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Fiat move to shake up Indian market: Analysts

May 06, 2009 11:17 IST

Fiat's audacious bid to take over the General Motors' struggling unit in Germany is expected to cause a shake up in the global auto industry and enhance the Italian car company's prospects in India, where it is currently facing stiff competition from leading Japanese and Korean brands, according to analysts.

Having made sustained losses till 2003, Fiat returned to profits in the last six years and wants to challenge the largest car manufacturer, Toyota, by adding the GM and Chrysler brands.

In a rare move, the Italian car giant surprised the recession-hit global auto industry with an announcement that it is bidding to take over the GM's struggling Opel brand to consolidate its global base.

However, securing the deal is contingent upon Fiat getting a green signal from the German government, which is currently assisting Opel, facing its worst-crisis since its parent company, GM, went into a tailspin due to endemic losses and a sudden collapse in demand since 2008.

On Monday, Fiat Chief Executive Sergio Machionne met Germany's Vice-Chancellor and Foreign Minister Frank-Walter Steinmeier, and Economy Minister Karl-Theodor zu Guttenberg to gain financial support for the deal.

But the German government remained cool to Fiat's proposal, pressing the Italian car giant, which has about 10 per cent of the European car market, to give a range of guarantees and assurances.

The two German ministers, for example, insisted that Fiat should not move the merged company out of Germany or cut jobs on a large scale at the struggling Opel units.

Sergio Machionne, who is known for his hire-and-fire policies since he took over the ailing Italian car company in Turin, Italy, in 2004, was unable to give any firm assurance about cutting jobs, while agreeing to continue with the Opel units in Germany.

"We don't want to close any of the four Opel factories in Germany," he told the German newspaper, Bild, adding that he would need the plants in the future to build enough cars. "But of course, staff levels have to fall. No one will be able to change that. The plants have to become more efficient."

At present, Opel has a job strength of about 25,000 and there will surely be substantial reductions in the workforce should Fiat succeed in its move, analysts say.

Besides Fiat, Canadian-Austrian automotive supplier Magna is in the race for taking over Opel, but auto analysts predict that Fiat is in a strong position due to strong commonalties with GM's Opel in terms of sharing platforms, technology and management.

GM's brands in Europe include Chevrolet, Opel, Saab (a Swedish brand) and Vauxhall in Britian.

Fiat, which has already acquired a stake in another dying American company, Chrysler, wants to combine all three brands -- Fiat, GM, Chrysler -- to manufacture about 7 million units a year. Its luxury brands include the sports car Ferrari and Maserati.

If Fiat succeeds with its Opel move, it will launch a success bid for GM's operations in China, India and other Asian countries, analysts say.

Though Fiat entered India almost six decades ago, it is facing rough competition from car manufacturers from Japan and South Korea. It tied up with Tata Motors for building a manufacturing plant near Pune to increase its supply capacity in 2007.

D Ravi Kanth in Geneva
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