 1991 paved the way for Fiat to establish
a wholly-owned subsidiary, Fiat India, in 1995. Fiat India and Premier Automobiles

formed a joint venture (51:49 in Fiat India’s favor) to produce Fiat’s compact car, the
Uno, in Premier’s plant in Kurla, Mumbai. At the time, Premier Automobiles also had a
joint project with Peugeot. Demand for the Uno initially grew, but after minimal
promotional efforts and inconsistent dealer service, the model did not reach its
expected level of sales. 48 Fiat India upped its participation in the joint venture,
eventually assuming control of the Kurla factory. Throughout the tie-in with Premier,
the plant endured troubles with the labor force including a long-strike in 2001.
(Peugeot’s joint venture also suffered from labor setbacks, causing it to leave the
country). To boost sales, Fiat India tried its hand at releasing other models including
the Siena and the globally-formatted Palio, and signed an agreement between Fiat’s
Fidis and Sundaram Finance to offer consumer auto financing. Palio sales were given a
boost and in preparation for future predictions, Fiat started the construction of a
second production facility at Ranjangaon, Maharashtra. However, sales slowed after
consumers complained about fuel efficiency and poor dealer service. Fiat’s other
products failed to provide sufficient volumes to justify the completion of the
construction of the second plant.
In the early years after 2000, Fiat India was loss-making and its Kurla plant was
operating under capacity. In an attempt to turn Fiat India into a profitable division,
Paolo Castagna was named as the head of the affiliate in March 2005. Castagna had
worked within Fiat Group since 1988 and had extensive international experience
previously as the managing director of a Fiat Group company in Austria and
Germany.49
45 Mumbai was officially called Bombay until 1995.
46 Lakshman Nandini, “Fiat Makes a New Friend in India,” Dec., 15, 2006.
47 Ibid.
48 Ibid.
49 “Castagna to head Fiat India,” S Corporate Bureau in Mumbai, May 31, 2005, http://www.rediff.com/money/2005/may/31fiat.htm,
Accessed Feb., 18, 2008.

Plans for a turnaround were set back when Fiat India’s Kurla plant suffered a work
stoppage for six months due to severe damage caused by flooding.50 Throughout 2006,
Fiat India instigated a voluntary retirement scheme and a relocation program to reduce
its workforce at the 53-acre Kurla plant as the company planned to eventually close it
and consolidate all production activities at the newer 200-acre Ranjangaon facility.51
In addition to realizing savings through the consolidation, the Kurla plant was deemed
unsuitable for large-scale production after the damage from the floods in 2005.52
The company was faced with a decision of whether to close down the Indian operation
or look for an alternative such as finding a local partner. Michele Lombardi, a Fiat
Group manager today responsible for strategic alliances in Fiat Powertrain
Technologies, explained the impetus for a local partner:
You can’t just go it alone – well, some companies like Toyota do. However, we are

not large enough to do it alone. When the GM joint ventures ended, we identified
three specific areas for focused alliances: product technology, industrial know-how
and scale and geographical markets. Alliances are definitely the right way for Fiat
as they can provide incredible efficiencies and knowledge.
Even with our direct market presence, our market share was quite low. So in India,
we began looking for a partner. We wanted that partner to be local since they
needed to understand the market, the customer and the complicated value chain.
Fiat Group executives initially short-listed two potential partners. While both
candidates had several years in the automotive sector, neither party seemed to possess
the competencies or the commitment Fiat Group was after. Lombardi commented:
One of the partners was willing to put down a financial commitment but we were
uncertain whether they would be able to support us in identifying the right product,
determining the appropriate pricing, marketing to the right customer and building
the right distribution. With the other partner, we did not get the sense that
management was in it for the long-term. We decided that we needed to have a
much more committed player who would really provide a benefit from an entire
market level. We had had a relationship with Tata from a group level perspective
and that enabled us to initiate a conversation about a potential partnership.
During early 2005, Marchionne and other Fiat Group senior executives first
approached Tata Group’s chairman Ratan Tata and his senior managers about potential
collaboration.
50 “Fiat’s golden handshake for Kurla unit employees,” The Economic Times, 22 Aug., 2006,
http://economictimes.indiatimes.com/News/News_By_Company/Companies_A-
Z/F_Companies_/Fiats_golden_handshake_for_Kurla_unit_employees/rssarticleshow/1914113.cms, Accessed Nov., 15, 2007.
51 Ibid.
52 “Kurla fetches Fiat Rs 608 cr.,” The Telegraph, Nov., 3, 2007,

http://www.telegraphindia.com/1071103/asp/business/story_8506341.asp, Accessed Nov., 16, 2007.

Brief on Tata Group

Tata Group was one of India’s foremost industrial conglomerates with ownership
interests in automotive, engineering, steel, energy, chemicals, information technology,
consulting, food and beverages, consumer products, hotels, publishing, financial
services and several other lines of business. See Exhibit 9 for more detailed
information on the Tata Group.
Tata Motors
Tata Group’s automotive division, Tata Motors, was India’s largest automotive producer
(when taking into account all types of vehicles) with sales of €4.5bn. The division was
the world’s fifth largest commercial vehicle manufacturer. It had acquired Korea’s
second largest truck maker from Daewoo in 2004, purchased a 21% stake in the

Spanish bus manufacturer, Hispano Carrocera, in 2005 and signed a joint venture
(51:49 in Tata Motors’ favor) with Brazilian bus maker Marcopolo to open a bus
factory in India.
Tata Motors had initiated the production of passenger vehicles in 1991 with the hybrid
car-truck, the Sierra. Tata Motors followed with several models such as the Estate in
1992, a sports utility vehicle (SUV), the Safari, and a compact economy car, the Indica
in 1998. The Indica was seen as a technological breakthrough for Indian industry as it
included an in-house developed diesel engine and several features such as air
conditioning and power steering, which were only available in up-scale models.
Development costs were estimated to be €400m, far below the average €1 billion-plus
development cost of a new car. The Indica captured 22% market share in the compact
segment within five years and was one of the top three selling cars in the country.53
See Exhibit 10 for more information about Tata Motors and Exhibit 11 for selected
photos of Tata Motors’ models.
Section II: The Fiat-Tata Relationship
Fiat and Tata’s Initial Meetings and Agreements

After conversations between top level Fiat and Tata executives, negotiating teams from
both sides were put in place. At Fiat, a team of four members was constructed:
Alessandro Nasi and Michele Lombardi represented Fiat Group at corporate level, Ezio
Barra from Fiat Automobiles and Giovanni De Filippis from Fiat India. Later, other
managers such as Roberto Grazioli from Fiat Powertrain were brought on to the team.
All team members had previous experience with alliances. Additionally, De Filippis had
worked on projects at Fiat India since 2003. Tata Motors’ negotiating team included
the following executives: the CFO, the head of exports, head of domestic sales, head of
business development and strategy and other experts.
53 Tata Motors Annual Report 2003-2004, March, 31, 2004, pg. xxix.

In the first meeting, the two sides signed a non-disclosure agreement and briefly
outlined their strategic priorities and interests in working together. As further initial
meetings unfolded, the two sides found common ground in the distribution and
manufacturing of cars. De Filippis described the process:
We started with a blank white board and talked about where we saw potential
opportunities. As more meetings took place, we saw that we shared a common set
of values. Even if two companies have common values, they may not cooperate.
However, we were very fast in finding common ground.
We were very confident in Tata since they are a large company that can deliver. In
the past, we haven’t had good experiences with small partners. You feel like you
can’t control it and many times, they cannot invest. We’ve been in situations where
we had no car delivery and no spare parts. We were sure that this would not happen

with Tata.
Lombardi commented on his initial impressions:
Going in, we knew that Tata had great products, a respected history, and an
excellent domestic and international reputation. From the meetings, we saw that
they really had a great commitment for the long term. We concluded that their
management has a similar spirit to ours.
Memorandum of Understanding (MoU)
The teams came together throughout the spring and summer of 2005 in India at Tata’s
head office and began drafting up a memorandum of understanding (MoU) to
document the relationship. On Sept., 22, 2005, both companies announced that the
MoU had been signed with the following purpose: “to analyze the feasibility of
cooperation, across markets, in the area of passenger cars that would encompass
development, manufacturing, sourcing and distribution of products, aggregates and
components.”54 In the press release, Marchionne stated:
The possible strategic cooperative agreement with Tata Group represents another
step in our clearly defined strategy that calls for targeted alliances across the
automobile value chain. It is consistent with successful ventures established with
premier partners including PSA Peugeot Citroen and Suzuki, and the recently
announced signing of a MoU with Ford Motor Co. I want to thank the Tata team,
especially its chairman, Mr. Ratan Tata, for the outstanding work shared with us.55
Ratan Tata commented:
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-
54 “Fiat and Tata Groups explore strategic alliance opportunities,” Fiat-Tata Press Release, Sept., 22, 2005.
55 Ibid.

standing presence in automobiles. Both companies will benefit from this alliance in
terms of possible joint product development, shared platforms and aggregates.56
After the signing of the MoU in September 2005, Giovanni De Filippis, who had been
involved in the negotiations and the drafting of the MoU, took over as the head of Fiat
India from Paolo Castagna. As De Filippis explained: “I was sent to manage the Indian
affiliate for two purposes: to restructure Fiat India and get the joint venture signed
with Tata.”
The Agreement for Tata to Distribute Fiat cars in India
In January 2006, the two sides signed an agreement for dealer network sharing in
India. The agreement called for Tata Motors to manage the marketing and distribution
of Fiat’s Palio and Palio Adventure via existing dealers in 11 cities throughout the

country from March 2006 onwards. Two Fiat models would be displayed alongside
Tata’s five main passenger cars and the Fiat logo would be showcased beside Tata’s on
the dealers’ exteriors. As part of the agreement, the dealers would offer service, spare
parts for Fiat cars and consumer financing through Tata Motors Finance. The dealer
network included a total of 28 dealers; 25 were Tata Motors dealers and three were Fiat
India’s. At the time of the announcement, Marchionne said: “This agreement is a

milestone in our presence in India. It enables us to increase our customer base in the
country and to provide superior quality service and facilities to our existing customers.
The joint team is doing an excellent job and I am confident that our cooperation with
Tata will further expand in the areas of product development, manufacturing and
sourcing.”57
The Road to the Joint Venture

During the summer of 2006, several key actions signaled the strengthening of the
relationship between the two entities. In May 2006, Ratan Tata was appointed to Fiat
Group’s board of directors. As one observer noted: “The appointment of Ratan Tata to
Fiat’s board is telling the world that Tata is truly a partner.” A month later, Fiat India
began using excess capacity at its Kurla plant by painting 3,000 to 4,000 Tata Motors
pickup truck bodies. At the time, Fiat was producing between 250 and 300 of its own cars.
On July 25, 2006, both groups announced two additional cooperation agreements. The
first involved the signing of another MoU to establish an industrial joint-venture to
manufacture passenger cars, engines and transmissions for both the Indian market and
overseas. The second agreement was a 60-day study to explore the possibility to use
Fiat’s facility in Córdoba, Argentina, to produce both Fiat and Tata utility vehicles and
pickups for sale within Latin America and export markets. See Exhibit 12 for a
description of the companies’ other agreements. Lombardi talked about how the scope
of the relationship broadened:
56 “Fiat and Tata Groups explore strategic alliance opportunities,” Fiat-Tata Press Release, Sept., 22, 2005.
57 “Fiat cars to be available in India through Tata dealers from March 2006,” Fiat-Tata Press Release, Jan., 13, 2006.

At the beginning, it was only cars. Then, as the conversations continued, the idea
for producing engines and transmissions came up. Tata was particularly interested
in the joint engine production because they have expressed interest in a “new
generation” engine for their vehicles. The way that we discussed further
collaboration is very much in line with the spirit of the relationship to look for new
opportunities.
After identifying that the two sides were interested in manufacturing powertrains, they
thought that a possible structure could involve the formation of two separate companies:
one focused on powertrains and the other for the manufacturing of cars or two
companies with different shareholding patterns between Fiat and Tata. However, after
additional discussions, the teams decided that they would view all projects as an equal
split as it was felt that both sides were contributing equal knowledge and resources.
During the second half of 2006, the two sides jointly developed a business plan with
targets for the demand of cars and powertrains. The directive was to achieve a project
payback of eight years and at least €30m in net present value. 58 Roberto Grazioli
explained the process:
When developing the business case for a joint venture, we start by defining the key
strategic terms. In this first phase the basic principles are determined such as the
location, the types of products, the range of volumes and the approximate price
points. Then, different scenarios are constructed to explore alternatives such as
building the plant from scratch or only assembling instead of manufacturing the
powertrain and the car together.
In the development of the plan, you then need to translate those strategic and
financial discussions to the technical side. For example, you might have target
prices for engines and you need to work with the technicians to figure out a way to
reduce the cost of the engine.
Typically, there are different plans developed – one internally for each company
and then the joint venture business plan. The reason for the internal plans is not
because the partners want to hide anything, but there may be corporate level plans
such as the introduction of a new model that have not been internally approved yet.
When the time comes, the information is shared with the partner and it is worked
into the plan.
By the end of 2006, the business plan called for the JV to produce both Fiat and Tata
vehicles including the Fiat Palio and Adventure as well as premium cars for the B and
C segments, such as the Fiat Grande Punto and the new Fiat Linea sedan. The first
completed cars were scheduled for early 2007. Other products included the Fiat 1.3 liter
multi-jet diesel, the 1.4 liter diesel engine, a new 1.2 liter gasoline engine and Fiat
transmissions. Initial volumes were planned at 100,000 cars and 200,000 engines and
transmissions. Average prices were estimated at approximately €6,000 for cars and
58 All financial details have been disguised to protect confidentiality.

€1,400 for powertrains (including both engines and transmissions).59 Typical margins in
the industry ranged from 12 and 16% for cars and 15 to 20% for powertrains.60 Using
the initial volumes, the teams estimated the required investment to reach capacity. It was
determined that the investment would be made in phases and would reach a total of
€665m. 61 As part of the accord, Fiat would contribute its factory at Ranjangaon,
Maharashtra, which would be managed by both parties. Fiat would also license certain
cars and powertrain technology to the joint venture and inject cash in the form of equity
and loans. Tata’s contribution would be in the support provided by its sales distribution
network as well as cash injection in a combination of equity and loans.
On Dec., 14, 2006, the companies announced to the press that they were working towards
the signing of a single 50:50 joint venture agreement. Several press reports at the time
pushed the scope beyond what had been declared, speculating that Fiat would contribute
its expertise to the 1-lakh automobile project,62 which turned out to be incorrect.

The Joint Venture Agreement (JVA) Negotiations
With regular meetings occurring once per month (typically for four days in a row) for
over a year (from autumn 2006 to autumn 2007), the two negotiating teams hammered
out the details of the JVA.

The discussions revolved around several issues such as the value of the Fiat’s assets at
the Ranjangaon plant and the exit clauses for both sides. In negotiating the value of
Fiat’s assets, Fiat’s team first presented a list of assets with market values backed by an
independent assessment. The two sides then negotiated for approximately a six-month
period on the value of those assets. In the situation of the exit clauses, there were two
main aspects: the rights of both companies in the case that one company exited; and,
the continuity of other contracts (such as the distribution deal of Fiat cars in India) if
the JV was terminated. Grazioli talked about overcoming challenges in the
negotiations:
Since I’ve been involved with the negotiations, there has not been a roadblock or
one big issue to face. The overriding issue was getting through the volume of work
in the specified time period.
Obviously, there are difficult moments in any negotiation. During negotiations we

might face particular challenges with a detailed negotiation point. If the negotiating
teams are not capable of resolving the issue, we have put in place structured
escalation procedures, which gradually move the issue up the decision ladder. To
date, this process has worked nicely.
59 All financial details have been disguised to protect confidentiality.
60 Case writer estimates.
61 “Fiat, Tata plan to produce low cost car for Indian market in 2008,” AFX Asia, Jan., 25, 2007.
62 Ullatil Parvathy, “Fiat to power Tata's Rs 1-lakh car,” The Economic Times, Nov., 8, 2006.

Fiat’s Team
Fiat’s team comprised the business specialists and legal experts. On the business side,
there was the core negotiation team (Nasi, Lombardi, Barra, Grazioli and De Filippis)
who coordinated other participants for certain issues. In negotiating the JVA, there
were over 50 employees involved from Fiat’s side. Those employees included
representatives from each function such as quality, supply chain, purchasing, diesel
and gasoline engine engineering, transmissions engineering, finance and warranty. On
the legal side, a dedicated legal manager was involved in most of the negotiations.
There were also local Fiat and Tata lawyers dealing exclusively with Indian law and
Fiat’s top legal counsel was involved for key decisions. Grazioli commented on the
interplay between the business and legal side in the negotiations:
In the course of the negotiation, we also had specific moments when the two teams

preferred to have ad-hoc sessions without the legal people involved, in order to be
more focused on the “business issues”. The legal aspects were addressed at a later
stage, when the “open items” were discussed and solved.
Meetings and Cultures

Most of the negotiations were held at Tata’s head office in Mumbai. Given that Fiat
executives had 10-hour flights from Italy to India, the Fiat team requested alternative
locations such as Fiat’s head office or a relative mid-way point such as Dubai, UAE.
Indian citizens entering Europe required a week-long waiting period, which usually
meant that the meetings were in India. One Fiat executive commented on the timing of
some of the meetings:
It is always difficult going to the other company’s offices as they still have other
work to attend to. So, we might have a meeting scheduled to start at 10am, which
then starts at 11am and might end up being regularly interrupted by other issues.
We also tried phone conversations, but there’s nothing like the face-to-face contact
where you can see body language and reduce the number of distractions.
Another Fiat executive talked about the differences in cultures:
There are two layers of culture. The first is Italian and Indian culture and the second
is the difference in company culture. Even with another Italian company, Fiat can
be very different.
In past experiences such as the GM negotiations, I saw that the Americans were step
by step. They may take 10 days to decide, but when they do, that’s their position
and they don’t budge. I would say that Fiat works on trying to speed up the process.
We might have one position and three days later, the position is different. Also, we
were given a lot of autonomy in our decisions. I got the sense that perhaps at Tata,
the decisions need to be escalated up higher into the organization.

Making the JV operational

In making the JV operational, due diligence on all financial values was carried out by
KPMG. Fiat and Tata formed a 10-person board of directors for the new company with
five directors from each company. Tata Motors Managing Director, Ravi Kant, was
made chairman and the CEO of Fiat Powertrain Technologies and senior vice-president
business development of Fiat Group Automobiles, Alfredo Altavilla, was made vice-
chairman. The remaining directors were from top-level positions and were matched
equally on both sides; for example, the CEO of Iveco and the CEO of Tata Commercial
Vehicles were included on the board. The board of directors also set up committees
including an Audit Committee and an Organization and Compensation Committee.
For the CEO of the newly formed company, the board of directors recruited Rajeev
Kapoor from motorcycle manufacturer Hero Honda, where he had held the position of

vice-president of manufacturing (Hero Honda manufactured 1.5 million motorcycles
per year).63 The CFO, currently a Fiat representative ad interim, would be nominated by
Tata, while the industrial managers of the cars and powertrain divisions were
nominated by Fiat. Fiat and Tata’s respective human resource departments were
responsible for defining the organization structure together and hiring the other
managers.
Plant Operations
In late 2006, the companies commissioned the assembly line at the Ranjangaon plant
for the Fiat Palio and Fiat Adventure. An operations manager from Fiat Powertrain
was designated as launch manager and set up the new assembly line by organizing the
configuration of the new machinery, dealing with suppliers and coordinating the labor
flow. Responsibility for plant operations was then passed to the newly installed plant
manager.
In total, the plant was expected to involve 4,000 direct and indirect employees.
Positions at the plant were filled by current workers at the Ranjangaon and relocated
workers from the Kurla plant. De Filippis commented on the work ethic of the
employees:
When I arrived in 2005, the employees were not very clear on the future of the
affiliate. We had 700 employees, and we were in crisis. There was a flood at the
Kurla plant. We were not sufficiently supplying to the market. By restructuring and
seeing the results quickly, we created a good and positive feeling amongst everyone.
The dedication was tremendous since many people worked long hours to turn
around the affiliate. They were motivated to do so because they are very proud of
being part of Fiat.
63 Ciferri Luca, “Rajeev Kapoor to lead Fiat-Tata Indian joint venture,” Automotive News Europe, Oct., 12, 2007,
http://www.autonews.com/apps/pbcs.dll/article?AID=/20071012/ANE01/71012004/1170/rss03&rssfeed=rss03, Accessed Nov., 15, 2007.

Conclusion: Looking Toward the Future

The relationship between Tata and Fiat had garnered considerable press and many were
curious if the partnership would be a long-term success. The first agreement for the
distribution of Fiat cars through Tata’s dealerships had already provided quantifiable
benefit – Fiat’s sales in India had spiked by 51% in the first quarter after the accord
had been put in place. 64 Cars, engines and transmissions would soon roll off the
production line at the joint venture plant, according with the target plan, and other
opportunities such as potential collaboration in commercial vehicles would be
imminently pursued.
Now that the manufacturer joint venture had been signed, observers in and outside of
the automobile industry asked: What could be learnt about how the two companies
had approached the alliance? How could the two teams guarantee future success?.

64 “India: Fiat working on low-cost car with Tata,” Automotive World, Sep., 5, 2006.

Exhibit 1
Global Automobile Market Size
GLOBAL AUTOMOBILES - VALUE (USD $)
Year $ billion % Growth
2002 980.2
2003 1011.9 3.2%
2004 1061.2 4.9%
2005 1118.8 5.4%
2006 1176.9 5.2%
CAGR: 2002-2006 4.7%
GLOBAL AUTOMOBILES - VOLUME (Units)

Year Unis million % Growth
2002 57.2
2003 58.4 2.1%
2004 60.5 3.6%
2005 63.1 4.3%
2006 65.7 4.1%

CAGR: 2002-2006 3.5%

Source: Global Automobile Manufacturers, Datamonitor March 2007, pp. 10-11.

Exhibit 2
Production by Manufacturer: Vehicle Type and Region
2006 Production by Manufacturer by Type (Vehicle Units)

% to Total Total Cars Light Heavy Heavy Bus
Commercial Commercial
Vehicles Vehicles
Total 100.0% 68,340,304 51,953,234 13,187,688 2,850,233 349,149
1 GM 13.1% 8,926,160 5,708,038 3,156,888 43,838 17,396

2 Toyota 11.8% 8,036,010 6,800,228 1,049,345 122,569 63,868
3 FORD 9.2% 6,268,193 3,800,633 2,386,296 81,264
4 VOLKSWAGEN 8.3% 5,684,603 5,429,896 219,537 29,175 5,995
5 Honda 5.4% 3,669,514 3,549,787 119,727
6 PSA 4.9% 3,356,859 2,961,437 395,422
7 Nissan 4.7% 3,223,372 2,512,519 570,136 134,874 5,843
8 Chrysler 3.7% 2,544,590 710,291 1,834,299

9 RENAULT 3.6% 2,492,470 2,085,837 406,633
10 Hyundai 3.6% 2,462,677 2,231,313 966 145,120 85,278
11 FIAT 3.4% 2,317,652 1,753,673 450,544 89,071 24,364
12 Suzuki 3.4% 2,297,277 2,004,310 292,967
13 DAIMLERCHRYSLER 3.0% 2,044,533 1,275,152 378,278 340,296 50,807
14 Mazda 2.0% 1,396,412 1,169,640 223,995 2,777
15 Kia 2.0% 1,381,123 1,181,877 197,060 2,186
16 B.M.W. 2.0% 1,366,838 1,366,838
17 Mitsubishi 1.9% 1,313,409 1,008,970 296,431 8,008

18 Daihatsu 1.6% 1,084,721 905,932 166,667 12,122

19 AVTOVAZ 1.1% 765,627 765,627
20 Fuji 0.9% 587,274 507,552 79,722

21 Tata 0.8% 561,081 190,468 196,389 174,224
2006 Production by Manufacturer and Region

Total Vehicle Units (all types)
Company Africa Americas Asia EU Europe Oceania TOTAL

1 GM 5,197,949 1,769,436 1,762,074 68,301 128,400 8,926,160
2 Toyota 142,750 1,777,632 5,285,674 543,259 171,480 115,215 8,036,010
3 Ford 397 3,397,728 256,515 2,203,457 320,896 89,200 6,268,193
4 Volkswagen 128,080 1,026,188 619,782 3,910,553 5,684,603
5 Honda 1,473,780 1,986,086 189,998 19,650 3,669,514
6 PSA 10,176 189,302 452,542 2,695,859 8,980 3,356,859
7 Nissan 44,695 1,150,700 1,520,777 507,200 3,223,372
8 Chrysler 2,454,494 90,096 2,544,590
9 RENAULT 21,444 175,967 162,248 1,853,556 279,255 2,492,470
10 Hyundai 236,773 2,207,359 18,545 2,462,677
11 FIAT 7,130 569,402 53,559 1,517,075 169,324 1,162 2,317,652
12 Suzuki 12,474 2,113,928 170,875 2,297,277
13 DaimlerChrysler 42,975 455,764 178,710 1,352,175 14,909 2,044,533
14 Mazda 20,560 81,520 1,294,332 1,396,412
15 Kia 1,381,123 1,381,123
16 B.M.W. 54,782 105,172 1,206,884 1,366,838
17 Mitsubishi 9,420 115,530 1,099,495 82,544 6,420 1,313,409
18 Daihatsu 1,078,321 6,400 1,084,721
19 AVTOVAZ 765,627 765,627
20 Fuji 104,991 482,283 587,274
21 Tata 561,081 561,081
Source: International Organization of Motor Vehicle Manufacturers, 'World Motor Vehicle Production', OICA Correspondents
Survey, 2006
Note: The above figures refer to production and not sales.

Exhibit 3
Global Market Share (Based on Revenues)
Global Market Share
General Motors
17.3%
Other
35.0%
Toyota
15.9%
DaimlerChrysler
Ford
15.9%
15.9%
Source: Global Automobile Manufacturers, Datamonitor, March 2007.
Exhibit 4
Revenue in the Automotive Value System
Revenue Share For Participants in the Automotive Value System
Recommended Retail Price 100%

Dealers 20%
Marketing/Logistics 10%
Assemblers 10%
Suppliers 60%
Source: Toby Procter and John Constable, The Automotive Industry in the 21st Century, Reference # 307-180-5, p. 10

Exhibit 5
Indian Automotive Market
NEW CARS IN INDIA - VALUE (USD $) TRUCKS IN INDIA - VALUE (USD $) TOTAL - VALUE (USD $)
Year $ billion % Growth Year $ billion % Growth Year $ billion % Growth
2002 6.3 2002 3.7 2002 10.0
2003 8.6 36.5% 2003 5.2 40.5% 2003 13.8 38.0%
2004 12.7 47.7% 2004 6.7 28.8% 2004 19.4 40.6%
2005 14.7 15.7% 2005 7.4 10.4% 2005 22.1 13.9%
2006 18.1 23.1% 2006 8.2 10.8% 2006 26.3 19.0%
CAGR: 2002-2006 30.2% CAGR: 2002-2006 22.0% CAGR: 2002-2006 27.3%
NEW CARS IN INDIA - VOLUME (Units) TRUCKS IN INDIA - VOLUME (Units) TOTAL - VOLUME (Units)
Year Units 000s % Growth Year Units 000s % Growth Year Units 000s % Growth
2002 541.5 2002 191.1 2002 732.6
2003 696.2 28.6% 2003 260.7 36.4% 2003 956.9 30.6%
2004 955.2 37.2% 2004 319.2 22.4% 2004 1274.4 33.2%
2005 1028.8 7.7% 2005 351.5 10.1% 2005 1380.3 8.3%
2006 1160.8 12.8% 2006 385.6 9.7% 2006 1546.4 12.0%

CAGR: 2002-2006 21.0% CAGR: 2002-2006 19.2% CAGR: 2002-2006 20.5%
Source: New Cars in India and Trucks in India, Datamonitor, October 2006.

Exhibit 6
Fiat Group Financial Statements
millions EUR 2006 2005
Net revenues 51832 46544

Cost of sales 43888 39624
Selling, general and administrative costs 4697 4513
Research and development costs 1401 1364
Other income (expenses) 105 -43
Trading profit 1951 1000
Gains (losses) on the disposal of investments 607 905
Restructuring costs 450 502
Other unusual income (expenses) -47 812
Operating result 2061 2215

Financial income (expenses) -576 -843
Unusual financial income 858
Result from investments: 156 34
- Net result of investees accounted for using the equity method 125 115
- Other income (expenses) from investments 31 -81
Result before taxes 1641 2264
Income taxes 490 844

Result from continuing operations 1151 1420

Result from discontinued operations
Net result 1151 1420
Attributable to:
Equity holders of the parent 1065 1331
Minority interests 86 89
Basic earnings per ordinary and preference share 0.789 1.250

Basic earnings per savings share 1.564 1.250
Diluted earnings per ordinary and preference share 0.788 1.250
Diluted earnings per savings share 1.563 1.250
Source: Fiat Annual Report, December 31, 2006, p. 86.
millions EUR 2006 2005
ASSETS
Total Non-current assets 21,378 22,666
Total Current assets 36,593 39,637
TOTAL ASSETS 58,303 62,454
- Total assets adjusted for asset-backed financing transactions 49,959 51,725
LIABILITIES
Stockholders' equity 10,036 9,413
Provisions: 8,611 8,698
Debt: 20,188 25,761
Other financial liabilities 105 189
Trade payables 12,603 11,777
Other payables: 5,019 4,821
Deferred tax liabilities 263 405
Accrued expenses and deferred income 1,169 1,280
Liabilities held for sale 309 110
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES 58,303 62,454
- Total stockholders' equity and liabilities adjusted for asset-back financing transactions 49,959 51,725
Source: Fiat Annual Report, December 31, 2006, pp. 87-88

Exhibit 6 (continued)
Results by Division, Business Area and Geography
Results by Division
Net Revenues Trading profit Operating result
2006 2005 2006 2005 2006 2005
Fiat Auto 23,702 19,533 291 -281 727 -818

Maserati 519 533 -33 -85 -33 -85
Ferrari 1,447 1,289 183 157 183 157
Agricultural and Construction Equipment (CNH) 10,527 10,212 737 698 592 611
Trucks and Commercial Vehicles (Iveco) 9,136 8,483 546 332 565 212
Fiat Powertrain Technologies 6,145 4,520 168 109 102 81
Components (Magneti Marelli) 4,455 4,033 190 162 175 127
Metallurgical Products (Teksid) 979 1,036 56 45 26 27
Production Systems (Comau) 1,280 1,573 -66 42 -272 -8
Services (Business Solutions) 668 752 37 35 28 7
Publishing and Communications (Itedi) 401 397 11 16 12 13
Holding companies, Other Companies and Elminations -7,427 -5,817 -169 -230 -44 1,891
Total 51,832 46,544 1,951 1,000 2,061 2,215

Revenues by Business Area
2006 2005 % to Total % to Total
2006 2005
Automobiles 25,577 21275 49.3% 45.7%
Agricultural and Construction Equipment 10,527 10212 20.3% 21.9%
Trucks and Commercial Vehicles 9,136 8483 17.6% 18.2%
Components and Production Systems 12,366 10727 23.9% 23.0%
Other Businesses 1,581 1618 3.1% 3.5%
Eliminations -7,355 -5771 -14.2% -12.4%

Total 51,832 46544 100.0% 100.0%

Source: Fiat Annual Report, December 31, 2006, p. 13, p. 26.
Number of Companies Number of Employees Number of Facilities Number of R&D Centres Revs (millions EUR)
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
Italy 146 155 75,751 77,070 52 56 50 52 14,851 13,078

Europe excluding Italy 285 280 42,904 43,376 56 58 32 32 20,298 18,518
North America 76 80 11,714 12,575 25 28 15 17 6,315 6,048
Mercosur 31 40 30,877 29,132 20 20 10 10 5,416 4,364
Other regions 99 99 10,766 11,545 27 27 9 9 4,952 4,536
Total 637 654 172,012 173,698 180 189 116 120 51,832 46,544
Source: Fiat Annual Report 2006, p. 11.

Exhibit 7
Fiat’s Joint Ventures
At Dec 31, 2006
Name Country Fiat % of Amount
Interest (EUR
millions)
Fiat Auto Financial Services S.p.A. (ex Fidis Retail Italia S.p.A.) Italy 50.0% 528
Tofas-Turk Otomobil Fabrikasi Tofas A.S. Turkey 37.9% 206
Naveco Ltd. China 50.0% 117
Società Europea Veicoli Leggeri-Sevel S.p.A. Italy 50.0% 93
Société Européenne de Véhicules Légers du Nord-Sevelnord Société Anonyme France 50.0% 61
Consolidated Diesel Company USA 50.0% 47
LBX Company LLC USA 50.0% 27
New Holland HFT Japan Inc. Japan 50.0% 27
Turk Traktor Ve Ziraat Makineleri A.S. Turkey 37.5% 23
Nan Jing Fiat Auto Co. Ltd. China 50.0% 22
Transolver Finance Establecimiento Financiero de Credito S.A. Spain 50.0% 17

New Holland Trakmak Traktor A.S. Turkey 37.5% 14
CNH de Mexico SA de CV Mexico 50.0% 13
Other minor 18
Total investments in jointly controlled entities 1,213
Source: Fiat Annual Report 2006, December 31, 2006, p. 134.


26
SM-1528-E
Exhibit 8
Fiat 1100 (1937-1969)
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Photo History of Fiat Cars in India
Fiat Palio (1996-present)

Fiat Uno (1983-present)
Premier Padmini (1968-2000)

Exhibit 9
Information on Tata Group
Established in the 1870s by Jamsetji Tata as a textile manufacturer and trader, the
group moved into a number of business areas throughout the 20th century: hotels
(1902), iron and steel (1907), electricity (1910), education (1911), consumer goods
(1917), aviation (1932), chemicals (1939), automobiles (1945), tea (1962), consulting
(1968), publishing (1970) amongst several other businesses.
As of 2007, Tata Group was India’s largest industrial conglomerate running over 90
companies. Major acquisitions included the Tetley tea brand in 2000 (the first
acquisition of an international brand by an Indian group) and the $12.2 billion
(€9.2bn) buyout of steel manufacturer Corus Group, creating the sixth-largest steel
company in the world.

Tata Group Figures
EUR million
Total Value of Exports Profits
turnover Assets
2005-06 18,000 14,844 4,400 1,761

2004-05 14,185 12,073 3,654 1,410

2003-04 12,162 10,236 2,628 1,034
2002-03 11,328 10,639 2,732 813
2001-02 11,756 11,686 2,989 815
2000-01 9,984 10,817 1,575 266
1999-00 8,640 9,341 1,123 445
Note: Tata Motors was included under the engineering division. Tata Motors had revenues of approximately €4.5 million in 2005-06.
Tata Group Revenues by Business Area
Communications & Services

Information Systems 9%
20%
Materials
Chemicals 23%
4%
Consumer products
5%
Energy
7%
Engineering (incl. Tata

Motors)
32%
Source: www.tata.com

Exhibit 10
Tata Motors Information
Tata Motors was India’s largest automotive maker. Over four million Tata vehicles were
in use in India. The company’s vision was: “to be best in the manner in which we
operate, best in the products we deliver, and best in our value system and ethics.”
Tata Motors had 32,000 employees spread over four main production facilities:
Jamshedpur (Jharkhand) in the east, Pune (Maharashtra) in the west, and Lucknow
(Uttar Pradesh) and Pantnagar (Uttarakhand), both in the north. The company was
setting up a new plant in Singur (close to Kolkata in West Bengal) for the manufacture
of the 1-lakh automobile.
The company had over 2,000 dealerships, services and spare points locations

throughout India. It offered customer financing through TML Financial Services
Limited.65
Tata Motors had been traded on the New York Stock Exchange since September 2004.
As of late 2007, the company’s market capitalization was $7bn (€4.8bn).
EUR millions
Year Ending March 31 2006/07 2005/06
Summarized Balance Sheet

What the Company Owned
Net Fixed Assets 1,104.3 841.9

Investments 427.8 375.2
Net Current Assets 480.8 474.1
Miscellaneous Expenditure 1.7 2.6
Total Assets (Net) 2,014.7 1,693.8
0.0 0.0
What the Company Owed 0.0 0.0
Loans 692.4 546.8
Net Worth 1,186.4 1,031.0
Deferred Tax Liability 135.9 115.9
Total Funds Employed 2,014.7 1,693.8
Summarized Profit and Loss Account

Income
Sale of Products and Other Income 5,512.9 4,466.7
Total Expenditure 4,358.1 3,517.1
0.0 0.0
Profit/(Loss) before exceptional items and tax 445.1 380.3
Profit before tax 444.9 382.1
Profit after tax 330.8 284.5
Bal. Sheet (Year End) - Mar 31/07 - Indian Rupee to EUR 0.01727 0.01862
P&L (365 day avg.) - Indian Rupee to EUR 0.01729 0.01861
Source: Tata Motors Annual Report, March 31, 2007, p. 3. Exchange rates applied by case writer (taken from www.oanda.com)
65 Tata Motors Website, http://tatamotors.com/our_world/profile.php, Accessed Nov., 30, 2007.

Tata City Bus

Exhibit 11
Source: www.tatamotors.com
Photos of Tata Cars
Tata Safari (1998-present)

Tata Indica (1998-present)
Tata Truck
Tata Pickup Truck
Tata Tipper
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29
SM-1528-E

Exhibit 12
Other Agreements Between Fiat and Tata
Throughout the joint venture agreement (JVA) negotiations in 2006 and 2007, the two
companies had several topics of discussion on the table including an investigation to
co-produce in China, the possibility of joint production in Fiat’s South African plant
(Tata Africa had acquired a plant in Rosslyn, South Africa from Nissan in 2006)66 and,
the joint analysis of producing trucks at Fiat’s Argentinean plant. By February 2007,
the companies announced that Fiat would be producing a Tata pick-up truck under
license with the Fiat badge in Argentina. Annual production was estimated at 20,000
units with total planned investment to be $80m (€58m). The pick-up would provide
Fiat with Tata’s know-how on pick-up trucks with the exception of the engine, which
was designed by Fiat and produced at Fiat’s Brazilian facility in Sete Lagoas; Fiat

planned on marketing and distributing the pick-ups with the Fiat badge throughout
South America and in select European locations through Fiat’s dealer network. Upon
the announcement, Marchionne stated: “This agreement is a further step in the
building of a large, focalized partnership with Tata and will allow Fiat to enter a
specific car segment with a very competitive product. We believe in a win-win know-
how exchange with our Indian partner.”67

The teams also talked about the possibility of cooperating outside of passenger cars
and powertrain technologies. Specifically, both groups felt that their commercial
vehicles divisions should converse about possibilities of collaboration. Executives from
Iveco, Fiat Group’s commercial division, met with Tata Motors Commercial Vehicles
division in 2006. In November 2006, Fiat announced that Iveco would likely set up a
joint venture with Tata to distribute Iveco-Tata commercial vehicles in Brazil through
Iveco’s dealer network.68 In mid-February 2007, Iveco and Tata announced the signing
of an MoU to analyze cooperation in various aspects of commercial vehicles such as
engineering, manufacturing, sourcing and the distribution of products and
components.69
66 Cokayne Roy, “Tata and Fiat Auto discuss making vehicles at local plant,” The Star, Oct., 31, 2006, p. E1.
67 “Fiat and Tata announce agreement for pick-up production in Argentina,” Fiat-Tata Press Release, Feb., 14, 2007.
68 Saitto Serena, “Fiat Exec Confirms JV With Tata In Argentina, Brazil,” Dow Jones Newswires, Nov., 9, 2006.
69 “Iveco and Tata Motors explore strategic alliance opportunities,” Fiat-Tata Press Release, Feb., 14, 2007.

Fiat's Strategic Alliance With Tata: Centre

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SM-1528-E

Fiat's Strategic Alliance with Tata

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mark the signing of a joint venture (JV) to manufacture passenger cars,

Last updated: 6/6/08

Global Automotive Industry

In 2006, 65.7 million automobiles and commercial vehicles (excluding motorcycles)

2 IESE Business School-University of Navarra

In recent years, automotive manufacturers had been plagued by overcapacity. One

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13 Hoovers Online, GM Corporation overview, 2007

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4 IESE Business School-University of Navarra

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annual volume would reach 3.5 million cars by 2015.22

To add to the excitement of an explosive marketplace, Tata was in the process of

Background on the Fiat Group

20 “New Cars in India,” Datamonitor, Oct., 2006.

IESE Business School-University of Navarra 5

• Automobiles (49.3% of net revenues); including Fiat, Lancia, Alfa Romeo,

• Agricultural and Construction Equipment (20.3% of net revenues) under the

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29 Edmondson Gail, “Fiat's Turnaround Takes Root,” Nov., 10, 2006,

6 IESE Business School-University of Navarra

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8 IESE Business School-University of Navarra

Fiat’s Operations in India

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45 Mumbai was officially called Bombay until 1995.

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52 “Kurla fetches Fiat Rs 608 cr.,” The Telegraph, Nov., 3, 2007,

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Brief on Tata Group

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Section II: The Fiat-Tata Relationship

Fiat and Tata’s Initial Meetings and Agreements

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Lombardi commented on his initial impressions:

Memorandum of Understanding (MoU)

Ratan Tata commented:

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The Agreement for Tata to Distribute Fiat cars in India

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India’s. At the time of the announcement, Marchionne said: “This agreement is a

The Road to the Joint Venture

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58 All financial details have been disguised to protect confidentiality.

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out the details of the JVA.

Obviously, there are difficult moments in any negotiation. During negotiations we

59 All financial details have been disguised to protect confidentiality.

60 Case writer estimates.

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Meetings and Cultures

Another Fiat executive talked about the differences in cultures:

16 IESE Business School-University of Navarra

Making the JV operational