Serbia had hoped someone might ‘do a Dacia’ with Zastava. But Fiat’s ambitious plans for the Serbian automaker have no room for sentiment, as Mark Bursa discovers.

And so, farewell then, Yugo. The last Zastava car will roll off the production line at Kragujevac today, as Serbia’s automaker prepares for a brave new future as part of the Fiat group.

The loss of the national brand is a cause for some sadness in Serbia – and throughout the Balkans. Created in the era of President Tito’s Yugoslavia, Zastava was part of the political glue that bound the disparate ethnic and political factions within the Balkans together.

Of course, the glue came unstuck in the 1990s, leading to the break-up of Yugoslavia via a fierce and bloody conflict. Zastava suffered then too – its plant was bombed and heavily damaged in 1999. Read about the company’s turbulent past here

Zastava survived, but Serbia knew it could not prosper without investment. And Fiat was the obvious choice of partner. The Italians built the plant in the 1960s, and Zastava cars were heavily Fiat-based, including a version of the Fiat 128 of 1969, which was still produced until this year. More recently, Zastava has been building versions of the old Fiat Punto for several years, giving it a more modern car.

The Serbs had hoped that Fiat would “do a Dacia” with Zastava, rebuilding it as a budget brand. But Fiat has its own agenda – and that didn’t include the local nameplate. Instead, Fiat plans to add the Kragujevac to its European manufacturing network as a low-cost producer, building two new models – including an ultra-economical city car for sale throughout Europe.

Serbia is seen as an increasingly valid location for foreign direct investment. A recent PricewaterhouseCoopers report said: “One of the drivers behind Serbia’s growing potential attractiveness to foreign investors is the falling risk of investing in the country. Political risk is considerably lower than at the start of the decade, while improved legal and financial institutional frameworks make capital invested in Serbia more secure. Serbia still experiences some underlying political uncertainty. Its accession to the EU is not imminent and further investment in infrastructure is necessary, but many international investors show confidence in the market’s potential.”

Fiat is at the forefront of this trend. It is taking a 70% stake in Zastava in return for an investment of EUR700 million in modernising the company. This plan will see Kragujevac’s production balloon to 330,000 units a year by 2012 – a massive increase on the 20,000 or so that the plant has built in 2008. The boost to the economy in terms of investment, jobs and exports simply outweighed Serbia’s national pride over its car brand.

There are complications with the deal. One is General Moors, which before the Fiat deal was announced had agreed a five-year deal with Zastava to assemble the Opel Astra Classic in Kragujevac. This deal was blown out of the water by the Fiat deal – so the Serbian government is now is offering to help GM develop a new facility somewhere else.

“We have told General Motors that this contract should proceed in one way or another,” deputy economy minister Nebojsa Ciric was reported as saying by local media. The government has “open options” to locate the assembly plant in Kragujevac, in the capital Belgrade or in the northern Serbian city of Sombor, Ciric said. This will not stop Fiat’s plans. Indeed, given its problems in Detroit, GM might pull out of any deal.

Meanwhile Fiat’s investment will see Kragujevac, soon to be renamed Fiat Auto Serbia, building versions of the next-generation Palio low-cost car for Central and East European markets. This is likely to revive the Uno name, and will compete head-on with the Dacia Logan/Sandero family in terms of size and price.

The second Kragujevac model will also revive an old Fiat name, this time from further back in the company’s history – Topolino. The original Topolino was the 1936 Fiat 500, a revolutionary car in its day, which made motoring affordable in Italy for the first time. The Italian people fell in love with the little car and nicknamed it ‘Topolino’ – which is what Walt Disney’s Mickey Mouse is known as in Italy.

To avoid confusion, it’s worth noting here that subsequent 500s, including the 1957 model whose styling forms the basis of the current retro 500, are not Topolinos. Some reports have suggested that Zastava will be making the new 500. It won’t. The new Topolino is something else entirely.

It’s a much smaller car, designed to compete with a new breed of urban minis such as the Toyota iQ, Volkswagen Up! and Smart Fortwo. Like the iQ, it’s expected to be a three-seater, a layout Fiat first showed on the Trepiuno concept in 2004, and like the Smart, it’ll be rear-wheel drive, with the powertrain under the rear floor.

It’ll be powered by Fiat’s revolutionary MultiAir gasoline engine, described in more detail here. This modular, low-cost powerplant replaces traditional valves and camshafts with a direct air injection system, which allows ultra-low consumption and, crucially, ultra-low CO2 emissions.

Topolino will have a two-cylinder, 900cc MultiAir unit that is believed to emit just 69g/km of CO2. Concept shots floating around cyberspace suggest either a small car with more than a hint of 500, or a more upright, Panda-like design. A concept from this May, the Phylla, might also offer clues.

The last Zastava car was a 1.1-litre Koral model in red, appropriately, as the company’s original name, Crvena Zastava, translates as Red Flag. But as it trundled into history, we bring you shock news that Zastava may not be dead after all. It seems there are other emerging markets further down the evolutionary tree that would like to carry on building the cheap, robust little cars.

Egypt’s Nasco Automotive Co has assembled CKD Zastavas for some years – the Skala 55, the car that is still recognisably the Fiat 128, is particularly popular there. And an approach has been made to acquire the line. Zastava manager Radomir Petrovic said: “Together with the Serbian government, we are exploring possibilities to continue with production in Egypt, were our Zastava 128 model has been very successful.”

And another Zastava model could be heading for another African nation. “We have received a proposal for the Yugo Florida model to be produced in the Congo,” said Zastava Vehicles Group CEO Zoran Radojevic.

Strangely, these deals have been made possible by the actions of the Zastava unions, which objected to an earlier announcement that the old production lines would be sold for scrap, and called on the government to offer them to foreign assemblers. The government backed down, and now the Serbian Privatisation Agency would decide on the feasibility of the African offers. Prepare for the return of the zombie Zastavas, back from the dead in Brazzaville and Cairo!

Mark ‘Coolbear’ Bursa

See also: EMERGING MARKETS ANALYSIS: Decision time as Zastava bids to become another Dacia