During 1986 Yugo sales actually increased. However the advertising budget increased as well. It was calculated that every car they sold cost around US$800 on advertising alone. Yugo America was working on very tight margins; and high salaries were being paid out to a lot of people including Bricklin himself. As so often in the past the financial situation was looking dire and Bricklin started looking around for another car that he could sell. The answer seemed to be the Malaysian Proton.
The history of the Proton is long and convoluted. A gentleman named Mahathir bin Mohamad had been the Minister of trade and industry in Malaysia which was attempting to become industrialised. to put this in motion he set up an industrial group called Heavy Industries Corporation of Malaysia (HICOM).
There was already a car industry in the country but rather than manufacture cars they merely assembled them from parts produced by other foreign manufacturers. This was no small scale operation; around 100,000 cars were built, by about 20,000 workers.
By the early 1980s bin Muhamad had determined to have a home grown car industry; suppliers in the country were already manufacturing components such as tyres and batteries, but the percentage of the cars that were made in Malaysia was very small. by 1981 he had become Prime Minister of Malaysia and able to put some of his plans to transform the car industry into effect.
The result was catastrophe.
To build a successful car manufacturing industry from scratch needed not only money but experience and expertise as well, and so in 1983 a plant was built in partnership with the Japanese company Mitsubishi, who loaned HICOM just over $140 million and took a 30% stake in the new company, whilst contracting to provide engines and transmission systems. The new company was to be called Perusahaan Otomobile Nasional, or Proton for short.
The first car to be built with the active assistance of Mitsubishi was called the Saga; this was virtually identical to Mitsubishi's own Lancer Fiore, differing only in name badges.
To encourage existing car assemblers to buy more home produced components bin Mohamad slapped a 40% duty on imported components (apart from the Mitsubishi ones brought in for the Proton plant of course) and more than 100% on finished cars in the hope that these would be manufactured locally.
There simply wasn't the infrastructure or skilled workers to do this! The assemblers had no choice but to put up their prices dramatically and this had the perhaps inevitable effect of putting most of them out of business. This could have been justified if Proton could have been an overnight success manufacturing over a hundred thousand cars a year but things don't work out that way in practice.
There were massive layoffs of car workers throughout the country and in 1985, the first year of production, a mere 8000 or so Proton Sagas were made. Even worse was the fact that only 42% of the Saga was made in Malaysia so it was still very much a Japanese car. In the meanwhile the number of cars assembled in the country had fallen from around 100,000 to just over 53,000.
To make life more difficult the Japanese yen was riding high; since the original loan to build the Proton plant had been in yen the debt that was owed to Mitsubishi was growing despite heavy interest payments. At the same time there was a worldwide industrial recession and prices of natural commodities, which were Malaysia's main currency earners, were falling. Domestic demand for the Saga was weak because although it was a pretty good car Malaysians in general were not very well paid so few could afford one.
If they were going to ramp up production and benefit from the economies of scale they would need to export, ideally to the world's biggest market which was the United States, and for that they needed an American partner with experience. Yugo America looked like being the ideal partner to deal with.
One major flaw in this idea however was Mitsubishi. And if this project failed the end was near.
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