Yugo factory sputters, but never entirely stops Cars: The story of the Yugo and its makers is the story of Yugoslavia's economy, shattered by war and 3 1/2 years of U.N. trade sanctions.


KRAGUJEVAC, Yugoslavia -- Remember the Yugo?

Down at the Zastava Group factory, a skeleton work crew of fewer than 1,200 struggles to keep the cheap and cheerless little auto alive.

In 1989, before Yugoslavia disintegrated and went to war, the factory churned out 200,000 of these cars.

They broke down so often, they gave Yugoslav workmanship a bad reputation in the United States.

This year, the workers will be lucky to produce 8,000.

The story of the Yugo and the Zastava Group is the story of Yugoslavia's economy, shattered by war and 3 1/2 years of United Nations-imposed trade sanctions that were lifted only last winter.

On paper, Zastava remains the country's biggest industrial enterprise, with 44,000 employees -- 30,000 of them in this town 100 miles south of Belgrade -- who are supposed to produce cars, trucks, machine tools and weapons.

In reality, the state-owned company is a Communist-era dinosaur that doesn't manufacture much of anything but unreachable production targets.

Most of the employees have been on extended vacations that have stretched into years.

Most days, the assembly line doesn't even run. When it does, workers are burdened by shortages of wheels, seats and engines; it's not uncommon for employees to take parts from one car to finish another.

"People who are actually in the factory look like phantoms and ghosts," says Prvoslav Radosavljevic, an independent trade union activist at the company.

"When the cars come off the assembly line, they are more or less complete. We can make 100 cars per day one month. But then, nothing will happen for a month. It depends on the parts."

Zastava isn't alone in shouldering massive economic problems. Yugoslavia is saddled with an enormous trade deficit and a state-run industrial base.

More than half the work force is unemployed, average wages are one-tenth of prewar levels, and per-capita output is $1,500 a year.

"The debt is like an atomic bomb, waiting to go off," says Ljubomir Madzar, an economics professor at the University of Belgrade.

"To turn this country around in a sense of creating a private sector and producing capital markets -- well, that all depends on the political wheel and political decisions.

"Not even politicians know what they are going to decide. They are all playing it by ear."

Dismantling such old firms as Zastava is difficult for politicians trying to cling to power, as students and opposition party supporters crowd the streets of Belgrade demanding that the government recognize the results of last month's local elections.

Zastava was founded in 1853 as a cannon manufacturer and entered the car trade in 1953, producing models for Italy's Fiat. Under the post-World War II rule of Tito, the company was known as Crvena Zastava -- Red Flag.

"The workers made a decision to produce cars on the 26th of August, 1953," says Zvonimir Osrecki, the company spokesman who works at the nearly vacant headquarters in Belgrade. "They each contributed one month's salary to start production. Those were the times."

This city was never going to challenge Detroit. When the Yugo hit America in the 1980s, it became something of an international joke.

"It was a mad try to get into America with a car that was not correct," says Radosavljevic, an ex-basketball player who last worked on the assembly line in 1990. "We were losing about $1,000 for every car we sold.

"We knew America was laughing at the Yugo. We were laughing at the Yugo, too."

But the car was a metaphor for the old, multi-ethnic Yugoslavia, serving as an industrial magnet that drew plastics from Croatia, electronics from Slovenia and Bosnia-Herzegovina and seats from Macedonia.

When Yugoslavia was plunged into war in 1991, the Yugo was crippled. The company lost its suppliers and its markets. Still, workers managed to roll out a few Yugos with smuggled parts.

During the war, though, the firm churned out guns, grenades and rocket launchers for the Yugoslav army, a subject that managers are reluctant to discuss.

"The [Yugoslav] army doesn't need our weapons," Osrecki says. "We cannot produce weapons for anybody, now.

"And we are not yet ready to produce sport and hunting weapons for other markets. Nothing gets as old as old weapons."

Except, maybe, old cars.

The design of the base Yugo is more than 20 years old. To retool, the company is seeking foreign partners, with talks reportedly held with Fiat, Renault of France and Toyota and Mitsubishi of Japan.

But even if a foreign partner rescues the company, it's unlikely that as many as half the workers will get their jobs back.

"We will respect European and world standards," Osrecki says. "It doesn't mean we'll fire our workers. We're searching for solutions for these people."

But around Kragujevac, there is a growing sense that the good times are never again going to roll. In the workers' colony at the edge of this drab city of 160,000, the old social hall is closed and the company housing is crumbling.

In the city center, Zastava workers peddle black market cigarettes and gasoline and sell second-hand clothing. Others simply beg.

"We are staying alive with magic," Radosavljevic says. "This town is half dead. Many workers have simply gone into the fields and grown their own food.

"I have to believe that we will come back from this depression. But even if the company survives, I will probably lose my job. This is something the union doesn't like to discuss. But we must be realistic."

Despite the present crisis, Osrecki, the company spokesman, says there must be a way to recover.

"It is difficult to see the way out of the situation we have here," he says. "I have an impression that we have never been in as difficult a situation as we are in now.

"But our factory was destroyed and rebuilt three times over the years. That factory of ours, it is like a phoenix."

Pub Date: 12/18/96

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