Chairman to Leave Yugo America Parent Firm
Malcolm Bricklin, whose failed 1970s sports car venture preceded his introduction of the cut-priced Yugo to America, is being bought out of his auto importing business, the president of Bricklin’s Global Motors Inc. said Sunday.
Global Motors is the parent of Yugo America Inc., which introduced the $3,900 Yugoslavian-built auto to the United States in August, 1985, and of Proton America Inc., which plans to import a Malaysian-built car by year’s end.
An investor-management group headed by Mabon Nugent and Co., a New York investment banker, agreed three weeks ago to give Global Motors a cash infusion in exchange for Global stock and debt, said William Prior, Global’s president.
The deal was to be announced publicly today, and explanatory letters were mailed to Yugo dealers late last week, Prior said in an interview. The deal was expected to close within a week, he said.
Bricklin, through Prior, declined comment.
Late Sunday, however, Prior did disclose a few details on the deal. Bricklin, chairman and chief executive of the firm, will be selling about $12 million of his own stock and will no longer be a majority stockholder, Prior said. “But it’s still not a done deal,” said Prior, who will be named chief executive of the company.
Prior also insisted that Bricklin was not being forced out of the company. “That’s not the case at all,” said Prior. “In fact, just the opposite is true. We’ve talked about this since last September. He just has other interests that he intends to pursue.”
Some industry analysts, however, say the timing could indicate that Bricklin is being forced out. “Essentially, it’s the wrong time to leave the company,” said Arvid Jouppi, a Detroit-based vice president at the New York investment firm, Keane Securities Co. “The company seems to have just begun to establish itself. I’m surprised he’d leave voluntarily.”
Prior said the investor group will inject more than $40 million into the company. Global will pay about $20 million for Bricklin Industries’ 60% to 70% stake in the business and will inject at least that amount into the business itself.
Bricklin, who will remain a paid consultant to Global Motors, introduced his gull-winged, acrylic-and-fiberglass bodied SV-1 sports car in 1974. But production never neared his 12,000-a-year goal, and the company died in 1976.
The little Yugo, marketed as basic, cheap transportation and aimed at buyers who otherwise might buy used cars, sold so fast after its U.S. introduction that dealers never had enough to fill orders.
But it soon came to be known as a shoddily built, poorly designed vehicle. In the February, 1986, Consumer Reports, the Consumers Union commented: “It is hard to recommend the Yugo at any price. The Yugo scores below every other car we’ve tested in recent years.”
Two years later, Consumers Union’s opinion hadn’t improved despite thousands of changes made to the car and a price increase to its current base price of $4,199.
“The Yugo is the cheapest car on the market. Unfortunately, it’s also one of the worst cars CU has ever tested. . . . The money saved in buying a Yugo may well be spent in maintaining it.”
Tough Competition
At least one former Los Angeles area Yugo dealer generally agrees with that assessment. “It’s a bad car all the way around,” said Greg Salazar, general sales manager at Freeway Ford, a dealership that recently sold its Yugo franchise back to the company. “We tried to sell the franchise to other dealerships but no one would talk to us,” said Salazar.
Recently, however, his dealership did unload most of its remaining 50 Yugos to other Yugo dealers, at a loss of up to $300 per car, Salazar said. But Salazar said his dealership still has one Yugo remaining in stock. “The car’s so tiny,” he jested, “we’re thinking of giving it away as a key chain.”
A Long Beach car dealer says he can sell Yugos but not nearly as fast as his company sells Hyundais, which have a base price of $5,395. Don Lewis, general manager of Cormier Chevrolet, says his dealership sold about 25 Yugos in January, while next door, Cormier Hyundai sold nearly 350 Hyundais in the same period.
But Lewis also said that his Chevrolet dealership has had more problems with the $20,000 British-made Sterlings that it started selling about a year ago than with Yugos. “We’ve had more dependability problems with the Sterlings. Of course, the Sterling is a much more advanced car.”
Indeed, by current automobile standards, “the Yugo is the Grandma Moses of automobiles,” said analyst Jouppi. “It’s basic transportation, but that’s all it is.”
Bricklin, who at age 29 had introduced the Subaru to the United States in 1968, said in early 1985 that by Yugo’s second year in the United States, he expected sales of 150,000. By its third year, he planned to sell 250,000.
But the Yugo’s reputation was so poor and its competition in the new, low-end market so tough that less than 50,000 were sold in 1987, its second full year of sales. First-quarter sales in 1988 fell 36% from a year earlier.
Instead, the South Korean-made Hyundai Excel, the first of several Yugo competitors who crowded into the cheap-car market, set a first-year import sales record of 150,000 units in 1986.
But Prior insists that Yugo, “has an entirely different set of dynamics than Hyundai.”
Future Plans
In January, Yugo America mounted an aggressive campaign, including a $48-million advertising budget and the introduction of the Yugo GVX, with a stronger engine and suspension and more frills.
It also provided a one-year, complete warranty that Prior estimated will cost Yugo America $19 million annually. During the first year, Yugo America pays for all maintenance and parts, routine or not.
In June, Prior said, Yugo America plans to introduce a Yugo convertible, complete with a heated, glass rear window and other amenities, in the $8,000 range. He hopes that as the cheapest convertible in America, it will sell the way its older brother once did.
