From forgotten Yugos to new engines of growth: Reviving the car industry in South East Europe

The former Yugoslavia was mainly known for its not-so-successful and cheap cars, primarily the Yugo. In its review of the 50 worst cars of all time, Time magazine referred to the Yugo GV as the “Mona Lisa of bad cars.”

Nevertheless, the car industry played an important role in the economic development of the socialist Yugoslavia, representing a big employer across all former Yugoslav republics. The onset of war in the early 1990s dealt a significant blow to the car industry there, with most the production facilities closing down by the end of that decade.

And then, in the early 2000s, car companies began opening new facilities in the immediate neighborhood (Hungary, Romania, Slovakia, Slovenia) and the region began producing world renowned brands such as Audi, Mercedes Benz, Renault, and Suzuki. This represented a new opportunity for manufacturers from the region to enter new supply chains - relying on skilled and experienced labor. On top of this, FIAT also opened a new factory in Serbia, further spurring demand for locally produced automotive parts.

According to the recently launched South East Europe Regular Economic Report (SEE RER), total investment in FIAT Automobiles Serbia (FAS), the new partnership between Zastava (the former producer of the Yugo) and FIAT - formed in 2008 - has topped €1 billion. This factory’s new FIAT 500L became an instant success, with tiny car now ubiquitously travelling the roads of the world - from the Mediterranean coast to the United States, where one was seen transporting Pope Francis through the streets of several American cities.

On the back of this success, Serbia saw turnover in its automotive sector exceed €2.7 billion in 2015 – roughly eight percent of that country’s GDP. Automobiles now account for more than 20 percent of exports from Serbia.

This relationship to the automotive industry also runs deep in other countries that once belonged to Yugoslavia. Total investment from a number of automotive industries in the Former Yugoslav Republic of (FYR) Macedonia are estimated at €235 million (more than 5 percent of all foreign investment there), resulting in an estimated 15,000 new jobs since 2011. Automotive exports there totaled €1.7 billion in 2015 - 20 percent of GDP.

Volkswagen operates a factory in Sarajevo, in Bosnia and Herzegovina, which used to be famous for its Golf 2 model but now produces specialized electric vehicles and car parts. In addition there are two factories in Banja Luka and Mostar that produce buses. German, Italian, and Slovene companies complement a host of local firms that produce seat covers, leather upholstery, brakes, exhaust, and other parts – as well as components for construction and farm vehicles.

And the story does not stop here. There are many new investors working across the region. In Serbia alone, there will be three more factories in automotive industry by the end of the year expected to open a couple of thousands of new jobs. These investments and exports have now unseated consumption as the primary drivers of growth in the region - helping to place these countries on the path toward more sustainable growth.

And while this rebalancing is a combination of many multiple factors, the influence of the automotive sector cannot be discounted. With this sector now firing on all cylinders, it has become a cornerstone for economic growth and jobs creation across the region.

Few could have predicted this rise out of the ashes left by an industry made most famous by the Yugo - especially anyone who actually drove one!