As the Zastava Group enters 2004, its 20 firms employ 14,500 people, of which 9,000 are in retraining. The Zastava Automobili factory alone employs 4,300.

Talks with Fiat are placed on hold, due to intransigence and disagreements over the 41 million euros which Zastava owes the Italians. Hyundai; Renault, and Opel are in talks with Zastava. In the summer, Zastava will hold talks with Mahindra & Mahindra of Bombay; Tata Motors of Pune, and Ashok Leyland of Bangalore.

March 2004 sees the government announce that 240 million euros will be invested in Zastava, a plan that will see, first, 40,000; then 70,000, and later 120,000 automobiles produced in its first; second, and third years, respectively. The money will finance production of a new model, to cost 6,000 euros and to be exported to the European Union.

Nothing comes of the plan, even as there is talk of publicly issued stock to finance the program. Stock in government-owned companies will indeed be issued to Serbian citizens four years later, but Zastava is not to be included.

Meanwhile, pieces of Zastava continue to be sold off to finance further development. Zastava Istrabenz Lizing, in which Zastava holds 40%, is sold to a Slovenian partner, which is ready to invest 10 million euros. Zastava Istrabenz Lizing has plans to sell 2,000 Zastava automobiles in 2004, and has delivered 200 cars, with another 200 sold and 400 ordered, at time of purchase.

Yet Zastava continues to invest in its future. At the 42nd Belgrade International Motor Show on April 2nd, 2004, Zastava announces further amelioration of the Koral In and Florida In - notably, in steering and braking.

2004 sales & production results

In the first ten months of 2004, Zastava produces 10,186 cars, a 4% increase over the same period of 2003. At the lower end of the range, the Skala 55 accounts for 27% of production.

"We hope for easier access to credit for buyers of domestic vehicles in 2005," muses Zastava Marketing Director Vladeta Kostić, noting that most Zastavas sold in 2004 have been paid for in cash.

"Similar credit has been available to buyers of both new and used cars, a situation which has rather worsened Serbia's trade deficit," Kostić adds.
In total, Zastava produces 12,537 cars in 2004, selling 11,367, 30% more than in 2003.

Kragujevac plans to produce 18,000 vehicles for 2005: 15,540 for the domestic market, and 2,460 for export. 9,000 will be Korals; 5,500, Floridas, and 3,500, Skala 55s. Between 1,000 and 1,500 Korals and Floridas will have PSA/ Peugeot-Citroen engines.

Going into 2005, Zastava hopes to retain 40% of the domestic market. Responds Serbia's popular SAT Plus auto magazine at the start of the new year, "naš proizvođač se lako ne predaje" (translated, our automaker does not give up easily).

February 2005 sees rumors of cooperation with India reignited, as Zastava talks with UBE Mitri about building the Skala 55 in India - initially, from CKDs produced in Serbia, and later, completely on the subcontinent.

Zastava is also continuing talks with Opel over the assembly of its Astra subcompact, although it now appears that talks with Fiat are progressing further. Negotiations between Zastava and Opel over possible cooperation fizzle out without result in the months after April's Belgrade International Motor Show, but a major agreement with longtime Zastava partner Fiat will be completed this year.

At the show, two Zastava concepts debut, along with several CNG (compressed natural gas) versions of existing models.

Concept: Koral In Cup
2005 Zastava Koral In Cup Concept

With a hundred horses under its hood, courtesy the Florida In L's 1.6-liter four-cylinder, the lightweight Koral In Cup Concept racer can run to 100 km/h from rest in under eight seconds.

Concept: Florida HDI
2005 Zastava Florida HDI Concept

2005 Zastava Florida HDI Concept
The 2005 Zastava Florida HDI Concept previewed 2008's production Florida TDC: Europe's most affordable diesel, and among the world's most economical cars
2005 Zastava Florida HDI Concept
Zastava's 2002 and 2003 plans to return to the U.S. market under the ZMW banner have been derailed, but the company is not about to let the development of those years sit idle. Belgrade show visitors are treated to a car that could become Europe's most affordable diesel and, thanks to its low weight and innovative engine management, one of the most economical cars in the world.

The Florida HDI Concept uses the same 1.4-liter, 75 hp common-rail diesel engine known to contemporary Peugeot; Citroen; Ford, and Toyota drivers.

It also gains a French gearbox, and drive-by-wire electronic throttle control as part of new engine control and multiplexed electrical systems developed by Zastava's Institute in Kragujevac.

Inside is a completely new, Alfa-esque dashboard, designed by Marko Luković, a graduate of Belgrade's College of Design and a winner of Peugeot's 2001 International Design Competition.

This is also the first Florida In with power steering. Marketing Director Vladeta Kostić announces that the system is compatible with any Florida In model, with or without PSA/ Peugeot-Citroen 1.1 and 1.6-liter engines.

In production as of May 2005, the option will cost 32,000 dinars.

Money remains tight but, amid strong interest from the public, Zastava promises that development of the Florida HDI will continue.

Zastava also shows a natural-gas taxi version of the Florida In, slated for immediate production.

Product Lifecycle Management (PLM)

Zoran Bogdanović, Director of Zastava R&D
"We will be using the same tools as the most prestigious and innovative brands on the market" - Zastava R&D Director Zoran Bogdanović
Zastava migrates to CATIA V5, the world's leading 3-d product-development application
On June 14th, 2005, Zastava announces that it has chosen IBM Product Lifecycle Management (PLM) solutions to streamline the development of its cars. Zastava has been a long-term customer of IBM, and the new agreement will support a series of IBM mainframes that have replaced earlier IBM models damaged in the 1999 bombing.

Zastava will migrate to CATIA V5, the world's leading 3-d product-development application, while using SMARTEAM, a leading collaborative product data and lifecycle management solution, to optimize its data management and collaboration between business; engineering, and manufacturing departments.

Using CATIA V5, the automaker expects to reduce its product development time by up to 40%, while improving product quality and facilitating integration with OEM partners and suppliers. Relational design will enable Zastava's design team to optimize processes and to capture and re-use the company's knowledge for the benefit of future vehicle programs.

"Standardizing our product-development platform on CATIA V5 means that we will be using the same tools as the most prestigious and innovative brands on the market," remarks Director of Zastava's Research & Development Center Zoran Bogdanović.

"Our implementation requirements are simplified, and our designers can become more productive as quickly as possible.

"We have long intended to collaborate with our suppliers through full 3-d digital representation. Now, we have the best tool on the market to achieve that, and one that is recognized as the industry de-facto standard."
Zastava also chooses a tailored solution from IBM Global Financing to finance new projects over their lifetime, thus further reaping the business benefits of PLM. Rather than paying for everything up front when budgets are tight, it makes better business sense for Zastava to pay over the lifetime of the solution.

"For IT projects, IBM Global Financing is much better than a traditional bank," muses Bogdanović.

Two old allies renew their relationship

Predrag Bubalo, Serbian Minister of Economy
"Zastava holds a full Fiat license" - Serbian Minister of Economy Predrag Bubalo
Zastava 10
July 27th, 2005, marks the long-awaited conclusion of talks between Zastava and its longtime partner, Fiat. Just 24 hours after Fiat officially previews Project 199, the new Grande Punto, comes the news that further production of the outgoing Punto model is destined for Zastava.

The Zastava 10 is born.

Serbian Minister of Economy Predrag Bubalo announces to assembled reporters that Zastava has successfully completed intensive talks with Fiat Auto to revive a longstanding tradition of cooperation between the two companies, dating back to 1953.

Bubalo stresses that Zastava will hold a full Fiat license, and thus that the agreement allows the company and its suppliers to begin manufacturing any component they wish, and to sell these components into the spare-parts supply chain for the more than six million Punto models built and sold across Europe.

Thus will Zastava begin production of a car that has been the first Fiat in decades to carry the original, round Fiat badge, in celebration of Fiat's centenary.

In return for renewed cooperation with Zastava, Fiat agrees to write off 72.5% of the 43 million euros owed to it by the Serbian automaker. Zastava, in turn, intends to pay off the remaining 11.5 million euros within a year.

Zastava begins negotiating a credit arrangement with the Serbian government for 15 million euros to renew its production technologies - specifically, to purchase the necessary equipment required to produce the Zastava 10, and to renew the paint shop that was destroyed in the 1999 NATO bombing. It is hoped that Zastava will produce between 5,000 and 8,000 Zastava 10 models in the car's first year. 16,000 will be made in the year to follow.

For the moment, the new production plans involve approximately 1,000 people. It is great news for Kragujevac.

Zastava an example that "investing in Serbia pays off"

Vojislav Koštunica, Serbian Prime Minister
Serbian PM Vojislav Koštunica praised the Zastava-Fiat deal (below) as vital to the Serbian Economy
Zastava, Serbian government and Fiat dignitaries formally sign the agreement on September 20th, 2005
In a written statement released August 1st, 2005, Serbian Prime Minister Vojislav Koštunica praises the Zastava-Fiat deal.

It is, he says, of particular importance for Zastava's workers - yet it speaks volumes for Serbia as a whole.

"It is very important for the Serbian economy that Zastava moves forward and revamps prodution... as yet another signal to foreign investors that investing in Serbia pays off," he reflects.

On September 20th, 2005, the agreement is formally signed by Fiat president of company development Ecio Bara; Fiat vice-president of communications Gilberto Ranieri; Zastava president Miodrag Savičević; Zastava general director Zoran Radojević, and Zastava restructuring director Milosav Ðorđević.

Serbian Minister of Economy Predrag Bubalo stresses that the deal is not about privatizing Zastava, but about technical cooperation.

Fiat's Ranieri adds that the agreement will mean a great deal for the Serbian automaker; for its employers, and for its dealership network.

The major of Kragujevac, Veroljub Stevanović, is optimistic. Zastava's hometown has continued to look to the domestic automaker for its economic recovery. Most important now, Stevanović reminds the media, are the 15 million euros that the government is promising (in cash or guarantees, it remains unclear, as alternate statements are being made) to enable local production of the car.

Contemporary design. Electric-assist power steering. For 7,990 euros
2007 Zastava 10

Zastava 10 at the 2005 Novi Sad Auto Show
Zastava began taking orders for its newest car at the '05 Novi Sad Auto Show
October's Italy in Belgrade 2005 exhibition brings Serbian and Italian businesspeople together, and marks the first outing for the Zastava 10. Those who miss it get another chance to see the car up close at the 5th annual Novi Sad Auto Show in November.

For the moment, the car is to be offered with a 60 bhp 1.2-liter gasoline engine, although the agreement allows for Fiat's 1.9-liter 16V Multijet diesel to be fitted in the future, at Zastava's request.

Until the new Zastava 10 (so named for being the tenth Zastava model produced), Fiat has sold it across Serbia as the Punto II.5 for between 10,600 and 11,300 euros. The media have expected Zastava's 10 to cost 9,000 euros.

Zastava announces a starting price of just 7,990 euros.

Raffeisen leasing is to be the sole leasing house for the Zastava 10. Leasing agreements include free DDOR NS comprehensive insurance. Alternately, financing from 2 to 6 years is available.

Zastava 10: the battle for domestic production

In December 2005, Zastava signs an agreement with Fiat promising to purchase the necessary equipment to build the Zastava 10. The agreement suggests April 2006 as a preliminary date. Until then, Zastava workers will learn the ropes in Italy, alongside their Fiat counterparts.

On the occasion of the agreement, signed in Serbia, it is duly noted that Zastava has in the last three months paid off more than 50% of its debt to Fiat, and that this debt will have been completely paid by Spring 2006.

Several stops and starts will characterize 2006, however, before the equipment finally arrives.

2005 sales & production results

In the first ten months of 2005, Zastava holds on to a 40% share of the market. 11,122 Zastavas have been sold, a 10% increase over the same period of 2004. The Koral is the company's best-seller.

As the year draws to a close, with production of 1,458 passenger cars in November marking a record for that month in recent years (400 Skala 55s, and 960 Koral In/ 98 Florida In models), Zastava announces that it has produced about 12,000 cars in the '05 calendar year, selling 14,000.

By the end of 2005, Zastava has produced (and exported to Egypt, in CKD form) its 225,963rd Zastava 128, and its 1,034,671st Skala 55.

Zastava plans to produce 18,000 automobiles, not including the Zastava 10, in 2006.


The Zastava Koral In passed Europe's toughest safety tests
The Zastava Koral In passed Europe's toughest safety tests, per the Czech Republic's UVMV safety institute
Josef Walner of Munich writes, "In November of last year, I imported a Zastava Koral from Serbia.

"The car cost me just 3,400 euros! I paid 89 euros in taxes and 209 euros for annual insurance.
"After 14,000 kilometers, everything has remained in place, with no odd noises or other problems. I'd add that driving the car is quite enjoyable (1,100cc, 60 horsepower, 830 kilograms).
"At every petrol station, and in every mall parking lot, I'm stopped and asked about it. All reactions have been positive so far - and I've learned that I'm hardly the only Zastava driver in Germany."
In the Fall of 2005, Serbia's SAT Plus auto magazine broke the news that the Zastava Koral In had passed Europe's toughest safety tests, per the Czech Republic's UVMV safety institute. In an offset frontal test, the passenger compartment of the Yugo remained largely intact and, most importantly, both doors could be opened after the crash.

On Tuesday, December 27th, Zastava announced the sale of 86% of its Belgrade servicing unit, Zastava Promet Beograd, for 340.7 million dinars ($4.7 million/ 4 million euros) to local company Ada Invest. The stake was sold at the starting price set by the Serbian Privatization Agency. Ada Invest agreed to invest at least 34.46 million dinars in the company. Zastava Promet Beograd had extended its loss to around 900,000 euros in 2004, from 700,000 euros in 2003. At the time of the sale, the company had some 266.5 million dinars in liabilities.

Zastava's other two remaining servicing units, Zastava Promet Kragujevac and Zastava Promet Sombor, remained unsold for the moment.

The company had in preceding years sold six Zastava units: Zastava Kovačnica; the Zastava Livnica foundry; Zastava Jugo Sport; Zastava šped; Zastava Hidroelektrana, and Zastava Alati.

Also toward the end of 2005, Zastava announced that SAMAX would be its general importer for Bosnia and Hercegovina. Since June 1st, 2005, SAMAX had distributed more than 100 Zastavas across the former Yugoslav republic.

On December 29th, 2005, SAT Plus carried the Zastava 10 and Dacia's Logan on its cover. The magazine conducted a test of the two cars, proffering among the most objective viewpoints of Serbia's domestic automaker in recent years. The test favored the Zastava.

A turning point had, it seemed, been reached.
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