Fiat cuts India distribution tie with Tata Motors

An employee works in the Fiat factory at Ranjangaon, around 190 km east of Mumbai April 2, 2007.

MUMBAI/MILAN (Reuters) - Italian carmaker Fiat is to set up its own car dealer network in India to grow sluggish sales, ending a six-year distribution agreement with Tata Motors.

Fiat said on Wednesday the move should help build its business in India, a booming market where foreign producers Ford, Honda and Nissan have recently acted to take more control of their own operations.

The company, which sells 20,000 cars per year in India and did not say how much it would invest in developing its dealer network there, is far behind European and U.S. competitors in high-growth Asian markets, with scant presence in China, the world's biggest market.

Fiat, which will set up a new company to sell its models and build on the network of Fiat-Tata dealerships, has a fair amount of brand recognition - its 1100 sedan was sold under licence in India from the mid-1950s to 1997, first as the Fiat 1100 Delight and then as the Padmini. The car is commonly used as a taxi.

It currently sells the Linea, Palio and Punto models in India, and aims to introduce more brands from a portfolio which includes Alfa Romeo, Chrysler, Dodge and Jeep.

"Development of the new Fiat dealer network for India will start progressively and the 178 existing Fiat-franchised Tata dealers in 129 cities will be encouraged to form the foundation of the future network," the companies said in a statement.

A partnership producing Fiat and Tata cars and also engines and powertrains at a plant in Ranjangaon, remains in place, the two companies said. In its five years of operation, the joint venture has produced 190,000 cars and 337,000 power trains.

Both partners have indicated that changes were in the works.

Tata Motors chief financial officer C.R. Ramakrishnan said in February the joint venture with Fiat was not producing expected results or sales.

Fiat chief Executive Sergio Marchionne said in March the partnership "has tried to do too much".

(Reporting by Sumeet Chatterjee and Jennifer Clark; Editing by Dan Lalor)