New Delhi, Nov 22: Automobiles Peugeot's decision to call it quits with feuding partner Premier Automobiles (PAL) was so unexpected that it has left the automobile industry dazed. The French carmaker was cruising along to a triumphant finish in its battle with PAL and was all set to sign a final agreement that would allow it to begin life afresh at the Kalyan plant.

Peugeot had every reason to feel pleased with itself. It won the first round in the Mumbai high court which upheld its objection to PAL violating the non-competition clause in the joint venture agreement. The Indian partner, consequently, could not go ahead with its extra-ordinary general meeting to seek shareholder approval to spin off the Kurla automobile business as a separate joint venture with Fiat Auto.

The only way out for both parties was to go their won ways as there was no way that they could work together in the future. PAL and Peugeot had their first round of talks in Paris where they thrashed out several issues. The most vital among these was that there was no way Peugeot would buy out PAL's stake, as was the demand earlier, but would instead pump in around Rs 200 crore to revive the ailing car project. The infusion of funds would have resulted in a dilution of PAL's stake to around 16 per cent from the original 31.7 per cent. The two partners began a series of discussions back in India and reached an understanding on almost all issues pertaining to the joint venture and outstandings due to each other. Audit firms, Lovelock and Lewes and Price Waterhouse, were also roped in to help clear the accounts muddle and satisfactory progress was being made in this direction. This, however, resulted in PAL's extraordinary general meeting (EGM) being adjourned five times as also a postponement in the court hearing. Nobody was complaining as the delay was for "a good cause."

A new twist to the tale came when Renault and Peugeot, reportedly, initiated talks on a possible tieup to jointly use the sprawling facilties at Kalyan.The plant has a capacity of 60,000 vehicles and Peugeot was quick to realise that was a little too much for the 309 alone given the slowdown in the mid-size segment.

Plans were drawn up where the facility would be used to manufacture the Peugeot 309 GLD, the multi-utility vehicle, Partner, the popular 118 NE (now the Viceroy) and its diesel counterpart, the 1.38D.

With Renault keen on teaming up, it seemed the best way for Peugeot to begin a new innings after splitting with PAL. According to grapevine information, Renault was considering the multi-utility vehicle, Kangoo, which would supplement the Peugeot models in Kalyan. By all indicators, things did seem to be looking up for the troubled venture.

PAL was, of course, too happy to focus on its other proposed partnership with Fiat Auto. The first phase of the Kurla paint shop was formally inaugurated recently indicating that everything was set for Fiat's entry. The Uno would get priority as also its 1700 cc diesel counterpart due to join the stable during the course of 1998.

With the champagne all set to flow, Peugeot's inexplicable exit has literally left everyone gasping. Officials at PAL-Peugeot refused to comment on the issue and PAL spokesmen only reiterated that the EGM would be held as scheduled on November 26.

So, what happens to the Kalyan facility now? The likelihood of PAL picking up Peugeot's stake, valued at Rs 84 crore, can be safely ruled out. Logically, it would mean someone with tremendous financial muscle and the most likely candidate would then be Fiat. The Italian carmaker, however, has already conveyed formally to the Maharashtra government of its intentions to set up a brand new plant at Ranjangaon in Maharashtra which would produce the Palio world car.

Will Fiat then revoke its decision and go in for manufacture of the Palio at Kalyan? It would make terrific business sense given that there is a ready infrastructure. There are only two problems. One, the state government would not be too pleased with any such move as the Palio project has already been guaranteed a generous dose of incentives and land earmarked at Ranjangaon.

Two, it would make little sense for Fiat to release the Palio along with the Uno, thereby attempting to create a separate niche simultaneously for the two products. Uno is in desperate need of funds and Fiat has already realised that it has tremendous potential to take on the Maruti Zen.

Finally, Fiat is looking at a capacity of 100,000 cars for the Palio project and the Kalyan plant can only accommodate 60,000 vehicles.

Who would then bell the cat? Possibly, Renault which would cater to assembling the Peugeot 309 and, in course of time, consider the Kangoo and possibly the small car, Twingo. The biggest puzzle still remains Peugeot whose decision is wrapped in mystery. It is bound to create a lot of tension among financial institutions who have lent crores of rupees largely on the Peugeot brand name. They will seek numerous explanations as also the customers of the 309 and Viceroy.