Mumbai, Dec. 14: The Tatas and Fiat of Italy today shifted their alliance to a higher gear by entering into an agreement to form a joint venture.

The agreement will lead to a progressive investment of Rs 4,000 crore in Fiat’s unit at Ranjangaon in Maharashtra that will manufacture both Fiat and Tata vehicles.

The auto majors had signed a memorandum of understanding (MoU) in July this year and they followed it up with a distribution alliance under which Fiat cars were being distributed by the extensive Tata Motors network.

The two partners will hold equal stakes in the yet-to-be-named joint venture. The Ranjangaon unit has capacities to produce in excess of 100,000 cars and 200,000 engines and transmission assemblies a year for the Indian and overseas markets.

Fiat Auto will introduce its premium cars for the B and C segments, including the Fiat Grande Punto (a small car, but called Grande Punto because of its increased size) and the Fiat Linea (a small family car) which was launched at the Istanbul Motorshow in early November.

Ratan Tata, chairman of Tata Motors, said, “This strategic alliance with Fiat enables the two companies jointly to present a wider range of product offerings to the Indian market. It enables Tata Motors to access world-class powertrains from Fiat for its next generation car offerings while enhancing the model line at its dealerships. Fiat’s current cars are attractive in their styling and impressive in their performance.”

Fiat officials said the first assembly line for its cars at the plant had already been commissioned for the Fiat Palio and Fiat Adventure models. The trial runs have already commenced. The first batch of cars will roll out in early 2007.

Senior Tata Motor officials said it had not been decided which of its models would be made at the new plant. However, sources said it would be an entirely new model from a new generation platform that is now being developed by Tata Motors.

Tata Motors managing director Ravi Kant did not rule out the possibility of the alliance extending into other areas such as commercial vehicles. Fiat and Tata are also continuing discussions for industrial and commercial cooperation in Latin America, according to a joint analysis which began in July.

Fiat Auto’s senior vice-president Alfredo Altavilla said, through a video link from Torino, that the venture marked a new beginning for Fiat Auto in India. “We have been present in India for the past 50 years. The last period was not as successful… We are now back and we are here to stay as a strong player and develop a strong footprint in one of the most promising auto markets in the world,” he added.

Both the partners have also decided to progressively increase the Tata-Fiat dealer network to 100 outlets.