In small-imports race, Yugo runs behind

By , Staff writer of The Christian Science Monitor

The early word on the Yugo is, well, you don't go. At least, not without a hitch. At $3,995, the import from a factory in Kragujevac, Yugoslavia, is the lowest-priced new car in America. But price isn't everything. The apparently better-made Korean import -- the Hyundai Excel -- costs $1,000 more, but as many Excels were sold in May as Yugo has sold since it was introduced last August, analysts say.

Yugo sales hit a pothole last winter after reports of poor workmanship. As sales are getting back on track, another report of low quality has been released.

A survey of 491 new Yugo owners shows 72 percent said they noticed glitches in the vehicle as soon as they left the lot. Some 87 percent reported one or more problems at or since delivery.

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``That's higher than any other new car in the US,'' says Robert Martin, new-car project director at J. D. Power & Associates, a West Lake, Calif., auto research firm, which conducted the survey in January.

The Yugo's leading problems: electronics and accessories. That's not unusual for a new car, especially an inexpensive model. But the second-biggest problem was more worrisome. The survey reports that 75 out of every 100 vehicles had engine trouble. What's more, only 32 percent of the Yugo owners said their problems were completely fixed.

``The quality of these vehicles should spell doom for Yugo. It's just a matter of time before sales dwindle,'' Mr. Martin says.

Yet sales today are rebounding and have topped 14,000 since the debut in August, says Ron Edelson of Yugo of America, in Upper Saddle River, N.J.

The pace of sales slowed for a while this spring after reports that the car failed a crash test. And Consumer Reports magazine panned the Yugo in its February issue. The review described it as ``painfully reminiscent of Fiats we tested 10 years ago.''

Indeed, the Yugo is a version of a 20-year-old Fiat design. Fiat struggled in this country for years after it developed a reputation for poor quality. Yugo may suffer a similar fate, says Martin. ``They've saddled themselves with a bad first-year vehicle. Once word gets around, it may be tough for them even if the problems have been corrected.''

Yugo's Mr. Edelson responds: ``Our view is that it's not dated, but a basic design that works well, so why change it. And more than 14,000 other consumers do like the car very well.'' He concedes,``We have had certain quality problems and we are fixing them.''

He also notes that Consumer Reports reviewed only one car. ``They got one bad car! With any early car there's going to be some kinks.''

Yugo of America just received the J. D. Power survey and has not yet studied the findings, Edelson says. But he criticizes the survey as using ``a very small sample, mostly from the New York area,'' and he says the quality findings don't ``jibe with what we hear internally or from customers in a more recent survey.''

What may be Yugo's last gasp or its salvation, analysts say, is its rollout in California next month. Edelson says that advance sales are ``tremendous.''

And how do the experts explain the continued strength of Yugo sales despite reports of poor quality?

``Initial sales are due to the novelty, the oddball factor,'' says Martin. The Power survey shows that Yugo buyers have been young professionals or those in need of a second or third car.

Milton Schlien, a Value Line auto analyst, says he's surprised by the Yugo's sales rebound. ``Perhaps customers believe the cars have gone through a shakedown period and are better now.'' And he adds, ``Don't underestimate the power of price.''

In the last couple of years, in fact, Japan has left a gap at the low end of the auto market. To maintain profit margins in the face of import quotas, Japanese manufacturers have gone upscale, producing more-expensive, option-filled models. On top of that, the dollar has tumbled against the yen. That's forcing up Japanese prices even higher. So far this year, Toyota Motor Corporation has raised prices 7 percent, and it says another increase is coming.

``The bottom of the market is open,'' Mr. Schlien says. ``There is a nice void there that someone could exploit.''

At the moment, that someone is Hyundai of America, based in Garden Grove, Calif. With a sticker cost of $4,995, the Excel is slipping into the price gap just below Japanese compacts. Unlike the Yugo, analysts see the Excel siphoning off sales from slightly higher-priced vehicles such as the Nissan Sentra, Toyota Tercel, and Ford Escort.

After just over three months, Hyundai sales are at 37,000. The company plans to sell 100,000 cars in its first year here. ``That will be the biggest sales for a new car in history, and I think they're going to make it,'' says Martin. ``Their quality is comparable to most other Japanese vehicles.''

But it won't be long before Hyundai and even Yugo have competition. This fall Volkswagen plans to introduce the Brazilian-made Polo to the United States market. Analysts expect it to sell in the $4,500-to-$6,000 range. And next spring Subaru is expected to bring in a similarly priced subcompact, called Justy.

And other contenders for Yugo in the US -- perhaps a year or more from now -- are already being sold in Canada. They include two Soviet-built Lada models, called Signet and Niva; the Czech-made Skoda; and the Romanian-built Dacia. But as with the Yugo, quality remains a question mark. The East European imports are simply ``not particularly well-made products,'' one analyst said.

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