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Fiat is reversing the trend of using the Third World as a dumping ground for outdated models

Gavin Green
W estern car makers' attitudes to the developing world have long been simple and cynical: when their cars cease to be competitive in First World markets, they flog them off to Third World countries. New life is given to old dogs, and instead of a burial, car makers can enjoy renewed bounty.

Most car makers play the game. Rover recently flogged off the hopeless Maestro to the Romanians, and the Montego to the Indians, where it will join the last old duffer Rover pensioned off to the sub continent: the 1950s Morris Oxford, aka the Hindustan Ambassador.

Fiat, though, is the master of giving developing countries overdone cars. East Europe, the Middle East, Asia and South America are full of old Fiats with funny badges. Until recently, Ladas were simply yesterday's Fiats: ditto FSO (made in Poland), VAZ (Russia), Seat (Spain), Yugo and Zastava (Yugoslavia) and Premier (India). Old Fiats are also the market leaders in Israel, Turkey, Morocco, Brazil and Argentina, and are increasingly popular in Vietnam.

Now, Fiat is about to give its network of Third World satellites a modern car. It's not just any car, either. In one of the most ambitious plans ever seen in the motor industry, Fiat is about to launch a new "world car" specifically designed and engineered for Third World markets. The Fiat Palio meets First World safety and pollution standards, and looks and drives in a modern manner. Within five years, Fiat expects to make a million Palios a year. That will make it the world's biggest selling car.

Fiat's chief executive, Paolo Cantarella, blames CNN for forcing First World car makers to give the Third World first-rate cars. "Satellite TV makes it clear to developing countries that there's a better breed of car available elsewhere. The days when Third World countries are happy with old cars is over."

The Palio, similar in size to a Fiat Punto, is a brand new design. It will be available in six variants: three- and five-door hatches, a four- door saloon, an estate, a pick-up and a van. Because it will frequently be assembled in labour-intensive factories, it is easy to make, with as few parts as possible. Body and suspension strength, to cope with poor quality roads, were both priorities, as are low running costs and easy maintenance. Engines vary from 1.0- to 1.6-litre petrol units, and a 1.8 and a 1.9 diesel. They are Fiat's latest generation motors.

Cantarella says Fiat is putting so much effort into Third World markets because that's where the big growth is. "In 1984, 35 million cars were made in North America, Japan and Western Europe; six million were made elsewhere. By 2004, the figure for Japan, North America and Western Europe rises to 39 million. But for the rest of the world, it should jump to 20 million. We want as big a share of that growth as possible."

The Palio first goes on sale in Brazil, in May. "Brazil is our key market," says Cantarella. "'We've been there for 20 years, and are only now beginning to make profit. But the market is now quite big [about 1.5 million cars sold a year - only slightly smaller than the UK, France or Italy] and it's growing." Fiat expects to make 250,000 Palios a year in Brazil. Many will be exported to neighbouring countries.

Fiat is also in advanced discussions with the Chinese government, and hopes to announce a joint venture, with a local partner, soon.

Palios will also be assembled (although major parts will be imported) in Venezuala, South Africa, Egypt, Morocco, and possibly, Indonesia and Chile. Palios will be identical, no matter where they're made: apart from minor differences in engine tune (due to local fuel requirements), suspension settings (due to the roughness of roads) and on whether they're left or right-hand drive.

Cantarella admits that the move is a risky one. "Third World markets have been notoriously unstable, but the risks are getting lower. International TV puts tremendous pressure on governments to act responsibly. It reduces the risk of revolutions."

None the less, one major market where Fiat is not risking Palio is Russia. Cantarella says the future there is too unpredictable, although that may change.

China, he says, offers tremendous promise, but is very long-term. "There are one billion people there who want mobility. Surely, some time in the future, they will get to the car ownership level of a country such as Portugal - one car for every four people. It may take 20 years or 50 years. But I think it's important to get in there now."

India, at least in the medium term, will offer more riches. "India already has a car sales and distribution infrastructure, an entrepreneurial spirit, and a large middle class who can afford cars. India is very exciting. By 2020, it could be the biggest car market in the world. It is the market about which I'm most excited - and is much more important than trying to have another go at the US market [where Fiat was driven out by the Japanese], or to sell more cars in Japan. These are crowded, complicated markets. We're concentrating on the future, not the past."