Thu, Oct 11, 2001 page24

• Free market's auto line carries hard choices

  PARE BACK OR PERISH Employees at Serbia's state-run car production plant were recently given a harsh lesson in economics -- either cut headcount or perish. The workers chose survival

  • NY TIMES NEWS SERVICE
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  After years of false promises that a foreign investor would rescue them and that production would climb from its dismal lows, workers at the state-owned Zastava car assembly plant were given a harsh choice: accept a plan that would cut two-thirds of the work force, or go belly up.

  "The reaction was not pleasant," said Branimir Soldatovic, deputy general manager.

  But seeing that the choice was really no choice at all, the workers accepted the plan this summer and their factory became an urgent test of how Yugoslavia might reform its economy.

  

  Zastava, which once employed almost 30,000 workers, was once the largest car manufacturer in the Balkans. The firm recently fired two-thirds of its workforce in order to survive. Remaining employees work the line in Kragujevac, Serbia.

  PHOTO: NY TIMES

  The economy today is in tatters after a decade of corruption, mismanagement, lost wars and isolation under Slobodan Milosevic, the former leader who now sits in a jail cell in The Hague, Netherlands, awaiting a trial for war crimes.

  The sanctions that countries had imposed to punish Milosevic have been lifted, and international aid is starting to trickle in, but the task of weaning state-owned enterprises off the subsidies that have bled the government is monumental. If Zastava is anything to go by, the pain ahead is enormous.

  With almost 30,000 workers employed at one time in its various loss-making companies, Zastava was once the flagship of the former socialist state and largest carmaker in the Balkans.

  But for the reformist government that replaced Milosevic early this year, it represented a decrepit dinosaur. Aleksandar Vlahovic, minister for economics and privatization behind the plan of massive layoffs and restructuring at Zastava, says officials at the World Bank advised him to wait a while before tackling such a difficult case.

  "We tried to sharpen our teeth on this one," said Vlahovic, a Western-trained corporate financier. "We guessed if we failed on Zastava we would fail in the rest of the country. Every country has one, Poland had the Gdansk shipyards, and so on."

  The job has not been easy, and workers long used to being sheltered by the Socialist state have not accepted the loss of their jobs without resistance, staging violent strikes through the summer.

  "It was a social bomb," Vlahovic said of the company and the town. "The former regime had been ready to fulfill any demand to keep the workers quiet."

  Finally, the government persuaded the workers to nominate leaders for talks and emerged, after seven days of negotiations in June, with a plan -- cost-cutting, an elimination of subsidies, fresh government investment and extensive layoffs.

  When they put their plan to a referendum, 96 percent of the work force voted for it, even though it would put nearly 14,000 people out of work, including 8,000 of the car plant's 12,000 workers.

  "Basically, we touched the bottom and it was obvious we could not go down any further," said Soldatovic, the deputy general manager. "It was very difficult to explain to people, but somewhere in their consciousness there were some doubts and when we started revealing the truth, many taboos fell."

  Soldatovic, who has worked with the company for 35 years, says he has spent hours explaining the harsh new realities, even daring to tell the workers that there was no future for the small, boxy Yugo cars they made, since no matter how cheap they were, no one outside Serbia wanted to buy them.

  Today, several months into a wrenching overhaul, that is not entirely true. Zastava is now producing 500 to 600 cars a month, all of which are selling, Vlahovic said, adding that the main goal is to attract a foreign investor.

  The plan is to produce 11,000 cars in the next 12 months, Soldatovic said, but he added that the company would need government assistance for about five more years. Still, on the factory floor the workers remain caustic in their opinion of the management and government, and the benefits of the restructuring have so far been slow to reveal themselves.

  "We had two options in the referendum: 'Do you want the government program or bankruptcy?' It was blackmail," said Milenko Djordjevic, 45. "We trusted them, but you see there are no changes."

  Nebojsa Dikanovic, 44, a trained mechanical engineer with 17 years experience working at Zastava, was one of those laid off. "Our debts for electricity are already big, so in the winter we will be in the dark and cold," he said, sitting at home in his living room with his wife, Jasminka, who lost her job five years ago.

  "Seventy percent of families in Kragujevac have the same problem, and I am panicking because of that," he added. "If I was the only one, I could find some work, but when everyone is in that situation ..."

  Soldatovic emphasized that however drastic the government's measures, those who have been laid off have been offered one of three options: to take a severance package, to sign on with the unemployment agency, or to join a retraining scheme for four years on a little less than half pay.

  And Vlahovic insisted things look better on paper. "The entire international environment carefully watched us on this," he said. As a measure of their approval, the European Bank for Reconstruction and Development was now offering to help on the program for Zastava, he said.

  "Zastava became an example, I hope, of tomorrow's successful restructuring of the whole country," he said.

  Some people, like Dikanovic, the engineer, are still waiting to see. "The former government made Kragujevac a city of hungry people, and the current government has not made a single step to change that image," he said.
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