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Industry: Email Alert RSS FeedIn search of a new Yugo: can a global automaker resurrect the company destroyed by bombs and a bad image? - Supplier Business - Toyota Peugeot Citroen Automobile formed - Government Activity - International Pages - Statistical Data Included
Automotive Industries, Sept, 2002 by Tony Lewis
The search for the $5,000 car has become the 21st century mantra of the car industry just as "think global, act local" was in the last decade of the 20th century.
Current favorite to win the hunt is Renault, thanks to its takeover two years ago of Romania's Dacia. Backing up its pole position is the French automaker's deal with the City of Moscow where it plans to assemble Glib sedans in a corner of the Moskvich plant
Ever since Volkswagen swallowed up Skoda of the Czech Republic, opportunities for Western carmakers have become fewer in Eastern Europe. GM now has Daewoo, hardly a genuine low-cost manufacturer.
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But there is one more opportunity: Serbia's Zastava is now, officially, up for sale. Zastava produced the much-ridiculed Yugo and in the late 1980s was building up to 200,000 cars a year. This year it will build just 18,000.
Ambitious expansion plans in the 1970s and 1980s saw Zastavas being sold across Western Europe and the United States. Thday it would give any potential buyer a good foothold in the Balkans.
There are encouraging signs for any would-be buyer. This month Zastava will start to fit PSA Peugeot-Citroen engines in its cars. The government has already spent almost $50 million on restructuring the vast conglomerate, and the workforce has been cut by two-thirds to just over 8,000. But, just as Renault has found, buying Eastern European factories is not easy. The legacy of under-investment from the Communist era requires deep pockets.
The thing with Zastava is who would want it?
Many automakers in Europe are struggling to come up with the right strategy for a small car. In the race for the sub $6,000 vehicle, PSA Peugeot Citroen is going its own way with Toyota. The two automakers are currently building an all-new factory at Kolin near Prague, the Czech Republic, for an all-new small, affordable, four-door car for Europe, below the current Peugeot 106/Citroen Saxo, at a rate of 300,000 vehicles a year.
GM has used its alliance with Suzuki to produce its version of the Wagon R--called the Agila--at a plant at Gliwice in Poland. While Agila registrations in Western/Central Europe are in line with expectations according to GM Europe, there is a question mark over whether its strategy is still the right one.
"The car is still not cheap enough for the markets of Central and Eastern Europe or Russia," says analyst Peter Schmidt of Auto Industry Data. While Renault continues to wrestle with Dacia, PSA and Toyota have it right, according to Schmidt.
"As well as the need for cheaper cars in emerging markets, you look at all the future projections--all the hard data--and it tells us that the second family car, so often a used one, is giving [TEXT INCOMPLETE IN ORIGINAL SOURCE]
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"The data also shows us that woman and older people of pensionable age are becoming increasingly important in the showrooms," Schmidt says. "This is an untapped market and the demand for small, stylish and safe cars will grow, whichever way you look at it."
Sharing the risk is also the right strategy, he says. "It is difficult to make money on small cars, but if you share the development costs the numbers begin to add up. PSA knows all about the need for small cars and Toyota has both the financial strength and the expertise, through Daihatsu, of building small cars," Schmidt says.
Toyota Peugeot Citroen Automobile, as the new venture will be called, will start producing vehicles in the Czech Republic from 2005.
Coming back to Zastava, two likely candidates could be Volkswagen and Ford, two companies who are off the pace with cheap, affordable small cars, says Schmidt.
"Their strategy makes it very difficult to make money from a small car," he says.
The VW Lupo and Ford Ka are both based on larger car platforms, the Polo and Fiesta respectively. "The problem is that on any shared platform the common denominators have to be geared towards the most expensive model. It has to be engineered to carry the larger engines, the bigger passenger areas, the heavier loads, the bigger brakes etc.," adds Schmidt.
As with Dacia, Zastava's problems may be too insurmountable. Garel Rhys, professor of motor industry economics at the University of Wales, says: "Problem with the company is that it is shot to ribbons--literally--during the war in the former Yugoslavia plus the fact the brand was subject to more ridicule than any other. The Yugo name would have to go because of that and because the country does not exist any more."
"I can't see anyone wanting it. GM has Daewoo and the Agila, PSA and Toyota are doing their own thing. Fiat has it's own problems and has plenty of East European operations while MG Rover is looking at low cost deals in China and Poland. Ford and VW are unlikely to be interested although don't rule out someone like Hyundai who has said it wants a European assembly operation," Rhys says.
The sale of Zastava will be the first real privatisation in the region, which made up the former Yugoslavia. But it will not be easy to sell especially since it lacks a dealer network set up to sell the cars.
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