The Indian arm of the Italian automaker, Fiat, has shifted its focus towards production of powertrains. The company has decided to manufacture more than 2,00,000 engines in the next 12-18 months. This would mean that the number of engines that would churn out from the production mill will be much more than the number of vehicles the company would roll out from the facility. Currently, Fiat manufactures engines under a joint venture with Tata Motors. The company hopes to recover its losses through the sale of these engines.
“The realizations out of engines are one-fifth to one-sixth of the total cost of the overall car. And if you have five times more engines being sold than the number of cars, for sure the engines will make up the lion’s share,” a Fiat executive said.
The plan of action is to supply 1,00,000 diesel engines to Maruti Suzuki, another few thousand units to Premier and around 50,000 units would be exported. The rest of them would obviously sit at the heart of Fiat and Tata vehicles. This would ensure a 80 percent plant capacity utilization. It was only last year, when Fiat had talks of supplying 70,000 engines a year to its Chinese subsidiary. While the engine production is on, the company’s Ranjangaon plant will also churn out 14,000 Fiat cars and around 40,000 Tata cars.
Currently, Fiat’s Multijet diesel engines are being used in the successful Maruti Swift and DZire models. They are also powering Premier’s compact SUV Rio. Perhaps, the shift towards the engine unit might help the company to reach its cash break-even before the end of this fiscal year. The company is also expecting higher sales of its vehicles with the opening of new Fiat dealerships across few more locations. The strategy just seems fine. Let’s see if this really helps them to recover from the losses incurred.
Source – Economic Times