Yugo revs to beat image of the little car that couldn't. Low price offset by weak performance

The Yugo may not have run out of gas, but it's certainly sputtering. The inexpensive compact car from Yugoslavia has been slammed by auto critics, its supplier is offering incentives in a bid to reverse declining sales, and the car's United States importer recently sold his ownership in the company.

Car sales have accelerated somewhat since $500 rebates were offered on the $4,349 base price. A new advertising campaign calls the autos ``the toughest, most dependable cars a little money can buy.''

``The real key for them is if they can build a car to live up to the image they're trying to portray,'' says Chris Denove, an auto industry analyst with J.D. Power & Associates of Agura Hills, Calif. ``They still have some quality issues which they need to address.''

The car was introduced to the US in August 1985 by Malcolm Bricklin, an entrepreneur who had unsuccessfully launched the Subaru in the US (later models succeeded, after he was bought out) and who marketed a sports car called the Bricklin, which also failed. More than 100,000 Yugos have been sold in the US.

Earlier this spring, Mabon, Nugent & Co., a New York investment banking company, bought Mr. Bricklin's stock in Global Motors of Upper Saddle River, N.J., for $20 million. Global Motors is the parent company of Yugo America. Bricklin remains with Global as a consultant. Mabon, Nugent also made a cash infusion of about $20 million into Global in exchange for some of Global's stock and debt.

Meanwhile, as sales of the car dropped, Yugo America responded with its $48 million ad campaign in March, claiming ``the best new car protection of any subcompact sold in America'' - a four-year, 40,000-mile power-train warranty.

What remains to be seen is whether the rise of Yugo sales, in the wake of the new campaign, can be sustained. The Yugo faces an array of problems:

Consumers Union tested the car and concluded in the February issue of its magazine, Consumer Reports: ``The Yugo is the cheapest car on the market. Unfortunately, it's also one of the worst cars CU has ever tested. If you can overlook the way it's put together, you're sure to tire of its weak performance, barely operable transmission, and Spartan accommodations. The money saved in buying a Yugo may well be spent in maintaining it. Damage to the car in our bumper-basher tests totaled $1,372. In addition, the model has a much-worse-than-average repair record with many major trouble spots.''

A Yugo spokeswoman rebuts the review. ``The fact is that the car has been well reviewed by other noted automotive reviewers,'' says Yugo spokeswoman Fran Jacobs, who cites articles in Car and Driver and Road and Track magazines, among others.

In a set of four 5-mile-an-hour crash tests conducted by the Insurance Institute for Highway Safety, the Yugo GV fared second worst out of 31 small cars, with $2,756 in total damage. ``It just does not look like it's been built with low-speed crash protection in mind,'' says Brian O'Neill, the institute's president.

Ms. Jacobs counters, ``The cost of repair of the Yugo is very optimal. We believe that the car has a very good record.''

In Massachusetts, the Yugo led the 1987 ``lemon index,'' released this month. Under a 20-month-old law, the state ranks cars according to how they fare in arbitration between dealers and manufacturers over defects involving their use, market value, and safety. This was Yugo's second consecutive year at the head of the list.

New York State's lemon law report for 1987 found that, ``in comparison to its market share, the manufacturer with the highest disproportion of losing decisions was Yugo. It had 2.6 percent of the total decisions for consumers, while its share of the market was only three tenths of one percent (0.3%). Yugo's record of losing decisions, therefore, was more than 8 times greater than the expected number of such decisions based on its market share.''

Yugo's Jacobs says that the majority of the cars that ran into problems with arbitration came from disenfranchised dealers, and that in about 80 percent of the states with lemon laws, Yugo has had no claims against it.

Twenty percent of Yugo's dealers may give up their franchises by the fall, the J.D. Power market-research company has found.

``It really appears to come down to profitability,'' says Mr. Denove. Yugo's dealerships are increasing at a time its national sales are in decline. ``The profit margins are not real high on the car.''

About 50 dealers have already stopped selling the Yugo, according to Automotive News. A survey published by the weekly in February found that ``the reasons for dropping the franchise were fairly evenly split among problems with the product, the fact that the franchise did not fit well with the dealer's product mix, and other business reasons that the dealers did not want to discuss.''

Yugo's Jacobs says there are now more than 340 dealers and adds, ``The fact is that we have a very aggressive dealer review system and strict dealer standards. We have a constant review process, and there are dealers we have disenfranchised.''

Jacobs defends the general quality of the car. Since the Yugo was introduced to the US, she reports, 225 product improvements have been made.

``We work very hard to correct any problems that people may have,'' Jacobs says. ``We intend to get better. We have every intention of ... improvement.''

Power's Denove has praise for changes at Yugo America. ``In a lot of key areas, they're doing the right things,'' he says. ``So we're fairly optimistic.''

But, he adds, one real test of Yugo's success will be Power's latest study of customer satisfaction, to be issued later this spring.

``The results of this year's survey will be crucial to Yugo,'' Denove says, because they will show whether or not owners believe Yugo America has responded to complaints.