Mumbai: Tata Motors Ltd has signed a memorandum of understanding (MoU) with the Fiat Group for setting up a joint venture in India to manufacture passenger vehicles, engines and transmissions. The joint venture will manufacture both Tata and Fiat vehicles for the Indian and overseas markets. The announcement was made in a Tata Motors notice to the Bombay Stock Exchange.

Fiat will introduce, among others, its premium cars for B and C segments (Fiat Grande Punto and the new Fiat Sedan) and its successful small diesel engine. The new facilities, to be based in Ranjangaon in Maharashtra, are expected to exceed an overall output of 100,000 cars and 250,000 engines and transmissions.

Fiat and the Tata Motors have also agreed to enter into a 60-day study aimed at exploring industrial and commercial cooperation in Latin America, particularly focused on utility vehicles and pick-ups. The study will also explore the possibility of using Fiat's existing production units in Cordoba, Argentina. Products manufactured there would be sold in various Latin American and overseas markets under both Fiat and the Company brands.

Detailed shareholder and licensing agreements are yet to be finalised. However, the MoU points to a growing commitment of the two companies to work together and leverage mutual strengths to address key markets.

"This is the beginning of what promises to be a far-reaching, long term relationship between Fiat Group and Tata Motors. Both companies have complementary strengths, convergent objectives and shared values. Together, we can meaningfully address markets in India and other select geographies, combining technologies, products and human skills of both organisations," Ratan N Tata, chairman of the Tata group, said in a statement.

Fiat had a rather rough ride in India with the closure of its earlier joint venture.

Based in Turin, Fiat, the biggest manufacturer in Italy, saw a flurry of deals with automakers in Russia and China, along with an automobile financing venture with the largest lender in France in recent times.

While Fiat announced industrial ventures in Russia with Severstal Auto and in China with SAIC Motor Corporation Ltd, Fiat is looking at Tata to introduce the presence of its truck unit Iveco in India. Iveco's alliances in China would also help 're-establish Iveco as a major truck player in the region.

Fiat, meanwhile, reported a 56 per cent rise in second-quarter (April-June 2006) profit as strong sales of the new Grande Punto hatchback lifted earnings at its automotive unit

Net income for the quarter increased to €280 million, or $354 million, from €180 million a year earlier. Sales rose to €13.6 billion from €12.1 billion. The introduction of the Grande Punto in September lifted Fiat's western European market share to 7.9 per cent in the first half from 6.6 per cent a year earlier.