Malcolm Bricklin needed another car to import if he was to keep his business afloat and he felt the Proton Saga was the answer. However there were problems with this car that others would probably have realised were unsurmountable.
Firstly; the Saga was based on Mitsubishi's Lancer Fiore. They were already selling a car in the United States which was also based on that car. In addition Chrysler bought a 15% share of Mitsubishi in 1986 and they also sold two cars based on the Lancer Fiore. Mitsubishi would not be greatly happy at the idea of a fourth car competing with, and probably undercutting, three cars of similar model.
They provided engines and transmission systems to Proton but these were for the domestic market only and no mention had ever been made of export in the contract they had agreed. If Mitsubishi refused to provide these components the whole project was dead.
There was a second problem. Most of the components that went into a Saga came from Japan so as far as the American government was concerned it was a Japanese car. Japan had entered into a voluntary agreement with the American State Department under which they limited the number of cars that they would export to the USA, which meant that every vehicle that was sent by Proton would be one less vehicle that Mitsubishi would send.
There was a third and equally serious problem; Malaysia had once been part of the British Empire and as a result cars drove on the left, whereas in America they drove on the right. Moving the steering wheel over was not a simple matter; it was going to be very expensive and technically difficult. There was also still the mass of standards that the car had to comply with before it could legally be sold in the USA. The cost of getting all this permission – called homologation – was estimated at about US$10 million. The whole project looked as though it was doomed from the start.
In the meanwhile Bricklin was getting desperate. A meeting was arranged between his representatives and bin Muhamad, brokered by Henry Kissinger no less. The ever confident (or should we say headstrong) Bricklin assured bin Muhamad of completely unrealistic sales potential and even promised to put up the estimated 10 million cost of getting the car prepared for the American market. Did he have US$10 million to spare? No. Nevertheless he pressed ahead.
In the meanwhile Yugo America was haemorrhaging money. The estimated 10 million homologation cost was a gross underestimation. By mid 1987 sales of the Yugo had exceeded 75,000 but the profit margin on each of them was low and overheads were high, with massive salaries being paid and huge advertising costs being incurred. Warranty claims didn't help either!
Yet another financial crisis came; investors were found to put more money into the company but there was a major stipulation; Bricklin had to go. He received a reported $14 million for his stake in the company but this was a drop in the ocean to him because his debts were far more than that.
He was out of business and eventually suffered yet another bankruptcy. The two major investors, who had bought the company (not for the Yugo but for the Proton) really should have done their homework more because the whole project collapsed under the weight of homologation costs and opposition from Mitsubishi and they lost all of their investments. Yugo America staggered on for another couple of years but went bankrupt at the start of 1989.
An attempt was made by Zastava themselves, and the Yugoslavian export union Genex, to rescue the company and introduce new models but it was a hopeless task and the final bankruptcy came in early 1992, the same year that the UN Security Council imposed sanctions on Serbia and the American Office of Foreign Asset Control began seizing assets of Serbian businesses including the owners of Yugo America.
Zastava laid off about 30,000 employees and switched its main production from cars to armaments. By 1999 The United Nations had decided to halt arms production in Yugoslavia; they bombed the Zastava plant and the whole sorry Yugo story came to an end.
Copyright © Ian Palmer 2021 All Rights reservedMeet The Yugo | Enter Michael Bricklin | The Bricklin SV1 Fiasco | Bricklin Faces Bankrupcy Again | The First Yugo In America | How Bricklin Promised Zastava The Moon | Lipstick Is Put On The Yugo Pig | America Decides The Yugo Is Awful | The Proton Saga | The End Of The Yugo