"After surviving the break-up of Yugoslavia, 10 years of international sanctions and two NATO bombings, the Zastava company is still making the Yugo in six colors, including Hollywood pink and Hawaii yellow," writes the New York Times' Steven Erlanger in January 2001.

"Zastava was founded in 1853 to make cannons. A centry later, it began making cars. When it was bombed, the sole weapon that the company produced was high-priced hunting rifles... a quarter of the buildings were destroyed, including the computer center, the forging machinery, and the paint shop, as well as the plant that provides heat to the factory and to the city, too. More than 645,000 square feet of glass had to be replaced. Oddly, the building that makes rifles was not hit. And although NATO spokesmen talked of the military value of the plant and whispered of tank-engine repair, nothing was ever proven," reminisces Erlanger.

"After the bombing, we were brought back to yet another beginning," muses Sneana Anelkovi, Zastava PR Manager.

Explains Erlanger, "Zastava is still an honored name in Serbia, and if it goes down in the new climate it will be hard for the new democratic government to argue to Serbs about the benefits of change" ('The Yugo, Wartime Survivor, Faces Open Market,' Steven Erlanger, New York TimesJanuary 5th, 2001).
"The story of an economy based on small- and medium-size companies sounds nice, but without several industrial giants there is no competitive economy," notes Serbian Prime-Minister Delegate Zoran Ðini.

"There must be five or six strongholds. Zastava is one."
"How many cars we can succeed in producing will mostly depend on the new government," General Director of Zastava Miljko Eri tells Erlanger.

"What happens to Zastava matters for Kragujevac," adds Vesna Pajevi, head of the City's Social Welfare Department, adding that as a city of nearly 200,000 people in the center of Serbia, 90 miles south of Belgrade, Kragujevac has up to 60% unemployment and at least 22,000 refugees, most of them from Kosovo.

Concludes Erlanger, "with international sanctions now lifted, Zastava can once again make components for other manufacturers... Mr. Eri is particularly proud of the new forging shop, rebuilt since the bombing."

In June 2001, Zastava enters into a letter of intent with California's World Transport Authority, Inc. The letter outlines a proposed contract between the two parties, under which the World Transport Authority will supply composite fiberglass panels for Zastava automobiles, while Zastava will in return provide vehicle development assistance. Zastava already supplies drivetrains for WTA's WorldStar vehicle.

Yet Zastava has bigger problems

Zastava Florida In at 2001 Belgrade International Motor Show
Zastava ran into trouble in 2001, but two new models with Euro 3 engines were just around the corner
Zastava Koral In at 2001 Belgrade International Motor Show
By February 2001, Zastava production has fallen by 62.1%, to 476 from 1,257 in February 2000. Cars and car-derived commercial vehicles fall 64.7% to 433 from 1,228, while trucks rise 48.3% to 43 from 29.

Year-to-date, output has declined 71.3% to 516 in 2001 from 1,800 in 2000. Cars and car-derived commercial vehicles have decreased 75.1% to 433 from 1,739. Trucks increase 36.1% to 83 from 61.

Zastava barely makes a dent in the Bosnian market, selling 4 vehicles of 567 in February; 5 out of 721 in March; 2 of 693 in April, and 2 of 634 in May.

Zastava output collapses to barely 5,000 cars in 2001; its market share, to 22%.

The first-quarter results are enough for the Serbian government to begin a restructuring process in April 2001.

The Zastava Group still has more than 30,000 employees, of which 17,000 are now said to be redundant. The government seeks to make 29 enterprises within the Zastava Group independent, and thus to back only the 16 enterprises of the Zastava Vehicle Group.

Some of the employees made redundant will become part of Zastava Employment and Education (ZZO), where they will collect 2,200 Yugoslav dinars monthly and where - it is assumed - they will be retrained. Some will leave the company entirely with a monthly payout of 2,300 Yugoslav dinars, to be paid for a period of two years. Finally, some will be terminated with a 4,000 deutsche mark severance pay, to be paid out in three installments.

Aleksandar Vlahović
Privatization Minister Aleksandar Vlahovi was convinced that his plan had saved Zastava, but the employees of the largest factory in the Balkans were none too pleased
Zastava protest in Kragujevac
The plan is the work of Serbian Minister for Privatization Aleksandar Vlahovi, and Finance Minister Boidar Ðeli. Ðeli regularly reminds the media that the government plans to devote 1.5 billion deutsch marks to the restructuring of Zastava. The whole nation, in his view, is striving to help the automaker and its supplier network.

Zastava's workforce is none too pleased with the government's proposed solutions, heckling Vlahovi upon at least one of his visits to Kragujevac in the Summer of 2001, and eventually wringing some concessions.

Ultimately, the government cuts the number of enterprises in the Zastava Group from 47 to 20; reduces the number of Zastava Group employees to 14,500, and begins crediting former employees who have started their own private businesses.

Laid off Zastava employees are still given three alternatives: a transfer to Zastava Employment and Education; the receipt of severance pay at 200 deutsche marks per year of service, or assistance in applying for a job on the labor market.

"Without the ($50 million) government recovery program (cutting employment by two thirds), Zastava would have gone to the wall," mused the Minister for Economy and Privatization Aleksandar Vlahovi.

"Zastava Holding would soon have gone into bankruptcy, and there would not have been some 10-15,000 redundant workers; rather, thirty-odd thousand people would have found themselves out of work."
Adamant in a July 2001 interview given to TV Kragujevac that there was no market for the 200,000 automobiles which Zastava was configured to build, Vlahovi swore that the Serbian government did not want "to buy social peace in Kragujevac, as has been the practice for the last ten years... ignoring the future in the process."

Zastava protest in Kragujevac
The number of Zastava Group employees was reduced to 14,500
The lengths to which Vlahovi would go to resolve what he described as "one of our biggest problems" were astonishing. Unconfirmed reports the following year would suggest that he had tried to give the factory to both Peugeot and Toyota for 1 euro.

At least one analyst, Sra Trifkovi, questioned Vlahovi's motives. In an article dubbed, "The Untold Story of Privatization in Serbia," and published in Chronicles Magazine, Trifkovi questioned Vlahovi's earlier attempted privatization of Beocin, Serbia's cement works.

"The government embarked upon reforms without previously making a social contract, and Privatization Minister Aleksandar Vlahovi used to work for Deloitte & Touche, which is now the chief consultant in the sale of the Beocin cement factory," wrote Trifkovi.

Trifkovi accused the government, led by the late Prime Minister Zoran Ðini, of "turning Serbia's state industries into their private assets, by means that would be considered - to put it mildly - highly dubious in most Western countries.

"Undoubtedly, if it hopes to transform and revitalize the economy, Serbia needs to enlarge and strengthen the private sector; but the methods employed thus far by Ðini's circle - well-illustrated by the attempted quasi-legal theft of Serbia's highly-profitable cement works at Beocin a year ago - are most discouraging.
"Workers fear what the Serbian government may do, that is whether privatization will be public or whether the government will succumb to pressure from foreign buyers to consider all contracts as business secrets."
The epilogue? Vlahovi's promised 1.5 billion deutsch marks would fail to materialize. Estimates placed the government's investment in restructuring as being closer to $50 million.

More importantly, both Peugeot and Toyota (thankfully) declined Vlahovi's offer (assuming that one was put forward).

Zastava's "In" line for '02 - with Euro 3 PSA/ Peugeot-Citroen motors

Peugeot engines featured under the hood of the new Koral In L and Florida In L
Peugeot engines featured under the hoods of the new Koral In L and Florida In L
Yet Peugeot did want to cooperate with Zastava.

It was much to Zastava's credit that during circumstances in which Vlahovi viewed the company as a social issue, rather than as an automaker, Zastava continued to invest in its product; in its future.

At the 2001 Belgrade International Motor Show, Zastava showed the results of its cooperation with France's Heuliez design house and PSA/ Peugeot-Citroen.

On the domestic automaker's stand sat two new '02 models, the Koral In/ In L and Florida In/ In L.

"In L" versions used Euro 3 1.1-liter and 1.6-liter engines from the Peugeot 106 and 306, with engine reprogramming and testing performed by Zastava's Institute in Kragujevac.

Sales would begin in earnest in 2002.
(C) 2007-2008, Miroslav Pai & Dragan Romevi. All rights reserved/ sva prava zadržana.
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