Category: Uncategorized

THE YUGO

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THE YUGO The Rise and Fall

of the Worst Car in History

JASON VUIC

Hill and Wang A division of Farrar, Straus and Giroux New York

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Hill and Wang A division of Farrar, Straus and Giroux 18 West 18th Street, New York 10011

Copyright © 2010 by Jason Vuic All rights reserved Distributed in Canada by D&M Publishers, Inc. Printed in the United States of America First edition, 2010

Grateful acknowledgment is made for permission to reprint the following material: Lyrics to “Jugo 45” by Zabranjeno Pusenje, reprinted by permission of Dario Vitez, and lyrics to “The Bricklin” by Charlie Russell, reprinted by permission of Charlie Russell.

Library of Congress Cataloging-in-Publication Data Vuic, Jason, 1972–

The Yugo : the rise and fall of the worst car in history / Jason Vuic.—1st ed. p. cm. Includes bibliographical references and index. ISBN 978-0-8090-9891-0 (hardcover : alk. paper) 1. Zastava automobile—History. 2. Automobiles, Foreign—United States. 3. Automobiles— Yugoslavia—History. I. Title.

TL215.Z32V58 2009 629.222’2—dc22

2009025612

Designed by Jonathan D. Lippincott

www.fsgbooks.com

10 9 8 7 6 5 4 3 2 1

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For Nancy and the Gerb

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Contents

Introduction 1. Yugo Girls! 2. The Habitual Entrepreneur 3. A Canadian Sports Car? 4. Walkin’ Down a London Street 5. The Serbian Detroit 6. Bricklin’s Next Big Thing 7. The “Four-Meter Fax” 8. Destination America 9. Yugo-mania 10. “It’s Going to Be a Bloodbath” 11. The Ambassador Drives a Yugo 12. The Car-Buying Bible 13. The Proton Saga Saga 14. Thirty-five Hundredths of a Percent 15. Mabon In, Bricklin Out 16. “The Yugo Is a No-Go” 17. “ZMW, Get It?” Epilogue

Notes Acknowledgments Index

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THE YUGO

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Introduction

Q: What do you call the passengers in a Yugo? A: Shock absorbers.

The artist Kevin O’Callaghan builds really big things—really big, really poppy, really visual things, like a giant pair of glasses for the singer Elton John or TV and movie sets for A&E, ABC, and the kids’ network Nickelodeon. O’Callaghan is a master of “3-D illustration,” and teaches a course on the subject at the prestigious School of Visual Arts in Manhattan.1 Each year he sponsors several student shows. For one, titled “The Next Best . . . Ding!,” O’Callaghan gave each student a vintage typewriter and asked the class “to reinterpret” the machine in a different way. “I’ve always been interested in useless items and giving them other uses,” said O’Callaghan, whose students turned fifty decrepit typewriters into beautiful works of art.2 They were functional too. There was a gumball machine, a meat slicer, a Kleenex dispenser, an aquarium, a blender, a shoe-shine kit, a snow globe, a pay phone, even a Corona-matic-cum-waffle iron that made keyboard-shaped waffles. O’Callaghan’s other student shows have included chairs, beds, clocks, carousels, chessboards, and versions of the famed “Moon Man” from MTV.3

But O’Callaghan’s most popular show, bar none, was on the Yugo, the failed car from Yugoslavia. “I was driving around one day and saw some kids playing stickball,” he said, “and they were using a Yugo as the backstop.” O’Callaghan stopped and asked them about it. “‘Does your father know you’re doing this?’ [And the kids] said ‘Yeah, it’s a piece of junk.’” 4 As O’Callaghan drove away, he had an idea: his next show, scheduled for the main foyer of New York’s Grand Central Terminal, would involve the Yugo. “The Yugo was like the little engine that couldn’t,” said O’Callaghan. “It was the worst-designed product of all time. [So, in holding a show,] we wanted to give the Yugo a new life other than the one [it was designed for].”5 But for that, O’Callaghan needed Yugos, dozens and dozens of Yugos. He placed an ad in several New York newspapers under the caption “Yugos Wanted Dead or Alive.” He received seventy-nine calls in three days, and bought thirty-nine relatively un-dented Yugos for $92 apiece.6

Then his students went to work. They transformed the automobiles into truly eye-popping displays that one magazine called “witty, playful, [and] brilliant . . .

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impeccably crafted and technically amazing.”7 Like the Yugo Easter Island head, the Yugo Zippo, and the Yugo baby grand. There was also a Yugo accordion, a Yugo subway car, photobooth, toaster, telephone, diner, shower, movie the ater, and a cozy Yugo fireplace complete with a deer head. There was a Yugo barbecue, a Yugo confessional, and a Yugo port-a-potty with the license plate GOT2GO. The crowds loved it. In May 1995, literally thousands of people took in the exhibit, which then traveled to more than twenty cities, including Montreal. It was featured on NPR, CNN, NBC, CBS, and in newspaper and TV reports from as far away as Croatia. The National Enquirer even covered it. “We’ve gotten a better reception than we ever expected,” said Celia Landegger, the creator of the Yugo baby grand. “We’re all just blown away. Every day we’re amazed [at] how many people have heard of it.”8

“Squeezing Lemons to Make Art,” read a Washington Post headline. “Sad Little Cars Given New Life as Sculpture,” said The Dallas Morning News. In all, several dozen newspapers and magazines reviewed the exhibit, giving it high praise for its creativity, sense of humor, and optimism. The reviews also agreed that the Yugo, the tiny, unassuming $3,990 import, was a “hopelessly degenerate hunk of trash.”9 For just a sampling: “The Yugo is to cars what Milli Vanilli is to rock n’ roll” (Chicago Tribune); it was “the auto industry’s greatest fumble” (St. Louis Post-Dispatch); the “scourge of interstates every where” (Daily News [ Los Angeles]) ; “the Rodney Dangerfield of cars” (People).10 As The Buffalo News put it: “Nobody has sympathy for the Yugo. Only bad dreams. Junkyards won’t take them. Dogs never chased them. No Yugo was reported stolen, because no owner wanted it back. [And when Kevin] O’Callaghan picked up one for his [art exhibit], he got it for nothing plus a spaghetti dinner.”11

But was the Yugo that bad? Can any car, even a bad car, be a “hopelessly degenerate hunk of trash”? Why was the Yugo so reviled? Even today, a simple Google search of the terms “Yugo” and “worst car” receives more than twenty thousand hits. In 2000, listeners of the popular National Public Radio program Car Talk voted the Yugo “the Worst Car of the Millennium.”12 According to Yahoo! Answers it is “the worst car ever sold in the U.S.”13 Ditto at rateitall.com, bestandworst.com, and automotoportal.com.14 In 2008, readers of the AAA magazine Via ranked the Yugo the worst car ever and a 2007 Hagerty Insurance poll declared the Yugo the second ugliest car in history.15 It was second in Richard Porter’s book Crap Cars and was named by Time.com and Forbes.com as one of the worst cars of all time.16 The Yugo appears in Eric Peters’s book Automotive Atrocities, in Craig Cheetham’s book The World’s Worst Cars, and in Giles Chapman’s book The Worst Cars Ever Sold.17 The Yugo even has an entry in the online Urban Dictionary—collector of such useful terms as dope, snap, and dawg

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—that reads simply: “the world’s worst car.”18 Comedians use the Yugo for their jokes. “President [George H. W.] Bush again

denied that the U.S. is in a recession,” quipped Jay Leno. “I don’t know if people believed him. After his speech [he] returned to the airport in [a] presidential limo [named] Yugo One.”19 Singers sing songs about it. There’s “My Bloody Yugo” by the Legendary Jim Ruiz Group (a slick bossa nova ditty), there’s “I Drive a Yugo” by the Left Wing Fascists (a kind of alt-punk number), there’s “I’ll Stay Yugo” by the Belgian electronica group OwlMusik, and then there’s Paul Shanklin’s satirical ballad “In a Yugo.”20 Writers parody the car in books such as Florida Roadkill by Tim Dorsey; in television shows such as Moonlighting, The Simpsons, and Saturday Night Live; and in movies such as Dragnet, Bowfinger, Drowning Mona, Nick and Norah’s Infinite Playlist, and Die Hard III. Advertisers spoof the Yugo in commercials for Yahoo! and Midas, kids destroy the Yugo in games such as Grand Theft Auto IV and Carmageddon II: Carpocalypse Now, and university professors study the car’s importer, Yugo America Inc., in order to show students how not to run a business.21

In short, the Yugo is an icon. “People made fun of the Edsel,” wrote one author, “Ford’s $400 million mistake . . . [but] at least the Edsel worked . . . The dreadful Yugo, on the other hand, was both hard to view on a full stomach and an out-and-out vile little car that stretched the most generous usage of [the terms] ‘shoddy’ and ‘slapped together.’ The car was less reliable than . . . a Halliburton financial disclosure . . . [and] will likely hold in perpetual ignominy the title of ‘Worst Car Ever Sold to the American Public.’”22 Strong words, but what do we know about the Yugo? Who imported it? Who made it? And why? One would think that such an iconic automobile would have a story behind it, a tale, but what most Americans know are the jokes: How do you make a Yugo go faster? Use a tow truck. How do you double the value of your Yugo? Fill the gas tank. What’s included in every Yugo owner’s manual? A bus schedule.

But what Americans don’t know, for instance, is that it was the fastest-selling first-year European import in U.S. history. Or that when the Yugo went on sale in America, there were lines at some dealerships ten deep. Or that Yugo dealers once sold 1,050 cars in a single day. Or that Chrysler once offered to buy the company, or that its CEO, Malcolm Bricklin, was the first person to bring Subaru to the United States. What Americans do know is that the Yugo was bad, really bad, but relatively few people have ever seen one. The company sold, at most, 150,000 cars between 1985 and 1992. Since then, their numbers have dwindled to perhaps 1,000 working Yugos. (And that’s generous: as of 1999 there were more than seventeen million registered vehicles in Florida, but just one registered Yugo.)23

So was the Yugo that bad? Yes . . . by almost any measure. It was cheap, poorly built, somewhat unsafe in a crash, prone to breakdowns, and dirty emissions-wise,

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and for such a small automobile its gas mileage was poor. In 1986, Consumer Reports wrote that it was better to buy a good used car than a new Yugo. That same year the Yugo ranked thirty-three out of thirty-three in a J.D. Power and Associates consumer satisfaction survey, and in a series of 5-mile-per-hour crash tests conducted by the Insurance Institute for Highway Safety (IIHS), it sustained a whopping $2,197 in damage, more than twenty-three other cars. In 1987 it topped both the Massachusetts and New York state Lemon Indexes, and in 1988, in the midst of a Motor Trend magazine road test, the Yugo GVX broke down. The Yugo was also last in a North Carolina emissions test and last in a Car Book survey of resale values, and in a report published by the IIHS the Yugo had the eighth highest death rate of any 1984–88 model-year automobile on the highway between 1985 and 1989. So, yes, the Yugo was bad.

But was it the worst car in history? No. Any ranking is subjective, but as a rule if an automobile passes U.S. safety and emissions tests it is a relatively decent car. Not necessarily a good car or a reliable car, but one that has met certain basic, presale standards that are among the toughest in the world. Said one Peugeot executive, whose company left America in 1991, “There were considerable changes [we had to comply with]. Emissions systems, injection equipment, [and] on-board diagnostics are all different on U.S. vehicles . . . and [they] must be reinforced for crash requirements and fuel-system integrity . . . It [simply] has to be done.”24 One Mercedes manager estimated “that the company sold 15 percent of its cars in the U.S., [but] had 50 percent of [its] engineers working on U.S. emissions problems.”25 The standards were that tight. Thus, there’s a reason why Russian Ladas and Samaras aren’t sold here, or why Indian Tatas or Malaysian Protons or Chinese Dongfengs haven’t captured the American market (though, in the case of Chinese cars, this may indeed happen).

For my vote, the worst car ever sold in America was the Subaru 360, a car so light it was exempt from federal safety regulations and was considered a covered motorcycle (see Chapter Two). It had forward-opening “suicide doors,” burned a quart of outboard motor oil every 260 miles, and had front and rear bumpers that were several inches lower than those of any car on the road. Consumer Reports rated it “not acceptable.” Then there was the super-mini BMW Isetta, which in the 1950s was banned from California’s freeway system for being too small and too slow, and the three-wheeled Messerschmitt (yes, of German Luftwaffe fame), which sat two passengers in tandem, had a handlebar instead of a steering wheel, had no reverse gear, and started with a pull chord. (You may have seen it in the film The Addams Family, where it was driven, fittingly enough, by Cousin Itt.) So no, the Yugo wasn’t the worst car in history, not by a long shot.

What the Yugo was was a dated automobile, even in 1985. The car was based on the Fiat 127 and the Fiat 128, both utilitarian subcompacts conceived in the

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1960s. Thus, the Yugo was incredibly spartan: the original GV model came only with a stick shift. It had no radio, no air-conditioning, no air bags, and no tachometer; its windows were hand cranked, of course, and it lacked even a glove compartment. “To understand [the Yugo], you’ve got to look at it strictly in terms of fundamental transportation,” wrote Car and Driver. “[It is a] cheap, no-frills appliance.”26 The Yugo was cheap. At $3,990, it was the least expensive new car in America. (With dealer financing, a new Yugo cost just $99 a month). It was pitched as a generic people’s car; a new Volkswagen; in the words of the man principally behind its introduction to America, Malcolm Bricklin, “a nineteen-cent hamburger with meat.”27 In the fall of 1985, people flocked to buy it. Hundreds bought Yugos sight unseen. Though a dull little car built in communist Yugoslavia, the Yugo was a hit—no, a mania, something the Associated Press called a “Yugomania.” It didn’t last. Critics panned the car for its poor quality. Sales dipped, Bricklin sold the company, and Yugo America went bankrupt in 1992.

That should have been it, but by then the Yugo was firmly ensconced as the worst car in history, a car that Americans love to hate. It’s true. We hate the Yugo. The Brits hate it too. (In 1996, British TV journalist Jeremy Clarkson called the Yugo “a hateful, hateful car,” and destroyed one sorry example with a shell from a Chieftain tank.)28 The question is: Why? Why are bad cars pop icons, and why is the Yugo the greatest bad-car pop icon of all time? The answer is in this book. The Yugo story is in this book. It is the sad, sometimes funny, and altogether fascinating tale of how entrepreneur Malcolm Bricklin brought the Yugo to the United States. It is a short history of the worst car in history.

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Yugo Girls!

Q: How do you double the value of your Yugo? A: Fill the gas tank.

The original idea to sell the Yugo in America came from California entrepreneur Miroslav Kefurt, who in March 1984 imported three Yugo 45s for display at the Los Angeles AutoExpo. Slight of build yet long in personality, Kefurt was a character. He had come to Los Angeles in 1969 from Prague, Czechoslovakia, where he and his father sold used cars. The Kefurts specialized in one model, the Fiat 600, which they sold in one color: red. “It wasn’t that Czech car buyers were demanding red Fiat 600s,” remembers Kefurt, “it was because private car dealing was illegal.”1 Technically, Czech citizens could sell their cars only after their odometers had reached 5,000 kilometers. But buying and selling used cars in quantity, as a business, was against the law. Thus, there were no used car lots in communist Czechoslovakia. Buyers simply found their cars through word of mouth or ordered new cars directly from Czechoslovakia’s two main auto producers, Skoda and Tatra.

However, like all Soviet bloc countries, Czechoslovakia had government waiting lists for new cars. To buy a Tatra 613, for instance, car buyers paid full price in advance, then waited six months to a year for delivery. The buyer had no say over the car’s color or interior, and received no warranty of any kind.2 “That was one of the flaws of a communist country,” states Kefurt. “Somebody in the government would make a decision of how much of anything could be exported, imported, manufactured, or sold . . . It was the same thing with cars. The government didn’t make enough new cars, so a black market developed for used ones . . . But since it was illegal for people to deal in used cars as a business, my father had to be careful. That’s why he bought the same make and model [the Fiat 600] over and over, then drove the cars for five thousand kilometers before selling them at a profit. Nobody could tell these were all different cars. It was good business.”3

Kefurt’s father was a tour guide by profession, which meant he could acquire new Fiat 600s during business trips to northern Italy. He would buy a car, drive it back to Czechoslovakia, then bribe a guard at the border. “Bribes always worked in those days,” remembers Kefurt. “You could bribe anyone for anything.”4 His

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father bought three or four Fiats per year, and each family member had a Fiat registered to them. The goal was to put 5,000 kilometers on each car, a daunting task for the Kefurts, considering the poor roads and lack of interstates in Czechoslovakia. In 1967, for instance, the Central Intelligence Agency estimated that Czechoslovakia had 46,000 kilometers of roads, of which only 10,000 kilometers were paved. By contrast, the United States had over 3 million kilometers of roads, of which 1 million were paved.5 That was when Kefurt’s father had an idea. He and his son would race their Fiats in local road rallies to burn the 5,000 kilometers.

Kefurt began racing at age fourteen; at sixteen, he placed in one of Czechoslovakia’s main road rallies and was well on his way to becoming a professional driver. But in 1969 Kefurt decided to leave Czechoslovakia to live with an uncle in the United States. Through various family connections he secured an exit visa and began working at his uncle’s restaurant in West Hollywood, California. Kefurt arrived in the United States in 1969, the same year as Woodstock, the launching of Apollo 10, and the first troop withdrawals from Vietnam. As a student at Hollywood High he found most of his friends owned muscle cars: Pontiac Firebirds and Plymouth Barracudas. They were a far cry from Kefurt’s Fiat 600.

One day while walking along Santa Monica Boulevard, Kefurt passed a Honda motorcycle dealership, which had just displayed the company’s first-ever imported automobile in its showroom window, a tiny two-door sedan known as the 600. By almost any measure, the Honda 600 was a midget. At a length of 125 inches, the 600 was nearly three feet shorter than the Volkswagen Beetle. At 1,355 pounds, it also weighed 500 pounds less than the Beetle. In addition, the Honda 600 had a four-speed manual transmission, a unibody steel construction, and reached a top speed of 80 miles per hour. The price: $1,275. Kefurt was in love. “Compared to the Fiat 600,” he states, “the Honda 600 was a rocket.”6

Like many small-car enthusiasts, Kefurt favored the 600’s handling to that of larger and more powerful muscle cars. He eventually bought other 600s and opened a business fixing the cars for Hollywood-area owners. Though Honda stopped selling the 600 in 1972, in the early 1980s Kefurt discovered that people were willing to spend thousands of dollars to restore their tiny 600s. The car had a real following, so much so that Kefurt developed a profitable Honda 600 business and was known locally as a small-car guru. He drove and tested not only Hondas but also any other small car he could find. In 1982 Kefurt read that socialist Yugoslavia was producing a new two-door hatchback based on the Fiat 127 and with a 903cc, 45-horsepower engine.

Known as the Yugo 45, the car was cheap (by American standards) and, in Kefurt’s words, “an import opportunity just waiting to happen.”7 The Yugoslavs

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planned to export the car to Great Britain in mid-1983 but had no such plans for the United States.8 Therefore, in the summer of 1982 Kefurt hopped into his Honda 600 and drove to the Yugoslav consulate in San Francisco. At the time, socialist Yugoslavia had consulates in California, Illinois, New York, Ohio, and Pennsylvania, as well as a sprawling embassy complex in Washington, D.C.9 In San Francisco, Kefurt met with an official commercial attaché who assisted him in contacting the Yugoslav auto manufacturer Crvena Zastava, the maker of the Yugo 45. Located ninety minutes south of Belgrade in Kragujevac, Serbia, Crvena Zastava had been established in 1953 in a failing armaments plant in the city center.

The name Crvena Zastava means Red Flag in Serbo-Croatian, as in the red flag of communism. In later years the Yugo 45 would send up a different red flag among Western consumers. According to economic historian Michael Palairet, the car “was badly built, like all Zastava’s cars, and bottlenecks of every kind limited output.”10 Although in 1962 Zastava teamed with Italian car manufacturer Fiat to build a new $30 million factory on the outskirts of Kragujevac, by the 1980s its facilities were outdated.11 According to one observer, “By US, Japanese and Western European standards, the Zastava works are a throwback to the Dark Ages —a Diego Rivera mural choreographed live. Noisy, smoky, and in many places poorly lit, the facilities teem with workers . . . OSHA [the U.S. Occupational Safety and Health Administration] would have a field day here.”12 Zastava also lacked many of the production standards then common in the West, which was the direct result of being the only true car manufacturer in a protected market.

Kefurt had never been to Kragujevac. He also had no experience with Zastava’s low-quality motorcars. But he knew that the Yugo 45 was essentially a Fiat, a car sold in the United States in one form or another since 1957. Even though Fiat had announced that because of poor sales it was leaving the American market, Kefurt believed that he could “keep” Fiat in the United States by importing the Yugo.13For that, however, he needed a license, so with the help of the Yugoslav commercial attaché in San Francisco, in 1982 Kefurt sent a telex to Yugoslavia’s state-run export company Genex. Short for General Export, Genex was socialist Yugoslavia’s main trading house, whose job it was to sell consumer goods and other commodities for over 1,200 domestic firms. In 1982, Genex did $4 billion in business. The company had offices in some seventy countries and in 1986 introduced McDonald’s to Yugoslavia.14

Genex put Kefurt in touch with Zastava, but officials there were skeptical that consumers in the United States would buy Yugos. Remembers Kefurt, “They told me that Americans wanted V-8s, that Americans wanted air-conditioning and automatics and that Zastava just didn’t make them.”15 Nevertheless, Kefurt was determined. He pestered Zastava until late 1983, when the company awarded him

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Yugo 45 distribution rights for the state of California. There were no contracts, no negotiations, and no paperwork. In fact, Kefurt’s Yugo license, if it could be called a license, was a one-page telex. It stated that beginning with the 1985 model year, Zastava would provide Kefurt with five thousand cars annually. The telex said nothing of price. What is more, Zastava offered no guarantees and demanded that Kefurt pay for each car up front.

License in hand, in November 1983 Kefurt ordered three Yugo 45s from Kragujevac. They cost a grand total of $7,200 and were shipped to Los Angeles in a forty-foot container that arrived in March 1984. Kefurt was beside himself. He’d spent less than ten grand and was now owner, president, and CEO of YugoCars, Inc., the official distributor of Yugo 45 automobiles from Yugoslavia.16 Kefurt knew it was a long shot, that most Americans wanted V-8s, and air-conditioning, and automatic transmissions. But timing was on his side. Just two months earlier Yugoslavia had hosted the XIV Winter Olympiad in Sarajevo and ABC had given the Games over sixty-three hours of television coverage.17 There were Sarajevo placemats at McDonald’s, Sarajevo postage stamps from the U.S. Postal Service, even a thermos and bowl set from Campbell’s, the “official soups” of the 1984 Winter Olympics.

Night after night, reporters praised Yugoslavia for its efficiency. The Yugoslavs have done “every thing capitalists say socialists can’t do,” exclaimed one.18 Buses “run frequently and on time . . . Messages are delivered quickly . . . [and arriving American journalists are] whisked to their village, assigned porters, and shown to [their] rooms . . . Skeptics said [Yugoslavia] couldn’t handle a modern Games. Well, wherever Marshall Tito is these days . . . he must be smiling. What the Yugoslavs have pulled off is a tribute to the virtues of nonaligned socialism.”19 The Sarajevo Games closed on February 19, 1984, and were described by Juan Antonio Samaranch, the International Olympic Committee president, as “the best organized Winter Games in the history of the Olympic Movement.”20

Next up: Los Angeles. As Kefurt waited for his first shipment of Yugos to arrive in California, Los Angeles readied itself for the 1984 Summer Games. The Games’ chief organizer, Peter Ueberroth, actually “wondered aloud whether Los Angeles would be able to muster the [same sort of] enthusiasm that Sarajevo had” in supporting its Olympics, then praised Yugoslavia for being one of only three communist countries then planning to attend.21 (The others were China and Romania.) Since early May, a group of fourteen communist countries led by the Soviet Union had been boycotting the Games because, as the Soviets claimed, the U.S. government had failed “to guarantee the safety of Soviet athletes” in Los Angeles or “squelch the activities of private anti-Soviet groups in California.”22

The Soviets alleged that CIA operatives were planning to give psychotropic drugs to Russian athletes in order to “trick” them into defecting, and had “infiltrated

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members of terrorist and extremist [groups]” into Ueberroth’s organizing committee.23 Ueberroth was livid. If the Soviet Union and its allies failed to make it to Los Angeles, over half of the world’s “world champions” would be absent.24 It’ll be a “second-rate competition,” said one official, “really no competition at all. [It’ll be like a] Pan Am Games with Asians and Africans . . . I mean, what kind of Olympics [is] that?”25 To ABC, the Games would be a bore, a profit-killing, audience-shrinking bore, which is why, in its contract with Ueberroth, it had stipulated that if the Soviet Union chose to boycott the Olympics, Ueberroth’s organizing committee would refund the network upwards of $90 million in fees.26

Although Ueberroth and ABC settled on a much lower figure, as of May 1984, Los Angeles needed a boost, something to remind viewers that America’s first summer Olympics in over fifty years wouldn’t just be competitive, it’d be watchable—in industry terms, “good TV.” As it stood, ABC planned over 180 hours of coverage through two full weeks, nearly thirteen hours a day. For months, it had been charging companies as much as $260,000 for a thirty-second spot and had already sold over $428 million in airtime.27 “If ratings turn out to be less than expected,” wrote The Wall Street Journal, “advertisers may ask ABC for compensation in the form of credits,” maybe even refunds.28 Thus, when China, Romania, and Yugoslavia defied the Soviet boycott and sent teams to the Olympics, they were quickly dubbed Los Angeles’s “great Red hopes.”29

The Yugoslavs called the boycott deplorable and, in mid-May 1984, announced they were sending their largest Olympic team ever: 223 athletes competing in 19 different sports. As one Yugoslav coach put it, “We didn’t discuss the boycott at all. [And] why should we? We are an independent country, and we do what we feel is right. We will not be told what to do by the Soviet Union, or anybody else.”30Yugoslavia had been independent of Moscow since 1948 when its leader, Josip Broz Tito, announced he was pulling the country out of the Soviet bloc. In the coming decades, Yugoslavia maintained good (if not close) relations with both superpowers, but refused to ally itself with either. By 1984 its foreign trade was almost equally distributed between East and West.31 Yugoslavs drank Coke, wore blue jeans, did business with American firms such as Dow Chemical and Westinghouse, and traded their farm produce for Soviet oil. They “liked to play both sides equally,” said one former diplomat. “They could really straddle the fence.”32

Yugoslavia was neutral politically, and since it had already competed in the 1980 Moscow Olympics, which the Americans had boycotted, it saw no reason to boycott the 1984 Games. “Sports are meant to be liberated from all political influence,” said Ahmed Karabegovic, a Yugoslav Olympic official from Bosnia. And besides, “where the Olympics are concerned, the most important element is

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business.”33 The Yugoslavs had learned that lesson in Sarajevo, where they’d made, by some estimates, at least $20 million.34 They wouldn’t make anything in L.A. They were only participants. But the Yugoslavs hoped that their anti-boycott stance, so praised in the press, would be a good form of “company” PR. And in fact it was. At the Games’ opening ceremonies, the Yugoslav team entered the Los Angeles Coliseum to thunderous applause, second only to the Americans’.35

Yugoslav officials no doubt hoped that Americans’ goodwill toward Yugoslavia would mean that they’d buy, for instance, Yugoslav wines (such as Avia, which Coke distributed) and Yugoslav tools, furniture, and textiles. Who knows? Maybe even cars. At least that’s what Kefurt hoped. But then his Yugos arrived. They were red, white, and blue. They had yellow French headlights, tartan interiors, and retread tires. They were three of the worst cars Kefurt had ever seen. “I almost cried,” he says. “Before then I had only seen pictures and the pictures were nice but now we can’t start things. The doors don’t lock. The windows don’t go up and down. Then I find paperwork in one of the cars saying that these three were factory rejects. They were supposed to go to France, but there were so many problems with them, the French sent them back!”36 Kefurt and his mechanic spent the next three weeks making the cars presentable. To the red Yugo, Kefurt added a sunroof, mag alloy wheels, and a “super-duper” stereo system, which he claims cost more than the car. He also took the red Yugo to Olson Laboratories in nearby Fullerton, Cal i fornia, where it underwent a series of emissions tests required by the state’s Air Resources Board (CARB).

The CARB set strict emissions standards for all new automobiles sold in California, which the Yugo promptly failed. The car performed poorly on its tests because it continued to use an antiquated carburetor. Thus, to sell Yugos in the United States, Kefurt faced a choice: he could equip the car with a cleaner carburetor, or he could replace the Yugo’s carburetion system with electronic fuel injection.37 Either way, he needed help from Zastava. “The carburetion was bad,” remembers Kefurt. “So it was my decision to have a fuel-injected car. The fuel injection designed by Bosch in those days was fantastic, but Zastava wasn’t interested. I realized then that these guys didn’t want a successful car.”38

Undeterred, Kefurt made plans for the Los Angeles AutoExpo. He printed up Yugo 45 brochures, signs, and promotional literature, then recruited his wife and four teenage models to wear tight Yugo 45 T-shirts and miniskirts and attend the Expo as his “Yugo Girls.” The Expo took place in June 1984 in the Los Angeles Convention Center. Kefurt’s display included his red, white, and blue Yugos, a plain, unadorned table, and folding chairs for his Yugo Girls. For some reason the Expo’s organizers had given Kefurt a premium display space next to the main entrance and directly opposite Mercedes-Benz. As a result, thousands of people visited Kefurt’s Yugo exhibit, where his five Yugo Girls were a hit. By show’s end,

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they had distributed four hundred Yugo T-shirts and twenty thousand Yugo brochures, and had taken forty-two $100 deposits on back-ordered automobiles. To demonstrate the Yugo’s toughness, Kefurt spoke to potential buyers while standing on the car’s roof. When at one point he dented the roof, he jumped down, reached inside, and popped out the dent out with a loud Thwop! “Go try that at Mercedes- Benz,” he said, “and see what they tell ya! Go stand on a Mercedes!”39

Eventually Kefurt’s Yugo exhibit drew the attention of Paul Dean, a reporter for the Los Angeles Times. “When the Big Three and the European Eleven and the Oriental Six go to car shows,” wrote Dean, “it’s a million-dollar bazaar of revolving neon and Simonized gloss beneath sequins . . . Then there’s the Yugo 45 and Miroslav Kefurt. His booth is five folding chairs around a rented table and no potted chrysanthemums because they cost extra. The models, female, are Kefurt’s secretary and her Sun Valley friends uniformed in company T-shirts and red miniskirts. And the models, vehicular, are sedans made in Yugoslavia from a decade-old body design around an engine that’s been in production for 27 years.”40

Dean’s depiction of the cars themselves was direct—some might say brutal. Likening them to Spam cans with orange tartan interiors only the color-blind could love, he offered the opinion that their bumpers “wouldn’t smother a collision with a bowling ball.”41

However, to Dean, the Yugo wasn’t all bad. Its low price and its Fiat-built engine were in his words “a pretty hefty combination,” while the beauty of the Yugo, wrote Dean, was in its “plainness.” The Yugo is “simple, utilitarian, [and] honest. It performs the way it looks, and that look tells [you] exactly what it was built to be . . . a commuter car.” Quoting Kefurt, Dean then compared the Yugo to the Ford Model T, the Volkswagen Beetle, and the Citroën DV2, giving it high praise as an inexpensive people’s car, a reminder of when automobiles “were for transportation, not status,” when “turbo-charging was for airplanes and racecars,” and when “lifting the hood revealed an engine, not electronic plumbing.”

Although most likely Dean had never driven a Yugo—and although he had no idea that one of Kefurt’s three floor models had broken downen route to the AutoExpo—he portrayed the Yugo as a dependable foreign car and allowed Kefurt to pontificate on the Yugo’s supposed virtues. “It comes with no surprises,” stated Kefurt. “Everything fits, every thing works, and it’s designed to last 15 years.” Moreover, the Yugo “comes with a 10-year or 100,000-mile warranty . . . If anything major goes wrong with the engine you bring the car in and we change the engine because to us that’s the cheapest way.”42

Of course, the Yugo had no warranty: Kefurt’s entire contract with Zastava was that one-page telex awarding him five thousand cars per year. Zastava expected cash in advance. The contract made no promises to Kefurt and offered no guarantees of any kind. Thus, like any good salesman, Kefurt was telling buyers

19

what they wanted to hear: that the Yugo was a smart, economical car “for people tired of model changes and [tired of] planned obsolescence.”43 And, at $4,500, the Yugo would be the least expensive new car sold in the United States. In 1984 the average compact car cost $9,113, with the cheapest car being the Chevrolet Sprint at $5,151. According to the Hertz Corporation, in 1984 the average cost to own and run a compact car in the United States had reached an all-time high, amounting to 45.67 cents per mile. That figure was 5.5 percent higher than in 1983, and 172 percent higher than in 1972. The bottom line, reported Hertz, was that even small cars were expensive and that during the past twelve years motorists had been “drivingless, keeping cars longer, and buying smaller vehicles with fewer options.”44

Known as “econo-boxes,” these vehicles were almost exclusively Japanese. In 1980, six Japanese companies exported over 1.8 million cars to the United States, a staggering 27 percent of the American market.45 On average, Japanese cars were cheaper, better built, and more fuel-efficient than their U.S. counterparts were. In 1980, for example, only one American-designed car, the Chevrolet Chevette, had a fuel efficiency rating of more than twenty-five miles per gallon.46 By contrast, eleven Japanese cars did, with eight Japanese cars averaging more than thirty miles per gallon.47 In addition, nearly 50 percent of Detroit engineers queried in 1979 believed that Japanese cars were the highest-quality cars sold in the United States. (In the same poll, American cars received just 27 percent, while German cars received 23 percent).48

Interest in smaller, more efficient cars had been growing in the United States since the mid-1960s, but exploded with the twin world oil crises of 1973 and 1979. In both instances, the Organization of Petroleum Exporting Countries increased the price of crude oil, causing U.S. gasoline prices to jump from 39 cents per gallon in 1973 to $1.38 per gallon in 1979.49 Consumers reacted by buying cheap econo-box imports. In 1980, a record 2.3 million Americans purchased some $13 billion in foreign-made automobiles. That same year, import sales jumped 21 percent, while sales of domestic cars plummeted 11 percent, to their lowest level since 1961.50

The result was a wave of red ink for American automakers. In 1980, General Motors recorded its first loss in modern history ($ 762 . 5 million) . Ford lost $1. 5 billion, Chrysler a staggering $1.7 billion, which at that time was the largest twelve-month operating loss in American corporate history.51 Decreased auto sales naturally meant layoffs, the kind not seen in Detroit since the days of the Great Depression. At least one-third of Detroit’s automotive workforce was on “indefinite layoff” in 1980, an estimated 210,000 workers.52

The situation grew so bleak that many in the United States began calling for congressional action limiting the importation of foreign (specifically Japanese)

20

cars. However, before Congress could respond, in early 1981 the Japanese Ministry for International Trade and Industry announced a “voluntary export restraint” (VER), which in effect was a self-imposed quota on auto exports to the United States. The quota for 1981 was set at 1.68 million cars, divided among each Japanese automaker in proportion to its 1979 sales. The VER “was intended to halt the growth of Japan’s share of US car sales,” wrote one economist, “and to provide the United States with time to catch up with the Japanese in producing smaller, more fuel-efficient cars.” But “rather than improving our competitive advantage, the VER encouraged the Japanese to begin producing larger, more expensive cars.”53 The goal was higher profit per unit.

Thus, instead of boxy econo-cars, Japanese manufacturers started to build luxury sedans such as the Nissan Maxima and the Honda Accord LX. In 1982, the Accord LX model featured such standard items as velour upholstery, electronic warning system, tachometer, remote trunk release, and intermittent wipers. The 1982 Accord LX was also 2.8 inches wider than the 1981 model and cost over 20 percent more. Likewise, in 1982 Nissan renamed its Datsun 810 model the Maxima and raised its base price from $8,329 to over $11,000.

Although Honda, Toyota, and Nissan continued to sell cars in the mid-$5,000 range, by 1984–85 they had more or less vacated the econo-box market. The push for upscale automobiles meant that even the tiny Honda Civic, heretofore the gold standard of subcompact cars, had the same wheelbase in 1984 as the midsize Honda Accord.54 Gone were the days of shoe-box automobiles and gone, too, were mega-cheap Japanese cars. “At the moment,” stated one industry observer, “there really aren’t any $5,000 cars . . . [available] in the United States because the profit margins on those kinds of cars are little, or nonexistent.”55 But as Miroslav Kefurt discovered in July 1984, the Yugo 45 was profitable—or rather, potentially profitable—provided, of course, that U.S. car buyers wanted Fiat hybrids made by Zastava.

Odds are they didn’t, but if the Los Angeles AutoExpo was any indication, the Yugo was interesting. For not only had Kefurt taken $4,200 in deposits, he’d also received inquiries from close to a dozen dealers interested in selling the Yugo. Like Kefurt, the dealers realized that a niche market existed in the United States for import minicars priced at under $5,000. In neighboring Canada, for instance, the Hyundai Motor Company of Korea had sold more than 2,200 subcompact Pony models in the first three months of 1984.56At $4,530, the Pony soon became the most successful first-year import ever sold in Canada, “a warm-up,” wrote The Wall Street Journal, “for what Hyundai sees as its real battle in the U.S.”57 Although Hyundai scrapped the Pony before exporting a new car stateside in 1986 (known as the Excel), the company’s Canadian venture proved that cheap, outmoded automobiles could sell well in North America, and for a profit at that.

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2

The Habitual Entrepreneur

Q: How do you make a Yugo go faster? A: Use a tow truck.

As of May 1984, few people in the world had had more experience with cheap, outmoded automobiles than Malcolm Bricklin. In 1968, Bricklin had cofounded Subaru of America and had imported a 10-foot-long, 965-pound Japanese car known as the 360. Priced at $1,297, the diminutive 360 was so structurally unsound that Consumer Reports rated it “not acceptable.”1 In 1983, Bricklin’s International Automobile Importers sold Pininfarina Spiders and Bertone X1/9s, smallish Italian sports cars originally designed in the 1960s. The cars, which both had engines made by Fiat, sold poorly in the United States and motivated Bricklin to search for another vehicle. As fate would have it, the vehicle he found was the Yugo.

Born on March 9, 1939, in Philadelphia, Pennsylvania, Malcolm Bricklin was, in business school parlance, a “habitual entrepreneur.”2In 1958, at the age of nineteen, he dropped out of college to work for his father’s building supply business in Orlando, Florida. Bored with life and uninterested in working a forty- hour-a-week job, Bricklin had an idea: he would parlay his experience in the building supply business to sell franchises in Handyman America Inc., a chain of hardware stores backed by corporate advertising, computer-based inventory, and a central warehouse. The problem was that in 1962, the year Bricklin came up with the idea and began selling his Handyman franchises, he owned just a handful of stores. He did not have a warehouse.

“Bricklin’s adventures in business,” wrote one author, “for all their twists and turns,” had “a pattern to them. Everything he touched turned to franchises . . . Franchises are promotions. They are an idea sold for a fee. [They became] almost a reflex action with him: think of an idea and franchise it.”3 In the case of Handyman America Inc., Bricklin’s franchise fee was $15,000. Although later he claimed to have had 147 stores under license (which he didn’t; Bricklin reportedly had sixteen maximum), he found that no matter how many franchises he sold, he still couldn’t afford a warehouse.4 And Bricklin needed a warehouse to make the plan work: as part of the $15,000 franchise fee, Handyman America Inc. agreed to supply merchandise to each Handyman store.

To raise money for a Handyman warehouse, Bricklin expanded his franchise

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system to include territorial licenses in which buyers would have the exclusive right to sell Handyman franchises in specific regions, such as the Midwest. The territorial franchise fee was $250,000. According to H. A. Fredericks and Allan Chambers, authors of the 1977 book Bricklin, in mid-1964 Bricklin used fraudulent asset figures to dupe three California businessmen into making a $95,000 down payment on a territorial Handyman license for the western United States.5 Apparently, Bricklin told the men that Handyman America Inc. had assets of $868,000, including $75,000 in cash, when the company in fact had few assets to speak of. Bricklin used the same technique to attract additional investors in Florida and New Jersey respectively, telling one man that Handyman America Inc. expected to sell a whopping ten thousand franchises by the end of the decade.6 According to Fredericks and Chambers, this was all pie in the sky, for Handyman wasn’t a company, it was a sales pitch, an idea—to its investors, a fraudulent scheme.

Needless to say, in spring 1965 Handyman America Inc. went bankrupt. The company listed debts of $864,510, assets of $237,906, and just sixteen stores.7 Fourteen of these stores were in Orlando, although Bricklin would later claim to have founded a “nationwide” chain of hardware stores. In fact, in 1965 the only thing “nationwide” about Handyman America Inc. was its chain of jilted investors. These investors sued Handyman in court in California, Florida, and New Jersey, claiming Bricklin had tricked them into buying franchises and/or territorial licenses through the use of cooked books. The court ruled in favor of Bricklin’s investors just prior to the Handyman bankruptcy.

Twenty-six and broke but completely undeterred, Bricklin left Orlando in mid- 1965 to become president and CEO of a one-man consulting firm in Philadelphia. Although he and his wife rented a very modest apartment in the city, Bricklin often told people that he had sold his Handyman interests for $1 million after taxes. “For the first time in my life,” reminisced Bricklin in 1974, “I was scared. Until then, every thing I had done I’d done without money. Now it was my money, and if I made a mistake, it was gone. And I was a millionaire—but if I spent one dollar, I wasn’t anymore.”8 But Handyman investors told a different story. When asked to comment on Bricklin’s claim that he had sold Handyman America Inc. for $1 million, the investor W. Quealy Walker of Sea Isle, Georgia, exclaimed: “I’m the one he was supposed to sell out to, so I ought to know. He did not make one nickel when he got out of Handyman. A million dollars! That’s the biggest damn fool lie I ever heard.”9

Whatever the case, in 1965 Bricklin gave up his Handyman aspirations and attempted to sell Italian-made jukeboxes (known as Cine Boxes) that played music and videos at the same time.10 At one point he traveled to Italy to negotiate sole distribution rights with the Cine Box’s manufacturer. Those negotiations failed, but Bricklin secured a meeting with officials from Innocenti, a Milan-based company

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that produced Lambretta scooters. “After I sold out the Handyman franchises,” remembers Bricklin, “I came back to Philly and opened up a consulting firm. The way I did this was by saying, I’m now a consulting firm. I went to Italy and met the people who ran the Innocenti company. Their Lambretta scooters [were] big there but they never went over here and as a result they had a shitload of unsold scooters in New York. I told them my consulting firm would be glad to get rid of them all. Certainly they were interested. So I said I wanted $5,000 a week to unload them. I figured they’d choke on that . . . [but when] they said fine, I near crapped myself.”11

True to his word, Bricklin sold Innocenti’s entire American inventory, hustling back and forth between Philadelphia and New York in a rented Rolls-Royce. Whether or not Bricklin made any real money with Innocenti is debatable, but in 1967 he began selling a second scooter known as the Rabbit, a product of Fuji Heavy Industries of Japan. Fuji was the parent company of Subaru, which in May 1966 had introduced the 1000 Super Deluxe, a four-cylinder, front-wheel-drive subcompact that was a hit among Japanese consumers. Bricklin believed the 1000 Super Deluxe could sell in the United States if only he could import it; however, the bosses at Subaru were unwilling to make the necessary safety modifications required by the U.S. government.12 Undaunted, Bricklin began researching these regulations. He found that under Federal Motor Vehicle Safety Standards, any vehicle weighing under 1,000 pounds was officially exempt.13 Be it four-wheeled, two-wheeled, three-wheeled, it didn’t matter. If it weighed less than 1,000 pounds, it was—to U.S. regulators—the same as a motorcycle.

Unfortunately for Bricklin, the 1000 Super Deluxe weighed some 1,500 pounds. Therefore, in order to import Subarus to the United States and avoid costly repairs, Bricklin needed to downsize. And downsize he did, to the 965-pound Subaru 360, a car that “bore a striking resemblance to a ladybug.”14 The 360 was short, stout, and goofy. In the words of one author: “It was . . . wretched. Its headlights sat recessed inside cylinders that looked like late-model stovepipes, on two sides of a distended hood that resembled an anteater’s snout. The rolling pitch of the front fenders, which continued across the sides of the stubby car all the way to its attenuated rear, made the sedan look as if it had the mumps.”15 According to Car and Driver, the Subaru 360 was one of the ugliest cars in history, in its characterization “the most bulbous bubble ever to putt-putt.”16

But the 360 was an automobile. It had an air-cooled, rear-mounted engine. It sat four people, had a top speed of 55 miles per hour, and got an impressive 66 miles per gallon.17 The 360 was also cheap. Very cheap. Bricklin could purchase Subaru 360s in Japan and ship them to the United States for approximately $650 apiece. All he needed now was a contract. The problem, however, was that few if anyone at Subaru believed that selling cars in the United States was possible. Although a sizable manufacturer, Subaru’s rival Nissan had had only limited success in the

24

United States with its Datsun Bluebird series, purchased for the most part by California hippies and foreign-born Japanese. Honda had yet to try the American market, while even Toyota had failed to see any real success in the United States until it introduced the Corona model in 1966.

Thus, it was with very low expectations that Subaru awarded Malcolm Bricklin an exclusive four-year distribution contract in 1968. The contract obligated Bricklin and partner Harvey Lamm to purchase two thousand cars the first year, with an increase of one thousand cars per year through 1971. Subaru could cancel the agreement if either America or Japan changed its import or export regulations, if “circumstances” made participation by either party “physically or financially infeasible or extremely difficult,” or if Subaru quit producing the 360.18 To sell the 360, in February 1968 Bricklin and Lamm incorporated a new company known as Subaru of America. Bricklin’s investment was $50,000, Lamm’s investment $25,000, far less than the $1.3 million in capital they needed to import two thousand Subarus. Their plan was to sell the Subaru 360 wholesale to a network of independent dealers throughout the United States, who in turn would offer the car for $1,297. Their slogan: “The Subaru 360 . . . Cheap and Ugly Does It!”

Dealers would pay a $1,000 franchise fee, receiving signs, brochures, and other promotional literature while paying approximately $950 per car. Soon eighty dealers signed on. For Bricklin and Lamm, though, the dealers weren’t enough. They needed to raise over $1 million in capital just to honor their contract, so they did what most companies do: they sold shares—three hundred thousand shares on the Philadelphia Stock Exchange—and by late spring 1968 they had raised the million bucks.19 Now they needed a headquarters. Bricklin chose a site just outside Philadelphia in Pennsauken, New Jersey, where he built a massive structure complete with a helipad. “The entire place,” wrote one observer, looked “like a gigantic Wizard of Oz put-on.”20 It had an atrium, a Japanese waterfall, a collection of bonsai trees, a goldfish aquarium, and a sculpture made of loose Subaru parts.21

The coup de grâce, however, was Bricklin’s office, “a push-button-remote- control-automatic-all-in-one-007-fantasy chamber,” wrote one historian. “Its imposing, ten-foot-tall oak doors swung open without visible human intervention when Mal[colm] pressed a button on the underside of his palette-shaped, Formica- topped desk. Other buttons caused half a dozen miniature television sets to rise from beneath the desk, and still other buttons allowed Mal to view activities, courtesy of hidden cameras, in every part of his Jersey empire.” Lamm’s office was notable for its desk too. He had had it covered—all of it, including the top—in animal fur.22

Although it can never be said that the Subaru 360 was a popular car, Bricklin and Lamm sold enough of them in 1968–69 to borrow even more money from

25

creditors and to float additional shares. Bricklin used the funds to obtain a private plane and also an apartment and yacht in California, where he began spending his time. He also added elaborate murals of geishas and sumo wrestlers to the parts department of Subaru’s headquarters. “Taste is one thing,” wrote a reporter from Philadelphia magazine, “effect is another. Whether you liked it or didn’t, Malcolm Bricklin’s Subaru office served its purpose: it got you talking about Malcolm Bricklin. Whether this was any way to run an auto distributorship is another thing.”23Bricklin’s lavish spending certainly did draw attention, but it belied the fact that he and Harvey Lamm were in debt to their ears. As of April 1969, Subaru of America had “a negative cash flow of $750,000,” sales were nonexistent, and almost inexplicably Bricklin and Lamm had signed a new contract with Fuji calling for a minimum purchase of ten thousand vehicles per year for the next thirteen years.24

If this wasn’t enough, that same month disaster struck when Consumer Reports issued its “Annual Auto Issue,” in which it panned the 360. In the magazine’s table of contents, Consumer Reports wrote unequivocally: “The Subaru 360 (Not Acceptable).” In test after test, the tiny car failed to meet even minimal standards. It took 37.5 seconds to go from 0 to 50, a full 23 seconds slower (!) than the already very slow Volkswagen Beetle.25 In its 30-mile-per-hour collision test with an American auto, reviewers found that the car was “shockingly deficient structural[ly]” and that its bumpers were “virtually useless against anything more formidable than a watermelon.” To Consumer Reports, the 360 was “unacceptably hazardous,” and it “was a pleasure,” wrote its reviewers, “to squirm out of the [car], slam the door and walk away.”26

The Consumer Reports review of the 360 nearly put Subaru of America out of business. By late February 1970, SOA had lost almost $4 million, and even though Bricklin repeatedly insisted that the 360 “had been the safest car on the road in Japan in its 10-year history,” no one believed him.27 Soon Malcolm had more than two thousand rusticating cars in inventory, and bankruptcy was in sight. “Say you had 2,000 four-wheel fishbowls,” wrote one observer, “no distributors for these fishbowls, a negative cash flow, a reputation for not paying your debts, not a line of credit anywhere around, and a habit of living very high: what would you do? Some folks might ship straight out to Borneo. Malcolm Bricklin merely hustled harder.” First, he and Lamm traveled to Tokyo, where they kicked and screamed and pleaded with Fuji to give them something—anything—better than the 360. Fuji grudgingly agreed and in 1970 authorized Subaru of America to begin selling the FF1-Star series of front-wheel-drive sedans and station wagons that were a forerunner of today’s successful Subaru cars.28

Although the FF1-Star series was a major upgrade from the abominable 360, Subaru of America still needed money. Lots of money. Bricklin attempted to attract

26

investors by appointing a big-name auto man to serve on Subaru’s board. The man he chose was S. E. “Bunky” Knudsen, a former president of Ford who had left the company in 1969. Bricklin intended to approach Knudsen with a truly harebrained scheme of merging Subaru of America with the ailing American Motor Company with Knudsen as chairman of the board and Bricklin as president. Bricklin had virtually no money and no track record, and as of 1970 his total automobile experience was the importation and sale of several thousand Subaru 360s deemed too unsafe to drive. Nevertheless, in a demonstration of true moxie, Bricklin met with Knudsen at his home in suburban Detroit after landing a helicopter on Knudsen’s lawn. The deal never went through.29

Bricklin then set his sights on another scheme known as FasTrack International, Inc. “Once behind the wheel,” read Bricklin’s FasTrack brochure, “you rev up the throaty engine while waving a salute to the crowd in the grandstands. The authentic Christmas tree starter lights begin blinking . . . and with wheels spinning behind the roaring engine, you’re off on one of the most thrilling rides of your life!”30 As Bricklin pitched it, FasTrack was to be (what else but) a national franchise of go- kart tracks in which investors would pay $25,000 for ten modified 360s, twenty helmets and racing uniforms, lighting, and a fence. Investors needed their own land and resources to build a track, but were promised an annual net profit of over $135,000 for just twenty-seven hours of operation per week.

So excited was Bricklin by FasTrack that he built his own miniature track outside of Subaru’s Pennsauken headquarters. In 1971, he even introduced a FasTrack spin-off called FasTrack Leisure Land, Inc., a proposed chain of resort hotels where guests could relax and race go-karts. FasTrack itself had few investors, although FasTrack Leisure Land, Inc., drew the attention of a Florida real estate developer named Leon Stern. In early 1971, Stern agreed to a partnership with Malcolm Bricklin, by which Stern gave Bricklin a resort property in the Poconos in exchange for $1.25 million in FasTrack Leisure Land shares as well as $1,000 a week in salary. In effect, Stern had sold the resort to Bricklin for a sizable chunk of FasTrack Leisure Land, while as a new FasTrack employee it was Stern’s job to scour the country in search of new resort sites and investors.

However, once Bricklin gained control of Stern’s property, he used it to borrow large sums from various Pennsylvania banks, which he then invested in other non- FasTrack-related projects.31(Stern eventually sued Bricklin for breach of contract and was awarded $2.39 million in damages by a federal court in 1974.)32 One such project was Goodway Printing, a Philadelphia company owned by Donald and Beryl Wolk that was listed on the American Stock Exchange (Amex). The Wolks had had difficulties in recent years meeting the minimum net worth requirements set forth by Amex for all of its listed companies. In 1971 the minimum net worth requirement was $3 million, of which the Wolks were $500,000 short. Thus, it was

27

Bricklin’s plan to invest the $400,000 he had received from Stern’s resort property into Goodway Printing. Bricklin also planned to attract additional investors through —what else?—the franchising of Goodway Copy Centers, a forerunner of today’s Kinko’s.33

“Malcolm was interested in Goodway Printing,” claims Bricklin’s friend and onetime accountant Ira Edelson, “because it could be [used as] a vehicle for raising substantial sums for his FasTrack venture while at the same time aiding Goodway Printing in improving its financial condition.”34 Put simply, Bricklin planned to borrow money in the name of Goodway to invest in a go-kart venture that would somehow earn enough money to repay Goodway while earning a profit. Although at one point Bricklin swooped in via helicopter to close the deal, the Wolk brothers were either lucky enough or smart enough to fend him off. “We are very happy,” stated Beryl Wolk in 1975, “to no longer be associated with Malcolm Bricklin.”35

Nevertheless, Bricklin did find an investor to save Subaru of America: the wealthy Koffman family of Binghamton, New York. In 1971 the Koffmans took control of some 36 percent of the company. In exchange they paid off numerous Subaru loans and backed new letters of credit. Their one condition: Bricklin had to go. As a parting gift, Bricklin received a three-year consulting contract worth $120,000, relief from a $40,000 personal debt to Subaru, and legal ownership of FasTrack. FasTrack was reportedly worth $978,000, but its real value was zero. Its assets included 454 aging Subaru 360 sedans, 391 Subaru 360 trucks and minivans, and 55 other vehicles of little or no value.36 Thus, it was in June 1971 that Subaru of America parted ways with its cofounder Malcolm Bricklin. Some thirty-five years later, in 2006, it sold more than two hundred thousand cars in a single year.37

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3

A Canadian Sports Car?

Q: What’s included in every Yugo owner’s manual? A: A bus schedule.

In June 1971, Malcolm Bricklin moved to his next project, General Vehicle Inc., through which he was planning to build a state-of-the-art acrylic-bodied sports car with gull-wing doors known as the Bricklin. Since early 1971, Bricklin had been working on an elaborate prototype, which included a Chrysler six-cylinder engine and Datsun rear suspension, as well as a mishmash of Opel, Chevrolet, and Toyota parts. The car had been conceptualized by Bricklin but was physically designed by a custom car shop in Newport Beach, California. It was completed in late 1972. Meanwhile, Bricklin had heard that French automaker Renault was planning to close its plant in Saint-Bruno-de-Montarville, Quebec, so he approached the Quebec government with a deal: he would build his new automobile at Saint-Bruno if Quebec would give him the Renault plant as well as approximately $7 million in seed money. In return, the citizens of Quebec would take a 40 percent stake in the company. Quebec said no. By then Bricklin had made other Canadian connections and sometime in February 1973 opened a new round of negotiations with the government of New Brunswick.

A small, economically depressed province in eastern Canada, New Brunswick was badly in need of industry, so much so that its lead development agency, Multiplex, quickly jumped at the idea. In March 1973, Bricklin met with Multiplex officials in Montreal, where he outlined an ambitious plan: with help from the New Brunswick government, he would begin producing cars in September 1973, a mere six months hence. He planned to sell ten thousand cars the first year, eighteen thousand cars the second year, twenty-seven thousand cars the third year, thirty thousand cars the fourth year, and thirty-two thousand cars in year five. All he needed from New Brunswick was a plant and $5.5 million.1 Bricklin had no capital; he had never designed a car, let alone manufactured a car. And worse yet, the $5.5 million he was asking of New Brunswick was, to put it mildly, chump change. Bricklin could have asked for a hundred times that amount and still been short of the estimated $2 billion it took in the 1970s to truly compete with Detroit and to enter the manufacturing game.2

But money was only half of Bricklin’s worries. He still had a small problem

29

with the car: it wasn’t ready. His prototype envisioned a six-cylinder, 2,200-pound automobile with an exterior surface of thermoformed, colored acrylic backed by fiberglass. The acrylic would be corrosionproof and impregnated with color rather than painted. As of March 1971, however, the only full-size car in the world with an acrylic finish was Bricklin’s prototype. That prototype had been painstakingly built by hand, costing tens of thousands of dollars and hundreds of man-hours. To bring it to full production, Bricklin now needed specially constructed molds, presses, tools, and human expertise that New Brunswick authorities thought he already had. Thus, when Multiplex officials prepared their first report on the Bricklin project, they erroneously assumed that General Vehicle Inc. was ready to produce cars. It wasn’t.3

The company still wasn’t ready three months later, when in June 1973 New Brunswick premier Richard Hatfield announced that the province would provide Bricklin with $6.5 million in start-up funds and a $2.88 million loan guarantee and that it would purchase 51 percent of Bricklin Canada Ltd. stock.4 (Bricklin Canada Ltd. was a new company incorporated in New Brunswick, and was separate from General Vehicle Inc.) “Sure it’s a high-risk venture,” stated Hatfield. “It’s time that someone in Canada took a chance. We Canadians are very conservative. The last time we took a real risk, it was on the Canadian Pacific Railway—and it worked!”5 Comparing the Bricklin project to a transcontinental railroad was blather even Bricklin could appreciate, for if Bricklin knew anything at all, it was the power of the sales pitch. Since spring 1973 he had worked feverishly to line up dozens of car dealers at $5,000 a pop, though few if any of these dealers had ever seen the car.

That summer Bricklin also employed the New York advertising firm Lois Holland Callaway, which worked up an entire media campaign of print and television ads.6 The firm pitched the car as the “Bricklin Safety Vehicle” (or “SV- 1” for short), emphasizing the car’s dent-resistant body and other protective features. That the SV-1 was obviously not a “safety vehicle” was the least of Bricklin’s concerns; more immediate was the fact that, because he went into production with a very rough prototype, the SV-1 was doomed from the start. No one knew, for instance, if the SV-1’s acrylic finish would bond properly with its fiberglass base. It wouldn’t. No one knew why the car’s gull-wing doors leaked, or how—at 170 pounds each—they’d go up and down easily.7 The doors were eventually hooked to a toggle switch on the SV-1’s dash, which meant that if the battery went dead, occupants had to exit the car through a hatchback in the rear.

“If I knew then what I know now about building an automobile,” stated Bricklin in 1974, “I would never have made the Bricklin . . . There’s a great advantage to ignorance. If you see all the pitfalls, all the problems in one big lump before you, you just don’t do it.”8 However, in June 1973, with some $9 million in hand and

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another $1 million coming from the First Pennsylvania Bank, Bricklin wasn’t so contrite. In fact, he was garish. He took to wearing denim jeans, silver and turquoise jewelry, Indian beads, a big belt buckle, pointed cowboy boots, a straw rodeo hat, and a wide leather belt with MALCOLM spelled out in silver studs. In July, Bricklin also moved his offices from Philadelphia to Scottsdale, Arizona, where, according to one journalist, he went Western “all the way.”9

Why Bricklin moved to Arizona in July 1973 is a mystery, considering that General Vehicle Inc. had just signed its agreement with New Brunswick and was expected to begin building cars in St. John, the capital, that September. Apparently, Bricklin believed that his “Director of Canadian Operations,” a former Renault executive named Jean de Villers, could transform the SV-1 from rough prototype to finished production model in less than three months, then oversee its assembly in St. John. By August it was clear to everyone that he couldn’t. Still lacking a production model, in February 1974 Bricklin unveiled an SV-1 prototype at a gala event at the Riviera Hotel in Las Vegas. He planned the event to take place next to the annual convention of the National Automobile Dealers Association, which was also in Las Vegas, hiring the professional race-car driver Bobby Unser and the actor and amateur racer Paul Newman to peddle the car.10

Bricklin’s second opening took place in New York City in a special ballroom of the famed Four Seasons restaurant. He had rented the room for $50,000 and, with the help of a Beverly Hills PR firm, had personally invited an impressive list of business and community leaders, journalists, car dealers, car enthusiasts, and representatives from the government of New Brunswick and the First Pennsylvania Bank. Bricklin wore a white bell-bottomed leisure suit and a loud patterned shirt, and after a few introductory remarks he pulled the covering off an ivory SV-1. As the crowd applauded, Bricklin’s father, Albert, ascended the stage with a red-hot branding iron in the shape of a stylized B. “I name this car,” exclaimed Albert as he singed the SV-1’s fender, “the Bricklin.” The crowd cheered its approval as Bricklin calmly explained that because of the SV-1’s space-age acrylic finish, the brand could be buffed out. Behind Bricklin, the legendary Broadway composer Sammy Cahn provided entertainment.11 Bricklin was in his element. He walked through the crowd, shaking hands, taking compliments, and assuring people that the SV-1 would be in production by September.12

“Remember Preston Tucker?” asked Playboy magazine. “Right after World War Two, Tucker attempted the impossible—taking on Detroit’s Big Three with what was heralded as a revolutionary new automobile, the Tucker Torpedo. As it turned out, it was impossible; the Tucker was torpedoed almost before it was launched. Now, more than a quarter century later, 35-year-old Malcolm Bricklin, a fast- revving entrepreneur, . . . is going to take a crack at it . . . Will Mal Bricklin make it? Well, Preston Tucker may be forgotten, but does the name Henry Ford ring a

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bell?”13 In August 1974, the first Bricklin SV-1 came off the assembly line. According to

one estimate, it had cost over $50,000 to produce, far more than the $7,490 price tag it was supposed to have. Eventually, in the fall of 1974, Bricklin’s St. John production team succeeded in assembling new cars at a rate of two per hour. To get to this point Bricklin had spent $15.4 million, including $12.2 million in operational expenses and $3.15 million in parts.14 But of the first one hundred cars produced, few were ready for sale. Many had body panels that were scratched, warped, or wavy; others had misaligned dashboards or crooked visors, while virtually every SV-1 had doors that leaked. “We had so many problems with leaks,” stated Bill Marsh, a Ford dealer from Newton, Pennsylvania, that “we seriously considered drilling holes in the floor to let the water out . . .”15 Dealers, who months earlier had clamored for a Bricklin franchise, wrote The Wall Street Journal, “took one look [at the car] and asked for their money back. The workmanship left much to be desired.”16

However, in late 1974 Bricklin had more important things to worry about than quality control. For one thing, he was broke. Both Bricklin Canada Ltd. and General Vehicle Inc. were on the verge of bankruptcy. Since August, more than a hundred assembly-line workers at Bricklin’s St. John plant had been working just half days, while the plant’s owner threatened to evict Bricklin for violating the terms of his lease. Inches from insolvency, Bricklin used his ace in the hole: Richard Hatfield. The sanguine premier had insisted on featuring the SV-1 as a central component in his November 1974 campaign. Hatfield drove from speech to speech throughout New Brunswick in an orange SV-1, drawing large crowds and assuring voters that the Bricklin would be a success.17

Politically boxed in, Hatfield provided Bricklin with a $1 million loan, in addition to a $2 million “shareholders’ loan” that he had floated Bricklin in October. Then on November 6 Hatfield agreed to buy Bricklin’s St. John plant for $1.54 million. By this point, New Brunswick owned 67 percent of Bricklin Canada Ltd. and was, oddly enough, both tenant and landlord of the plant in St. John. “That car is going to sell,” stated Hatfield optimistically. “Bricklin is assured of an excellent market. Already it has orders for forty thousand cars and the arrangement announced today enables the province to share fully in its success.”18 The only problem was that by November 1974 Bricklin hadn’t had any success. He had produced a grand total of 180 cars, the majority of which had been shipped to northeastern showrooms without locks. The parts hadn’t arrived.19

By June, Bricklin Canada Ltd. had produced and shipped more than 1,800 vehicles. Their quality, by most accounts, was atrocious. What is more, production costs on the first 1,800 vehicles were running at $13,500 per car, although in 1975 Bricklin was charging his dealers just $9,388 per car, a loss of over $4,100 each.

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As Hatfield would later learn, Bricklin was also transferring cars from Bricklin Canada Ltd. to General Vehicle Inc., Bricklin’s stateside company, for the paltry sum of $5,400 per car, which meant that New Brunswick wasn’t just losing money on the Bricklin, it was losing money to Bricklin.20 In terms of salary, the government of New Brunswick paid Malcolm Bricklin $120,000 a year. His father, Albert, made $60,000; his mother, Gertrude, $30,000; his sister, Barbara Jonas, $37,000; while Bricklin’s uncle Ben, a onetime Handyman investor, made $18,000. Also on the payroll at $24,000 a year was Michael Avery, a specialist in personal motivation who appeared in company records as “Assistant to the Chairman.”21

In mid-1975, Hatfield’s economic minister would slash executive salaries and force Bricklin to pay more for imported cars, but it wasn’t enough. The Bricklin was a bust. “Things look very, very bad,” Bricklin told the Associated Press in late September 1975. “We need $4 million to $5 million in immediate funds.”22 By early October, Bricklin was asking Hatfield for $15 million in new funds while claiming to have American investors who were willing to put up an additional $10 million, but only if Bricklin “could operate without political [i.e., Canadian] interference.”23 But Bricklin had operated without interference—political, pecuniary, or otherwise. That was the problem: his company had never been audited. The firm hired to audit Bricklin Canada Ltd. couldn’t find the company’s records. They were incomplete, missing, or scattered in boxes in five offices in two countries, a managerial mess.24

Thus, by the fall of 1975, even Richard Hatfield could see that the Bricklin was doomed. The premier had won his election by tying himself to what in 1973–74 was an exciting new car. By 1975 that same car was a national joke. In fact, the seventeenth most popular song that year on Canada’s country one hundred was “The Bricklin” by the satirist Charlie Russell. “O’ the Bricklin, O’ the Bricklin,” crooned Russell. “Is it just another Edsel wait an’ see. We’ll let the Yankees try it, an’ hope to God they’ll buy it. Let it be, dear Lord, let it be!”25

But Bricklin, whose can-do attitude sometimes bordered on the bizarre, wasn’t ready to give up. Through the summer of 1975 he busied himself with plans for a second automobile called the Bricklin Chairman, a luxury sedan similar to the Ford LTD. He even declared that in spite of the company’s problems, it still had a backlog of orders and that Bricklin Canada was, in his words, “gonna make it!”26 In reality, it wasn’t. On September 24, 1974, New Brunswick pulled the plug. “Although the government had always believed that the potential advantages of the project were worth the financial risk taken,” said Premier Hatfield, “we have also known from the beginning that there was a point beyond which the government should not, on its own, risk additional government funds on this one project. That point has been reached.”27 Two days later Bricklin Canada Ltd. was placed in

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receivership. Bricklin responded by issuing a press release in which he claimed that Bricklin

Canada Ltd. was still in business but experiencing a “temporary shutdown.” The reason, he insisted, was that the First Pennsylvania Bank and the government of New Brunswick had failed “to agree on a method” of providing the company with a new $10 million loan. “We have received literally thousands of telephone calls from people who shared our dream, wanting to help in any way possible during the present crisis. Even children, whose identification with the Bricklin was so strong, they offered their allowances to insure there would be a Bricklin when they got old enough to drive.”28Bricklin then told the press: “Right now, it’s a 50-50 tossup whether we’ll get back in business. If we don’t, I’ll be personally wiped out and it will wipe out more than 1,000 people who have put their hearts into this project.”29

Bricklin was in denial. At an October news conference in Toronto, he said that he would continue producing the SV-1 even if he had to roll up his sleeves and work on the assembly line himself. The only problem was that by mid-November 1975 there were no assembly lines. The assets of Bricklin Canada Ltd., including cars, tools, and pneumatic presses, had been sold at auction. Then in December 1975 Bricklin declared bankruptcy. At a hearing in Phoenix, Bricklin claimed personal debts of $32.3 million. He owed $23 million to New Brunswick, $6 million to the First Pennsylvania Bank, $2.75 mil lion to Leon Stern, the jilted FasTrack investor, and $200,000 to the Koffman family, the late purchasers of Subaru. In terms of personal assets, Bricklin claimed just $2,000 but stated in court that the name Bricklin was “a personal attribute not subject to the use or sale by the bankruptcy Trustee.”30 Put simply: Bricklin believed that his very name had value, a clear indication that no matter how far Bricklin was down, he was never out.

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4

Walkin’ Down a London Street

Q: Why don’t Yugos sustain much damage in a front-end collision? A: The tow truck takes the impact.

Over the next seven years, Malcolm Bricklin faded from the national spotlight. He attempted for a time to build and market a “revolutionary” twelve-cylinder rotary engine known as the Bricklin-Turner Rotary Vee, but had little success. He then ran a go-kart track, promoted soul singers, and tried to scare up investors willing to back his next great adventure, the production of a new Bricklin car.1 This time Bricklin wished to go upscale, in the $75,000 range, more expensive than a Mercedes but close in price to a Rolls-Royce. “Unfortunately the failed Bricklin SV-1 venture was a great impediment,” remembers Bricklin accountant Ira Edelson. “Although Malcolm was greatly respected in the automobile industry for his knowledge and organizational ability, his bankruptcy was an insurmountable impediment towards raising capital.”2 Bricklin made presentations to dozens of potential investors and even traveled to Turin, Italy, to meet with famed coach builders Sergio Pininfarina and Nuccio Bertone.

Although nothing came of the meetings and Bricklin’s dream of building a new car died a slow death, in 1983 he used his Italian contacts to establish International Automobile Importers (IAI), a New York–based business that sold Pininfarina-and Bertone-built cars. Bricklin established IAI after a chance meeting with Tony Ciminera, a manager at Road & Track, who ran into Bricklin at the 1982 Automotive News World Congress in Detroit. Ciminera had never met Bricklin but had been present at Bricklin’s grand opening at the Four Seasons restaurant in 1974. By chance, Ciminera sat next to Bricklin at the congress luncheon. He was working for Road & Track, Ciminera told Bricklin, but had previously been a dealer and customer-relations manager at Fiat’s North American operation. He had moved to Road & Track in 1982 when Fiat announced that, due to declining sales, it was leaving the American market. “It’s a shame to hear they closed up and left the country,” Ciminera remembers Bricklin telling him. “I always admired those two sports cars of theirs,” the Spider and the X1/9.3

Fiat had been selling the Spider in the United States in one form or another since 1958; the X1/9 since 1973. Both were classic Italian sports cars. They were small —they had only two seats—quick but not fast, and technologically unsophisticated.

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The cars’ engines and mechanical components were built by Fiat, but their bodies and interior upholsteries were built by Pininfarina and Bertone, respectively. As Ciminera told Bricklin: “You know, it’s funny you say that because I happen to know the two coach builders, Mr. Pininfarina and Mr. Bertone.” They “just so happen to feel the same way that you do . . . That the cars still have life in them and that they want to continue their sale in the U.S.” Bricklin was “electrified.” He said “What? Are you serious? I know them too. Let’s go!” He grabbed Ciminera’s arm and nearly dragged him outside. He told Ciminera to call the two coach builders and to tell them that he and Malcolm Bricklin wanted to import the cars. “So I did,” says Ciminera, “and that was the start of it all.”4

Soon Ciminera and Bricklin were in Turin sitting face-to-face with Sergio Pininfarina and Nuccio Bertone. Bricklin explained that, yes, he had gone bankrupt on the SV-1 but that his real talent wasn’t in manufacturing; it was in importing. He’d founded Subaru of America, hadn’t he? By 1982, Subaru of America was importing over twelve thousand cars per month—not per year but per month.5If Pininfarina and Bertone wanted to import cars to the United States, he told them, they should use someone with a proven track record, which in this case was Malcolm Bricklin. Thus, Pininfarina and Bertone “looked not so much at Bricklin’s Bricklin exploits,” wrote Motor Trend, but at “his earlier achievement in establishing Subaru of America. Assessed as a potential importer/distributor, Bricklin’s credentials looked good to the Italians.”6 So in December 1982 a deal was struck. Bricklin was now the official importer of the Bertone X1/9 and the Pininfarina Spider, which was renamed the Azzurra.

All he needed now were investors. “I’m going to be calling all the people I know in Europe, the U.S., Asia, Hawaii,” Ciminera quotes Bricklin as saying. “I’ll just follow the sun, so to speak, and hit everybody I know that could possibly fund this project.”7 Bricklin eventually contacted Ira Edelson, a senior partner at the New York accounting firm of Goldstein Golub Kessler, whom he had known since his days at Subaru. Edelson was a reserved, wealthy, established personage, the polar opposite of Malcolm Bricklin. His clients were among the most powerful and respected men in New York, but for some reason Bricklin thrilled him. After their first meeting in 1971, Edelson had remained a close friend of Bricklin and had been at least a peripheral witness to Bricklin’s FasTrack venture, his Goodway Printing venture, and his Bricklin SV-1 venture. He had also helped Bricklin with his failed luxury car venture in the 1970s. “I had many interesting clients,” remembers Edelson, but “no one was as interesting as Malcolm.”8

In 1983, Edelson attempted to assist Bricklin in his newest project, the establishment of IAI. “Malcolm returned from Italy and told me about the new venture,” remembers Edelson. “Again the problem was raising capital . . . Malcolm told me that a backer of his from his Subaru days might be willing to invest some

36

money. When we first went to see him, he said he was not interested. Malcolm was persistent and other meetings were arranged with this financier. Finally, [he] said to us: I’ll invest $50,000 and I have five or six of my friends that will also invest $ 50,000 each, but only if you, Ira, are responsible for the financial matters.”9

On the strength of this initial investment, Bricklin then lined up a series of seven regional distributors to sell the two cars.10 The distributors were expected to purchase the cars from IAI using irrevocable letters of credit, which IAI would then use as collateral to secure its own letters of credit from the Merrill Lynch Bank of London. Once the cars were at sea and turned over to IAI, Merrill Lynch would then issue payment to the cars’ manufacturers, Pininfarina and Bertone. IAI thus owned the automobiles only in transit; as soon as they arrived in the United States and were delivered to American dealers, they were no longer the property of IAI. As the official importer for Pininfarina and Bertone, however, IAI was responsible for warehousing spare parts, honoring warranties, troubleshooting, advertising, and maintaining close corporate links with the cars’ manufacturers.

The IAI company office was in Manhattan, but it also maintained a separate warehouse facility in Montvale, New Jersey. Bricklin was president and chief executive officer; Tony Ciminera was vice president; and Ira Edelson, who had left his accounting firm, was the company’s chief financial officer. In all, IAI hired close to forty employees, including a number of car men who had been with Fiat when it closed down. Many of these men, including Ciminera, had had years of experience with the two Fiat models and therefore had a precise idea of what needed to be changed before they were reimported to the United States. The cars had exceptionally good handling, for instance. However, their bodies were made of a skimpy sheet metal known primarily for rust. Worse yet was the cars’ interior finish, which Bricklin hoped to correct by sending Tony Ciminera to Italy to assist with production on the Pininfarina and Bertone assembly lines.

“I went to Italy and lived there for two months,” remembers Ciminera. “I worked every day on the line . . . We made literally hundreds of changes to those cars.”11 Most of them “were very minor . . . little detail changes, but cumulatively they added up . . . When I was with Fiat, I used to tell them things that were wrong with the car . . . and we could document it up the wazoo . . . [but Fiat] wouldn’t do it.”12 Ciminera’s main changes aimed at smoothing out the cars’ rough edges and bringing their more or less spartan interiors upscale. He made few if any alterations to the cars’ drive-trains, as IAI had neither the time nor the money to induce Fiat to improve the engines. To both cars Ciminera added leather interiors, air- conditioning, electric windows, color-coordinated fabrics, AM/ FM cassette stereos, and improved rustproofing, including a three-year warranty on the paint and a whopping seven-year warranty against rust perforation. The X1/9 even had Nuccio Bertone’s signature emblazoned on the dashboard. “IAI is plainly serious,”

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wrote one reviewer, “about making the car[s] as civilized and modern as anyone could reasonably expect.”13

However, as the cars went on sale in the United States in August 1983, consumers could only scoff at their price: $16,995 for the Azzurra and a more moderate but still expensive $13,990 for the X1/9. Neither car was worth it. Nevertheless, Bricklin claimed in December 1983 that IAI was “doing extremely well” and “had already turned a profit.”14 This was technically true. According to Ira Edelson, IAI had made over a million dollars in its first quarter of operation, but the money had come from IAI’s regional distributors, who had purchased the cars using irrevocable letters of credit. After three months of nearly nonexistent sales, these same distributors refused to purchase new cars without a sharp reduction in price, which Bertone and Pininfarina could not or would not give. “That’s when I told Malcolm,” remembers Edelson, “that we are 120 days from going out of business unless we find another car to import.”15

Bricklin responded by locating Austin Rover, an automotive producer from Great Britain whose owner, British Leyland (BL), also manufactured the Jaguar. The financially strapped BL had recently announced that it was selling Jaguar, its leading export marque, to focus on Austin Rover. In the early 1980s, Austin Rover produced a range of cars that included the Austin Ambassador, the Austin Maestro, and the MG Metro, each of which, in Bricklin’s estimation, was perfect for IAI.16 But when a team of IAI executives, led by Bricklin, met with British Leyland in April 1984, the answer was no: BL had no interest in moving MG Metros or Jaguars or any other automobiles through Malcolm Bricklin.

It was at this point that fate intervened. As Bricklin and the other International Automobile Importers executives were exiting British Leyland’s headquarters and walking down a London street, they spotted a Yugo 45. When Bricklin came home the next day he had Tony Ciminera look it up. “I was told that walking down the street in London someone in the group spotted a car parked on the street, a little car, and on the back of the car was written JUGO . . . When he [Bricklin] got home the next day he had me do some research on it, [so I went and looked it up].”17 Ciminera found that the Jugo 45 was essentially a generic version of the Fiat 127 and Fiat 128 built under license by Crvena Zastava, a relatively large automotive company located in Yugoslavia. (In the Serbo-Croatian language the letter j is pronounced as a y, thus the word Jugo is pronounced Yugo.)

Ciminera also found that although the Yugo 45 had a small, somewhat dated engine, it otherwise had “all of the buzzwords,” such as front-wheel drive, rack and pinion steering, disc brakes, and independent rear suspension. Ciminera told Bricklin that the Yugo 45 was no different than any other Fiat, it just happened to be produced in Yugoslavia. “I think we could really fix it up nicely,” Ciminera told him. “The mechanicals are all Fiat . . . They’ve been used around the world” and

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“having worked for Fiat, I know that the drive transmission is in many of our cars, including the Bertone X1/9 . . . I think we could find some merit here.”18 Facing yet an other bankruptcy and needing to import a new car as soon as possible, Bricklin was keenly interested. He had his IAI officials contact the Yugoslav commercial attaché in New York to begin searching for ways to meet, greet, and have a sit- down with Zastava.

Out of pure serendipity, about this time an IAI public relations officer named Jonas Halperin was having lunch in New York with a friend from Occidental Petroleum, the famed oil, gas, and fertilizer conglomerate headed by Armand Hammer. Halperin explained that IAI was cutting staff and would soon be out of business unless Bricklin or the other IAI executives found a car. Bricklin had been looking into a Yugoslav car, Halperin told him, some kind of Fiat-based model known as the Yugo 45. The friend said “Really?” and proceeded to tell Halperin that Occidental had just signed a huge deal with Yugoslavia, a ten-year trade-barter arrangement by which Occidental was to provide Yugoslavia with $400 million a year in oil, coal, and phosphates in exchange for Adriatic drilling rights, industrial products, and other Yugoslav commodities that Occidental would then sell for cash.19 The Occidental-Yugoslav trade/barter agreement was one of many such agreements negotiated by Hammer during the 1970s and’80s.

Commonly known as countertrades, these agreements stemmed from the fact that Yugoslavia and other East European nations were eager trading partners, but because their markets were closed and their finished goods of such low quality, they were perpetually short of cash. “They simply have no other means of generating exports or paying for imports,” stated one economist. “They prefer cash transactions as much as the next country but are forced to use countertrade and barter.”20 As of 1981, the world countertrade market was estimated at $350 billion a year. It involved every product imaginable: blue jeans, soda pop, airplanes, computers, farm equipment, chemicals, soybeans, glassware, and, in one deal between McDonnell Douglas and Yugoslavia, canned hams. “I don’t care what the product is,” stated Jack B. Utley, the head of McDonnell Douglas’s countertrade department, “as long as I can find a market for it and move it.”21

Occidental CEO Armand Hammer, who was eighty-six years old in 1984, was perhaps the most prolific countertrader in history. Beginning in 1972 with a $3 billion oil-for-fertilizer agreement with the Soviet Union, by 1984 the flamboyant Hammer had inked over a dozen trade-barter agreements with the countries of Eastern Europe. Hammer had hunted with Romania’s Ceau escu (“a fine, warmhearted man,” he called him), supped with Poland’s Gierek, and once given a copy of Dr. Atkins’ Diet Revolution to Leonid Brezhnev.22 Ha mmer’s goal was nothing less than Russo-American détente through close personal relationships and bilateral trade. He was a walking, talking, East-West peace summit, a man who had

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known and traded with Lenin, and who had enjoyed what one journalist called “unparalleled entrée to the Communist world.”23

But as it turned out, few of Hammer’s trade-barter agreements ever came to anything. A $1.33 billion agreement signed with Poland in 1978, for example, went nowhere, as did a $53 million agreement with Romania in 1977 and a ten-year “cooperation agreement” with Bulgaria in 1979. “There’s no question that these deals have been done solely because Hammer wants them to be done,” said one Occidental director. “After he’s gone, there won’t be any more.”24Most likely, Hammer continued to ink trades with Eastern Europe as a form of company PR. In 1972, for instance, the news of Occidental’s Soviet agreement caused its stock price to jump 55 percent. Under the ticker symbol OXY, Occidental stock led the New York Stock Exchange’s “most-active” list for an entire week. At one point, trading in OXY shares came to a stop because the stock exchange couldn’t process that many “buy” orders.25

By February 1984, however, when Hammer announced his Yugoslav deal, virtually no one believed that Occidental could turn a profit by bartering with Yugoslavia. As it were, the Occidental-Yugoslav agreement called for the exchange of 35,000 barrels a day of light crude oil, which Occidental proposed to give Yugoslavia, as well as 3 million tons of metallurgical and steam coal per year. In exchange, the Yugoslavs would grant Occidental oil exploration rights for portions of the Adriatic as well as first dibs on various Yugoslav commodities and other finished goods, such as automobiles.26 In calendar year 1983, the Yugoslav automotive industry had produced approximately 250,000 vehicles, including 210,000 passenger cars, 33,000 trucks and vans, and 4,000 buses.27 Although a majority of these vehicles were produced for domestic consumption, in 1983 Yugoslavia exported a full 20 percent of its output, or 49,747 vehicles, to countries in Western and Eastern Europe, northern Africa, and the Middle East.28

Perhaps the best Yugoslav automobile was the Yugo 45 by Zastava, which officials hoped would sell in the West and thus interest Armand Hammer. But to swap oil and coal for Yugos, Hammer needed a buyer, a person brave enough or imprudent enough to pay hard currency for a communist car. The buyer he found was Malcolm Bricklin. Apparently Hammer heard that Bricklin was interested in the Yugo from his New York PR man. This led to a sit-down meeting in Belgrade in May 1984 comprised of Bricklin and other IAI officials and Alex Crossan, an Occidental executive who had helped negotiate the February 1984 agreement with Yugoslavia. Also present were officials from Genex, Yugoslavia’s main trading house, and Zastava.

It is unclear what agreements were reached at the meeting, but there seems to have been a nonbinding Occidental-Zastava-IAI agreement of some kind. However, within weeks, Occidental exited the negotiations and withdrew from the Yugo

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project altogether. “Hammer wasn’t very positive about the deal,” states Ira Edelson, “because he knew he was depending on a company [IAI] that I’m sure he checked out and found did not have much capital. His $400 million a year was de pen dent on this small company making a big success in this venture.”29 But while Armand Hammer probably regarded Malcolm Bricklin as a risky trading partner, Bricklin saw Zastava as his proverbial golden goose. Therefore, he insisted in May 1984 that Zastava and IAI continue their agreement without Occidental. The twist? Instead of bartering for new Yugos, IAI would pay cash per car.

By then Bricklin was broke and again needed investors, but he also faced an additional problem in Miroslav Kefurt, the Cal i fornia entrepreneur who in June had shown two Yugo 45s at the Los Angeles AutoExpo. Officials at Zastava told Bricklin that Kefurt had a five-thousand-car contract for the state of California. They would give him exclusive distribution rights for the other forty-nine states, they told him, but to sell cars in California he’d have to deal with Kefurt. “Bricklin was coming back from Yugoslavia,” remembers Kefurt. “He had the stewardess of whatever airline he was on tell me that Malcolm Bricklin was calling me from the air . . . trying to impress me. He made a big point of it so that I would know that he was calling me from a plane.”30

The two men agreed to meet at the Century Center Plaza Hotel in downtown Los Angeles, where Bricklin rented a luxurious penthouse suite and invited Kefurt to lunch. “He musta spent a thousand dollars on shrimp, crab, or whatever other stuff he imported,” says Kefurt. “I wasn’t exactly poor myself and I’d seen fancy food before . . . but no one was eating. So I decided to pig out.”31 The Century Center meeting was pure Bricklin. He had hoped that by wining and dining Kefurt, he could purchase the Yugo and its coveted distri bu tion rights for a song. But the meeting ended without an agreement, only a promise that Kefurt would come to New York for a second meeting at IAI. When Bricklin offered to pay for Kefurt’s plane ticket, however, Kefurt refused. He told Bricklin that he and his wife were planning to drive to New York, a full forty-two hours, in—yes, you guessed it—a Yugo.

En route, Kefurt’s blue Yugo broke down three times. The car had no air- conditioning, so the Kefurts were fried, blackened, and charred by interior temperatures that reached, in Kefurt’s estimation, 120 degrees. According to Kefurt, the couple stopped often, drank buckets of water, and took to putting ice cubes in the car’s front air intakes as a form of air-conditioning. When finally they arrived in New York, Bricklin negotiated with Kefurt at IAI’s Manhattan headquarters for two and a half days. At one point, says Kefurt, Bricklin introduced him to an investor he was courting for IAI’s Italian sports car project. Kefurt, Bricklin told the man, was “the head of our West Coast division.” A few hours later he introduced Kefurt to another investor as his “market research manager for California,” and still later as

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his “chief technical engineer.” “Before the day was over I had like twelve different titles,” says Kefurt. “With every person that showed up, I was somebody else.”32

In the end, Kefurt agreed to sell Bricklin his California distribution rights for $50,000.33 However, when Bricklin cut Kefurt a check, it was for $16,500. “I asked why and he said that he had some difficulties with this and that,” says Kefurt, “so I called the bank and it turned out that that was all he had.” Wisely, Kefurt took the money and flew home. Bricklin assured Kefurt that he’d pay him the remaining money and that he should be happy with $50,000. “Don’t worry about the Yugo,” Kefurt insists Bricklin told him. “We’re only going to use it as a carrot to get more money from dealers before we go belly-up.” Bricklin “was ready to go into bankruptcy,” insists Kefurt. “This was his parting thing . . . that I should be happy I got $50,000 from him . . . I was in shock. I didn’t know what to say.”34

Eventually, Bricklin paid Kefurt the remaining $33,500. But IAI didn’t go belly- up. It simply faded into the background as first Bertone, then Pininfarina, canceled their agreements with Malcolm Bricklin. Neither coach builder publicly blamed Bricklin for the failed IAI operation. The breakup was “a sad situation,” said one Pininfarina rep: “A better job could have been done all the way around.”35 It didn’t help, however, that since mid-1984 Bricklin had ignored his Italian imports to focus instead on the Yugo. According to Ira Edelson, in the summer of 1984 Bricklin used IAI funds to establish Yugo America Inc., the company that in August 1985 began importing the Yugo.

Yugo America’s parent company was Bricklin Industries, which also owned IAI. Naturally, Bricklin himself owned Bricklin Industries, but BI’s primary source of funding came not from Malcolm Bricklin but from the dealer-distribution network and investors of IAI. At one point Bricklin sold 350,000 shares of IAI at a dollar a share to John and Rebecca Bednarik. The Bednariks owned Mid-Atlantic International Imports of Accokeek, Maryland, and had invested the money in IAI in exchange for U.S. distribution rights for the Yugo. However, once Bricklin received the Bednariks’ money, he allegedly diverted it from IAI’s Bertone and Pininfarina projects and used it to secure Yugo distribution rights for himself.36 By early 1985, Yugo America Inc. had twenty-one major investors, including Nordic American Bank and shipping magnate Per Arneberg. It issued 10 million shares, 5.1 million of which were owned by Bricklin and various members of the Bricklin family.37

The Bednariks received nothing. Bricklin merely took their money and stopped speaking to them. A few years later the couple sued Bricklin in federal court and were awarded $17 million in damages for breach of contract. The judgment forced Bricklin into his third bankruptcy in thirty years. In the summer of 1984, though, the Bednariks’ money kept Bricklin in business. It allowed him to negotiate with Zastava, to buy Kefurt’s distribution rights, and to jump unscathed from his moribund IAI project to the Yugo. In November 1984 he began signing dealers and

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in December received a $2 million infusion of capital from Nordic American Bank and Per Arneberg. “From that point on it was hell-bent,” says Pete Mulhern, a technical services manager at IAI who in 1984 followed Bricklin to Yugo. “Malcolm wanted a car for the 1986 model year. I know he spoke to various people in the industry and they said, ‘Seven months? No way. No way we can we make the Yugo a viable product in seven months! It’s impossible!’ But that wasn’t good enough for Mr. Bricklin. His approach was, how about tomorrow?”38

With that, the Yugo began. From December 1984 to August 1985, a small team of Yugo America employees and consultants ventured to Kragujevac, Serbia, the home of Crvena Zastava, where they prepped the car for the U.S. market. Bricklin’s goal was to import 35,000 cars the first year (1985), 76,000 cars the second year (1986), and a whopping 272,000 cars by 1990.39 The numbers, of course, were unrealistic, but by early 1985 Bricklin was off and running. He and Yugo America president Bill Prior and IAI’s former PR man, Jonas Halperin, began a three-man media blitz that earned the company an estimated $20 million in free publicity. When, in March 1985, Yugo America selected the New York PR firm of Rosenfeld, Sirowitz & Lawson to handle its print and TV advertising, even that was news.40 Like the Bricklin SV-1, the Yugo was a hit—a premarket hit. Except this time Bricklin was banking that Americans wanted a low-priced car, rather than a safety- vehicle-cum-sports-car, and that at $3,990 he could give it to them.

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5

The Serbian Detroit

Q: What do you call a Yugo with a flat tire? A: Totaled.

Kragujevac, Serbia, is a small industrial town of about 150,000 people. Although Kragujevac is home to a major state university, a regional archive, five or six museums, a district court, and a successful theater, what truly defines the city is Zastava. In the mid-1980s, Zastava and its parent company, Zastava Group, employed some 35,000 workers, meaning one out of every four residents in Kragujevac worked for Zastava. Zastava Group was an industrial conglomerate that produced, among other things, cars, trucks, buses, pickups, automotive supplies and parts, machine tools, mining and manufacturing equipment, and arms.

Zastava itself had grown out of Serbia’s first cannon factory, established in Kragujevac in 1853.1 At the time, Serbia was an autonomous principality under the Ottoman Turks, an Asiatic people who had conquered the Serbs, who were Slavs, in the fourteenth and fifteenth centuries. By the mid-nineteenth century, however, the Turks had so little control over Serbia that the tiny principality was able to hoist its own flag, build its own state institutions, and equip a standing army. The Serb army used Zastava-made weaponry in 1878 when it liberated itself from the Turks, in 1885 when it fought Bulgaria, in 1912–13 when it fought Turkey and Bulgaria, and again during World War I.

The “Great War” began when a Serb terrorist named Gavrilo Princip assassinated the Austrian archduke Franz Ferdinand during a June 1914 visit to Bosnia. Princip had been backed, clandestinely, by a group of Serbian army officers in Belgrade who wished to punish Austria-Hungary for its annexation of Bosnia in 1908. The Serb officers considered Bosnia to be a Serbian land. At least, they considered it a Slav ic la nd of Orthodox Serbs, Catholic Croats, and Bosnian Muslims, whom they wished to unify with neighboring Serbia. But instead of unifying Bosnia with Serbia or helping the Serbian cause in any real way, the assassination of Franz Ferdinand only prompted Austria-Hungary, an empire of 51 million, to declare war on Serbia, a kingdom of less than 5 million.

The war was a disaster for Serbia. By November 1915 the country had been completely overrun, its army and government were in exile, while the arms factory in Kragujevac was taken apart and shipped to Austria. Luckily for Serbia, though,

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in April 1917 America intervened. It intervened not to assist Serbia per se but to assist America’s traditional allies, Britain and France, in their fight against Germany, which was Austria’s ally. In the end, the presence of hundreds of thousands of fresh American troops on the Western Front forced Germany and Austria to surrender. This was in November 1918. Although tiny Serbia had to some extent caused World War I, in the postwar peace settlements signed at Paris it was awarded the Austro-Hungarian provinces of Slovenia, Bosnia, Croatia, and Vojvodina, which it merged under one government with a Serbian king.

The new country was called the Kingdom of the Serbs, Croats, and Slovenes. In 1929 it changed its name to Yugoslavia, meaning Land of the Southern Slavs. The country’s two main ethnic groups, in terms of size and political power, were the Serbs and the Croats. The two groups had separate religions, separate state traditions, and separate conceptions of how Yugoslavia was to be. The Serbs, for example, wanted a centralized state with Belgrade as capital. They viewed Serbia as a Balkan Piedmont, playing the same historical role that the Italian province of Savoy did in unifying Italy. The Croats, on the other hand, favored a decentralized state and viewed Croatia as an autonomous equal. They wanted their own flag and their own bureaucracy, and wanted to cooperate with Serbia as part of a larger confederation.

The centralist-decentralist debate would remain with Yugoslavia for the next seventy years. But since the Serbs were the larger of the two groups and had considerably more power than the Croats, in 1921 they pushed through a centralist constitution giving the bulk of political authority to various Serbian parties in Belgrade. Thus began a period of political unrest in which Croatia’s main political party boycotted parliament, in which Croatia’s leading politician was imprisoned by the government and later shot by a Serbian rival, and in which a Croat terrorist organization killed Yugoslavia’s Serbian king during a visit to France.

Even worse were Yugoslavia’s external relations with neighboring states. By the late interwar period the country was surrounded by enemies, including Fascist Italy to the west, Nazi Germany and Hungary to the north, and Bulgaria to the east. Each of these countries wished to dismember Yugoslavia; therefore the Yugoslav government pursued a twofold approach. First, it would appease its neighbors diplomatically, such as in 1937 when it signed a non-aggression pact with Italy, and second it would arm itself as quickly and quietly as possible. During the 1930s, for instance, the Yugoslav arms factory in Kragujevac dramatically increased its production. Then known as the Military Technical Works, the factory employed some twelve thousand workers who made pistols, rifles, machine guns, mortars, hand grenades, and, beginning in 1940, a small line of Chevy trucks.2

The trucks were an early variation of the G-105 one-and-a-half-ton military vehicles that the U.S. government later sent to the Soviets during World War II. The trucks’ engines were built in Detroit, but the vehicles themselves were assembled

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in Kragujevac under license from General Motors. The Military Technical Works had assembled trucks and buses before, but to this point no Yugoslav company had ever built a car. For one thing, cars were expensive to produce. They required, among other things, a truly mind-boggling list of very costly and imported machinery, such as conveyor belts, stamping and pressing machines, and lathes. A state-of-the-art fifty-acre French Citroën plant built at Javel in 1925 required 3,100 different pieces of machinery, most imported from the United States.3

A second impediment to Yugoslav car production was that interwar Yugoslavia had a dearth of domestic buyers. As of 1937, Yugoslavia’s per capita national income was $80. By contrast, the average per capita national income for all twenty- four European countries was $200. It was $440 for Great Britain.4 However, in most of Europe the average price of a small-size car in the 1930s was between $500 and $700. Even the famed Volkswagen, which had been built and subsidized by Nazi Germany, came in at about $400, far more than the average Yugoslav could afford.5 A third impediment to Yugoslav car production was the country’s lack of usable roads. In the late 1930s Yugoslavia had just over 26,000 miles of roads, more than Greece, Bulgaria, and Romania but still considerably less than Great Britain, which had over 179,000 miles of roads.6 In addition, the great majority of all Yugoslav thoroughfares were finished with dirt or gravel, while the country lacked even a single highway or even one “automobile-only” road.

Whatever the case, in the late 1930s the government of Yugoslavia wasn’t interested in automobiles. Its most pressing issue was Germany. Since 1939, the German dictator Adolf Hitler had been bullying Yugoslavia into joining his Tripartite Pact, which it did reluctantly in March 1941. The Yugoslav leader at that time was Prince Paul Karadjordjevic, who came to power in October 1934 after his cousin King Alexander had been assassinated in Marseilles. Paul had no stomach for the job and planned to rule Yugoslavia as “prince regent” until Alexander’s son Peter, who was seventeen years old in 1941, came of age. But Paul’s decision to align Yugoslavia with Hitler was unpopular with Yugoslavia’s five million or so Serbs, who as part of the Kingdom of Serbia had fought Germany during World War I. Therefore, on March 27, 1941, only two days after Yugoslavia had joined the Tripartite Pact, a group of anti-German officers deposed Prince Paul and brought the young King Peter to power.

Hitler’s response was swift and bloody. Known as “Operation Punishment,” it included a three-day bombing of Belgrade that killed five to ten thousand people.7 The operation was supported by a blitzkrieg invasion of some fifty-two Axis divisions, who destroyed the Yugoslav army and toppled its government in just twelve days. By mid-April 1941, Yugoslavia had ceased to exist. The Yugoslav province of Slovenia, for example, was divided into two roughly equal parts that were physically absorbed by Italy and Germany. Croatia became a Nazi puppet

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state administered by a Croatian fascist organization known as the Ustasha, while Serbia was placed under direct German control. In Kragujevac, the Military Technical Works was once again captured, disassembled, and shipped to enemy territory. All that remained in the factory was a truck repair shop and an assembly line for small arms.

Meanwhile, the citizens of Kragujevac, though staunchly anti-German, were in no position to resist. The German authorities who administered Serbia had concentrated their troops in city centers and along Yugoslavia’s main transportation routes to guard their supply lines between Serbia and Greece. However, the Serbian hinterland was outside of German control and fell into the hands of two rival groups, the Chetniks and Partisans. The Chetniks were a collection of Serb nationalist detachments loyal to King Peter, who at the outbreak of war had fled Yugoslavia and settled in Great Britain. Their rivals the Partisans were the guerrilla arm of the Yugoslav Communist Party and were led by a professional revolutionary named Josip Broz Tito. The Chetniks and the Partisans were bitter rivals: from 1941 to 1945 they fought a civil war with each other and a guerrilla war with the occupying German army.

At one point in October 1941 the two groups briefly cooperated in an attack on a German battalion. In a brief firefight, they succeeded in killing ten German soldiers and wounding twenty-six others. Even though the attack took place outside Kragujevac, in retaliation German authorities ordered that for every German killed they would execute one hundred Kragujevac civilians; for every soldier wounded, they would execute fifty Kragujevac civilians, which they did between October 18 and 21, 1941. Among the 2,300 dead were several hundred teenage boys whom the Germans took from a local high school and shot by firing squad in a wooded area outside of town. As legend has it, the school’s headmaster refused to leave his students and asked to accompany them to the execution site. When they began lining the boys up to be shot, the Germans told the headmaster to get out of the way, to which he supposedly retorted: “Go ahead and shoot. I am conducting my class.”8

Such acts of genocide and of extreme almost inexplicable heroism were common in Yugoslavia, where during World War II over 1.7 million people, or 11 percent of the population, were killed.9 By comparison, the United States lost 405,399 men and women during World War II, less than 24 pecent of Yugoslav losses and only .31 percent of the American population as a whole.10 Although estimates vary, it is safe to assume that fully half of all Yugoslav casualties occurred at the hands of other Yugoslavs. In Croatia, Croat fascists killed Serbs, Gypsies, and Jews ; in Bosnia, Serb Chetnik skilled Muslims and Croats, while Muslim SS detachments killed Serbs, Croats, and Jews. Tito’s Partisans, as it turned out, were the only Yugoslav combatants who preached antifascism and multiethnicity. As a result, their numbers rose from a mere 11,000 in 1941 to over

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700,000 in 1945.11 By war’s end the Partisans were the single greatest force in Yugoslavia. They

were also the most popular. In 1945 the country held open elections in which the monarchy was abolished and Yugoslavia became a socialist people’s republic with Tito at the helm. Almost immediately, Tito’s government began nationalizing property and making huge investments in heavy industry. In Kragujevac, for example, the Military Technical Works was rebuilt from the ground up. From late 1944 through the end of 1945 it was known as the “October 21 Works” in honor of the Kragujevac students and other civilians massacred by the Germans in 1941. For some unknown reason, the company again changed its name in early 1946 from the October 21 Works to the Crvena Zastava Works. Crvena Zastava meant Red Flag, as in the red flag of communism, and was an advertisement of sorts for Tito’s communist regime.

By 1948–49, the Crvena Zastava Works had regained its position as one of the leading arms producers in Yugoslavia. Its government-approved plan for 1949 called for a minimum production of one hundred thousand rifles and one hundred thousand hand grenades.12But just as Zastava began production that year, the government abruptly decided to move most of the factory to Bosnia. The reason was that in June 1948, after a prolonged and very public dispute with the Soviet dictator Joseph Stalin, Tito decided to pull Yugoslavia out of the Soviet bloc. From that point forward, declared Tito, Yugoslavia was an independent state. It had its own right to govern its own affairs and could pursue, if it wanted to, its own unique path to communism. The United States praised Tito as a “maverick” and a “good communist,” but Tito’s advisers feared that the Red Army was planning to invade Yugoslavia to depose Tito and reestablish control. Therefore, the Yugoslav government shipped its most essential equipment to the mountains of Bosnia, where it could be better protected in the event of a Soviet invasion.

The invasion never happened, but since most of Zastava’s arms production was now in Bosnia, the Kragujevac company needed something to produce. In spring 1953 it opened negotiations with Willys-Overland, the famed Toledo, Ohio, company that produced the Jeep.13 As part of an extended test run, Zastava assembled more than 160 CJ-3A models, a close relative of the CJ-2A model used by the U.S. Army during World War II. However, the negotiations collapsed because Willys-Overland wanted 6 percent of profits but refused to send in its experts or to assist Zastava with setting up its assembly lines. The reason for this is unclear, but having failed with Jeep and still needing an automobile Zastava issued a public tender in August 1953.14 It requested, among other things, full production rights—and not just rights of assembly—for either a Western European or an American-made automobile. The following companies replied: Fiat, Renault, Alfa Romeo, Rover, Austin, and Delahaye.15

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Each company sent sample automobiles to Kragujevac, which were then tested by Zastava in October and November 1953. Zastava decided to award the contract to Fiat because the giant Italian automaker offered Zastava two different car models (the 1400 and 1900), a one-and-a-half-ton transport truck, a tractor, and a jeeplike military vehicle called the Campagnola.16 The price: a mere 350 million lira ($560,000), which Zastava would pay for through future parts and machine purchases from Fiat. By almost any measure the deal was a steal. Zastava could pick and choose which automobiles it wished to produce and at what pace. It could produce, for example, a four-door 1400 sedan or a two-door 1900 coupe, or it could concentrate solely on the Campagnola, which the Yugoslav military wanted, now that the Willys-Overland negotiations had fallen through.

The contract between Zastava and Fiat was signed on August 12, 1954. Zastava’s director at that time was a former Partisan war hero named Voja Radic. Apparently Radic was intelligent enough to sign with Fiat, but as a manager he was completely incapable of handling the Herculean task of building and assembling cars. Therefore, in 1955 Zastava replaced Radic with Prvoslav Rakovic, a onetime railway engineer whose “can-do” attitude was unique among communist apparatchiks.17 Over the next twenty years, Rakovic would build one of the largest automotive companies in the world. “Although car making was not regarded as a priority area for funding in the building of socialism,” wrote the economic historian Michael Palairet, “Rakovic worked single-mindedly to develop this small semi- mechanized operation into a fully fledged assembly plant.”18

It was Rakovic who in August 1955 persuaded Fiat to sign a second deal with Zastava, in which the Italian carmaker agreed to invest an undisclosed sum into the construction of a new Zastava-owned factory in Kragujevac. The contract called for a production capability of 12,000 vehicles per year. In September 1957, Fiat extended the contract to include an additional 20,000 cars of the popular Fiat 600 line and in May 1959 agreed to invest a whopping $30 million into an expanded 150,000-car facility in Kragujevac.19Of course, Fiat was motivated by profit. Its management knew that, like all communist countries, Yugoslavia needed Western- made machinery to industrialize. But because its currency (the dinar) was a “soft” currency and had no convertible value outside of Yugoslavia, the country was broke.

Therefore, Fiat invested in Zastava in hopes that it would enter the Yugoslav market on the ground floor. As of 1954, there were only 11,290 private cars in all of Yugoslavia, a ratio of 1 to every 1,500 people.20 Fiat assumed, quite reasonably, that Yugoslavia’s domestic car market simply had to expand. And when it did, Fiat would be part owner of the only true production facility around. Through the 1950s Fiat pursued a similar strategy in both Argentina and Brazil as well as in the Soviet Union, where in 1965 it agreed to construct a 600,000-car facility in Stavropol-on-

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Volga, Russia. (That facility became known as the Volzhsky Avtomobilny Zavod, or VAZ, the famed producer of the Lada automobile.) “Profit margins on [Fiat’s] deals with the Soviet Bloc,” wrote The Times of London, “will inevitably be slim. But Fiat’s main asset could well likely be state control . . . A paper deal involving long-term credits and the payment of fees or royalties over a long period of time and in goods rather than cash is most likely.”21

It can be assumed, then, that Fiat’s deal with Zastava in 1959 was similar to its 1965 deal with VAZ. Fiat provided start-up capital and licensing rights, and received a long-term combination of fees, royalties, guaranteed parts purchases, and bartered goods. In later years Zastava would use its cheap labor force to assemble automobile parts for Fiat, including shock absorbers, batteries, electrical equipment, and seats.22 Implicit in the deal was the promise that no Zastava-made automobiles would be sold in markets where Fiats were sold, such as Italy. Thus, it was with great fanfare that on July 6, 1962, Zastava’s new Kragujevac facility opened its doors.23 Its main production model was the famed Fiat 600, the first rear-engined Fiat and the first true “people’s car” produced in Yugoslavia. The two-door 600 had four seats and a four-cylinder 767cc engine, and was just over ten feet five inches long. At the time of its production, the Fiat 600 was one of the smallest, cheapest, most fuel-efficient cars in the world, and a perfect fit for Yugoslavia. Although Zastava renamed the 600 the Zastava 750, the public affectionately called it the Fica (“Fee-cha”), meaning “Little Fiat.”24

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6

Bricklin’s Next Big Thing

Q: What do a Yugo and a ceiling fan have in common? A: They both have the same motor.

Zastava began production of the Fica shortly after the company’s second deal with Fiat in 1955. Between 1955 and 1985, Zastava produced over 923,000 Ficas, an astounding number considering that prior to 1955 Zastava had never made a car.1 In addition, in 1961 Zastava also introduced the Fiat 1300/1500. Somewhat bigger than the Fica, it was primarily used for taxis, government vehicles, and police cars. The Fiat 1300/1500 was an early version of the Fiat 124 and 125, which were later produced by Poland’s Passenger Car Factory (Fabryka Samochodow Osobowych, or FSO) as the Polski Fiat and by the Soviet VAZ factory as the Lada. Upon its introduction, the Fiat 1300/1500 offered what one British reviewer called a “zestful performance”; by most accounts it was a decent car.2

But whereas Fiat stopped producing the 1300/1500 model in 1967, Zastava churned out more than two hundred thousand of these increasingly aging cars before ending production in 1979. Likewise, Zastava manufactured the tiny 750 model (the Fica) until 1985, though Fiat itself had dropped the automobile sixteen years earlier in 1969. To the average car-crazed American, it would seem almost sacrilegious if a car company failed to introduce at least one “new” model each calendar year. Take the 2005 Toyota Camry, for instance. It was only slightly different than the 2004 Camry. Although U.S. car dealers marketed the 2005 model as being an improvement over the 2004, in reality it wasn’t. The only real difference was that the 2005 model had redesigned headlamps and tail lamps, chrome door handles and a chrome gear-shifter base, and a new wheel cap. Otherwise, the mechanics—and appearance—were the same.3

The American automobile industry and in particular General Motors (GM) first introduced annual model changes in the 1920s. GM’s competitor at that time was the Ford Motor Company, whose founder, Henry Ford, was insistent that his Model T should stay in production (year after year after year) unchanged. Ford’s goal was to streamline his company’s manufacturing process to reduce cost. He therefore introduced the world’s first automotive assembly lines and implemented hundreds of new manufacturing techniques to produce automobiles that cost $850 in 1908 but just $300 in 1923.4 At one point Ford reduced the price of his Model T by ordering

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his factory to use only black body paint, because black was cheaper and supposedly dried faster than other colors.

Ford would produce fifteen million Models Ts but slowly lost market share because he refused to adapt to, or even consider, consumer taste. Ford’s “production-centered ethos,” wrote one scholar, was “unwavering . . . he almost drove his company to ruin by continuing to build economical machines and to advertise them as just that—and only that.”5 By the 1920s, American car buyers were no longer interested in basic transportation. They wanted style, prestige, and status, something GM and its innovative president, Alfred P. Sloan, could offer them. Sloan insisted that GM should have a broad product line, a “car for every purse and purpose,” a “Chevrolet for the hoi-polloi, [an] Oakland for the poor but proud, [an] Oldsmobile for the comfortable but discreet, [a] Buick for the striving, [and a] Cadillac for the rich.”6

Sloan’s strategy was to sell GM vehicles along what he called a “price stairway,” with low-priced Chevys at the bottom end and expensive Cadillacs at the top end. In this way, GM models wouldn’t compete with each other, and as customers aged and became more affluent, they could buy more expensive cars within the GM “family.”7 GM’s product line also involved what to that point was the priciest PR campaign in history, one that pitched the automobile not as a mere product, as Ford did, but as a symbol of one’s personal worth within American society. In addition to Sloan’s “price stairway,” the GM president also introduced “annual design changes,” which were small, stylistic changes meant to entice or even fool consumers into thinking that this year’s Cadillac Fleetwood was somehow better or more valuable than last’s.

Price stairways and annual design changes have long been standard practices in the industry. In 2009, for instance, Ford’s U.S. operation offered six cars, two “crossovers,” five sport-utility vehicles, four trucks, and a van. These vehicles came in several dozen submodels, from the lowly Ford Focus sedan at $14,995 to the unbelievably gauche Ford Harley-Davidson Super Duty truck, which cost $45,790.8 Needless to say, Ford provided its customers with literally hundreds of options, such as automatic or manual transmissions, cloth seats, leather seats, sports bucket seats, roof racks, mud flaps, spoilers, chrome grilles, and leather gearshift knobs as well as metal, aluminum, and/or alloy wheels.

In the 1960s Ford’s production line was no less diverse. In 1969 Ford of Britain produced eight different cars.9 Consumers could purchase the cars in two-, three-, four-door, and even hatchback submodels and choose from dozens of options. By contrast, the average Zastava buyer in 1969 had just two options : the four-door 1300/150 0 model and the two-door Fica. They were given no choice as to the car’s color or accoutrements, and often waited weeks or months for delivery. The former Yugoslavia was a socialist country and its economy was a planned economy

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whose focus was on industrialization, on using the country’s meager resources to build key infrastructure such as factories, roads, bridges, railways, housing blocks, electric plants, and highways.

Therefore, the Yugoslav government felt that consumer goods, or more to the point consumer preferences, were frivolous. Fashionable clothes were frivolous. Children’s toys were frivolous. Cosmetics were frivolous. Even toilet paper was frivolous. (Ask anyone who traveled to Yugoslavia in the 1950s and ’60s and they’ll mention the sandpaper-like qualities of Golub toilet paper.) It was because of Yugoslavia’s centralized planning and, subsequently, its forced industrialization that by the 1960s the country’s annual growth rate was one of the highest in the world.10 But Yugoslavia, like most communist countries, did not invest its money wisely. Often it built surplus capacity in some sectors, such as in the military industry, while ignoring other sectors entirely. For political reasons, it also built many of its factories in poorer, remote regions such as Montenegro, where roads were bad and the workforce composed of unskilled, uneducated labor.11

The result was that Yugoslavia’s poorer regions tended to drain money from its richer regions, which included Slovenia, Yugoslavia’s wealthiest republic at 187 percent of per capita GMP; Croatia, its second-wealthiest republic at 127 percent of per capita GMP; and Serbia, the country’s third-wealthiest republic at 96 percent of per capita GMP. By contrast, the poorer republics of Macedonia, Montenegro, and Bosnia were just 66 percent, 72 percent, and 67 percent of per capita GMP respectively. (The Albanian-populated but Serb-dominated province of Kosovo was even poorer at 32 percent!)12Even though Yugoslavia’s total GMP grew some 6 percent per year during the 1960s and personal income of industrial workers by almost 7 percent, by the end of the decade Yugoslavia’s trade deficit stood at $1 billion.13

To make up the difference and to sustain economic growth, in the early 1960s Yugoslavia began borrowing from Western banks. As a result, by 1969 Yugoslavia was $2 billion in debt.14 However, to pay back its loans or even meet its interest payments Yugoslavia needed currency—hard currency—which it attempted to earn by doing what no communist country had ever done: it opened its borders. Beginning in 1965, Yugoslav citizens were permitted to leave the country and work (the government hoped) as seasonal guest workers in the booming economies of Sweden, Austria, and Germany. According to one study, in 1966 Yugoslavs made 3.3 million legal border crossings, a figure that rose to 6.9 million in 1967, 8.1 million in 1968, and 10.6 million in 1969. By comparison, in 1960, when the border was closed to out-migration, Yugoslavs entered or exited the country a mere 191,000 times, a nine-year difference of over 5,400 percent.15 Open borders also meant that Western tourists could now enter Yugoslavia to visit its Adriatic coast.

In 1966, remittances from workers abroad and earnings from tourism netted

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Yugoslavia some $168 million. In 1970, that figure rose to $688 million and $930 million in 1971.16 But by that point Yugoslavia’s foreign debt had nearly doubled (to $4 billion), while its trade deficit that year was a whopping $1.1 billion. Yugoslavia’s only hope, then, was to stop borrowing, which it didn’t do, and to export more goods—or at least more valuable goods—than it imported. Thus, Yugoslav companies were told by the government to export, export, export, which they did. By the mid-1970s, Yugoslav firms were selling a variety of goods on the world market, including footwear, textiles, furniture, chemicals, cooking oil, canned meats, kitchen appliances, and cars.